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CASB Rule Eliminates Overseas CAS Exemption

The Office of Federal Procurement Policy, Cost Accounting Standards Board, has issued a final rule amending CAS 9903.201-1, CAS applicability, to eliminate a CAS exemption for contracts executed and performed entirely outside the United States, its territories, and possessions. Section 823(a) of the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 (PL 110-417) required the Board to review the inapplicability of CAS, in accordance with existing exemptions, to any contract that is executed and performed outside the U.S., and to determine whether the application of the standards to overseas contracts would benefit the government. After considering comments from the public and government agencies, the Board proposed elimination of the overseas exemption at CASB 9903.201-1(b)(14) (see ¶70,058.10 for the proposed rule).

Rationale

In issuing the proposal, the Board considered that the statutory basis used to justify the (b)(14) overseas exemption when it was first issued no longer exists. Also, there is no accounting basis for the (b)(14) overseas exemption. The place of contract execution and performance --the trigger for the (b)(14) overseas exemption --is not germane to the fundamental principles and methods used to account for the costs of contract performance. Thus, the exemption does not help to achieve consistency and uniformity in the cost accounting practices used by government contractors in the measurement, assignment, and allocation of costs to government contracts, which is the primary objective of the CAS. In addition, the Board was not persuaded that the imposition of CAS in situations where the (b)(14) overseas exemption had been applied would create hardships for federal agencies, prime contractors, and subcontractors. In the Board's view, the imposition of CAS 401, Consistency in Estimating, Accumulating and Reporting Costs, and CAS 402, Consistency in Allocating Costs Incurred for the Same Purpose, are the minimal requirements necessary to meet CAS obligations. These minimal requirements, according to the Board, are not substantively different from what is already imposed under the cost principles found in Part 31 of the Federal Acquisition Regulation. For the text of the final rule, which goes into effect October 11, 2011, see ¶70,055.23.

(The news featured above is a selection from the news covered in the Government Contracts Report Letter, which is published weekly and distributed to subscribers of the Government Contracts Reporter. )

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