CAS Board Considers Ruling That Affects IDIQ Contracts

You've probably heard about cost accounting standards (CAS) if you're in the government contracting world. Applying CAS to indefinite delivery vehicles (IDVs) has always been a potential evolution of the standards, and a recent CAS board survey may bring this closer to becoming a reality sooner than later. Indefinite Delivery, Indefinite Quantity (IDIQ) contracts are contracts where work is awarded when agencies place individual task and delivery orders as requirements arise. You've got a minimum guaranteed order value and a ceiling amount that caps the total value of orders.

The popularity of these vehicles has grown significantly, especially over the last 15-20 years, to the point where IDVs are estimated to account for roughly half of annual federal contract obligations.

The Definition of Cost Accounting Standards

CAS rules deal with the justification of different costs—such as indirect costs, personal compensation, depreciation, pension plan expenses and more—that affect pricing in a government contract negotiation. The whole point of CAS is to ensure you, as a contractor, are measuring, assigning and allocating costs consistently and fairly for competitive government contracts, such as time-and-materials, cost-reimbursement and other types.  A contract award of $7.5 million or more is generally considered a "trigger" contract, establishing CAS coverage.

Why does this matter? CAS is all about preventing cost manipulation, overruns and misallocation of funds. It's designed to ensure taxpayers' money is spent wisely. The end goal is transparency and consistency in how contractors allocate costs in IDVs, including IDIQs.

What Exactly is the CAS Board Considering?

During the summer of 2024, the CAS Board asked for public input on whether and how to apply CAS to IDVs. They put a document online where you could share your thoughts and justify your views. The Board is looking at different potential ways to apply CAS.

They want to:

• Help you manage risk, whether you're the government dealing with price risk or a contractor handling cost risk.
• Reduce the regulatory burden on both sides—less oversight for the government and fewer compliance headaches for contractors.
• Encourage more competition and participation in the federal marketplace.
• Keep things simple with clear, straightforward guidance.
• Make sure CAS is applied consistently across the board.

What are Potential Approaches to CAS Adoption for IDVs?

To facilitate public feedback, the Board identified six possible approaches for addressing CAS coverage of IDVs:

1. Order-by-order. Each task and delivery order would be treated as an individual contract, and CAS would apply only to those orders whose values met the coverage thresholds.
2. 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 meets the coverage thresholds.
3. 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.
4. Cumulative threshold. CAS would apply when the cumulative value of the orders awarded crosses the dollar threshold for coverage. At that point, CAS will cover the current order and all subsequent orders awarded.
5. 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). 
6. 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). 

How Has CAS Historically Applied to IDVs? Or Has It?

To this point, there hasn't been much regulatory guidance on how to apply CAS to IDVs. This has led to some inconsistencies in determining when CAS applies. The only relevant statement from the Board on this issue comes from a 1976 working group paper about basic ordering agreements (another type of IDV).

What is Driving the Current Discovery?

Let's look at a real-world scenario. Imagine you're a government contractor, and you’ve won a $60M IDIQ contract. As part of this, you've completed a few small task orders, each under $2 million. Suddenly, Defense Contract Audit Agency (DCAA) auditors show up, claiming these task orders are CAS-covered. 

Why? They're basing it on FAR 1.108(c), which discusses how to determine dollar thresholds. It says you must consider the highest possible final price, including all options—not just the incremental task-order price.

But is it fair to say those small task orders are CAS-covered just because the maximum value of the entire IDIQ was $60 million? And what if the auditor demands a disclosure statement that should have been submitted with the original proposal for that $60 million IDIQ—and its tasks? 

What Would Exempt an IDIQ Contract from CAS Coverage?

In general, there are five situations in which a contractor’s IDIQ proposal may be exempt from CAS application:

• Small business exemption. Contracts awarded to small businesses are typically exempt from CAS regardless of the contract type, including IDIQs.
• Price set by law or regulation. If the price of the IDIQ contract is mandated by law or regulation, it is generally exempt from CAS.
• Commercial item exemption. If the IDIQ contract is for a firm-fixed-price purchase of commercial items, it may be exempt from CAS.
• Contract value threshold. The total potential value of the IDIQ contract is crucial for determining CAS applicability; if the maximum possible value of all orders placed under the contract does not exceed the CAS threshold, which is $2 million, it may be exempt.

What Does This Mean for Contractors

Contractors currently performing CAS-covered contracts, and those pursuing it, should assess how each scenario would impact their business, what investments may be needed when an approach is finalized and which types of contracts to pursue in the future.

The Board appears to lean towards applying CAS coverage—under both single-award IDIQ contracts and multiple-award IDIQ contracts—at the individual task or delivery order level. Establishing a consistent protocol for the entire IDIQ universe does make sense. However, public opinion may differ. We’ll have to wait for survey results and analysis to emerge, which is likely imminent by 2025. Watch this space for an update.