In the last issue of both the REPORT and DIGEST we reported on the significant revisions to FAR Part 30 affecting the process for determining and resolving cost impact on CAS covered contracts and subcontracts where a contractor makes a change to a cost accounting practice or fails to comply with the Cost Accounting Standards.  Subsequently, DCAA has issued guidance on the change and we thought we would report on elements in the guidance that were not discussed in the prior articles.

Determinations.  The guidance requires auditors to separately evaluate a contractor’s disclosure statement for adequacy, requiring a revision if not adequate and then to conduct a compliance audit of the disclosed practices with CAS standards where a determination of noncompliance must result in a revised disclosure statement.

Required Changes.  If a contract award requires a change to an accounting practice the contractor needs to disclose that the award requires the change, prepare a proposal using the changed practice and submit a description of the change with the proposal.

Unilateral and Desirable Changes.  A unilateral change is a change from one compliant cost accounting practice to another one where it has not been determined by the CO to be desirable.  In this case, the government will not pay increased costs in the aggregate resulting from the unilateral change.  A desirable change is a unilateral change that has been determined by the CO to be desirable and not detrimental to the government and hence not subject to the prohibition of increased cost payment.  Under a desirable change, the government will negotiate an equitable adjustment to the cost impact.
Further, FAR 30.603-2 says: (1) until a change is determined by the CO to be desirable, it is considered unilateral (2) there are advanced notification requirements to the government for a unilateral change (3) a contractor may request a change be retroactive if a rationale request is submitted and (4) contract price adjustments do not apply to changes related to external restructuring activities.

Consistency with DCAM.  The guidance notes that the requirements in the procedures related to demonstrating the cost impact to the government e.g. issuing cost impact analyses at the gross dollar magnitude (GDM) and detailed cost impacts (DCI) levels as well as the ability to adjust a single, several, all contracts or any other suitable method are consistent with the five steps of the cost impact process found at DCAM 8-503.

Subcontract Administration.  The guidance specifies that remedies of cost impacts at the subcontractor level will be made at the prime contract level “if a subcontractor refused to submit a required GDM or DCI proposal.”   

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