Overview
This section prescribes the policies and procedures for the Cognizant Federal Agency Official (CFAO) and contractors when a contractor changes its cost accounting practices, distinguishing between changes required by law or standards, unilateral changes initiated by the contractor, and changes deemed "desirable" by the Government.
Key Rules
- Required Changes: These occur to comply with new or modified Cost Accounting Standards (CAS) or to remain in compliance with existing CAS. These changes may qualify for equitable adjustments, but only for contracts awarded before the effective date of the new standard.
- Unilateral Changes: Contractors may voluntarily change practices, but the Government is prohibited from paying any increased costs "in the aggregate" resulting from such a change. The CFAO must ensure the Government is protected from any cost increases.
- Desirable Changes: A voluntary change that the CFAO determines is not detrimental to the Government’s interest. Factors for this determination include whether the change is needed for FAR Part 31 compliance or if management actions (like restructuring) will result in long-term cost savings.
- Notification Requirements: Contractors must generally provide written notice and a description of any accounting change to the CFAO at least 60 days before implementation. Failure to provide notice can result in the CFAO treating the change as a noncompliance.
- Retroactive Changes: While a contractor can request a retroactive change, the CFAO cannot approve a date earlier than the beginning of the contractor’s fiscal year in which the request was made.
- Proposal Integration: When an award triggers a change, the offeror must prepare the contract pricing proposal using the changed practice and submit a description of that practice as pricing support.
Practical Implications
- Cost Neutrality for Voluntary Changes: Because the Government will not pay increased costs for unilateral changes, contractors must carefully model the "aggregate" impact across their entire CAS-covered contract portfolio before implementation to avoid unrecoverable cost shifts.
- Administrative Burden: The 60-day notice requirement and the potential for a noncompliance finding necessitate a proactive relationship between the contractor's compliance department and the CFAO to ensure all changes are vetted before they affect billings or proposals.