CAS Working Group Guidance - Part XVI

Today begins the final week of our series on the CAS Working Group 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 several issues related to CAS 410.

WG 78-21 - Implementation of CAS 410, Allocation of Business Unit General and Administrative Expenses to Final Cost Objectives.

This Guidance Paper, using a question and answer format, deals with eleven separate issues that arose during the development of contractor implementation proposals. Following is a brief explanation of each topic. If any of these pertain to your situation, we recommend you read the full six-page guidance memo. By the way, this guidance memo makes a reference to WG 77-11. Be careful how you use 77-11; it is one of the Working Group Guidance Papers that DoD considers no longer current.

1. It is not appropriate to include functional costs, such as program management, procurement in the G&A pool unless the costs are insignificant.
2. Regardless of examples given in CAS or in prefatory/promulgation comments, the fundamental requirement of CAS 410 is to distribute costs on a causal/beneficial relationship. If any allocation results in an inequity, contractors must determine a separate allocation base for those costs.
3. CAS 410 states that the cost input based may be total cost input (TCI), value-added, or single element. The TCI allocation base is preferred. When circumstances exist where TCI is not an appropriate measure of total activity, other bases should be considered.
4. Interdivisional transfers should be included in the TCI base, unless it would result in an equitable distribution of G&A costs.
5. Several examples are provided where the use of a value-added allocation base is more appropriate than a TCI base.
6. If using a value-added cost input base, only exclude the direct materials and subcontracts. Do not exclude indirect materials and subcontracts.
7. A single-element cost input base may be used when a contractor can demonstrate that it best represents the total activity of a business unit and produces equitable results.
8. The "special allocation" described in CAS 410.50(j) only applies in situations where a particular final cost objective is an exception to the contractor's normal operation.
9. A "special allocation" under CAS 410.50(j) must be described in the Disclosure Statement.
10. Allocations of home office centralized service functions, staff management of specific activities of segments, and central payments or accruals must identify the allocation base and the components of the expense pool.
11. Facilities contracts must be included in the total cost input base unless an allocation inequity occurs.