The words in CAS 402 are "costs incurred for the same purposes in like circumstances" but it is not always easy to distinguish like from unlike circumstances. It should be kept in mind that contracting officers and auditors do not look favorably on the use of the following criteria to distinguish "like" from "unlike: (1) government work occurs under circumstances unlike those for commercial work (2) fixed-price contract costs are incurred under circumstances unlike those for cost-reimbursable contracts and (3) costs on government work are treated as direct while costs on commercial work are treated indirect. Though these criteria are not specifically forbidden, contractors can expect to have auditors challenge costs allocated by procedures based on these criteria.

An associated problem is when a new circumstance is a like circumstance. For example, whereas a contractor charged test costs, which were not significant, indirectly and now receives a new contract requiring extensive testing with new equipment having no other foreseeable use. Must these costs be charged indirectly or may they be treated as a direct cost? If direct, is this a change or is it a new cost accounting practice for a situation not covered before?

Keep in mind the contractor needs to package the supporting rationale for identifying unlike circumstances. For example, a common rationale for unlike circumstances is if costs are over and above those had there been no contract. In assessing whether costs are incurred in like circumstances, you can expect the auditor to review the contract requirements and determine if the effort is different from or in greater scope than the effort might have been absent the new contract.

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