Relying on a March 25, 2005 internal legal opinion the Defense Contract Management Agency (the new name of DCMC) reversed the prior DCMC position on September 23, 2005, shutting the door on roll forward of disputed overhead costs. In stating roll forwards should not be allocated in a future period, the DCMA stated that allocability of costs should be governed "exclusively by the regulations and standards of the CAS Board." Accordingly, once a contractor’s CAS-compliant accounting practices had properly allocated a cost to a given indirect cost year, the cost may not be reallocated to another year because of a dispute about allowability. It stated the previously sanctioned roll-forward principle "was largely misconceived as a general principle."

In recognition that prohibiting roll forwards of dispute overhead costs will create problems for both contractors and government administrators, the DCMA guidance suggests that administrative contracting officers (ACOs) should consider six "alternative techniques":

1. Use FAR 42.708 "quick closeout" techniques which authorize final closeout of certain smaller cost-based contracts before indirect cost years are resolved.

2. ACOs should raise allowability questions sooner and attempt to resolve them more quickly.

3. ACOs should consider issuing notices of intent to disallow costs.

4. Encourage use of advance agreements between the parties.

5. Seek alternative dispute resolution before a formal dispute develops.

6. "Pay cost forward" where the disputed overhead cost would be paid upfront and be subject to a refund by the contractor. The pay cost forward alternative would require an advance agreement be executed to ensure the government will be paid back with interest and would apply to only those costs the government is "unclear" about.

As you would expect, there has been significant critical commentary generated about the change to the roll forward provisions. The commentary we have seen revolves around the fact that (1) the alternative techniques offered have little practical value and (2) the DCMA position misinterprets CAS 406 and generally accepted accounting principles pertaining to the time period when costs should be allocated.

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