Contractors usually assume that government auditors have unique authority to interpret the Expense Accounting Requirements. That assumption is quick to realize – auditors usually take the view that there is only a single “correct” way for a firm to carry out contract costing, primarily based on how other businesses do items. But contractors should really know that CAS is versatile and commonly offers them selections about how to comply, primarily based on the situations of their enterprise. In brief, the contractor’s enterprise judgment is critical and contractors can use it to counter auditors who take as well rigid a view on CAS.

Public procurement officers and auditors have no unique authority to say what CAS implies, i.etheir CAS interpretations acquire no deference in dispute. You see Perry v. Martin Marietta Corp.47 F.3d 1134, 1137 (Fed. Cir. 1995) Raitheon Co., Space & Airborne Sys.ASBCA no. 57801, 15-1 BCA ¶ 36024. Amongst other motives, CAS declared the Expense Accounting Requirements Board, a single federal entity established by statute, and not federal procurement officials or auditors.

By style, the basic language of CAS commonly gives contractor discretion to select from a variety of selections for structuring its price accounting practices. There are 19 requirements inside CAS, every with constructed-in flexibility that enables contractors to select price accounting practices that align with the sensible realities of their enterprise. No two businesses are precisely the identical, and the requirements recognize that diverse businesses will select diverse approaches. Auditors usually neglect this aspect of CAS and may well have a narrow view of what it implies to comply. But contractors should really constantly ask: Does the relevant CAS give me any decision, and if so, is the auditor considering as well rigidly about the requirements?

Take into consideration CAS 410, which gives guidelines for apportioning common and administrative expenditures of operating a enterprise (“G&A”). CAS 410 demands the contractor to assign a G&A base that “most effective represents the total activity” of the enterprise, and sets out 3 selections for attaining that target: (1) a total input price base, utilizing all unit operating charges (two) basis for added worth, which excludes material charges and subcontracting charges and (three) a single base of components, by which the contractor selects an equitable element for allocation, such as direct labor hours or dollars. You see CAS 410-50(d).

CAS 410 tends to make it clear that there is no “correct” approach and that the answer depends on the details of the enterprise. It states that “[t]Figuring out which input price base most effective represents the general activity of a enterprise unit should be evaluated primarily based on the situations of every enterprise unit.” Id. The Armed Forces Contracts Appeal Board (“ASBCA”) confirmed that the “judgment” in query was the contractor, not the government.

In its founding selection on CAS 410, the ASBCA held that “[i]In our view, the evaluation of which allocation base most accurately allocates the price of G&A in relation to the advantages received may well, in accordance with CAS 410, include things like the application of by the contractor of affordable judgment.” Ford Aerospace and Comm’ns Corp.ASBCA no. 23833, 83-two BCA ¶ 16813 (emphasis added).

Similarly, take into consideration CAS 402, which gives that “[n]o the objective of the final charges shall attribute to it as an indirect price any price, if other charges incurred for the identical objective, in related situations, are incorporated as a direct price of that or any other objective of the final price.” CAS 402-40. Even though that normal may well seem prescriptive, CAS 402-50(b) tends to make clear that the contractor has broad discretion to figure out which charges are correctly treated as “indirect,” as lengthy as the contractor’s Disclosure Statement explains its practices and the contractor regularly applies the normal. You see CAS 402-50(b). The U.S. Court of Appeals for the Federal Circuit commented that “CAS 402 offers the contractor considerable latitude in classifying particular charges[.]” ATK Thiokol, Inc. against the United States598 F.3d 1329, 1332 (Fed. Cir. 2010).

Practically all CAS requirements include things like related flexibility. E.g, CAS 403-60 (giving a list of “illustrative allocation bases” for residence workplace expenditures, “which could be employed in proper situations”) CAS 406-20 (giving criteria for “choice” of costing periods) CAS 418-20 (giving “guidance relating to the choice of allocation measures primarily based on a utility or causal connection amongst a set of indirect charges and price objectives”).

So how can CAS flexibility assistance a contractor navigate an audit or dispute? When faced with an auditor who views CAS as a accurate/false or yes/no matter, the contractor should really very carefully take into consideration the CAS principle at problem to see if it offers the firm discretion. The contractor should really also take into consideration the regulatory history of the CAS requirements committee, and may well want to evaluation the case law of the Board of Appeals and federal courts. The contractor should really then obtain strategies to clarify its possibilities to the auditor, which includes sharing the motives it chose a distinct strategy and how other approaches could be unduly burdensome or could adversely have an effect on the interests of the enterprise or government.

For instance, is it impractical to treat particular components/components as a direct price, provided how they are stored and employed in the shop? Would not the total input price base reflect the accurate connection of G&A activities to the company’s operations, provided how management spends its time and sources? Would the auditor’s G&A strategy lead to variable adjustments in the allocation of charges from year to year? Based on the answer, these sensible points can assistance the contractor’s possibilities and assistance them justify themselves below CAS. The contractor may well also want to demonstrate that its accounting practices are described in its internal policies and (if applicable) in the CAS Disclosure Statement. Pre-written descriptions of accounting policies can also go a lengthy way in supporting firm practices.

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