Under the FAR (Federal Acquisition Regulations) CAS (Cost Accounting Standards) clause (FAR 52.230-2), there are requirements for contractors to prepare and submit cost impact proposals is there are any increased costs to the Government resulting from (i) a failure to comply with CAS or (ii) a failure to follow consistently its disclosed cost accounting practices in estimating, accumulating, and reporting costs on CAS-covered contracts (and subcontracts). Additionally, cost impact proposals are required when a change from one accounting practice to another is required to comply with a cost accounting standard that subsequently becomes applicable to a contract or is necessary for the contractor to remain in compliance. Fourthly, cost impact proposals are required when a contractor wishes to change its methods for accumulating costs (voluntary accounting change). Some of those voluntary changes are fine. The CFAO (Cognizant Federal Agency Official) (usually the administrative contracting officer) may determine that an accounting change from one compliant practice to another is desirable and not detrimental to the Government. However, if the CFAO has not deemed the change desirable, the contractor may owe the Government some money if the change results in increased costs to the Government.
The purpose of this advisory is to alert contractors to the fact that if they fail to submit required cost impact proposals or fail to submit timely cost impact proposals, the Government is going to do it for you. And that is usually not a good thing.
FAR 52.230-6 provides that if the contractor fails to submit a cost impact proposal, the CFAO (Cognizant Federal Agency Official), with the assistance of the contract auditor (e.g. DCAA), shall estimate the cost impact on contracts and subcontracts containing the CAS clause. So realistically, the CFAO isn't going to have the information needed to estimate a cost impact so he/she will be relying upon DCAA to do it. But the auditor will not have all the information necessary to accurately estimate a cost impact so the auditor's estimates are sometimes nothing more than SWAGs.
The auditor will base his/her estimate on readily available data. The objective in such an exercise is not to relieve a contractor of its responsibility for preparing a required cost impact proposal, but to provide sufficient information upon which the CFAO can base a decision to withhold payment. Once the CFAO has made the decision to withhold payment, the burden of proof rests with the contractor to demonstrate, through a detailed analysis, the cost impact on each CAS-covered contract.
How much is the withhold? FAR provides that the CFAO can withhold up to 10 percent of each payment request until the cost impact has been recovered. That amount can seriously disrupt a contractor's cash flows.
If you owe the Government a cost impact, don't let it get to the point where the Government is going to estimate it for you.