Purpose & Evolution of the Cost Accounting Standards
Before the Cost Accounting Standards (CAS), the government would get proposals from various contractors in response to a request for proposal (RFP). Contracting officers (COs) complained it was difficult to evaluate many proposals because the cost accounting practices used by contractors from one proposal to the next were inconsistent and cost estimates were vastly different. Government oversight officials also were concerned with the misallocation of costs to their contracts. In addition, the government found it difficult to compare negotiated cost estimates with the actual costs of performance.
In the mid-60s, defense contractors were under significant scrutiny and accusations of profiteering were all over the media. Admiral Hyman Rickover testified in congressional hearings that “the lack of uniform accounting is the most serious deficiency in government procurement today.” In 1968, Congress directed the General Accounting Office (GAO)1 to undertake a study to determine the feasibility of applying uniform cost accounting standards in all negotiated prime contract and subcontract defense procurements of $100,000 or more.
After the GAO issued its report, Congress passed Public Law 91-379, creating CAS. The CAS would be the responsibility of a new CAS board (the CASB), which over the next decade before being disbanded in 1980, would promulgate CAS clauses for negotiated contracts, administrative requirements, 15 exemptions, 19 cost accounting standards, and a disclosure statement. A few years later, Congress passed Public Law 100-679, reinstating the five-member CASB that is responsible for updates and new CAS-related activities.
The purpose of CAS is straightforward—to provide guidelines to improve cost accounting and properly assign cost to negotiated defense contracts. CAS is intended to help ensure uniformity and consistency in the:
- Measurement of cost
- Assignment of a cost to an accounting period
- Allocation of a cost to contracts
While CAS is intended to promote consistency and uniformity of cost accounting practices, if properly implemented, the CAS also can be used to facilitate administration negotiation and settlement of contracts.
The complete CAS can be found at acquisition.gov.
Difference Between CAS & FAR Cost Principles
CAS specifically addresses cost measurement, assignment and allocability. If a contractor or subcontractor is performing under a contract subject to CAS requirements, the CAS guidance must be followed. However, for the many contracts2 not subject to the requirements of CAS, the Federal Acquisition Regulation (FAR) cost principles contained at Part 31.2 provide guidance. While both CAS and FAR provide measurement, assignment, and allocability guidance, only FAR provides guidance on cost allowability, which is a concept unique to federal contracts. Only allowable costs are paid by the government—and all allowability guidance is contained in FAR 31.2.
If there is a conflict between CAS and FAR, CAS will govern.
In addition, a contract—not the contractor—is subject to CAS, which means a company may be performing on dozens of contracts, but only a few may be subject to CAS requirements. In fact, many large contractors do not have any CAS-covered contracts. Many contractors interpret CAS as applicable to all contracts of a business unit due to expectations for consistency in cost accounting practices that charge and allocate costs to both CAS and non-CAS covered contracts; however, CAS administration challenges enhance the importance of contractors’ ability to distinguish between contracts subject to CAS and those that are not.
Finally, CAS coverage applicable to a contract is determined at the time of the award. Any changes to the contract will not change its CAS coverage. If exempt at the time of award, the contract is exempt from CAS forever—even if the government modifies the contract. Once CAS is assigned, it will stay for the duration of the contract.
Download the Full Guide to Cost Accounting Standards (CAS) Compliance
Download the full guide to continue reading about:
- CAS Exemptions & Administration
- Cost Accounting Practices
- Contract Price Adjustments Under CAS
- The Cost Accounting Standards
- CAS Disclosure Statement
- CAS for Colleges & Universities
How Forvis Mazars Can Help Contractors With CAS Compliance
We have summarized nearly 70 years of history and thousands of pages of regulations, interpretations, and guidance into this condensed guide to provide you with an overview of CAS compliance. Even when condensed, we understand how challenging these intricate regulations can be to follow. The government contracting consulting team at Forvis Mazars can help contractors navigate these complex rules.
Over the years, we have learned that contractors who rely on a knowledgeable and experienced firm that delivers strategy-aligned services seem to experience fewer audit and compliance challenges, spend less on remediation issues, and improve cost recovery on their programs. Addressing compliance up front helps you make informed business decisions and avoid changes during an audit when a significant contract award on the line.
- 1In 2004, GAO's legal name changed from the General Accounting Office to the Government Accountability Office to reflect the agency's expanding role in a growing federal government.
- 2When applicable, CAS can apply to both prime contracts and potentially to subcontracts. In this article, we use the term “contracts” to include both prime contracts and subcontracts.