Contributor: John Ford, Senior Consultant
In June 2024, the Cost Accounting Standards Board (CASB) published three significant actions in the Federal Register. First, on June 18, the CASB issued a request for public comments concerning options for clarifying the applicability of the Cost Accounting Standards (CAS) to what the CASB called indefinite delivery vehicles (IDVs). The IDVs described in the Request are Indefinite Delivery, Indefinite Quantity (IDIQ) contracts. Federal Acquisition Regulation (FAR) Part 16 lists three types of indefinite-delivery contracts — definite quantity contracts, requirements contracts and indefinite quantity. In our view, the Request should also cover requirements contracts because the issues regarding application of the CAS to IDIQ contracts are similar to the issues of CAS application to requirements contracts.
In the Request, the CASB identified six possible alternatives for application of the CAS to IDVs. They are:
- Order-by-order: Each task order and delivery order would be treated as an individual contract and CAS would apply only to those orders whose values met the coverage thresholds. (This is the approach recommended by the Advisory Panel on Streamlining Acquisition Regulations established by Section 809 of the FY 2016 NDAA.)
- Maximum award value: CAS would apply to all orders under an IDV, no matter the value of the order, if the ceiling amount of the IDV met the coverage thresholds.
- Minimum award value: CAS would not apply to any orders under an IDV unless its minimum guarantee amount met the CAS coverage thresholds, in which case CAS would apply to all orders.
- Cumulative threshold: CAS would apply at the point where the cumulative value of the orders awarded crosses the dollar threshold for CAS coverage. At that point, the current order and all subsequent orders awarded would be covered by CAS.
- Order-by-order for multiple award IDVs and maximum award value for single award IDVs: For multiple award IDVs each order would be regarded as if it were an individual contract for CAS coverage (see alternative no. 1). For single-award IDVs, coverage would be based on the maximum award value (see alternative no. 2).
- Order-by-order for multiple award IDVs and cumulative threshold for single award IDVs: For multiple award IDVs each order would be regarded as if it were an individual contract for CAS coverage (see alternative no. 1). For single-award IDVs, CAS would apply at the point where the cumulative value of the orders awarded crosses the dollar threshold for CAS coverage. At that point, the current order and all subsequent orders awarded would be covered by CAS (see alternative no. 4).
We believe the first option is the preferred option and should be adopted by the CASB. Our reasons for this conclusion are that orders are contracts as defined in FAR section 2.101. As noted by the Supreme Court in its Kingdomware decision orders also classify as common law contracts. Further, if the CAS are applied at the contract level instead of the order level, the result would be that contracts (orders) below the CAS threshold would be subject to the CAS. Finally, this option allows for the simplest application of FAR 1.108(c) in determining whether a contract meets the requisite threshold for application of the CAS. That section states that:
Unless otherwise specified, a specific dollar threshold for the purpose of applicability is the final anticipated dollar value of the action, including the dollar value of all options. If the action establishes a maximum quantity of supplies or services to be acquired or establishes a ceiling price or establishes the final price to be based on future events, the final anticipated dollar value must be the highest final priced alternative to the Government, including the dollar value of all options.
Clearly, applying this guidance to IDIQ and requirements contracts presents problems.
The CASB requested that comments be submitted by August 19, 2024.
The second notice was published in the Federal Register on June 27, 2024. Here the CASB issued a Notice of Proposed Rule Making (NPRM) concerning two issues. Section 820 of Public Law 114-328 directed the Board to conform CAS to Generally Accepted Accounting Principles (GAAP) to the maximum extent practicable. In compliance with this direction, here the CASB is proposing a change to the CAS that would (i) modify CAS 403 to rely on GAAP for the definition of revenue and (ii) exempt properly disclosed changes related to this conformance effort from the contract price and cost adjustment requirements of part 9903.
The second issue addressed in this NPRM relates to lease accounting under CAS 414 and 417 for purposes of computing facilities capital cost of money (FCCM). In attempting to clarify which leased assets are to be included in this calculation, the CASB is proposing to change the definition of “intangible capital assets” found in CAS 414 and 417. In addition, the CASB is redefining “tangible capital assets” found in CAS 402, 404, 409, 414 and 417. Finally, the CASB is proposing to add clarifying language in Appendix A to CAS 414 in the Instructions for Form CASB CMF.
This latter change states that “‘Leased property’ is the capitalized value of leases for which constructive costs of ownership are allowed in lieu of rental costs under Government procurement regulations. Leases classified as right-of-use assets for financial accounting purposes that were formerly known as operating leases, are excluded from facilities capital items reported on this form.”
Comments concerning this NPRM should be submitted by August 26, 2024.
The third notice was also published in the Federal Register on June 27, 2024. There, the CASB issued an advanced notice of proposed rulemaking (ANPRM) to elicit public comments on proposed changes to the Cost Accounting Standards (CAS) on conformance to GAAP related to CAS 408, Accounting for Costs of Compensated Personal Absence, and CAS 409, Depreciation of Tangible Capital Assets, to GAAP. The changes identified by the CASB are to eliminate both CAS 408 and 409 and to rely on GAAP and other CAS and procurement regulations to protect the interest of both the government and contractors.
Comments on these proposed changes are to be submitted by August 26, 2024.
Let Us Guide You Forward
Cherry Bekaert’s Government Contracting consultants will continue to monitor the CASB’s proposed rules. If you have questions concerning any of these issues or other contracting matters, do not hesitate to contact us for advice and assistance.
