The FAR cost principles decide which costs are allowable, and one of the requirements for an allowable cost is compliance with the Standards promulgated by the CAS Board, if applicable, otherwise generally accepted accounting principles 1.
When CAS applies
The starting rule is broad: negotiated contracts not exempt under 48 CFR 9903.201-1(b) shall be subject to CAS 2. The exemptions are what keep most small and commercial work outside it. They include contracts and subcontracts with small businesses 3, contracts and subcontracts in which the price is set by law or regulation 4, and firm-fixed-price contracts or subcontracts awarded on the basis of adequate price competition without submission of certified cost or pricing data 5.
Full and modified coverage
A CAS-covered contract may be subject to full, modified or other types of CAS coverage 6. Full coverage requires that the business unit comply with all of the CAS specified in part 9904 7. Modified coverage requires only that the contractor comply with a short list of standards, beginning with Standard 9904.401, Consistency in Estimating, Accumulating, and Reporting Costs 8.
The disclosure statement
A Disclosure Statement is a written description of a contractor's cost accounting practices and procedures 9. A new or revised Disclosure Statement is not required for any non-CAS-covered contract or from any small business concern 10. Any business unit selected to receive a CAS-covered contract or subcontract of $100 million or more shall submit a Disclosure Statement before award 11.
What the clause commits you to
Under the CAS clause at FAR 52.230-2, the contractor agrees to follow consistently its cost accounting practices in accumulating and reporting contract performance cost data 12. It also agrees to an adjustment of the contract price or cost allowance if it or a subcontractor fails to comply with an applicable Cost Accounting Standard 13, and that adjustment provides for recovery of the increased costs to the United States, together with interest 14.
Worked example. Contractor S wants to move its engineering department's costs from overhead into direct charges partway through a year, to price a competitive bid lower. Because it holds CAS-covered contracts, its controller stops the change, writes up the proposed new practice with its cost impact on each covered contract, and takes it to the contracting officer before anything changes in the books.
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