Today we present the fifth installment in our discussion of the CAS Working Group Guidance Papers. Previous installments can be read here:
Part I - WG 76-2 - Application of CAS to Contract Modifications
Part II - WG 76-3 - Interim Policy for Application of CAS to Subcontractors
Part III - WG 76-4 - Determining Increased Costs on FFP Contracts
Part IV - WG 76-5 - Treatment of Implementation Costs Related to Changes in Accounting Practices
The "Working Group Papers" were published by DoD between 1976 and 1981 to assist its contracting officers in interpreting and applying the rules and regulations being promulgated by the CAS Board during that time. According to DoD, 20 of the 25 "interim" guidance papers are still current. The purpose of this series is to review those that are still current. Today we will be looking at Working Group Guidance 76-6, Application of CAS Clause to Changes in Contractor's Established Practice where a Disclosure Statement has been Submitted.
WG 76-6 - Application of CAS to Changes in Established Practice Where Disclosure Statement Submitted.
Contractors and subcontractors are required to disclose in writing their cost accounting practices under the criteria set forth in FAR 9903.202-1 (and elsewhere). This is called the "CAS Disclosure Statement". Not every Government contractor is required to submit a disclosure statement however. For contractors that are not required to submit, the Government falls back to their "established practices" when assessing the propriety of their cost accounting practices.
The ACO is required by FAR to make a determination as to whether the disclosure statement adequately describes the contractor's cost accounting practices. In order to be deemed adequate, the disclosure statement submitted by the contractor must be current, accurate, and complete.
A contractor required to submit a disclosure statement may have cost accounting practices which are not specifically covered by Disclosure Statement or there may be other reasons why particular practices were not disclosed. That means the practice is not technically a "disclosed practice". When non-disclosed practices are revised due to either (i) a mandatory change or (ii) a voluntary change, the question arises as whether the contractor is required to revise its Disclosure Statement and submit a contract price adjustment. The CAS clause discusses changes to an "established cost accounting practice" as well as a "disclosed cost accounting practice." When a contractor is required to disclose his practices, he is, in effect, disclosing his established practices and should be disclosing all relevant cost accounting practices. Therefore, a cost accounting practice not disclosed is considered an "established cost accounting practice" whether or not it should have been disclosed in or on the Disclosure Statement.
So, contractors are not going to get off on technicalities. Even non-disclosed accounting practices are subject to cost impact adjustments.
When an ACO makes a determination that the contractor's Disclosure Statement is adequate, it does not necessarily indicate that the ACO is certifying that all cost accounting practices disclosed have been adequately described and the ACO currently is not aware of any additional practices that should have been disclosed. Subsequently, when it is discovered that a contractor is not following a cost accounting practice that he failed to disclose or a change to that practice is made, the practice will be considered an "established cost accounting practice" and appropriate guidance in ...(FAR)... on changes and noncompliances will be followed.