CAS Board Proposes to End "Overseas" Exemption

The CAS (Cost Accounting Standards) Board released a Notice of Proposed Rule (NPR) to eliminate the exemption from CAS for contracts executed and performed entirely outside the US, its territories and possessions. The purpose of an NPR is to obtain input on whether to retain, revise, or eliminate a particular rule or regulation.

This overseas exemption goes back to 1973 when the CAS Board was first established. In 2005, the Board published a Staff Discussion Paper discussing whether to retain the exemption. There were only three comments submitted, all in favor of retaining the exemption. As a result, the Board decided to retain the exemption.

In 2009, based on provisions in the National Defense Authorization Act, the CAS Board once again asked for public comment on the matter of whether the overseas exemption should be retained. This time, there was considerably more public interest and this time, the Board proposed to eliminate the exemption. The Boards proposal is based on the following rationale:

1. The statutory basis that was used to justify the overseas exemption when it was first promulgated no longer exists.
2. There is no accounting basis for the overseas exemption. The place of contract execution and performance is not germane to the fundamental principles and methods used to account for the costs of contract performance. The exemption does not help to achieve consistency and uniformity in the cost accounting practices used by Government contractors in the measurement, assignment and allocation of costs to Government contracts, the primary objective of the CAS.
3. Based on the data submitted in response to its request for information, the Board projects the volume of affected contractors and subcontractors to be relatively small.