Let’s Set the Stage
So as a contractor you have received several cost-based contracts (i.e., subject to FAR Part 31), however they have all been less than $7.5M. You are flying under the Cost Accounting Standards (CAS) radar. You get a $9M cost-based contract that does not meet any of the exceptions to CAS covered listed at 9903.201-1(b) – categories of contracts and subcontracts exempt from all CAS requirements. The dreaded “trigger contract.”
What Shall We Do?
You bring together your best and brightest, even a consultant or two. You set this team to getting your cost allocations into compliance with CAS 401, CAS 402, CAS 405, and CAS 406 (i.e., Modified CAS Coverage). No easy job, right.
Wait a Minute
Let’s take a closer look at these four CAS standards.
Consistency in estimating, accumulating, and reporting costs, requires that the cost accounting practices used to develop estimates (i.e., your cost proposals to the Government) be consistent with the cost accounting practice used to accumulate and report cost with your accounting system. While FAR Part 31 does not clearly spell-out a similar requirement. FAR Part 15 (i.e., Table 15-2) set a clear expectation that estimate can be tracked back to known data in your cost accounting system. The DFARS Cost Proposal Checklist requires that you explain “whether the proposal is consistent with established estimating and accounting principles and procedures and FAR Part 31, Cost Principles, and, if not,” you are required to provide an explanation. Clearly the Government expects consistency.
Learn more about CAS 401
Consistency in allocating costs incurred for the same purpose, requires that each type of cost be allocated only once and on only one basis to any contract or other cost objective. FAR 31.202, Direct costs, and FAR 31.203, Indirect costs, uses slightly different wording to require the exact same requirement.
Learn more about CAS 402
Accounting for unallowable costs, already required by FAR 31.201-6(c)(1) which states: “The practices for accounting for and presentation of unallowable costs must be those described in 48 CFR 9904.405, Accounting for Unallowable Costs.” (Emphasis Added)
Cost Accounting Period, requires that a contractor use its fiscal year as its cost accounting period, in most cases. FAR 31.203, Indirect costs, has the same basis requirement.
So as far as your cost accounting practices go a trigger contract requiring modified CAS coverage does not significantly change the rules of the Government Contracting game you have already been playing for your cost-based contracts with the Federal Government.
So, what is the big new CAS requirement?
You must ask, “mother may I,” 60 days in advance of making any change to your cost accounting practices and you get to pay the Government back any increased cost the change may have created to Government contracts, with interest. Additionally, the Government simply takes any decrease cost – without even a thank you. Granted this process is not easy and getting Government resources to support you is not easy, it is really the only new requirement with Modified CAS coverage.
Redstone GCI is available to assist contractor’s in assessing their current cost accounting practices and being well position to handle any future or current CAS requirements. Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations in applying FAR Part 31, Cost Principles and Cost Accounting Standards.