Certified Federal Contracts ManagerNCMA Federal Acquisition Regulation FAR PARTS: 30-36 https://www.acquisition.gov/far/ Instructor: W. Ryan, Manager Procurement and Grants Office (PGO) Office of Policy Oversight and Evaluation CDC PGO Feb-April, 2010
Contents • Cost Accounting Standards – Part 30 • Contract Cost Principles and Procedures – Part 31 • Contract Financing – Part 32
NCMA • Contract Financing, p. 79
1.Private financing, no government guarantee Private financial institution may submit a loan guarantee to the Federal Reserve Bank Seven Presidentially designated guaranteeing agencies Dept. of Defense Dept. of Energy Dept. of Commerce Dept. of Revenue Dept. of Agriculture General Services Admin. National Aeronautics and Space Administration Contract FinancingConsiderations: Order of Preference
Contract FinancingOrder of Preference Considerations, cont. • 2. Progress payments based on incurred costs (see FAR 32) • 3. Advanced Payments (least desirable of financing options) • Not measured by performance • Made in anticipation of performance • If granted, specific banking arrangements must be made and the Government is entitled to the interest accrued.
FAR Part 30 • The Cost Accounting Standards (CAS) Administration
Cost Accounting Basics • Overhead -- General & Administrative Costs (G&A) – Cost of Money – Allocable Costs – Allowable Costs – Home Office – Direct – Indirect – Cost Accounting Standards – GAAP – Standard Costing GENERAL AND ADMINISTRATIVE COSTS (Upper management) OVERHEADS (HEAT, LIGHT, RENT, DEPRECIATION, PROP TAX, ETC.) Contract Contract Contract Contract Contract
Cost Accounting Basics • Accountants struggle with the classification of values. One Professor at Pace U, perhaps the Foremost Accounting program in the world, has argued that Accounting belongs in the Faculty of Philosophy, not Business • Wherever Accounting belongs academically, when applied to Government contracts, accounting fictions can yield very real costs and profits.
Cost Accounting Basics • Accounting Regulatory Bodies: • American Institute of Certified Public AccountantsThe first law establishing the CPA designation was in New York on April 17, 1896 • Securities and Exchange Commission • Financial Accounting Standards Board -- AICPA, SEC, INDUSTRY • Internal Revenue Service • Cost Accounting Standards Board (Only on Government Contracts) • State and Foreign Regulatory Boards
Cost Accounting Basics • Generally Accepted Accounting Principles (GAAP) derive from the AICPA Standards and FASB Rules • Securities and Exchange Commission: • The SEC has statutory authority to establish financial accounting and reporting standards for publicly held companies under the Securities Exchange Act of 1934. Throughout its history, however, the Commission’s policy has been to rely on the private sector for this function to the extent that the private sector demonstrates ability to fulfill the responsibility in the public interest.
Cost Accounting Basics • Virtually all of the emphasis on Accounting derives from the regulation of public statements, so that investors and lenders can gain a true picture of the profitability of a company and its future prospects. • Cost Accounting was not neglected entirely, but was only of interest to the regulatory bodies in how it affected profitability and the valuation of assets. One segment of the CPA examination, a very difficult segment, deals with industrial cost accounting
Cost Accounting Basics • Cost Accounting is of great interest to the US Government, since the negotiated price of contracts is often based on cost. In addition, the consideration for many contract modifications is based on costs, and there are many cost reimbursable contracts written. • Determining Costs could be an extremely complicated process, and the cost determination could have a direct affect on the price of the product or service.
Cost Accounting Basics • During the 1960s, Admiral Hyman G. Rickover, father of the nuclear submarine program, recognized the fact that the lack of cost accounting standards prevented the Navy from negotiating on a consistent, fair basis with its contractors. • Due largely to his influence, the Cost Accounting Standards Board was established in 1970
Cost Accounting Basics • The original CASB was established in 1970 as an agency of Congress in accordance with a provision of Public Law 91-379. It was authorized to (1) promulgate cost accounting standards designed to achieve uniformity and consistency in the cost accounting principles followed by defense contractors and subcontractors under Federal contracts in excess of $100,000 and (2) establish regulations to require defense contractors and subcontractors, as a condition of contracting, to disclose in writing their cost accounting practices, to follow the disclosed practices consistently and to complywith duly promulgated cost accounting standards. • b. The original CASB promulgated 19 standards and associated rules, regulations and interpretations. It went out of existence on September 30, 1980. • c. On November 17, 1988, President Reagan signed Public Law 100-679 which reestablished the CASB. The new CASB is located within the Office of Federal Procurement Policy (OFPP) which is under the Office of Management and Budget (OMB). The CASB consists of five members: the Administrator of OFPP who is the Chairman and one member each from DoD, GSA, industry and the private sector (generally expected to be from the accounting profession).
Cost Accounting Basics • Simply: • If a contract is above a certain dollar value or the total value of smaller contracts exceed that value, companies become subject to CAS. • $50 million makes the company subject to full CAS • $7.5 million makes the company subject to modified CAS • A “CAS Covered Contract” is a contract arising from FAR part 15
Cost Accounting Basics • Disclosure Statement (FORM CASB DS-2 (REV 10/94) ) • A comprehensive description of cost accounting methodology. • Rigorous Process • The Disclosure Statement must be approved by the Cognizant Federal Agency Official (CFAO) – usually a Contracting Officer, sometimes an Administrative Contracting Officer . • Any changes have to be negotiated based on cost impact, audited and agreed-to by the CFAO
Cost Accounting Standards Administration30.000 • 30.000 Scope of part. • This part describes policies and procedures for applying the Cost Accounting Standards Board (CASB) rules and regulations (48 CFR Chapter 99 (FAR Appendix)) to negotiated contracts and subcontracts. This part does not apply to sealed bid contracts or to any contract with a small business concern (see 48 CFR 9903.201-1(b) (FAR Appendix) for these and other exemptions).
30.001 Definitions. • “Affected CAS-covered contract or subcontract” means a contract or subcontract subject to Cost Accounting Standards (CAS) rules and regulations for which a contractor or subcontractor— • (1) Used one cost accounting practice to estimate costs and a changed cost accounting practice to accumulate and report costs under the contract or subcontract; or • (2) Used a noncompliant practice for purposes of estimating or accumulating and reporting costs under the contract or subcontract. • “Cognizant Federal agency official (CFAO)” means the contracting officer assigned by the cognizant Federal agency to administer the CAS.
30.001 Definitions. • “Required change” means— • (1) A change in cost accounting practice that a contractor is required to make in order to comply with applicable Standards, modifications or interpretations thereto, that subsequently becomes applicable to an existing CAS-covered contract or subcontract due to the receipt of another CAS-covered contract or subcontract; or • (2) A prospective change to a disclosed or established cost accounting practice when the CFAO determines that the former practice was in compliance with applicable CAS and the change is necessary for the contractor to remain in compliance. • “Unilateral change” means a change in cost accounting practice from one compliant practice to another compliant practice that a contractor with a CAS-covered contract(s) or subcontract(s) elects to make that has not been deemed a desirable change by the CFAO and for which the Government will pay no aggregate increased costs.
Subpart 30.1—General • 30.101 Cost Accounting Standards. • (a) Public Law 100-679 (41 U.S.C. 422) requires certain contractors and subcontractors to comply with Cost Accounting Standards (CAS) and to disclose in writing and follow consistently their cost accounting practices. • (b) Contracts that refer to this Part 30 for the purpose of applying the policies, procedures, standards and regulations promulgated by the CASB pursuant to Public Law 100-679, shall be deemed to refer to the CAS, and any other regulations promulgated by the CASB (see 48 CFR Chapter 99), all of which are hereby incorporated in this Part 30.
30.101 Cost Accounting Standards. • (c) The Appendix to the FAR loose-leaf edition contains— • (1) Cost Accounting Standards and Cost Accounting Standards Board Rules and Regulations Recodified by the Cost Accounting Standards Board at 48 CFR Chapter 99; and • (2) The following preambles: • (i) Part I—Preambles to the Cost Accounting Standards Published by the Cost Accounting Standards Board. • (ii) Part II—Preambles to the Related Rules and Regulations Published by the Cost Accounting Standards Board. • (iii) Part III—Preambles Published under the FAR System.
30.101 Cost Accounting Standards, cont. • (d) The preambles are not regulatory but are intended to explain why the Standards and related Rules and Regulations were written, and to provide rationale for positions taken relative to issues raised in the public comments. The preambles are printed in chronological order to provide an administrative history.
Cost Accounting Standards, cont. • A company may be subject to "full" CAS coverage (required to follow all 19 standards), "modified" CAS coverage (required to follow only Standards 401, 402, 405, and 406), or be exempt. A company under "full" coverage is not subject to a standard where it does not apply (e.g., a company which does not use standard costing does not have to comply with CAS 407). • "Full" coverage applies only when a company receives either one CAS-covered contract of US$50 million or more, or a number of smaller CAS-covered contracts totaling US$50 million. In addition to complying with all 19 standards (where applicable), the company must also file a CAS Disclosure Statement, which spells out the company's accounting practices (such as if certain costs are treated as direct contract charges or as part of overhead expense). There are two versions of the CAS Disclosure Statement: DS-1 applies to commercial companies while DS-2 applies to educational institutions. • "Modified" coverage applies when a company receives a single CAS-covered contract of US$7.5 million or more.
Cost Accounting Standards, cont. • In some instances, a contract may be exempt from CAS standards: • Contracts awarded to small businesses are exempt from CAS, regardless of contract size • Any contract less than US$7.5 million is exempt, provided the company has not been awarded a contract greater than US$7.5 million, and also any contract less than US$650,000 is always exempt • Contracts for commercial items • Contracts awarded under sealed bid procedures, or where "adequate price competition" was available (the latter meaning where at least two companies had the ability to bid and perform on a contract, even if only one bid was later received) • Contracts where the price is set by law or regulation • Contracts awarded to foreign governments • Contracts where performance will be performed entirely outside the United States (including territories and possessions)
Subpart 30.2—CAS Program Requirements30.201 Contract requirements. • Title 48 CFR 9903.201-1 (FAR Appendix) describes the rules for determining whether a proposed contract or subcontract is exempt from CAS. Negotiated contracts not exempt in accordance with 48 CFR 9903.201-1(b) shall be subject to CAS. A CAS-covered contract may be subject to either full or modified coverage. The rules for determining whether full or modified coverage applies are in 48 CFR 9903.201-2 (FAR Appendix). • 30.201-3 Solicitation provisions. • (a) The contracting officer shall insert the provision at 52.230-1, Cost Accounting Standards Notices and Certification, in solicitations for proposed contracts subject to CAS as specified in 48 CFR 9903.201 (FAR Appendix). • (b) If an award to an educational institution is contemplated prior to July 1, 1997, the contracting officer shall insert the basic provision set forth at 52.230-1 with its Alternate I, unless the contract is to be performed by a Federally Funded Research and Development Center (FFRDC) (see 48 CFR 9903.201-2(c)(5) (FAR Appendix)), or the provision at 48 CFR 9903.201-2(c)(6) (FAR Appendix) applies. • (c) Insert the provision at FAR 52.230-7, Proposal Disclosure—Cost Accounting Practice Changes, in solicitations for contracts subject to CAS as specified in 48 CFR 9903.201 (FAR Appendix).
CAS Program Requirements30.201-5 Waiver. • The head of the agency— • (1) May waive the applicability of CAS for a particular contract or subcontract under the conditions listed in paragraph (b) of this subsection; and • (2) Must not delegate this waiver authority to any official in the agency below the senior contract policymaking level.
CAS Program Requirements30.201-5 Waiver, cont. • (b) The head of the agency may grant a waiver when one of the following conditions exists: • (1) The contract or subcontract value is less than $15,000,000, and the head of the agency determines, in writing, that the segment of the contractor or subcontractor that will perform the contract or subcontract— • (i) Is primarily engaged in the sale of commercial items; and • (ii) Has no contracts or subcontracts that are subject to CAS.
CAS Program Requirements30.201-5 Waiver, cont. • (2) The head of the agency determines that exceptional circumstances exist whereby a waiver of CAS is necessary to meet the needs of the agency. Exceptional circumstances exist only when the benefits to be derived from waiving the CAS outweigh the risk associated with the waiver. The determination that exceptional circumstances exist must— • (i) Be set forth in writing; and • (ii) Include a statement of the specific circumstances that justify granting the waiver.
30.202-6 Responsibilities. • (a) The contracting officer is responsible for determining when a proposed contract may require CAS coverage and for including the appropriate notice in the solicitation. The contracting officer must then ensure that the offeror has made the required solicitation certifications and that required Disclosure Statements are submitted. (Also see 48 CFR 9903.201-3 and 9903.202 (FAR Appendix).) • (b) The contracting officer shall not award a CAS-covered contract until the Cognizant Federal Agency Official (CFAO) has made a written determination that a required Disclosure Statement is adequate unless, in order to protect the Government's interest, the agency head, on a nondelegable basis, authorizes award without obtaining submission of the required Disclosure Statement (see 48 CFR 9903.202-2). In this event, the contractor shall submit the required Disclosure Statement and the CFAO shall make a determination of adequacy as soon as possible after the award.
30.202-6 Responsibilities, cont. • (c) The cognizant auditor is responsible for conducting reviews of Disclosure Statements for adequacy and compliance. • (d) The CFAO is responsible for issuing determinations of adequacy and compliance of the Disclosure Statement. • 30.202-8 Subcontractor Disclosure Statements. • (a) When the Government requires determinations of adequacy of subcontractor disclosure statements, the CFAO for the subcontractor shall provide this determination to the CFAO for the contractor or next higher-tier subcontractor. The higher-tier CFAO shall not change the determination of the lower-tier CFAO. • (b) Any determination that it is impractical to secure a subcontractor’s Disclosure Statement must be made in accordance with 48 CFR 9903.202-2 (FAR Appendix).
Cost Accounting Standards • 30.3 CAS Rules and Regulations [Reserved] • 30.4 Cost Accounting Standards [Reserved] • 30.5 Cost Accounting Standards for Educational Institutions [Reserved]
Cost Accounting Standards • Standard Title • 401 Consistency in Estimating, Accumulating and Reporting Costs • 402 Consistency in Allocating Costs Incurred for the Same Purpose • 403 Allocation of Home Office Expenses to Segments • 404 Capitalization of Tangible Assets • 405 Accounting for Unallowable Costs • 406 Cost Accounting Period • 407 Use of Standard Costs for Direct Material and Direct Labor • 408 Accounting for Costs of Compensated Personal Absence • 409 Depreciation of Tangible Capital Assets • 410 Allocation of Business Unit General and Administrative Expenses to Final Cost Objectives • 411 Accounting for Acquisition Costs of Material • 412 Composition and Measurement of Pension Costs
Cost Accounting Standards • 413 Adjustment and Allocation of Pension Cost • 414 Cost of Money as an Element of the Cost of Facilities Capital • 415 Accounting for the Cost of Deferred Compensation • 416 Accounting for Insurance Cost • 417 Cost of Money as an Element of the Cost of Capital Assets Under Construction • 418 Allocation of Direct and Indirect Costs • 419 unused • 420 Accounting for Independent Research and Development Costs and Bid and Proposal Costs (IR&D and B&P)
Subpart 30.6—CAS Administration 30.601 Responsibility. • The CFAO shall perform CAS administration for all contracts and subcontracts in a business unit, even when the contracting officer retains other administration functions. The CFAO shall make all CAS-related required determinations and findings (see Subpart 1.7) for all CAS-covered contracts and subcontracts, including— • (1) Whether a change in cost accounting practice or noncompliance has occurred; and • (2) If a change in cost accounting practice or noncompliance has occurred, how any resulting cost impacts are resolved.
30.601 Responsibility. • (b) Within 30 days after the award of any new contract subject to CAS, the contracting officer making the award shall request the CFAO to perform administration for CAS matters (see Subpart 42.2). For subcontract awards, the contractor awarding the subcontract must follow the procedures at 52.230-6(l), (m), and (n). • (c) In performing CAS administration, the CFAO shall request and consider the advice of the auditor as appropriate (see 1.602-2).
30.602 Materiality. • In determining materiality, the CFAO shall use the criteria in 48 CFR 9903.305 (FAR Appendix). • (b) A CFAO determination of materiality— • (c) When the CFAO determines the cost impact is immaterial, the CFAO shall— • (1) Make no contract adjustments and conclude the cost impact process; • (2) Document the rationale for the determination; and
30.602 Materiality. • (3) In the case of noncompliance issues, inform the contractor that— • The noncompliance should be corrected; and • If the noncompliance is not corrected, the Government reserves the right to make appropriate contract adjustments should the cost impact become material in the future. • (d) For required, unilateral, and desirable changes, and CAS noncompliances, when the amount involved is material, the CFAO shall follow the applicable provisions in 30.603, 30.604, 30.605, and 30.606.
30.606 Resolving cost impacts. • (a) General. • (1) The CFAO shall coordinate with the affected contracting officers before negotiating and resolving the cost impact when the estimated cost impact on any of their contracts is at least $100,000. However, the CFAO has the sole authority for negotiating and resolving the cost impact. • (2) The CFAO may 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. • (3) In resolving the cost impact, the CFAO— • Shall not combine the cost impacts . . . • (4) For desirable changes, the CFAO should consider the estimated cost impact of associated management actions on contract costs in resolving the cost impact.
30.606 Resolving cost impacts. • (b) Negotiations. The CFAO shall— • Negotiate and resolve the cost impact on behalf of all Government agencies; and • (2) At the conclusion of negotiations, prepare a negotiation memorandum and send copies to the auditor and affected contracting officers.
30.607 Subcontract administration. • When a negotiated CAS price adjustment or a determination of noncompliance is required at the subcontract level, the CFAO for the subcontractor shall furnish a copy of the negotiation memorandum or the determination to the CFAO for the contractor of the next higher-tier subcontractor. The CFAO of the contractor or the next higher-tier subcontractor shall not change the determination of the CFAO for the lower-tier subcontractor. If the subcontractor refuses to submit a GDM or DCI proposal, remedies are made at the prime contractor level.
Part 31—Contract Cost Principles and Procedures • 31.000 Scope of part. • This part contains cost principles and procedures for— • (a) The pricing of contracts, subcontracts, and modifications to contracts and subcontracts whenever cost analysis is performed (see 15.404-1(c)); and • (b) The determination, negotiation, or allowance of costs when required by a contract clause.
31.101 Objectives. • In recognition of differing organizational characteristics, the cost principles and procedures in the succeeding subparts are grouped basically by organizational type; e.g., commercial concerns and educational institutions. • The overall objective is to provide that, to the extent practicable, all organizations of similar types doing similar work will follow the same cost principles and procedures. To achieve this uniformity, individual deviations concerning cost principles require advance approval of the agency head or designee. • Class deviations for the civilian agencies require advance approval of the Civilian Agency Acquisition Council. . . • Class deviations for the Department of Defense require advance approval of the Director of Defense Procurement, Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics.
31.102 Fixed-price contracts. • The applicable subparts of Part 31 shall be used in the pricing of fixed-price contracts, subcontracts, and modifications to contracts and subcontracts whenever • (a) cost analysis is performed, or • (b) a fixed-price contract clause requires the determination or negotiation of costs. However, application of cost principles to fixed-price contracts and subcontracts shall not be construed as a requirement to negotiate agreements on individual elements of cost in arriving at agreement on the total price. • The final price accepted by the parties reflects agreement only on the total price. Further, notwithstanding the mandatory use of cost principles, the objective will continue to be to negotiate prices that are fair and reasonable, cost and other factors considered.
31.103 Contracts with commercial organizations. • This category includes all contracts and contract modifications for • supplies, • services, or • experimental, • developmental, or research work negotiated with organizations other than educational institutions (see 31.104), • construction and architect-engineer contracts (see 31.105), • State and local governments (see 31.107) and nonprofit organizations (see 31.108) on the basis of cost.
Determining reimbursable costs . . . Negotiating indirect cost rates (see Subpart 42.7); Proposing, negotiating, or determining costs under terminated contracts (see 49.103 and 49.113); (4) Price revision of fixed-price incentive contracts (see 16.204 and 16.403); (5) Price redetermination of price redetermination contracts (see 16.205 and 16.206); and (6) Pricing changes and other contract modifications. 31.103 Contracts with commercial organizations. b) In addition, the contracting officer shall incorporate the cost principles and procedures in Subpart 31.2 and agency supplements by reference in contracts with commercial organizations as the basis for—
Unallowable Costs • Specific Costs Not Allowable.— (1) The following costs are not allowable under a covered contract: • (A) Costs of entertainment, including amusement, diversion, and social activities and any costs directly associated with such costs (such as tickets to shows or sports events, meals, lodging, rentals, transportation, and gratuities). • (B) Costs incurred to influence (directly or indirectly) legislative action on any matter pending before Congress, a State legislature, or a legislative body of a political subdivision of a State. • (C) Costs incurred in defense of any civil or criminal fraud proceeding or similar proceeding (including filing of any false certification) brought by the United States where the contractor is found liable or has pleaded nolo contendere to a charge of fraud or similar proceeding (including filing of a false certification).
Unallowable Costs • (D) Payments of fines and penalties resulting from violations of, or failure to comply with, Federal, State, local, or foreign laws and regulations, except when incurred as a result of compliance with specific terms and conditions of the contract or specific written instructions from the contracting officer authorizing in advance such payments in accordance with applicable provisions of the Federal Acquisition Regulation. • (E) Costs of membership in any social, dining, or country club or organization. • (F) Costs of alcoholic beverages. • (G) Contributions or donations, regardless of the recipient. • (H) Costs of advertising designed to promote the contractor or its products. • (I) Costs of promotional items and memorabilia, including models, gifts, and souvenirs. • (J) Costs for travel by commercial aircraft which exceed the amount of the standard commercial fare.
Unallowable Costs • (K) Costs incurred in making any payment (commonly known as a “golden parachute payment”) which is— (i) in an amount in excess of the normal severance pay paid by the contractor to an employee upon termination of employment; and • (ii) is paid to the employee contingent upon, and following, a change in management control over, or ownership of, the contractor or a substantial portion of the contractor’s assets. • (L) Costs of commercial insurance that protects against the costs of the contractor for correction of the contractor’s own defects in materials or workmanship. • (M) Costs of severance pay paid by the contractor to foreign nationals employed by the contractor under a service contract performed outside the United States, to the extent that the amount of severance pay paid in any case exceeds the amount paid in the industry involved under the customary or prevailing practice for firms in that industry providing similar services in the United States, as determined under the Federal Acquisition Regulation.
Unallowable Costs • (N) Costs of severance pay paid by the contractor to a foreign national employed by the contractor under a service contract performed in a foreign country if the termination of the employment of the foreign national is the result of the closing of, or the curtailment of activities at, a United States military facility in that country at the request of the government of that country. • (O) Costs incurred by a contractor in connection with any criminal, civil, or administrative proceeding commenced by the United States or a State, to the extent provided in subsection (k). • (P) Costs of compensation of senior executives of contractors for a fiscal year, regardless of the contract funding source, to the extent that such compensation exceeds the benchmark compensation amount determined applicable for the fiscal year by the Administrator for Federal Procurement Policy under section 39 of the Office of Federal Procurement Policy Act (41 U.S.C. 435).
31.104 Contracts with educational institutions. • This category includes all contracts and contract modifications for research and development, training, and other work performed by educational institutions. • The contracting officer shall incorporate the cost principles and procedures in Subpart 31.3 by reference in cost-reimbursement contracts with educational institutions as the basis for— • (1) Determining reimbursable costs under the contracts and cost-reimbursement subcontracts thereunder performed by educational institutions; • (2) Negotiating indirect cost rates; and • (3) Settling costs of cost-reimbursement terminated contracts (see Subpart 49.3 and 49.109-7).