CAS Working Group Guidance Papers - Part IV

Today we present the fourth 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

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 76-5, Treatment of Implementation Costs Related to Changes in Cost Accounting Practices.

76-5 - Treatment of Implementation Costs Related to Changes in Cost Accounting Practices

When a cost accounting practice is changed, whether the change is mandatory (issuance of a new cost accounting standard) or voluntary (any change other than mandatory) contractors will invariably incur costs to implement the change. Sometimes these costs are significant, sometimes not. Back in 1976, questions arose as to whether implementation costs associated with such practice changes may be included in cost impact statements, and whether such costs should be charged only to CAS covered contracts. Similar questions arise today.

Since mandatory changes are required because of CAS Board actions, it has been proposed that total implementation costs should be allocated only to CAS covered contracts. In the case of voluntary changes, CAS Board regulations state that there can be no increased cost to the Government. This adds additional significance to the question of whether implementation costs should be included in the cost impact statement. Cost of implementing changes to accounting practices may include the cost of work performed by the contractor's personnel and/or work performed by outside organizations. Such costs are normally included in the contractors' overhead accounts and allocated to appropriate cost objectives.

Given the above scenarios and discussion, the CAS Working Group has advised that implementation costs may be included in cost impact statements only to the extent they are a part of appropriate indirect expense pools, and allocated in accordance with the contractor's normal accounting practices. This principle applies to both voluntary changes and changes resulting from the issuance of Standards. This effectively means that such implementation costs may not be charged direct to any particular contractor or set of contracts.