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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: July 3, 2003

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

SOURCE: Federal Register, July 3, 2003, Vol. 68, No. 128, page 40105

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

ACTION: Proposed Rule

SYNOPSIS: It is proposed that FAR Part 30, Cost Accounting Standards 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).

For more on the earlier proposed rule, see the April 18, 2000, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR); Cost Accounting Standards Administration."

DATES: Comments should be submitted on or before September 2, 2003.

A public meeting will be held on August 5, 2003, at 9:00 a.m. to 5:00 p.m., EDST.

ADDRESSES: Submit written comments on proposed rule to General Services Administration, FAR Secretariat (MVA), 1800 F Street, NW, Room 4035, Attn: Laurie Duarte, Washington, DC 20405. Submit e-mail comments to: farcase.1999-025@gsa.gov. Cite "FAR case 1999-025" when referring to this proposed rule.

The public meeting will be held at Crystal Mall 3, 1931 Jefferson Davis Highway, Room C-43, Arlington, VA, 22202.

FOR FURTHER INFORMATION CONTACT: Edward Loeb, 202-501-0650.

SUPPLEMENTAL INFORMATION: FAR Part 30, Cost Accounting Standards Administration, describes policies and procedures for applying the CAS Board (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 felt, at least since 1995 when it began working on the subject, 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.

On April 18, 2000, a proposed FAR revision was published which attempted to clearly delineate the entire cost-impact process the government and the contractor must follow when a contractor makes a compliant change to a cost accounting practice or fails to comply with a CAS. Nine respondents submitted public comments, and additional comments were provided by the public at public meetings held on August 2, 2000, September 26, 2000, and October 17, 2000. As a result of the comments, this proposed rule has been drafted, and its primary focus is the complete revision of FAR Subpart 30.6, CAS Administration. This proposed rule differs significantly from the April 18, 2000, proposed rule.

The following are the contents of the proposed FAR Subpart 30.6:

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

• On June 14, 2000, the CASB published a final rule pertaining to actions the cognizant federal agency official (CFAO) can take when a contractor makes a compliant change to an established cost accounting practice or does not comply with applicable Cost Accounting Standards (CAS) (see the June 14, 2000, FEDERAL CONTRACTS DISPATCH "Cost Accounting Standards Board; Changes In Cost Accounting Practices"). Among the changes in the CASB final rule were: (1) an explanation of the actions the CFAO must take for "required," "unilateral," and "desired" changes (48 CFR 9903.201-6, Findings); and (2) the addition of language that cost accounting practice changes related to external restructuring are to be excluded from contract price and cost adjustments. This proposed rule would implement the CASB final rule by: (1) adding FAR 30.001, Definitions, which would include a definition for "CFAO" ("the contracting officer assigned by the cognizant federal agency to administer CAS"), and definitions for "desired," "required," and "unilateral" changes; (2) include procedures for contractors and CFAOs to take with these changes (FAR 30.603-1, Required Changes, FAR 30.603-2, Unilateral and Desirable Changes, and FAR 30.604, Processing Changes to Disclosed or Established Cost Accounting Practices); and (3) include language in FAR 30.603-2(e) that "the requirements for contract price and cost adjustments do not apply to compliant cost accounting practice changes that are directly associated with external restructuring activities..."
  
  
• 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 paragraph (a)(2) of FAR 30.202-7, Determinations);
    
    
  • Whether a change in cost accounting practice or a noncompliance has occurred (proposed FAR 30.601(a)(1)); and
    
    
  • If a change in cost accounting practice or a noncompliance has occurred, how any resulting cost impacts are resolved (proposed FAR 30.601(a)(2)).
  
  
• Proposed FAR Subpart 30.6 would provide a streamlined, three-step sequential process for the evaluation of changes that would include:
  
  
  • An initial evaluation by the CFAO to determine materiality of the changes (proposed FAR 30.603 would state that "adjustments to contracts and withholding amounts payable for CAS noncompliance, new standards, or voluntary changes are required only if the amounts involved are material");
    
    
  • 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; and
    
    
  • 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.
  
  EDITOR'S NOTE: Proposed paragraph (b)(1) of FAR 30.604 would require that a GDM be submitted for required and unilateral changes (except those that are desirable changes). Proposed paragraph (d) would state, "The GDM proposal (1) provides information to the CFAO on the estimated overall impact of a change in cost accounting practice on affected CAS-covered contracts and subcontracts that were awarded based on the previous cost accounting practice; and (2) assists the CFAO in determining whether individual contract price or cost adjustments are required. Paragraph (f) would require the submission of a detailed cost-impact (DCI) proposal "if the CFAO determines that the GDM proposal is not sufficient to resolve the cost impact." Paragraph (h) would provide instructions on calculating the cost impacts proposed changes for GDMs and DCIs.
  
  
• Paragraph (a)(2) of FAR 30.606 would permit the CFAO to "resolve a cost impact attributed to a change in cost accounting practice or a noncompliance by adjusting a single contract, several but not all contracts, all contracts, or any other suitable method." (EDITOR'S NOTE: The introductory material to the proposed rule states, "In an ideal world, the CFAO would adjust all contracts so that each and every dollar of the cost impact is perfectly re-allocated to each and every affected contract. However, the [Civilian Agency Acquisition and Defense Acquisition Regulations] Councils recognize that, in many instances, adjusting all contracts is not practical or feasible. The proposed rule, therefore, provides the CFAO the flexibility to resolve the cost impact using methods other than adjusting every contract, provided the Government will not pay more, in the aggregate, than would be paid if the CFAO had adjusted all the contracts."
  
  
• Paragraph (c)(6)(1) of proposed FAR 30.606 would require the CFAO to execute contract modifications in place of the administrative contracting officers at the agencies that awarded the contracts.
  
  
• FAR 52.230-6, Administration of Cost Accounting Standards, would be revised to reflect the changes in this proposed rule.
  
  
• FAR 52.230-7, Proposal Disclosure -- Cost Accounting Practice Changes, would be added to require a contractor to indicate if the contract award will result in a cost accounting practice change and, if so, to prepare a pricing proposal using the changed practice.

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

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