CAS 418 – Allocation of Direct and Indirect Costs (Part 2 of 6)

CAS 418 – Allocation of Direct and Indirect Costs (Part 2 of 6) *This is Part 2 of a 6-part blog.  Each part addresses the fundamental requirements and techniques for application related to the standard, and provides specific examples. Part 1 addressed the overall purpose of the standard, as well as the requirements/techniques for application related to direct costs. This Part 2 will address the requirements/techniques for application related to indirect cost pools. Part 3 will address some of the requirements/techniques for application related to allocation bases. Part 4 will address the requirements/techniques for application related to allocation bases not addressed in Part 4 of this blog. Part 5 will address special allocations. Part 6 will address pre-determined indirect rates.   Background: This standard provides … Continue reading

CAS 418 – Allocation of Direct and Indirect Costs (Part 1 of 6)

*This is Part 1 of a 6-part blog.  Each part addresses the fundamental requirements and techniques for application related to the standard, and provides specific examples. This Part 1 addresses the overall purpose of the standard, as well as the requirements/techniques for application related to direct costs. Part 2 will address the requirements/techniques for application related to indirect cost pools. Part 3 will address some of the requirements/techniques for application related to allocation bases. Part 4 will address the requirements/techniques for application related to allocation bases not addressed in Part 4 of this blog. Part 5 will address special allocations. Part 6 will address pre-determined indirect rates.   Background: This standard provides the criteria for the accumulation of indirect costs, including service center and overhead … Continue reading

Adding Value to the Company: Moving to Dismiss Claims Under the Contract Disputes Act for Statute of Limitation Violations

To say that there is a crisis surrounding the closing of government contracts, especially large cost-type contracts held by large government contractors, would certainly not be an understatement. [i]  Closing a contract essentially requires verification that the goods or services have been provided and that final payment has been made to the contractor. Audits are the tools the government uses to support contract closeouts.  However, the government is seemingly taking forever to perform various audits of government contracts.  To illustrate, the Defense Contract Audit Agency, the audit arm of the Department of Defense, had a backlog of 25,000 incurred cost audits at the end of Fiscal Year 2011, some dating as far back as 1996. GAO, Defense Contracting:  DOD Initiative to Address Audit Backlog Shows … Continue reading

CAS 404 – Capitalization of Tangible Assets (Part 1 of 2)

*This is Part 1 of a 2-part blog.  This Part 1 addresses (i) the basic fundamental requirements at CAS 404-40(a), 404-(b)(1), and 404-(b)(2); and (ii) the techniques for application at CAS 404-50(a), as well as the fundamental requirements that relate to those techniques.  Part 2 of the blog will address the techniques for application at CAS 404-50(b) thru (f), as well as the fundamental requirements that relate to those techniques.   Background:  This standard is primarily concerned with the measurement of costs, and the assignment of those costs to accounting periods.  When a contractor purchases an item, CAS 404 provides the criteria for determining whether or not to assign the entire amount of the asset cost in the year of purchase (expense the asset), or … Continue reading

GAO Recommends Little Relief to Incurred Cost Submission Backlog

Guest Authors: Capital Edge Consulting (http://capitaledgeconsulting.com/): The recent GAO report on the backlog of audits of Incurred Cost Proposals is unfocused.  The conclusion highlights the fundamental issue at hand in the statement, “DOD has fallen far behind in closing out its contracts, in part due to the large backlog of incurred cost audits that must be performed by DCAA…” The GAO’s “Recommendations for Executive Action” include recommending DCAA, “…assess whether its incurred cost backlog initiative is achieving the objectives of reducing the incurred cost audit backlog…”  With this suggestion, GAO is recommending DCAA engage in the same metric type exercise that landed it in hot water in 2009 (GAO Report 09-468, September 2009).  Clearly, the GAO’s recommendations lack substance on how to increase the rate of … Continue reading

DoD IG Critical of DCMA Proposal Audits

By Darrell Oyer, Darrell J. Oyer & Co.: In 2010 DOD issued guidance to contracting officers raising the contract value for requesting a proposal audit from $650,000 to $10 million for fixed-price contracts and from $10 million to $100 million for cost-type proposals. DOD transferred low-dollar proposal audits from the Defense Contract Audit Agency (DCAA) to the Defense Contract Management Agency (DCMA).  The change came in the wake of congressional criticism over the quality of DCAA’s audits. DCAA said this decision would allow it to redirect 132,133 audit hours to higher-dollar proposals [Editorial Note:  Sure]. A DOD Inspector General (IG) report has now concluded that this action could cost taxpayers as much as $249.1 million per year. According to the IG, DCMA’s Pricing and Negotiation … Continue reading

Allowable Legal Costs

By Darrell Oyer, Darrell J. Oyer & Co.:  The U.S. Court of Appeals for the Federal Circuit has affirmed a Civilian Board of Contract Appeals ruling that Boeing Co. (successor in interest to Rockwell International Corp) could recover costs related to its defense of a False Claims Act (FCA) lawsuit [Chu v. Boeing Co., Fed. Cir., No. 2011-1304, -1317] In 1989, a relator brought an FCA lawsuit in U.S. District Court alleging that Rockwell had false claims and statements regarding certain environmental matters.  A jury awarded the plaintiff a $4.1 million judgment that a Circuit Court affirmed. However, the Supreme Court found that the District Court lacked jurisdiction to enter judgment in favor of the relator because the relator was not an original source under … Continue reading

Proposing a Simpler Exemption

On November 19, 2012 the Office of Federal Procurement Policy (OFPP) and the Cost Accounting Standards (CAS) Board issued an invitation for public comments concerning a proposed modification to the existing “commercial item” exemption. (77 Fed. Reg. 69422). The proposed change eliminates the detailed listing of permissible contract types included in the exemption found at CFR 9903.201-1(b)(6).  This will likely provide an exemption for more contracts that clearly should not be subject to CAS coverage. The CAS Board “believes that there is an inconsistency in the regulatory text” of the exemption between the current exemption wording and “other applicable statutory and regulatory provisions.”  The Board wants to expand the scope of contracts exempt from CAS and to allow for a more generalized statement. Currently, the exemption … Continue reading

Improper Price Analysis in a Best Value Procurement

In May 2012 the Department of Veterans Affairs (VA) issued a request for quotations to establish a blanket purchase agreement (BPA) for hazardous waste removal services. The best value evaluation scheme required the VA to consider offerors’ prices, past performance, and technical factors. Price was deemed to be less important than the other two factors combined. Three offers were submitted, including from Clean Harbors Environmental Services and from Triumvirate Environmental, Inc.  Clean Harbors’ quoted price was $3,216,112.96 and Triumvirate’s quote was $2,186,045.00 – more than $1 million less. The VA nevertheless awarded the BPA to Clean Harbors for posing the lowest risk (based on past performance) and for best technical score. The VA determined Clean Harbors’ price was reasonable.  The VA also assessed Triumvirate’s risk … Continue reading

If Budget Sequestration Trims Your Contract: What Contractors Need to Know About Partial Terminations and Deductive Changes

Guest Authors: Neil H. O’Donnell and Dennis J. Callahan, Rogers Jospeh O’Donnell, PC, writes: By definition, budget sequestration is a ham-handed approach to cutting federal spending.  Even if sequestration is somehow averted, however, there can be little doubt that FY 2013 will see a particularly severe round of belt tightening in federal contracting.  In addition to delaying procurements and forgoing the exercise of contract options, federal agencies likely will become more aggressive in pruning the amount of goods and services called for under existing contracts.  How such deletions of work are characterized often falls into a large grey area, and, indeed, the BCAs and courts have not even settled upon a firm standard for distinguishing between partial terminations and deductive changes. The different recovery rules governing … Continue reading