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Cost Accounting Standards (CAS) versus Cost Principles

INQUIRY: Are 8(a)'s always exempt from CAS requirements?  If we are awarded a

subcontract from a prime when the prime contract is billions of dollars,

what CAS requirements would we be subject to?

 

 

RESPONSE: Cost Account Standards (CAS) are complex, misunderstood, and often used with apprehension by people in the procurement profession.

 

Generally this is how it goes: Being subject to CAS is not an 8(a) or non 8(a) issue but is dependent on Size Standard of a firm categorized as a small business, as well as other factors.  If a small business wins a large contract that now makes them no longer eligible to be considered small under their primary NAICS code, then yes CAS could be applicable.

 

If a Prime wins a large contract that is subject to CAS, CAS applies to the Prime.  It would only flow down to subcontractors, if they do not meet one of the exemptions (see more below). 

 

However, small businesses are subject to FAR Cost Principles, and FAR has several CAS requirements restated or referenced as applicable according to FAR.

 

To get a better understanding of applicability of CAS please review the following…

CAS and cost principles are not one and the same. As previously mentioned, CAS addresses cost accounting -- the measurement, assignment, and allocation of costs to Government contracts. The Cost Principles address cost allowability. Cost allowability is a procurement matter and is a function of law, regulation, or individual contracts. Costs may be allocable but unallowable.

Some of the cost principles have directly incorporated certain cost accounting standards. If costs related to these principles are not accounted for in accordance with CAS, then the cost is unallowable. The Table below shows the link between certain principles and CAS.

CAS versus FAR Cost Principles

FAR Cost Principle

CAS

Consistency (general principle)

401

402

 

Accounting for Unallowable Costs (general principle)

405

 

 

Cost Accounting Period (general principle)

406

 

 

Compensation for Personal Services

412

413

415

Cost of Money

414

417

 

Depreciation

409

 

 

Independent Research & Development and Bid & Proposal costs

420

 

 

Insurance & Indemnification

416

 

 

Applicability

 

The rules for determining the applicable type of CAS coverage are in 9903.201-2.

 

The following categories of contracts and subcontracts are exempt from all CAS requirements:

 

(1)   Sealed bid contracts.

(2)    Negotiated contracts and subcontracts not in excess of $500,000. For purposes of this paragraph (b)(2) an order issued by one segment to another segment shall be treated as a subcontract.

(3)    Contracts and subcontracts with small businesses.

(4)    Contracts and subcontracts with foreign governments or their agents or instrumentalities or, insofar as the requirements of CAS other than 9904.401 and 9904.402 are concerned, any contract or subcontract awarded to a foreign concern.

(5)    Contracts and subcontracts in which the price is set by law or regulation.

(6)    Firm fixed-priced and fixed-price with economic price adjustment (provided that price adjustment is not based on actual costs incurred) contracts and subcontracts for the acquisition of commercial items.

(7)    Contracts or subcontracts of less than $7.5 million, provided that, at the time of award, the business unit of the contractor or subcontractor is not currently performing any CAS-covered contracts or subcontracts valued at $7.5 million or greater.

(8)     [Reserved]

(9)    [Reserved]

(10) [Reserved]

(11) [Reserved]

(12) Contracts and subcontracts awarded to the United Kingdom contractor for performance substantially in the United Kingdom, provided that the contractor has filed with the United Kingdom Ministry of Defense, for retention by the Ministry, a completed Disclosure Statement (Form No. CASB-DS-1) which shall adequately describe its cost accounting practices. Whenever that contractor is already required to follow U.K. Government Accounting Conventions, the disclosed practices shall be in accord with the requirements of those conventions. (See 9903.201-4(d).)

(13) Subcontractors under the NATO PHM Ship program to be performed outside the United States by a foreign concern.

(14)Contracts and subcontracts to be executed and performed entirely outside the United States, its territories, and possessions.

(15)Firm-fixed-price contracts or subcontracts awarded on the basis of adequate price competition without submission of cost or pricing data.

 

If a contract requires the prime contractor to follow CAS, the CAS requirement must be passed down to its subcontractors, unless they meet one of the listed exemptions. Vice versa, if a prime contractor need not follow CAS, neither do its subcontractors.

Well, I hope this helps!

 

Paul Sr.




Disclaimer: Information provided is based on our experience, training, and judgment in interpreting the practical application and intent of official guidance and regulations.  It does not represent the official position of any government agency or their representative.