CAS Working Group Guidance - Part XIX

We are coming to the end of our series on the CAS Working Group Guidance Papers. By tomorrow we will have covered all twenty of the current "interim" guidance papers. Between 1975 and 1981, DoD convened a group of so-called CAS "experts" to come up with practical solutions to issues that contracting officers were facing in trying to interpret and apply the (then) new rules and regulations being promulgated by the Cost Accounting Standards Board (CASB). During that time, the Working Group published a total of 25 "interim" guidance papers. According to DoD, twenty of the 25 interim papers are still current. The complete working group guidance papers can be downloaded here. Today we will discuss a particular issue related to CAS 410, the propriety of allocation G&A to facilities contracts.

WG 79-24 - Allocation of Business Unit General and Administrative (G&A) Expense to Facilities Contracts

Contractors' normal operations consist of the production of goods and services, such as aircraft or weapons systems. Contractors may, however, also receive Government facilities contracts which require the acquisition of significant amounts of facilities. These purchases are made at the direction of the Government and, in some cases, no profit is granted to the contractor for making the acquisitions.

CAS 410 provides that the cost input based used to allocate the G&A expense pool shall include all significant elements of that cost input which represents the total activity of the business unit. Specific criteria are provided for three bases for allocating G&A expense; total cost input, value-added, and single element. The standard also permits a special allocation of G&A expense to a particular final cost objective, if that objective receives significantly more or less benefit from G&A expense than would be reflected by the allocation of such expense using the contractor's normal allocation base. The special allocation provides a means for accounting for aberrations of normal business activity that could involve more than one final cost objective.

Facilities acquisition contracts may be one of these "aberrations". Normally, they do not require the same level of contractor risk and associated management attention as contracts which provide for the delivery of regular goods and services. As a result, a full allocation of a contractor's management or G&A expense to such contracts would generally not be equitable. An exception to this would be the rare circumstance when the preponderance of the contractor's activity is acquiring facilities as a service for the Government.

The guidance offered here is that when it is determined that facilities acquisition contracts will not receive an appropriate allocation of G&A expense by participating in the contractor's selected G&AS expense allocation base, a special G&A expense allocation under the provisions of CAS 410.50(j) shall be required.

Although this guidance applies specifically to facilities contracts, it is equally applicable to any activity that meets the "special allocation" requirement of CAS 410. We've seen many cases over the years where special allocations of G&A expenses are required in order to achieve equity in allocating G&A expenses.