Building Block Basics for FAR and CAS Compliance

Posted by Deltek on February 14, 2020

Understanding Basics of FAR and CAS Compliance

Whether you are taking your first steps as a government contracting or have a Ph.D. in RFPs (request for proposals), chances are some of the first agency acronyms you filed away for future work are FAR (Federal Acquisition Regulation) and CAS (Cost Accounting Standards). The first deals with allowability, what you can and cannot charge the government through a contract. The second deals with allocability, how you charge to contracts, what gets charged to which contract, accounting system requirements, and cost flowdowns. Understanding the details behind both FAR and CAS are important building blocks for any government contractor’s compliance strategy. Take a few moments to peek behind the curtain of each and learn where you can access additional resources to help ensure compliance readiness.

FAR Overview

FAR illustrates the difference between working with the federal government versus contracting with a commercial entity.

“FAR is an extensive system of uniform policies and procedures governing the acquisition and contracting actions of all executive agencies of the federal government. The purpose of FAR is to ensure that the purchasing procedures of the government are standard, consistent and applied in a fair and impartial manner.”

– Understanding the Basics of FAR & CAS white paper

A common myth to dispel is FAR applies to all government agencies. It does not. FAR only governs contracts with agencies that fall under the oversight of the Executive branch. It is applicable to:

  • Solicitations (IFB, RFP, RFQ, RFI)
  • Federal Prime Contracts
  • Subcontracts under Federal Prime Contracts.

 

Understanding the Basics of FAR & CAS


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Contractors are responsible for reading each contract and understanding all FAR clause references prior to signing a bid agreement. This can be a bit of a challenge because there are eight subchapters with a total of 53 parts. The subchapters and parts cover everything from competition and acquisition planning and socioeconomic programs, to general contracting requirements, special categories of contracting, and contract management. Two of the most relevant parts are FAR Parts 31 and 52, which contain guidance on cost principles and contract clauses.

“You should be knowledgeable in both of sections, FAR Parts 31 and 52, in order to be able to correctly allocate and record costs incurred (FAR Part 31) and abide by all contract provisions referenced in your contracts (FAR Part 52). In terms of knowing the ins and outs of each, however, most accountants work with FAR Part 31 and then rely on the contracts department for their expertise on matters related to FAR Part 52.”

– Understanding the Basics of FAR & CAS white paper

Generally, FAR Part 31 details contract cost principles and procedures. More specifically, FAR Part 31 breaks down to:

  • FAR Part 31.201-3 – determining reasonableness
  • FAR Part 31.201-4 – determining allocability
  • FAR Part 31.201-6 – accounting for unallowable costs.

What can be even trickier for contractors with FAR Part 31.201-6 is that some unallowable costs are always unallowable and others are usually or unusually unallowable. A list of these unallowable costs is included in the white paper Understanding the Basics of FAR & CAS.

On the other side of the coin, FAR Part 52 details allowable costs and payments – direct labor, direct travel, supplies, services – and includes information on invoicing, reimbursement, bill rates, and payments.

CAS Requirements

“The purpose of CAS is to promote uniformity and consistency in cost accounting. Congress established the original Cost Accounting Standards Board (CASB) in 1970, after which 19 cost accounting standards were established. While the standards are still used to this day, the CASB was dissolved in 1980, only to be re-established in 1988 within the confines of the Office of Federal Procurement Policy (OFPP).”

– Understanding the Basics of FAR & CAS white paper

CAS does not apply to all contracts or all contractors. On contracts where a CAS requirement is included, what will be scrutinized includes:

  • Disclosure of accounting practice
  • Follow accounting practice
  • Compliance with standards.

Some contractors will be subject to full CAS coverage (they must follow all 19 CAS standards), while others will be subject to modified CAS coverage (they must follow only four of the 19 CAS standards). Others may be exempt all together. Both full and modified CAS coverage have defined award thresholds that can trigger a requirement.

An important piece of being fully CAS covered is the submission of a Disclosure Statement (Form CASB DS-1) to the Administrative Contracting Officer (ACO) to document cost accounting practices in writing (see FAR 52.230-2). This process is time consuming and requires specificity. Contractors should take great care when completing a Disclosure Statement because it will be reviewed by the Defense Contract Audit Agency (DCAA) as a baseline for your business; any future changes to a firm’s accounting practices will require a revision to the Disclosure Statement. The Disclosure Statement must include:

  • General information
  • Direct costs
  • Direct versus indirect costs
  • Indirect costs
  • Depreciation and capitalization practices
  • Other costs and credits
  • Deferred compensation and insurance costs
  • Home office expenses (corporate).

More FAR & CAS Resources

Want to learn more about unallowable costs, full CAS coverage versus modified or exempt, or the different types of CAS Standards? Download the white paper Understanding the Basics of FAR & CAS for additional details on FAR and CAS compliance.