Whether CAS covered or not (remember CAS 406 is one of the four standards covering CAS modified covered contracts), contractors often must divulge the impact of an accounting change on its government contracts.  Because restructuring costs are incurred under nonrecurring and/or extraordinary circumstances, some commentators argue the costs may be new costs in which case the cost accounting treatment of these costs would be considered the initial adoption of a cost accounting practice and not an accounting change requiring a cost impact analysis. However, to the extent the restructuring activities cause changes to an existing cost accounting practice they are subject to cost impact analyses. The Interpretation refers to this change as “desirable” and not a detriment to the government so the cost impact would normally be measured as the difference between an estimate-to-complete before the restructuring and an estimate- to- complete after.

It should be noted that the issue has not been finalized because the continuing controversy centering on whether an organizational change constitutes an accounting change still persists. It is quite common for contractors involved in restructuring activities to, for example, move work among facilities, centralize support functions that were previously performed at multiple locations or combine separate functions into a single, more cost-effective operation. Many of these changes are considered to be “organizational changes” where contractors have argued they do not constitute accounting changes while many government groups (including DCAA) frequently argue they do represent accounting changes. A well know case Martin Marietta Corp (ASBCA 38920) concluded that some of its home office allocation costs that were a result of organizational changes did not represent a change to its cost accounting practice (i.e. techniques used to allocate costs to cost objectives, assignment of costs to cost accounting periods or measurement of cost). Though some agencies have chosen to treat similar situations differently, DOD maintains the criteria about organizational changes should be limited to circumstances in the case – home office organizational changes.

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