Cost Accounting

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Welcome back to the Cost Corner, where we provide practical insight into the complex cost and pricing requirements that apply to Government contractors. The March 2023 Cost Corner introduced the three principle categories of Government contracts cost and pricing requirements: (1) the Truthful Cost or Pricing Data Statute, also known as the Truth in Negotiations Act (TINA), which defines a contractor’s obligation to disclose cost or pricing data to the Government; (2) the Federal Acquisition Regulation (FAR) Cost Principles, which prescribe principles and procedures for determining the allowability of costs; and (3) the Cost Accounting Standards (CAS), which provide standards to ensure uniformity and consistency in the measurement, assignment, and allocation of costs. The September 2023 Cost Corner concluded a three-part series on TINA. We now move on to the FAR Cost Principles, specifically FAR Subpart 31.2, which applies to contracts with commercial organizations. This article addresses the applicability of the FAR Cost Principles and their general criteria for determining the allowability of costs. Subsequent articles will address the allowability of selected items of cost.Continue Reading Government Contracts Cost and Pricing: Introduction to the Federal Acquisition Regulation Cost Principles (Part 1)

Welcome to the Cost Corner. This is the first in a series of articles exploring the complex cost and pricing regulations that apply to government contractors. This article provides an overview of the regulatory framework and its rationale. Subsequent articles will explain specific aspects of the regulations in further detail and provide periodic updates on new developments.Continue Reading Government Contracts Cost and Pricing – A Brief Overview of the Regulatory Landscape

Section 820 of the National Defense Authorization Act for Fiscal Year 2017 (“NDAA”) establishes a new Defense Cost Accounting Standards Board (“D-CASB”) to oversee the application of the Cost Accounting Standards (“CAS”) to defense contracts. The amendments made by Section 820 shall take effect on October 1, 2018.
Continue Reading Defense Contractors to Face New Cost Accounting Oversight with Creation of Defense Cost Accounting Standards Board

Volume X – Accounting for the Cost of Business Combinations Under Government Contracts

Mergers and acquisitions create additional costs and complex accounting issues for government contractors.  There are fees for accounting, legal, and business consultants.  There may be restructuring costs associated with combining business operations.  Segments may be closed and retirement plans may be terminated.  Golden handcuffs and golden parachutes are also common.  Assets may be revalued, goodwill may be created, and there may be changes in cost accounting practices.Continue Reading What You Need to Know About Mergers and Acquisitions Involving Government Contractors and Their Suppliers

The Department of Defense intends to issue a proposed rule to ensure that substantial future independent research and development (“IR&D” or “IRAD”) expenses, which can be used as a means to reduce bid prices in competitive source selections, are evaluated in a uniform way during the competitive process.   81 Fed. Reg. 6488 (February 8, 2016).  However, interested parties and industry leaders can help formulate this regulation before the DoD issues the proposed rule.
Continue Reading DoD Seeks Public Comments Before Issuing a Proposed Rule on IR&D Costs

On August 26, 2015, the Department of Defense (“DOD”) issued a White Paper announcing that, beginning in FY 2017, all defense contractors will be required to notify DOD before undertaking any new Independent Research and Development (“IR&D”) projects if contractors would like their IR&D costs to be deemed allowable. Entitled “Enhancing the Effectiveness of Independent Research and Development,” the White Paper explains that both DOD and the Industrial Base need to work together to ensure the department has visibility into “government-reimbursed IR&D efforts.” Specifically, the White Paper states, “[t]o ensure that a two way dialogue occurs between the Department and IR&D performing organizations and to provide for some minimum oversight of IR&D, the department believes that proposed new IR&D efforts should be communicated to appropriate DOD personnel prior to the initiation of these investments and that results from these investments should also be shared with appropriate DOD personnel.”
Continue Reading DOD Issues White Paper Aimed at IR&D Costs

By David Gallacher 

Last month we wrote about a provision in the proposed 2013 National Defense Authorization Act (“NDAA”) that would have given the Defense Contract Audit Agency (“DCAA”) statutory authority to demand a company’s internal audit reports in order to audit the efficacy of a company’s internal business systems. Surprisingly, the authorization, as originally proposed, was modified in the final legislation. While Congress directed DCAA to issue new guidance regarding auditor access to internal audit reports, Congress stopped short of giving DCAA actual authority to demand such reports. As such, contractors will remain at loggerheads with DCAA auditors who try to exceed their statutory authority.Continue Reading Smash & Grab Redux – Congress Seems to Give DCAA Permission But Forgets to Give It Authority

By David Gallacher 

The Defense Contract Audit Agency (“DCAA”) has long sought access to contractors’ internal audit reports in connection with the routine audit of contractors’ business systems. Contractors have, in most cases, successfully resisted requests for such access on the grounds that DCAA has no statutory authority to request such documents. But that may soon change. Section 843 of the Senate version of the 2013 National Defense Authorization Act (S. 3254) would grant DCAA broad access to contractor internal audit information.Continue Reading Smash & Grab – DCAA Poised to Gain Access to Contractor Internal Audit Reports

By David S. Gallacher and Kerry O’Neill

Last April, we wrote about proposed changes to Department of Defense ("DoD") reporting requirements for independent research and development ("IR&D"), raising concerns about how the proposed change would tie recoverability of IR&D costs to new reporting and disclosure requirements. Recently, Defense Federal Acquisition Regulation Supplement ("DFARS") 231.205-18(c) was finalized, with changes. See 77 Fed. Reg. 4632 (Jan. 30, 2012). This final rule is a mixed bag that got some things right, but also leaves some of the most serious issues unresolved.Continue Reading Final Rule for IR&D Reports Fails to Address Most Serious Questions

By David Gallacher and John Bonn

On January 2, 2011, the President signed the James Zadroga 9/11 Health and Compensation Act of 2010, Pub. L. No. 111-347, which set up a relief fund for victims, first responders, and construction workers who were injured in the September 11 terrorist attacks in New York City. To pay the estimated $4.3 billion price tag for the Act, Section 301 of the Act imposed on any foreign person a tax equal to 2% of federal procurement payment received by that foreign person. See 26 U.S.C. § 5000C. In addition, any person who makes or otherwise is a withholding agent with respect to such a payment is required to withhold the 2% tax from the federal procurement payment and remit the tax withheld to the Internal Revenue Service (“IRS”) under tax laws and regulations applicable to withholding of United States taxes from payments made to foreign persons. Although the tax has been in place for more than 14 months and the IRS has issued a revised Form 1042 with revised instructions to implement withholding and reporting obligations, the Government is only now turning to the details of how this tax will be accounted for in connection with the procurement process. And – as is often the case – there is quite a lot of devil in those details.Continue Reading Terrorism and Taxes – Proposed FAR Rule Imposes 2% Tax on Foreign Offers to Fund 9/11 Relief Fund

By: John W. Chierichella
 

CAS 402 has long provided that B&P costs incurred pursuant to a specific requirement of an existing contract may be distinguished from B&P generally and treated as direct costs of the requiring contract. As CAS 402-61 states:

The circumstances are different because the costs of preparing proposals specifically required by the provisions of an existing contract relate only to that contract while other proposal costs relate to all work of the contractor.Continue Reading DOD Issues New Guidance on B&P – But Is It Right?