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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: March 7, 2001

SUBJECT: Department of Defense; Public Meetings on Streamlining Cost Measurement, Assignment, and Allocation

SOURCE: Federal Register, March 7, 2001, Vol. 66, No. 45, page 13712

AGENCIES: Department of Defense (DOD)

ACTION: Notice of Public Meeting

SYNOPSIS: Director of Defense Procurement Deidre Lee is sponsoring a public meeting to discuss potential opportunities to streamline the provisions of Federal Acquisition Regulation (FAR) Part 31, Contract Cost Principles and Procedures, concerning cost measurement, assignment, and allocation. The Director of Defense Procurement would like to hear the views of interested parties on what they believe are potential areas for streamlining in light of the evolution of generally accepted accounting principles (GAAP), the advent of acquisition reform, and experience gained from implementation.

EDITOR'S NOTE: The Cost Accounting Standards (CAS) are available on the Internet at http://www.arnet.gov/far/97/html/appendix.html.

DATES: The first meeting will be held on April 19, 2001, from 10:00 a.m. until 1:00 p.m. Upon identification of the key areas, subsequent public meetings will be held to hear views of interested parties regarding specific recommendations. The dates and times of those meetings will be published on the Internet home page of the Office of Cost, Pricing, and Finance at http://www.acq.osd.mil/dp/cpf.

ADDRESSES: The meeting will be held in the Auditorium at the General Services Administration, 18th and F Streets, NW, Washington, DC. Directions may be found at http://www.acq.osd.mil/dp/cpf.

FOR FURTHER INFORMATION CONTACT: Mr. David Capitano, Office of Cost, Pricing, and Finance, 703-695-9764, fax: 703-693-9616, e-mail: dcapitano@osd.mil.

SUPPLEMENTAL INFORMATION: A listing of some possible streamlining areas is published at http://www.acq.osd.mil/dp/cpf. The following is a summary of the "strawman," which is "not intended to express any specific position on any particular issue, [but] to stimulate a dialogue..."

• FAR 31.201-4, Determining Allocability: Should the current allocability criteria be revised? Currently, this states that a cost is allocable to a government contract if it (1) is incurred specifically for the contract; (b) benefits both the contract and other work, and can be distributed to them in reasonable proportion to the benefits received; or (c) is necessary to the overall operation of the business, although a direct relation to any particular cost objective cannot be shown. Is there a viable alternative that provides adequate criteria without imposing significant administrative burdens?
  
  
• FAR 31.201-6, Accounting for Unallowable Costs: Should this provision be revised to clearly permit sampling for unallowable costs when certain criteria are met? For example, sampling could be permitted when the cognizant federal agency official (CFAO) and the contractor (a) agree on a sampling plan (for example, the type of sampling, confidence levels, and number of items), and (b) agree that the results of that sample will be projected to determine the amount of unallowable costs for the year.
  
  
• Paragraph (e) of FAR 31.203, Indirect Costs: Should this provision, which addresses accounting periods, be revised to state that an accounting period longer than one year may be used when a transitional cost accounting period is required? The current provision allows for a period shorter than one year, but there is no language addressing the use of a longer period.
  
  
• FAR 31.205-6, Compensation for Personal Services:
  
  
  • Paragraph (j), Pension Costs:
    
    
    • Deferred compensation costs incurred under a plan that includes a payable for life stipulation are currently covered by CAS 412, Composition and Measurement of Pension Cost, and CAS 413, Adjustment and Allocation of Pension Cost. All other deferred compensation costs are covered by CAS 415, Accounting for the Cost of Deferred Compensation. Should this payable for life distinction be revised or eliminated? Is a distinction necessary? Should the distinction be based on the definition of a pension plan in the Internal Revenue Code?
      
      
    • Should this provision be revised to measure and assign pension costs in accordance with GAAP rather than CAS 412 and CAS 413?
      
      
    • If GAAP is used, are any additional requirements necessary? Should a funding requirement be added and, if so, should such a requirement be applied to all plans or only to nonqualified plans? Should the six requirements for accrual in CAS 415 be applied as an alternative to a funding requirement?
      
      
    • If GAAP is not used, should the provision adopt CAS 412 and CAS 413 with exceptions? Should contractors be permitted to amortize gains and losses over the period required by GAAP rather than CAS? Should an exception be granted for paragraph (c) of CAS 412-50, Techniques for Application, and paragraph (c) of CAS 413-40, Fundamental Requirement, to eliminate the current requirement that the amount of pension cost that can be allocated to segments cannot exceed the maximum tax-deductible amount computed for the plan as a whole? Should an exception be granted to provide the CFAO flexibility when the Pension Benefit Guaranty Corporation requires that more or less assets be transferred to the buyer of a segment than is permitted by CAS 413? Should there be a revision or elimination of the provision in paragraph (c)(12)(iv) of CAS 413-50, Techniques for Application, that requires prorating pension plan improvements made within 60 months of segment closing?
      
      
    • Are the general allocation provisions in FAR adequate for allocating pension costs, or should some or all of the allocation provisions in CAS 412 and CAS 413 be applied?
      
      
    • Is there an alternative approach to the segment closing provision in CAS 413-50(c)(12)?
    
    
  • Paragraph (k), Deferred Compensation:
    
    
    • Should GAAP be applied in place of CAS 415? If so, are any additional requirements needed?
      
      
    • Should CAS 415 be applied but with some exceptions? Should irrevocable contributions be measured based on the amount contributed regardless of whether the employee receives the payment in cash (paragraph (d) of CAS 415-50, Techniques of Application) or stock (CAS 415-50(e))?
    
    
  • Paragraph (o), Postretirement Benefits Other than Pensions: Should funding be a requirement for contractors that accrue postretirement benefit costs for government contract purposes? If not, is there a viable alternative that balances the need of the government to validate the liability with the need of the contractor to maintain the flexibility to control costs?

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

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