The Defense Contract Audit agency issued guidance on recent general revisions made to FAR Part 31 to make them consistent with the cost accounting standards.  Though the changes do not materially change the substance of FAR, some changes are “noteworthy.”  The guidance portrays the changes to the cost principles in a line-in line-out format and those changes we consider noteworthy are:

1.  FAR 2.101, Definitions, Direct cost means “any cost that is identified specifically with a particular final cost objective” while indirect cost means “any cost not directly identified with a single final cost objective but identified with two or more cost objectives or with at least one intermediate cost objective.”

2.  In FAR 31.201-1, Composition of total cost, references to FAR 31.201-2 are removed.  Total costs represents the sum of direct and indirect costs allocable to the contract including standard costs properly adjusted for variances and cost of money less any allocable credits.

3.  In FAR 31.201-2, Determining allowability, the introductory sentence that used to mention five factors that should be “considered” are now “required” for allowability.  The five factors are (1) reasonableness (2) allocability (3) compliant with CAS, GAAP or is appropriate to circumstances (4) contract terms and (5) limitations set forth in the cost principles.

4.  FAR 31.203, Indirect costs, adds a new paragraph that states all CAS provisions apply to fully CAS covered contracts while the applicable CAS provisions identified in the paragraphs of FAR 31.203 apply to all other contracts.  

5.  In FAR 31.203, contractors must use its fiscal year for its accounting period if not CAS covered while it must use CAS 406, Accounting periods if contracts are fully or modified CAS covered (04-PAS-03(R). 

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