XL EagleDCAA (Defense Contract Audit Agency)
DCAA stands for Defense Contract Audit Agency. The Defense Contract Audit Agency (DCAA) is the Department of Defense office that audits contractors. It reviews accounting systems, proposed prices, and the costs contractors bill to the government.
DCAA mainly works on cost-reimbursement contracts and larger negotiated deals where the government needs to verify costs. Its auditors give advice to contracting officers, who make the final decisions.
Why it matters to a small contractor
Most small firms on firm-fixed-price contracts never see a DCAA auditor. It starts to matter if you go after cost-type contracts or large negotiated work, where you need an accounting system that separates direct and indirect costs and tracks hours by contract. Knowing this early helps you decide whether to bid as a prime or as a subcontractor.
Example
A growing HVAC firm considers bidding on a cost-plus maintenance contract. It learns the work would require a DCAA-adequate accounting system and decides to team as a fixed-price subcontractor instead.
DCAA: common questions
Do small businesses get DCAA audits?
Only in some cases, usually on cost-reimbursement contracts or larger proposals that require cost data. A small fixed-price contract normally does not trigger a DCAA audit.
What is a DCAA-compliant accounting system?
It is a system that tracks costs by contract, separates allowable from unallowable costs, and records employee time accurately. Contractors often use software set up for government cost accounting.
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