Committing to Cost Accounting Standards (CAS) compliance is a step that prepares a contractor to compete on a new level and potentially receive larger contracts. However, if the company doesn’t invest time and resources in CAS compliance, then it has little to no chance of winning those new contracts.
So, what does it take to be CAS compliant? Does it have to be difficult? Let’s start at the beginning…
The History of CAS
The federal government has long recognized the need to protect itself by ensuring contractors have appropriately allocated costs on cost-based contracts. In the late 1960s, standards and rules for establishing costs on negotiated procurements helped the federal government mandate consistency and uniformity. They also provided insight into the cost account activity of government grants and contracts.
CAS makes sense for its intended purpose. However, over the years the standards have made it difficult for some government contractors—especially in the defense industry—to comply.
What Can Contractors Do to Set Themselves Up for Success?
1. Put in the Work
An important piece of being fully CAS-covered is your disclosure statement, which formally documents your cost accounting processes and ensures you are properly and thoroughly following the CAS guidelines. Coming to a consensus on the company’s exact practices should be a team effort, because it’s more than just accounting. Most parts of the company need to work together to hammer out your disclose statement.
Sounds easy, but it often takes tremendous effort to get every department on board. Accountants and engineers want something precise, while the sales and marketing folks want something flexible, and program managers want something they can manage.
Once your disclosure statement is finalized, everyone must be prepared to support that documentation through government reviews.
2. Know What Contracts are CAS-Covered
In terms of what is potentially covered by CAS, cost-based contracts include cost-type contracts and certain fixed-price contracts where the contractor’s estimated or actual costs play a role in determining the amount the government pays.
Answering the following three questions can help you determine applicability of CAS:
- Is the contract or subcontract subject to CAS? (Look for a CAS clause.)
- Is it fully CAS-covered or modified CAS-covered?
- Is a disclosure statement required?
The threshold for each of these is based on the dollar value award received by the contractor or subcontractor. (See threshold amounts)
A disclosure statement is required if a business unit receives a single fully CAS-covered award of at least $50 million, or if a company, together with its business segments, received net awards of at least $50 million in its most recent cost accounting period.
It is extremely important to keep track of your CAS-covered contracts. If you’re ever in the middle of an allegation of non-compliance, a request for cost-impact analysis, or a contract change, the last thing you need to worry about is spending time sifting through your contracts and their types instead of focusing on the task at hand and the impact on your business.
3. Use Effective Systems
The best way to ensure your accounting standards are compliant and effective is with a system that allows you to set up compliant pricing and rates and enforce proper use of them. Documentation is crucial when it comes to CAS requirements. Having an office system or software that can easily report and present information can make all the difference in the world during the disclosure statement submission process.
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