The purpose of CAS 420 is to provide criteria for the accumulation of IR&D and B&P costs and for the allocation of such costs to cost objectives based on the beneficial or causal relationship between such costs and cost objectives.
- Independent research and development (IR&D) means the cost of effort which is neither sponsored by a grant, nor required in the performance of a contract, and which falls within any of the following three areas;
- Basic and applied research
- Development, and
Systems and other concept formulation studies
Bid and proposal (B&P) costs means the cost incurred in preparing, submitting or supporting any bid or proposal which effort is neither sponsored by a grant, nor required in the performance of a contract.
CAS 420 (and FAR 31.205-18) requires that IR&D/B&P costs be accumulated by project, similar to the way in which contract costs are accumulated. Project costs consists of all allocable costs except business unit G&A. This would include labor, fringe benefits, overhead, as well as materials, subcontracts, and ODCs (other direct costs).
IR&D/B&P cost pools of a home office must be allocated to segments on the basis of the beneficial or causal relationship between the IR&D/B&P costs and the segments reporting to that home office. The IR&D/B&P cost pools of a business unit must be allocated to the final cost objectives of that business unit on the basis of the beneficial or causal relationship between the IR&D/B&P costs and the final cost objectives.
B&P costs incurred in a cost accounting period must not be charged to any other cost accounting period. The same rule applies to IR&D costs except for cases permitted pursuant to provisions of existing laws, regulations, and other controlling factors.