Overview
This section prescribes the mandatory procedures for the Cognizant Federal Agency Official (CFAO) to identify, notify, and resolve instances where a contractor fails to comply with Cost Accounting Standards (CAS). It outlines the formal process for determining the materiality of a noncompliance and the methodology for calculating the resulting cost impact to the Government.
Key Rules
- Aggregate Protection: The CFAO must ensure that any contract price or cost adjustments protect the Government from increased costs in the aggregate and do not result in a recovery that exceeds the actual increased costs paid.
- Strict Timelines: The CFAO has 15 days to act on an auditor's report of noncompliance, and the contractor generally has 60 days to respond to a notice of potential noncompliance or to submit a description of a corrective accounting change.
- Two-Tiered Proposal System: Contractors must submit either a General Dollar Magnitude (GDM) proposal for a high-level estimate of the cost impact or a Detailed Cost-Impact (DCI) proposal for a contract-by-contract analysis if requested by the CFAO.
- Calculation Methodology: Cost impacts must include all affected CAS-covered contracts (both open and closed), account for impacts on incentives, fees, and profits, and reflect the difference between the noncompliant practice and the compliant practice.
- Interest Recovery: The Government is required to recover interest on any increased costs paid due to noncompliance, calculated from the date of overpayment to the date of repayment.
- Immateriality Exception: If the CFAO determines the cost impact is immaterial, they may conclude the process without contract adjustments, provided the contractor is notified to correct the practice for the future.
Practical Implications
- Administrative Burden: Contractors face a significant administrative workload when a noncompliance is determined, as they must perform complex historical reconciliations across their entire CAS-covered contract portfolio.
- Aggregate Offsetting: Because calculations are made "in the aggregate," a contractor may be able to offset increased costs on some contracts with decreased costs on others, provided the net result protects the Government's interests.
- Enforcement Risk: Failure to submit required proposals or correct noncompliant practices in a timely manner grants the CFAO the authority to apply remedies, including withholding payments or implementing unilateral price adjustments.