Policies and procedures are the operating system of every government contractor. When kept current, they provide guardrails that help ensure compliance, reduce risk, and strengthen audit readiness. When neglected, they have the opposite effect, introducing confusion, undermining governance, and exposing the organization to financial, reputational, and operational risks. Too often, policies are treated as a “check the box” exercise written once, filed away, and pulled out only when auditors appear; when in reality, they are living documents that must evolve with the organization.

Beyond documentation: Clarity and consistency

A common pitfall is inconsistency. What one team calls a “policy,” another may label a “standard,” creating conflicting guidance, shifting language (“must” vs. “should”), and eroding trust in the framework. Clear, consistent definitions are the foundation of governance. Policies and procedures must be universally understood and free of ambiguity. It is also critical to distinguish statutory guidance from non-statutory guidance. Without this clarity, employees may follow processes efficiently yet still undermine strategic objectives.

Aligning risk, controls, and strategy

Policies and procedures translate risk appetite into operational controls and provide the baseline for audits. To remain effective, they must be recalibrated as strategies evolve. If sustainability becomes a priority, procurement policies must adapt. If innovation speed is the goal, product approvals must accelerate. Misalignment between policy intent and business objectives creates breakdowns – often visible only after the damage is done.

The policy life cycle: Diagnose, refresh, maintain, align

Keeping policies fresh is not a one-time event. It requires a disciplined cycle:

• Diagnose: Inventory existing policies to identify gaps or outdated guidance.
• Refresh: Revise content to be concise, usable, and aligned with current risk and regulatory expectations.
• Maintain: Build regular reviews into compliance calendars to ensure accountability across first- and second-line owners.
• Align: Tie policies directly to business objectives; if no link exists, retire or rewrite them.

This cycle only works when ownership is clear, integration with corporate strategy is explicit, and metrics exist to measure effectiveness.

The regulatory guardrails

For government contractors, policies must reflect and align with key regulatory frameworks:

• FAR (Federal Acquisition Regulation): The government’s playbook for procurement, forming the baseline for allowability, fairness, and transparency.
• CAS (Cost Accounting Standards): Nineteen standards ensuring consistency in cost accounting practices, particularly as contractors grow into larger, more complex scopes.
• Generally Accepted Accounting Principles (GAAP): The underpinning of financial reporting; consistency with accrual-based practices is critical for system reviews.

Together, these frameworks set the expectations contractors must embed in their systems and day-to-day processes.

Critical policy areas for GovCons

Timekeeping

Policies must clearly define who records time, how it is approved, and how corrections are handled. Documentation must align with FAR Part 31 and withstand audit scrutiny.

Job cost accounting and reporting

Accurate accumulation and reporting of costs at the contract level is non-negotiable.  Policies must ensure reconciliation from the general ledger to project-level data.

Allowable vs. unallowable costs

FAR Part 31 clearly distinguishes allowable vs. unallowable costs. Policies should include tables of examples, system coding requirements, and dual layers of oversight (system and manual). Training and awareness complete the defense. Staff must understand the procedures, as well as the written policy.

Common findings and audit risk

More common government audit findings frequently expose weaknesses in policy development, insufficient documentation, and lapses in review and approval processes. The most common issues involve inadequate controls over timekeeping, job costing, and the identification of unallowable costs, highlighting the need for comprehensive policies that enforce monitoring, approvals, and compliance.

Sustaining readiness

The goal is straightforward: policies and procedures that remain current, ensure audit readiness, and align with FAR, CAS, and contract terms. To achieve this, contractors should:

• Establish clear, written policies and procedures that are consistently applied
• Maintain version control and refresh it regularly (at least annually)
• Train staff in compliance and best practices
• Eliminate vague or inconsistent documentation

When treated as dynamic tools rather than static binders, policies strengthen compliance, withstand scrutiny, and keep organizations positioned to meet regulatory goals with confidence.