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Barry McVay's FEDERAL CONTRACTS DISPATCH

DATE: April 18, 2000

FROM: Barry McVay, CPCM

SUBJECT: Federal Acquisition Regulation (FAR); Cost Accounting Standards Administration

SOURCE: Federal Register, April 18, 2000, Vol. 65, No. 75, page 20853

AGENCIES: Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA)

ACTION: Proposed Rule

SYNOPSIS: It is proposed that the FAR (particularly FAR Subpart 30.6, CAS Administration) be revised to delineate the process for determining and resolving the cost impact on contracts and subcontracts when a contractor makes a compliant change to a cost accounting practice or follows a noncompliant practice.

EDITOR'S NOTE: The Cost Accounting Standards (CAS) are 19 standards which apply to large contractors performing large contracts. The CAS are in Chapter 99 of Title 48 of the Code of Federal Regulations (CFR).

The Cost Accounting Standards Board (CASB) has been working since 1995 on a rule that would address what happens when a contractor makes a voluntary change to its cost accounting practices, fails to comply with a CAS, or fails to consistently follow its established cost accounting practices (the most recent round of comments on the proposed rule was published on August 20, 1999). Among the big issues are what constitutes a "voluntary change", what does "fails to comply" mean, and what does "fails to consistently follow" mean. This proposed rule is not directly related to the CASB proposed rule. This proposed rule addresses the government's administrative process for making contract price and cost adjustments when a CAS-covered contractor changes a cost accounting practice or fails to comply with its disclosed cost accounting practices.

In a somewhat related action, the CASB did revise the applicability, thresholds, and procedures for the application of the CAS recently. For more on those changes, see the February 7, 2000, FEDERAL CONTRACTS DISPATCH "Cost Accounting Standards Board (CASB); Applicability, Thresholds and Waiver of Cost Accounting Standards Coverage."

DATES: Submit comments no later than June 19, 2000.

ADDRESSES: Submit comments General Services Administration, FAR Secretariat (MVRS), 1800 F Street, NW, Room 4035, ATTN: Laurie Duarte, Washington, DC 20405, or by e-mail to farcase.1999-025@gsa.gov. Cite FAR case 1999-025 in all correspondence related to this proposed rule.

FOR FURTHER INFORMATION CONTACT: Mr. Jeremy Olson, 202-501-0692.

SUPPLEMENTAL INFORMATION: FAR Part 30, Cost Accounting Standards Administration, describes policies and procedures for applying the CASB rules and regulations to negotiated contracts and subcontracts that are not exempted by 48 CFR 9903.201-1, CAS Applicability (such as contracts awarded to small businesses, contracts for commercial items, competitive firm-fixed-price contracts awarded without cost or pricing data).

The CASB has found that the government does not implement in a uniform manner the administrative process for making contract price and cost adjustments resulting from contractor changes in a cost accounting practice, and that the procedures and processes are not widely understood or adequately documented.

This proposed rule would explain the cost-impact process that the government and contractor must follow when a contractor makes a compliant change to a cost accounting practice or follows a noncompliant practice. The rule should make the process easier to understand and reduce the administrative effort expended to resolve individual cases.

Among the most significant changes this proposed rule would make to the FAR are:

• It would add FAR 30.001, Definition, which would provide a definition of "cognizant Federal agency official" (CFAO) as "the contracting officer assigned by the cognizant federal agency to administer the Cost Accounting Standards." Throughout FAR Subpart 30.6, the abbreviation "ACO" (for "administrative contracting officer") would be replaced by "CFAO". Basically, the CFAO would make determinations for all CAS-covered contracts and subcontracts, including:



• Whether the contractor's Disclosure Statement adequately describes its cost accounting practices (proposed change to FAR 30.202-7, Determinations);



• Whether a change in cost accounting practice or a noncompliance has occurred (proposed change to FAR 30.601, Responsibility); and



• If a change in cost accounting practice or a noncompliance has occurred, how any resulting cost impacts are resolved (proposed change to FAR 30.601).


• FAR 30.602, Materiality, would be added. It would state that the CFAO is to withhold amounts payable for CAS noncompliances, new standards, or voluntary changes only if the amounts are "material" according with the criteria in 48 CFR 9903.305, Materiality.



• Current FAR 30.602, Changes to Disclosed or Established Cost Accounting Practices, would be redesignated as FAR 30.603, and current FAR 30.602-1, Equitable Adjustments for New and Modified Standards, and FAR 30.602-2, Noncompliance with CAS Requirements, would be removed. Current FAR 30.602-1(a) and (b)(1) would constitute the bulk of proposed FAR 30.603-1, Mandatory Changes Required to Comply with New or Modified Standards, and current FAR 30.602-3, Voluntary Changes, would be redesignated as FAR 30.603-2. Current FAR 30.603, Subcontract Administration, would be redesignated as FAR 30.607.



• FAR 30.604, Processing Changes to Disclosed or Established Cost Accounting Practices, would be added. It would provide a streamlined, three-step sequential process that would include:
  
  
  • An initial evaluation by the CFAO to determine materiality of the changes;
    
    
  • If the cost is determined to be "material" by the CFAO, the contractor would be requested to submit a "general dollar magnitude (GDM)" proposal, in which the contractor provides the minimum data needed to resolve the cost impact.
    
    
  • If the CFAO determines that the GDM proposal cannot be adequately supported or does not contain sufficient data to resolve the cost impact, the contractor would be requested to submit a "detailed cost-impact (DCI)" proposal.
  
  In addition, FAR 30.604 would encourage the CFAO to "use the contractor's GDM proposal to the maximum extent possible to negotiate and resolve the cost impact"; would require the CFAO to invite all contracting officers to participate in negotiations when the cost or price of any of their contracts may be increased or decreased by at least $100,000 (the current amount is $10,000 (see current FAR 30.602-1(c)); and require the CFAO to execute all contract modifications concurrently.
  
  
• FAR 30.605, Noncompliance with CAS Requirements, would be added. Basically, it follows the same procedures established in FAR 30.604 after a cost impact has been determined by the CFAO as "material" or "immaterial."



• FAR 30.606, Resolving Cost Impacts, would authorize the CFAO to resolve a cost impact by "adjusting a single contract, several but not all contracts, all contracts, or any other suitable method" provided the method "approximates the amount, in the aggregate, that would have resulted if individual contracts had been adjusted," and "the government will not pay more, in the aggregate, than would be paid if the CFAO did not use the alternate method..."



• FAR 52.230-6, Administration of Cost Accounting Standards, would be revised to incorporate the procedures in FAR 30.604 and FAR 30.605 that the government and the contractor must follow for voluntary changes to disclosed or established cost accounting practices, mandatory changes required to comply with new or modified standards, and noncompliances with CAS.

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

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