CAS Board to End "Overseas" Exemption

There are a number of provisions in the Cost Accounting Standards (CAS) rules and regulations that exempt certain Government contracts from CAS coverage. Among these are contracts under $700 thousand, contracts to small businesses, sealed bid contracts, and more. One of the exemptions, sometimes called the "overseas" exemption or the "(b)(14)" exemption (because it is codified in 48 CFR 9903.201-1.(b)(14)) exempts contracts and subcontracts to be executed and performed entirely outside the United States, its territories, and possessions.

Beginning October 11, 2011, that exemption will no longer be available and unless other exemptions apply to a particular situation, more contractors will become subject to the CAS Standards.

The CAS Board cited three basic reasons for making the change. First, there is no accounting basis for the (b)(14) exemption. The place of contract execution and performance is not germane to the fundamental requirements and practices set forth in CAS used to measure, assign, and allocate the costs of contract performance.

Secondly, the statutory basis originally used to justify the overseas exemption no longer exists. Absent such justification, the CAS Board must give deference to the existing CAS applicability statutes as mandatory for use by all executive agencies and by contractors and subcontractors in estimating, accumulating, and reporting costs in connection with pricing and administration of, and settlement of disputes concerning, all negotiated prime contract and subcontract procurements with the United States.

Finally, the CAS Board found no evidence that the imposition of CAS in situations where the overseas exemption had been applied would create hardships for Federal agencies, prime contractors and subcontractors.