Redstone Government Consulting Blog | Government Regulations (11)

Comparison to FAR

Like CAS 401, CAS 402 is part of modified CAS coverage and is one of the first CAS standards a company encounters. It likely will not call for any changes to the company’s cost accounting system because Federal Acquisition Regulations (FAR) 31.202 (Direct costs) and 31.203 (Indirect costs) give us words very similar to the CAS words.

FAR 36.203, Government estimate of construction costs, and FAR 36.605, Government cost estimate for architect-engineer work, require the development of an independent Government estimate of the cost of construction costs and architect-engineer services when the value is expected to exceed the simplified acquisition threshold ($250,000). The estimate shall be prepared in as much detail as though the Government were competing for award or on the basis of a detailed analysis of the required work as though the Government were submitting a proposal. Access to the Government estimate is limited to Government personnel unless during negotiations the contracting officer identifies a specialized task and discloser is deemed necessary to arrive at a fair and reasonable price.

Organizations receiving Federal awards (i.e., grants or cooperative agreements) are required by 2 CFR 200.303(a) to “[e]stablish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award.” This section goes on to provide that the internal controls should comply with the guidance in:

As the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) season ramps up we have noticed a trend when it comes to award of SBIRs and Small Business Technology Transfer (STTRs) to small businesses in regard to cost analysis as part of Phase 1 awards, as well as dealing with the administration associated with a Phase 2 cost-reimbursable awards. A significant part of the SBIR process is to educate small businesses on the process and controls required to do businesses with the U.S. Government. The cost-reimbursable nature of phase 2 awards inevitably means that small businesses will have the opportunity to undergo accounting system adequacy determination, develop provisional billing rates, and undergo incurred cost submission review or audit. These are key barriers to entry to many businesses seeking to work with the U.S. Government and the pursuit of SBIR/STTR work not only provided necessary funding for small business research and development (R&D), but also an avenue to clear necessary hurdles when it comes to the back-office compliance. At least that was the case historically.

DoD issued a Final Rule (DFARS Case 2021-D001) amending the DFARS to expand Contracts Eligible for Quick Closeout. The final rule is effective March 1, 2023. We believe there will be an increase in the number of DCMA requests to apply the quick closeout procedures to contracts with less than $2 million of unsettled direct and indirect cost, or if it is in the best interest of the government regardless of the dollar amount of the contract or unsettled costs. Seeing as DCAA questions less than 1% of the incurred cost it does get around to auditing. It would be in DoD’s best interest to close all completed contracts. One can only hope.

Many new government contractors are frustrated by being told they have a CAS 401 noncompliance, especially if they are not CAS covered. This is, of course, wrong terminology for non-CAS covered contractors, but is shorthand for saying the company is not estimating, accumulating, and reporting costs the same way. This is most frequently a difference between how a company estimates cost and then how the company accumulates and reports costs. This is not only important to the government, but to the company itself. A contractor cannot determine whether it is losing money on a contract if there is no way to compare what was bid to what was incurred. This is likely one of the first CAS standards a company encounters because even modified coverage calls this standard into play.

Organizations that have federal awards, whether that be grants, cooperative agreements or contracts, must comply with specific cost accounting regulations. Unfortunately, depending on the type of federal award, the regulations may not be the same. Both, both Grants or Cooperative Agreements awarded under 2 Code of Federal Regulations (CFR) 200 and Contracts awarded under 48 CFR Federal Acquisition Regulations (FAR) provide requirements for cost allowability, allocability, and reasonableness as well as the required cost accounting treatment for all cost:

Oftentimes when supporting the production of cost volumes and pricing exercises for clients, we’re given a basis of estimate (BOE) that has been written by someone on the technical team. Even being a group of accounting and compliance professionals who know little in areas such as cyber, engineering, or other technical areas of the scope of work, we’re left scratching our heads. This usually leads to several back-and-forth discussions centered around gleaning enough information from the technical team to pass the proverbial government “sniff test”.

The Office of Management and Budget (OMB) issued a proposed rule to add a new Part 184 in 2 CFR Chapter I and revisions to 2 CFR 200.322 Domestic preferences for procurements on Build America/Buy America Act for Grants and Agreements. The revision will address the Buy American Preference for awards with infrastructure expenditures. Comments to the proposed rule are due March 13, 2023.

On January 5, 2023, the Federal Trade Commission (FTC) voted 3-1 on proposed regulations that, if upheld, would ban employers from imposing non-competition agreements on their employees. Relying on Section 5 of the FTC Act, the FTC concluded that “non-compete clauses reduce competition in labor markets, suppressing earnings and opportunity even for workers who are not directly subject to a non-compete.” Commissioner Wilson dissented, stating that the FTC lacks the authority to engage in rulemaking, particularly with consequences of this significance.