New FAR Proposal on CAS Cost Impact Process is Expected
The FAR Council is preparing to issue in the next few months a second proposed rule on the cost impact process that is triggered when a contractor covered by the cost accounting standards makes a change to its disclosed cost accounting practices. The first proposed rule was issued in April 2000 but needs revision following extensive comments.
The cost impact process ensures the government does not pay increased costs when a CAS-covered contractor makes certain types of cost accounting practice changes. DOD drafted the first rule as an alternative to one issued by the CAS Board which was extensively criticized by contractors and government representatives as too long and complex. To provide relief from onerous requirements, the first proposed FAR rule did not require submission of cost impact estimates or contract price adjustments for every CAS-covered contract affected by the accounting change. Rather, it contemplated a three-step sequence of submissions by contractors and encouraged settlement at the lowest step: (1) an initial evaluation to determine materiality of the changes (2) if the cost is material, a general dollar magnitude (GDM) proposal reflecting the minimum data needed to resolve the cost impact and (3) if the GDM proposal is insufficient or inadequately supported, a detailed cost impact proposal.
Many comments, especially from the American Bar Association, said the proposed rule did not go far enough to correct deficiencies in the current regulations and the result could be to increase, not decrease, the administrative burdens. Contractor representatives have been urging the cost impact rule should (1) allow ACOs the discretion to use good business judgment to achieve an equitable result and (2) allow resolution of a cost impact using “generic data” reflecting the contractor business mix rather than individual contracts, whenever possible.
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