Overview
This section prescribes the policies and procedures for the Cognizant Federal Agency Official (CFAO) to negotiate and resolve cost impacts resulting from changes in cost accounting practices or CAS noncompliances. It establishes the CFAO’s sole authority to settle these impacts while providing strict parameters on how costs may be offset, adjusted across contracts, or resolved through alternate methods.
Key Rules
- CFAO Authority and Coordination: The CFAO has sole authority for resolving cost impacts but must coordinate with affected contracting officers if the estimated impact on their specific contracts exceeds $100,000.
- Prohibition on Offsetting (Anti-Offsetting): The CFAO is strictly prohibited from combining/offsetting cost impacts between different categories, such as:
- Required changes vs. unilateral changes or noncompliances.
- Desirable changes vs. unilateral changes or noncompliances.
- Multiple unilateral changes or noncompliances, unless all result in increased costs to the Government.
- Aggregate Price Limits: For unilateral changes and noncompliances, the aggregate price of all affected contracts shall not be increased. Upward adjustments to individual contracts are only permitted if they are fully offset by downward adjustments to other contracts.
- Contract Adjustment Methods:
- Fixed-Price Contracts: Generally, prices should not be adjusted upward for unilateral changes or noncompliances.
- Flexibly-Priced Contracts: Costs may be disallowed or cost ceilings/target costs adjusted to preclude payment of aggregate increased costs.
- Noncompliance Correction: Contractors must correct noncompliant practices in their records and adjust invoices/vouchers for any costs already paid under noncompliant practices.
- Alternate Methods: The CFAO may use alternate resolution methods (e.g., indirect cost pool exclusions) only if the Government does not pay more than it would under standard contract adjustments and the contractor agrees.
Practical Implications
- Government "Windfall" Protection: Because the FAR prohibits offsetting a cost-increasing unilateral change against a cost-decreasing unilateral change (unless both increase costs to the Government), contractors often find that a suite of accounting changes results in a net payment to the Government even if the net private accounting impact is zero.
- Administrative Centralization: Contractors benefit from a single point of contact (the CFAO) for negotiations, preventing the need to negotiate CAS impacts individually with every contracting officer across different agencies.
- Indirect Rate Adjustments: In practice, many cost impacts are resolved via "alternate methods" such as adjusting final indirect cost rates, which avoids the administrative burden of modifying hundreds of individual contracts while ensuring the Government’s participation rate is accurately reflected.