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August 31, 2020 By cs

Government reliance on waiver argument to keep price adjustment windfall fails

The U.S. Court of Appeals for the Federal Circuit has articulated limits to the government’s ability to rely on the waiver doctrine to enforce Federal Acquisition Regulation (FAR) provisions of questionable legality.

In so doing, the court has cast doubt on the government’s “heads we win, tails you lose” approach to measuring the cost impact of simultaneous changes to a contractor’s cost accounting practices.

In The Boeing Company v. United States, 2019-2148 (Aug. 10, 2020), the Federal Circuit rejected the government’s argument that Boeing’s claim — which was based on an apparent conflict between: 1) a statutory provision limiting the costs the government may recover for cost accounting practice changes to the aggregate increased cost to the government, and 2) a FAR provision under which the government’s recovery considers only the changes that increase costs to the government, and disregards changes that decrease costs to the government — was waived because Boeing did not raise the issue prior to contract award.

Background

Contractors covered by the Cost Accounting Standards (CAS) sometimes change their cost accounting practices.  They are allowed to do this so long as they disclose the changes and cooperate with the government’s efforts to determine whether, and the extent to which, the changes increase costs to the government. If changes in cost accounting practices do increase the amount charged to the government, the government is entitled to a price adjustment to neutralize the increased costs.

Keep reading this article at: https://governmentcontractsnavigator.com/2020/08/18/government-reliance-on-waiver-argument-to-keep-price-adjustment-windfall-fails/

Filed Under: Government Contracting News Tagged With: Boeing, CAS, COFC, cost accounting, Cost Accounting Standard, Court of Federal Claims, DCMA, FAR, price adjustment, U.S. Court of Appeals, windfall

November 28, 2019 By cs

Federal Circuit issues controversial decision involving expressly unallowable costs

In its second significant cost allowability decision of the year, the Federal Circuit held that salaries associated with lobbying activities are expressly unallowable under Federal Acquisition Regulation (FAR) 31.205-22.

Although the decision is limited to salary costs associated with lobbying activities, its rationale creates uncertainty for other types of costs subject to a FAR Part 31 Cost Principle that uses similar “associated with” language. Contractors should anticipate closer scrutiny from auditors, who may feel emboldened by the Federal Circuit’s decision to characterize costs as expressly unallowable. The decision may also have implications for compliance with Cost Accounting Standard 405.

Although many types of cost may be generally unallowable, a smaller subset of costs are expressly unallowable. An expressly unallowable costs is “a particular item or type of cost which, under the express provisions of an applicable law, regulation, or contract, is specifically named and stated to be unallowable.”  Contractors are subject to penalty if they submit to the government any expressly unallowable cost.  Congress made clear that the penalty was intended for limited circumstances where the regulations explicitly prohibit inclusion of a type of cost; providing alcohol as an example.

FAR 31.205-22(a) provides that costs “associated with” a list of lobbying and political activities are unallowable.  FAR 31.205-22 does not specifically name and state salary, or any other type of cost; it merely states “associated with.” The narrow question presented to the Federal Circuit was whether salary costs of employees engaging in such lobbying activity qualify as expressly unallowable costs.

Keep reading this article at: http://www.mondaq.com/unitedstates/x/860020/

Filed Under: Government Contracting News Tagged With: audit, cost accounting, Cost Accounting Standard, cost principles, DCAA, FAR, Federal Circuit Court, lobbying, salary costs, unallowable costs

August 21, 2018 By AMK

CAS Board clarifies commercial item exemption, but raises potential audit issue

After publishing a proposed rule more than five and a half years ago, the Cost Accounting Standards (CAS) Board on July 17, 2018 issued a final rule revising the CAS exemption for contracts or subcontracts for the acquisition of commercial items.

The final rule clarifies that the current CAS exemption for commercial items extends to all contract types listed in Federal Acquisition Regulation (FAR) 12.207. However, in doing so, it also creates a potential audit issue arising out of the conditions levied by FAR 12.207 on certain contract types.

FAR lists contract types the government may use to acquire commercial items, including firm-fixed-price (FFP) contracts in conjunction with award fee incentives or performance/delivery incentives, known as fixed-price incentive (FPI) contracts. The relevant CAS commercial item exemption states that certain types of contracts for the acquisition of commercial items are exempt from all CAS. CAS 9903.201-1(b)(6) lists various contract types, including FFP, fixed-priced with economic price adjustment, time-and-materials (T&M) and labor-hour (LH), but makes no mention of FPI contracts. This inconsistency is the result of various amendments over time by the FAR Council to FAR 12.207. The final rule amends the language in CAS 9903.201-1(b)(6) to exempt commercial item contracts and subcontracts authorized in FAR 12.207 from all CAS requirements. Look for this change to CAS 9903.201-1(b)(6) when the final rule becomes effective on August 16, 2018.

Keep reading this article at: http://www.mondaq.com/article.asp?articleid=726522

Filed Under: Government Contracting News Tagged With: CAS, CASB, commercial item, cost accounting, Cost Accounting Standard, Cost Accounting Standards Board, economic price adjustment, FAR, firm fixed price, fixed price, fixed price incentive, GAO, OFPP

June 18, 2013 By AMK

DoD proposes anti-counterfeit IT measures

The Defense Department has proposed updating its acquisition regulations to  require major contractors subject to cost accounting standards – and their large  subcontractors – to have anti-counterfeit avoidance and detection systems in  place for electronic parts.

The long-awaited proposal, issued mid-May,  would implement requirements from the fiscals 2012 and 2013 national defense  authorization acts, passed amid concern  that counterfeit milspec electronic parts have made their way into weapons  systems, potentially undermining their reliability or making them open to a  remote cyber attack – although cybersecurity experts have said  the risk presented by the latter possibility is relatively low.

The proposal would require companies with cost-reimbursement contracts  subject to cost-accounting standards (a requirement that can’t be valid for  contracts worth less than $700,000) to mount an acceptable anti-counterfeiting  effort that would include training, inspection, parts traceability, use of  “trusted suppliers” and a methodology to rapidly determine whether a suspect  part is, in fact, counterfeit. The proposed rule doesn’t define what a trusted  supplier would be.

Keep reading this article at: http://www.fiercegovernmentit.com/story/dod-proposes-anti-counterfeit-it-measures/2013-06-04

 

Filed Under: Government Contracting News Tagged With: cost accounting, cost reimbursement, counterfeit parts, federal regulations, IT, small business, subcontracting

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