In a cost-reimbursement contract, the final pricing will be determined when the contract is completed, or at some other previously established date in the contracting period. A total cost estimate will be determined before contract work commences, which allows the agency to set a budget for the project and to establish a maximum amount for reimbursement. The prime contractor cannot exceed that maximum without the contracting officer's permission, but is allowed to stop work if that maximum is reached. If it is allowable, allocable, and reasonable, it can be submitted for reimbursement. A-122 still applies as your cost principles, since you are a non-profit.
I feel your pain with this. I was a grant officer, and people sometimes do not realize that there is a major difference between a contract and an assistance award. This is might be a hard one since you must be used to dealing with Federal Assistance awards (grants & cooperative agreements), not contracts. The contracting officer probably knows nothing about, or has little experience with, assistance awards. You two are probably talking apples and oranges to each other.
The bad part is that you already told the contracting officer that - 'the EDGAR regulation is ?The Secretary may restrict the transfer of funds among direct cost categories or programs, functions and activities for awards in which the Federal share of the project exceeds $100,000 and the cumulative amount of the transfers exceeds or is expected to exceed 10 percent of the total budget as last approved by the Secretary.? ' Generally nothing in the EDGAR will apply to contracts. This is what you have to remember next time you speak with them about contracts. Now they are looking for something in the FAR or EDAR (Education Acquisition Regulation) that says about the same thing that the EDGAR.