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Cost Accounting Standards (CAS) Compliance

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The Federal Acquisition Regulation (FAR) Part 30 describes the policies and procedures for applying the Cost Accounting Standards Board (CASB) rules and regulations under 48 CFR Chapter 99 to negotiated contracts and subcontracts.  The Cost Accounting Standards (CAS) establishes the CAS compliance requirements for U.S. Government contractors to properly account for costs allocated to certain U.S. Government contracts.  The applicability CAS varies based on the contracting methods, trigger contract and dollar thresholds. 

Further, Federal Acquisition Regulation Subpart 30.6 CAS Administration provides requirements for contractors and Contracting Officers to follow if any cost accounting practice changes need to be processed or resolve any CAS non-compliances. Additionally, understanding and meeting COA requirements can be essential for ensuring compliance with cost-related contractual obligations.

Understanding 48 CFR Chapter 99 CAS Requirements for Contractors

48 CFR Chapter 99, under Public Law 100–679 (41 U.S.C. 422), requires certain contractors and subcontractors to comply with CAS, disclose its cost accounting practices in writing, and consistently follow its disclosed cost accounting practices.

The individual standards set forth how direct and indirect costs should be accounted for related to measurement, assignment, and allocation of costs. This mitigates the risk of mischarging, misallocation, and provides the U.S. Government the ability to compare cost representations more consistently for all contractors.

Expert CAS Compliance Services for Government Contractors

Capital Edge Consulting specializes in helping companies achieve and maintain CAS compliance, a mandatory requirement for government contracts over a certain dollar amount. As experts in the field of CAS government contracting regulations, Capital Edge provides comprehensive guidance on how to interpret and implement Cost Accounting Standards (CAS) to ensure full compliance. Our services are essential for companies looking to navigate the complex landscape of government contracts, ensuring that their accounting practices and cost allocation methods meet the stringent CAS requirements.

By assisting firms in the preparation of CAS-compliant disclosure statements and the implementation of appropriate accounting systems, we ensure that their clients can withstand rigorous government audits and maintain eligibility for federal contracts. Our expert consultancy effectively safeguards companies from potential penalties due to non-compliance and enhances their reputation as reliable government contractors.

The 19 Cost Accounting Standards

There are 19 standards listed below that provide requirements for contractors to promote consistency and accuracy regarding their cost accounting practices.
  • CAS 401 - Consistency in Estimating, Accumulating, and Reporting Costs
  • CAS 402 - Consistency in Allocating Costs Incurred for the Same Purpose
  • CAS 403 - Allocation of Home Office Expenses to Segments
  • CAS 404 - Capitalization of Tangible Assets
  • CAS 405 - Accounting for Unallowable Costs
  • CAS 406 - Cost Accounting Period
  • CAS 407 - Use of Standard Costs for Direct Material and Direct Labor
  • CAS 408 - Accounting for Costs of Compensated Personal Absence
  • CAS 409 - Depreciation of Tangible Capital Assets
  • CAS 410 - Allocation of Business Unit General and Administrative Expenses to Final Cost Objectives
  • CAS 411 - Accounting for Acquisition Costs of Material
  • CAS 412 - Composition and Measurement of Pension Cost
  • CAS 413 - Adjustment and Allocation of Pension Cost
  • CAS 414 - Cost of Money as an Element of the Cost of Facilities Capital
  • CAS 415 - Accounting for the Cost of Deferred Compensation
  • CAS 416 - Accounting for Insurance Costs
  • CAS 417 - Cost of Money as an Element of the Cost of Capital Assets under Construction
  • CAS 418 - Allocation of Direct and Indirect Costs
  • CAS 419 - Reserved - Not Used
  • CAS 420 - Accounting for Independent Research and Development and Bid and Proposal Cost

CAS Noncompliance

CAS noncompliance is when a contractor fails to comply with the applicable standard or fail to follow disclosed practices consistently in estimating, accumulating and reporting costs on contracts. If that is the case, FAR Clause 52.230-2 invokes price adjustments, with interest, if there is increased cost to the U.S. Government resulting from a CAS noncompliance. This clause also states that price adjustments are acceptable when a change in practice is required to comply with a standard that becomes applicable or is necessary to remain compliant.  

CAS Solicitation Provisions and Contract Clauses

CAS-related Solicitation Provisions and Contract Clauses are key elements incorporated into Section I of the U.S. Government’s Request for Proposal (RFP). Below is an essential list of CAS-related Provisions and Clauses that all contractors should know to ensure compliance:

  • FAR 52.230-1 – Cost Accounting Standards Notices and Certification (Solicitation Provision)
  • FAR 52.230-2 – Cost Accounting Standards
  • FAR 52.230-3 – Disclosure and Consistency of Cost Accounting Standards
  • FAR 52.230-4 – Disclosure and Consistency of CAS for Foreign Entities
  • FAR 52.230-5 – Cost Accounting Standards for Educational Institutions
  • FAR 52.230-6 – Administration of Cost Accounting Standards
  • FAR 52.230-7 – Proposal Disclosure – Cost Accounting Practice Changes (Solicitation Provision)

These provisions and clauses are critical for contractors navigating government contracts under CAS requirements.

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Cost Accounting Standards Board (CASB) Disclosure Statement

Based on the level of CAS coverage and other factors, contractors may need to submit a Cost Accounting Standards Board Disclosure Statement (CASB DS-1).  Please find more information on Disclosure Statement requirements through the 10 essentials of CAS.

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Frequently Asked Questions About CAS Government Contracting

Here are some of the more common questions being asked about CAS

What are the CAS exemptions?

The following Contracts are exempt from CAS coverage:

  • Sealed bid Contracts
  • Negotiated Contracts and subcontracts (including interdivisional work orders) less than $2,000,000
  • Contracts and subcontracts with small businesses
  • Contracts and subcontracts with foreign governments or their agents
  • Contracts and subcontracts in which the price is set by law or regulation
  • FFP contracts and subcontracts for the acquisition of commercial items
  • Contracts or subcontracts less than $7,500,000, if at award, the business unit of the contractor or subcontractor is not currently performing any CAS covered contracts or subcontracts valued at $7,500,000 or greater
  • Firm Fixed Price (FFP) contracts and subcontracts awarded on the basis of adequate price competition without submission of certified cost or pricing data
What is a CAS covered Contract?

CAS is applicable to Contracts. A contract is CAS covered if:

  • Unless otherwise exempt from CAS, a negotiated contract in excess of $2,000,000, awarded during performance of a “trigger contract”
  • “Trigger Contract” – single CAS covered contract greater than or equal to $7.5 million
  • Full CAS “Trigger Contract” – single CAS covered contract greater than or equal to $50 million or received $50 million or more in net CAS covered award in its preceding Cost Accounting Period
When is a Cost Accounting Standards Board Disclosure Statement required?
A CASB Disclosure Statement is required when a business unit is selected to receive a CAScovered Contract or subcontract of $50,000,000 or more orreceives CAS covered contracts and subcontracts totaling $50,000,000 or more in the most recent cost accounting period.

What are the types of CAS coverage?

There are three types of CAS coverage:

  • Full Coverage –The contractor (business unit) must comply with all existing CAS and any applicable new standards. Triggers based on contract amount thresholds.
  • Modified Coverage –The contractor (business unit) must comply with CAS 401, 402, 405, and 406. Triggers based on contract amount thresholds
  • The contractor (business unit) is exempt from CAS Coverage.
What is a cost accounting practice change?

FAR 30.320-1 defines a cost accounting practice as any disclosed or established accounting method or technique which is used for allocation of cost to cost objectives, assignment of cost to cost accounting periods, or a measurement of cost.  Any changes in our organization that affect allocation, assignment, or measurement of cost could result in a cost accounting practice change.

 

What are the types of cost accounting practice changes?

There are 3 classification of cost accounting practice changes:

  • Required Cost Accounting Practice Change arises when the contractor:
    • Needs to comply with a new or modified CAS
    • Changes from one compliant practice (disclosed or established) to another compliant practice to remain in compliance with CAS
  • Desirable Cost Accounting Practice Changes arises when the contractor:
    • Elects to make a change from one compliant practice to another, and the U.S Government determines that the change not detrimental to the Government
    • Note - Changes may be desirable even if costs increase on existing contracts/subcontracts
  • Unilateral Cost Accounting Practice Changes arises when the contractor:
    • Changes from one compliant practice to another compliant practice that a contractor elects to make, but where the U.S. Government has not determined the change to be desirable
What is CAS 401 and 402?
  • CAS 401 — Consistency in estimating, accumulating & reporting

This standard requires contractors to use consistent practices between estimating cost and accumulating and report costs.  Inversely, the practices used in accumulating and reporting costs must be consistent with estimating cost. 

For example, if a contractor estimates (i.e., proposes) engineering labor cost by function (e.g., drafting, product engineering, etc.), engineering labor costs must also be accumulated and reported by function.  In this example, if engineering costs are estimated by function and accumulated and reported in total, this is a non-compliance with CAS 401. 

  • CAS 402 — Consistency in allocating costs for same purpose

This standard helps eliminate the risk of “double counting” costs to the U.S. Government and ensure that costs incurred for the same purpose in like circumstances are accounted for consistently. 

If a contractor is required to submit a CASB Disclosure Statement, these practices are defined within the Disclosure Statement. 

How is CAS different from FAR?
FAR (Federal Acquisition Regulations) and CAS (Cost Accounting Standards) serve distinct purposes in government contracting. FAR focuses on the allowability of costs, specifying which expenses can be charged to government contracts, while CAS governs the allocability of costs, ensuring proper assignment to specific projects. FAR is directive and frequently updated, with clear guidelines managed by the FAR Council, whereas CAS is outcome-based, offering flexibility in cost allocation practices as long as standards are met. Managed by a specialized board, CAS has remained largely unchanged since 1978, providing consistency for contractors. Together, these frameworks ensure compliance and accountability in government contracting.
Who Audits CAS Compliance?
CAS compliance is primarily audited by the Defense Contract Audit Agency (DCAA). The DCAA is responsible for ensuring that contractors comply with CAS requirements when they are subject to the standards. The agency reviews contractors' cost accounting practices to verify that they align with CAS rules for allocating costs to government contracts. In addition to the DCAA, other government agencies or contracting officers may review CAS compliance as part of contract oversight. However, the DCAA is the primary auditing authority for CAS compliance in most government contracting situations.

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CAS Compliance Training

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