Wednesday, January 12, 2011

CAS 402 - Consistency in Allocating Costs Incurred for the Same Purpose

CAS 402 - Consistency in Allocating Costs Incurred for the Same Purpose. The purpose of CAS 402 is to ensure that each type of cost is allocated only once and on only one basis to any contract or other cost objective. The fundamental requirement requires that all costs incurred for the same purpose, in like circumstances, are either direct costs only or indirect costs only with respect to final cost objectives. To state this another way, you cannot charge a cost direct to a contract if those same kinds of costs have also been charged indirect and you cannot charge a cost to an indirect cost pool that gets allocated to a Government contract if those same types of costs have also been allocated directly.

The key phrase in applying this standard are "costs incurred for the same purpose in like circumstances" and this is where arguments arise between contractors and Government oversight agencies. There are examples within the narrative of the standards that illustrate the Board's view of "same purposes" and "like circumstances" (see FAR 9904.402-60). One off cited example is the firefighters. In this example, a contractor proposed as a direct cost to perform a contract which required three firemen on 24-hour duty at a fixed-post to provide protection against damage to highly inflammable materials used on the contract. The contractor also had a firefighting capability for general plant protection that it charged indirect. In this case, the CAS Board said it was fine to charge the fixed-post firefighters direct because that was different circumstances.

There were a number of disputes soon after this Standard was issued involving proposal preparation costs. Most contractors charge B&P (bid and proposal) costs indirect. However, some contracts, as a contract line item, require the contractor to prepare some kind of follow-on proposal. The Board had to issue a formal interpretation on this to rule that if a contract required a contractor to prepare a follow-on proposal, that was differing circumstances than the usual B&P activity within the company.

In one case, a contract had a contract which required extra effort for planning and cost management, It hired extra people to accomplish this effort and accounted for all their labor cost as a direct charge to the contract. The contractor had other people performing the same functions for more than one contract and their labor was charged as an indirect costs. This contractor was in noncompliance with CAS 402. The work being performed is the same and the only difference is the amount of effort required to accomplish the function. To comply with CAS 402, the contractor would need to charge all these costs indirectly and develop an equitable allocation base or direct charge all of these costs.

CAS 402 applies to both full and modified CAS-covered contracts.

Next: CAS 405 - Accounting for Unallowable Costs


  1. If a person under the G&A pool is temporarily replacing a personnel who charges direct to a contract, can such admin personnel charge directly to the project in this situation?

  2. Shouldn't be a problem at all. In fact, that would be the appropriate way to charge the hours.