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:
- 2 CFR 200 Subpart E – Cost Principles
- FAR Part 31 – Contract Cost Principles and Procedures
The Big Question – Which Regulation Applies to You?
If an organization has awards under both regulations, does it have to maintain two different cost accounting structures/systems? The answer is “NO.” Both Federal regulations specifically require that the organization maintain one and only one cost accounting structure/system. To convince you, we have addressed both regulations below. We address the FAR first as it is much more straight forward.
Federal Acquisition Regulations (FAR)
FAR 31.1, Applicability, recognizes the differing organizational characteristics related to the cost principles and procedures used by different organizational types (e.g., commercial concerns and educational institutions). The objective is to apply a single set of cost principles and procedures to similar organizations. To support this objective FAR 31 is broken out as follows:
- FAR 31.103, Contracts with commercial organizations (i.e., for-profit companies), provides that the cost principles and procedures in FAR subpart 31.2 and agency supplements shall be used in pricing and cost reimbursement of contracts with commercial organizations.
- FAR 31.104 and 31.3, Contracts with educational institutions (i.e., institutions of higher education), provides that the cost principles and procedures in OMB Uniform Guidance at 2 CFR part 200, subpart E and appendix III shall be used in pricing and cost reimbursement of FAR based contracts with educational institutions.
- FAR 31.107 and 31.6, Contracts with State, local, and federally recognized Indian tribal governments, provides that the cost principles and procedures in OMB Uniform Guidance at 2 CFR part 200, subpart E and appendices V and VII shall be used in pricing and cost reimbursement of FAR based contracts with State, local, and federally recognized Indian tribal governments.
- FAR 31.108 and 31.7, Contracts with nonprofit organizations, provides that the cost principles and procedures in OMB Uniform Guidance at 2 CFR part 200, subpart E and appendix IV shall be used in pricing and cost reimbursement of FAR based contracts with nonprofit organizations.
Appendix VIII to 2 CFR 200 – Nonprofit Organizations Exempted From Subpart E of Part 200, lists some 30 Nonprofit Organization that have elected to use the cost principles and procedures in FAR, even though they could play under 2 CFR 200. It also allows other nonprofit organizations to negotiate this election directly with Federal awarding agencies.
When it comes to the FAR it should be clear to contracting officers and higher-tier contractors issuing subcontracts as to which cost principles and procedures to use based on the type of organization.
2 CFR 200
2 CFR 200.100(c) provides that Subpart E – Cost Principles establishes cost principles and procedures for determining the allowable costs incurred by non-Federal entities[1] under Federal awards. 2 CFR 200.414(e) sets forth the requirements for development and submission of indirect Facilities and Administration (F&A) cost rate proposals[2] and cost allocation plans in Appendices III-VII and Appendix IX as follows:
- Appendix III to Part 200 – Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Institutions of Higher Education (IHEs).
- Appendix IV to Part 200 - Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Nonprofit Organizations.
- Appendix VII to Part 200 - States and Local Government and Indian Tribe Indirect Cost Proposals.
2 CFR 200 does a good job of clarifying that the cost principles and procedures for non-Federal entities are established based on Subpart E – Cost Principles and the applicable appendix. The problem arises when a commercial, for-profit company is engaged to support a grant or cooperative agreement.
2 CFR 200.101, Applicability, (a)(2) provides that subparts A through E of 2 CFR 200 may be applied to for-profit entities. 2 CFR 200.101(c) when discussing a Federal award of cost-reimbursement contract under the FAR to a non-Federal entity states that “the requirements of subparts D, E, and F are supplementary to the FAR and the contract.” This section goes on to provide that costs made unallowable under FAR 48 CFR part 31 are always unallowable. This section ends with the statement: “Note that when a non-Federal entity is awarded a FAR contract, the FAR applies, and the terms and conditions of the contract shall prevail over the requirements of this part.” In subpart F, Audit Requirements, 2 CFR 200.503(c) provides that the provisions related to 2 CFR 200 audit requirements do not limit the conduct of audits required by the FAR. Additionally, 2 CFR 200.509, Auditor selection, (a) refers to applying the requirements set forth in FAR part 42, Contract Administration and Audit Services.
While nowhere in 2 CFR 200 is a clear statement made, we believe the logical path laid out by the references to FAR within 2 CFR 200 lead us to the reasoned assumption that a commercial for-profit company awarded a grant or cooperative agreement under 2 CFR 200 should apply the FAR subpart 31.2 cost principles and procedures.
So How Can Redstone Help
Redstone can assistance organizations with federal contracts, grants and cooperative agreements to ensure compliance with FAR Part 31 or 2 CFR 200 Subpart E – Cost Principles by:
- Helping with your understanding of the FAR or 2 CFR 200 Cost Principles.
- Assist in responding to audit findings.
- Developing cost accounting practices.
- Providing training to your staff on the cost principles.
- Developing and supporting corrective action plans related to audit findings.
Redstone GCI is available to assist contractor’s in developing accounting policies and procedures, checklists, accounting support, and reviews of invoices, government reports for compliance with 2 CFR 200. Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations in applying the 2 CFR 200 Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Grants.
[1] 2 CFR 200.1 “Non Federal entity (NFE)” means a State, local government, Indian tribe, Institution of Higher Education (IHE), or nonprofit organization that carries out a Federal award as a recipient or subrecipient.
[2] 2 CFR 200.1 “Indirect cost rate proposal” means the documentation prepared by a non-Federal entity to substantiate its request for the establishment of an indirect cost rate as described in appendices III through VII and appendix IX to this part.
John is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to the DFARS business systems, CAS Disclosure Statements, and DCAA/DCMA compliance preparation, advisory, and defense. Prior to joining Redstone Government Consulting, John served in a number of capacities with DCAA/DCMA for more than 30 years. Upon his retirement, he was based in Texas as an SES-level Corporate Audit Director for DCAA, managing a staff of 300 auditors at one of the largest DOD programs. Professional Experience John began his career in the late 80s working in the Clearwater, FL audit office and over the next three decades he progressed through a number of positions within both DCAA and DCMA with career highlights as DCAA Program Manager at Ft. Belvoir, Chief of Technical Programs Division, Deputy Assistant Director-Policy, Director of the DCMA Cost and Pricing Center, the SES-level Lockheed Martin Corporate Audit Director, and Director of Integrity and Quality Assurance. John’s three decades of experience in performing and leading DCAA auditors and DCMA reviewers provides a wealth of expertise to our clients. John’s role, not only in the performance of audits, but also in the development of audit policy affords him unique insights into the defense of audit findings and the linkage of audit program steps to the underlying regulatory framework. He is an expert in FAR, DFARS, and other agency acquisition regulation, as well as a subject matter expert in the Cost Accounting Standards having reviewed and provided audit feedback on many of the largest and most complex cost accounting practices during his tenure with the DCAA. John’s tenure with DCAA and DCMA came at a critical time during each agency’s history where a number of changes were occurring such as the response to the ICS backlog, development of audit approaches to the DFARS Business Systems and implementation of new audit initiatives as a result of Congressional oversight through the NDAA process. John’s leadership at the DCMA Cost & Pricing center saw oversight of all major DOD pricing actions, leadership of should cost review teams, the Commercial Pricing group and many other areas of strategic value to our clients. His involvement in these and other Agency initiatives is of great value to our clients due to his in depth understanding of DCAA and DCMA’s internal policy directives. Education John holds a Master of Business Administration and a B.A. in Accounting from the University of South Florida. Certifications Certified Information Systems Auditor State of Alabama Certified Public Accountant