Changes to Cost Accounting Practices - Unilateral and Desirable Changes

Last week, we highlighted the CAS Cost Impact Adequacy Tool published by DCAA to help its audit staff assess the adequacy of contractor-submitted CAS cost impact proposals. Today we want to continue the discussion by identifying different types of cost accounting changes.

Cost accounting changes can be classed into three basic categories. There are changes required when new Cost Accounting Standards are promulgated. Since new standards have not been promulgated in 30 years, we don't need to consider these kind of "required" changes. Another "required" change might occur if the Government found an existing cost accounting practice to be noncompliant. This does not occur very often either.

The other two categories are unilateral changes and desirable changes. Some unilateral changes can be desirable.

Contractors may unilaterally change their disclosed or established cost accounting practices at any time. However, the Government will not pay any increased cost, in the aggregate, as a result of unilateral changes.

Prior to making any contract price or cost adjustments, the CFAO (Cognizant Federal Agency Official, i.e. the contracting officer assigned by the cognizant federal agency to administer CAS) shall determine that the contemplated contract price or cost adjustments will protect the Government from the payment of the estimated increased costs, in the aggregate, and the net effect of the contemplated adjustments will not result in the recovery of more than the increased costs to the Government, in the aggregate. This "in the aggregate" wording frequently causes a lot of problems between services because for example, the Army might benefit to the detriment of the Navy but in the aggregate, there is no impact to the Government.

Sometimes accounting changes are "desirable". A desirable change is a compliant change to a contractor's established or disclosed cost accounting practice that the CFAO finds is desirable and not detrimental to the Government. Desirable changes are not subject to the no increased cost prohibition provisions of CAS-covered contracts (and subcontracts) affected by the change (see FAR 52.230-6).

Until the CFAO has determined a change to be desirable, the change is a unilateral change. Factors that the CFAO might consider in determining whether a change is desirable include:

• The contractor must change the cost accounting practices it uses for Government contract and subcontract costing purposes to remain in compliance with the provisions of FAR Par 31.
• The contractor is initiating management actions directly associated with the change that will result in cost savings for segments with CAS-covered contracts over a period for which forward pricing rates are developed and the cost savings are reflected in the forward pricing rates
• Funds are available if the determination would necessitate an upward adjustment of contract cost or price.

Obviously, contractors will want any changes to be considered "desirable". Sometimes it takes great effort and skill to convince the Government that a change is desirable because the presumption among auditors and contracting officers is that changes are always made to benefit the contractor. Otherwise, why make a change?