Overview
This section prescribes the administrative procedures and requirements for evaluating the cost impact of changes to a contractor's cost accounting practices. It establishes a standardized process for the Cognizant Federal Agency Official (CFAO) to review, evaluate, and resolve the financial effects of required, unilateral, and desirable accounting changes on CAS-covered contracts.
Key Rules
- Submission Hierarchy: Upon notification of a change, contractors must provide a General Dollar Magnitude (GDM) proposal to estimate the overall cost impact. If the GDM is insufficient to resolve the impact, the CFAO may require a Detailed Cost-Impact (DCI) proposal.
- Materiality Threshold: If the CFAO determines the cost impact of a change is immaterial, the process concludes with no further contract adjustments.
- Cost Impact Calculation Logic:
- Flexibly-priced contracts: Increased cost to the Government occurs when the changed practice results in higher costs than the current practice.
- Fixed-price contracts: Increased cost to the Government occurs when the changed practice results in lower costs than the current practice (since the price is fixed, lower costs increase contractor profit at the Government's expense).
- Aggregate Requirement: Cost impacts must be calculated in the aggregate across all affected CAS-covered contracts, including both open and closed contracts and those spanning multiple fiscal years.
- Remedies for Non-compliance: If a contractor fails to submit required descriptions or proposals, the CFAO is authorized to withhold up to 10% of payments on CAS-covered contracts or issue a unilateral contract adjustment.
Practical Implications
- Contractors must be prepared for rigorous Government scrutiny of unilateral changes, as the regulations are designed to ensure the Government does not pay more in the aggregate due to a contractor's voluntary accounting shift.
- The distinction between contract types is critical; a single accounting change might result in a "cost increase" on a cost-reimbursement contract while simultaneously creating a "cost increase" (via cost reduction) on a firm-fixed-price contract, both of which the Government may seek to recover.