CAS Working Group Guidance Papers - Application of CAS to Subcontracts

This is the second installment in our periodic series on the CAS Working Group Guidance Papers. To read Part I, go here. The CAS Working Group existed for only about five or six years. The CAS Board was initially a legislative body but DoD (an executive agency) set up the working group to help its contracting officers to understand and interpret CAS standards and regulations. According to the Defense Contract Audit Agency, 20 of the 25 original working group guidance papers are still current. In this periodic series, we will be discussing the ones that are still current. Today we will look at Working Group Guidance Paper No. WG 76-3 issued on October 1, 1976.

WG 76-3 - Policy for Application of CAS to Subcontracts

The CAS clause requires that contractors comply with all cost accounting standards in effect on the date of award of a CAS covered contract. Prime contractors and higher-tier subcontractors are also required to flow down the CAS provisions to their own subcontractors. The question arose as to what CAS Standards apply to the subcontractor(s); the ones in effect on the date the prime was awarded or the ones in effect on the date the subcontract was awarded. The CAS Board stated that subcontractors are required to comply with only those CAS Standards applicable to the prime contractor.

 Back when the CAS Board was issuing Standards, this question came up often. Now however, not so much. It isn't totally obsolete however because although no new CAS Standards have been issued in many years, the existing ones are modified from time to time. Currently, the Board is considering changes to CAS 412 and 413 to comply with the Pension Harmonization Act.

After careful consideration of the CAS Board interpretation and its impact, the Working Group concluded that, in many cases, the administrative effort to implement the CAS Board's interpretation could be considerably greater than that required when subcontracts are subject to all standards in effect at the time the subcontracts are placed. This is evident when the two situations are compared. In the one instance each new subcontract would bring with it all current standards. This would leave no doubt as to the standards applicable to all the contractor's CAS covered work. In the other case, it would be necessary to track back to the prime contract to determine the standards that were effective. Following this, other existing contracts and new awards would have to be reviewed. The results of this would disclose which prime or subcontract included the latest standards, and thus establish the standards applicable to all CAS work.

In view of the above, contracting officers were advised to require their prime contractors to include language in their CAS flow down clauses which requires that subcontractors at all tiers comply with all standards, rules and regulations in effect at the time the subcontract is awarded.