One important reason contractors want to create joint ventures and SBUs is to have the opportunity to allocate either more or less costs to the entity. Whether the new entity is or is not a "segment" of the co-venturers often determines what costs can be allocated. For example, a segment will receive both direct costs (e.g. interorganizational transfers for goods or services) and indirect charges such as indirect service center costs based on usage (e.g. occupancy, data processing) and residual home office costs. If the joint venture is not considered a segment, it would not qualify for such home office allocations.

Are joint ventures and SBUs segments? For joint ventures, the CAS definition of "segment" is broad enough to give contractors a great deal of flexibility to make their own determinations that will help them meet their cost allocation needs. The definition of a "segment" (CAS 403-30(a)) includes a joint venture where an organization exercises control. But since most joint ventures consist of joint control, the definition does not clearly apply. On the other hand, if a "segment" determination is desirable, another section of the CAS (403-50(e)) provides a broader definition that allows a home office allocation where control is absent but performs certain functions to justify a home office allocation.

An SBU is more clearly a "segment" since it is typically a subdivision of an organization controlled by a home office. However, when an SBU is essentially a "paper entity" without its own employees, assets or liabilities and no direct responsibility for contract performance (e.g. all work is subcontracted out to other organizations), then it is unlikely a segment.

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