Q.  This year I find myself in the difficult situation of having my provisional billing rates significantly less than my actual indirect rates.  CAS 405 talks about identification of unallowable costs and I was wondering if I can, under this standard, unilaterally move  some normally allowable costs to an “Unallowable cost bucket” which would allow me to stay within my provisional rates for FY 2006.  My company went through some major changes in 2006 and some of our business assumptions (e.g. expectations of more business) did not materialize. I have confidence, however, that the situation will drastically improve in 2007 which will be partially due to having competitive rates we were able to use in our bids in 2006.

A.  Though I guess you could charge it to unallowable, I would ask why you would want to do so.  There is no problem with submitting the costs as they are and have them audited in which case you would likely have audited rates higher than you billed.  Whether or not you go after the difference is a business decision you make which in this case, it seems you would not go after anymore than you billed even though you are entitled to more.  I fear if you charge certain costs as "unallowable" you raise a major red flag by not doing so in previous and subsequent years.  If you still want to segregate the excess costs, I would prefer to call them a special management concession for a specific year. 

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