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If a SB prime contract is exempt from CAS based on the SB exemption at 9903.201-1( B )(3), is the first tier LB sub exempt from CAS if no other exemptions apply and the LB is otherwise a CAS covered entity based on awards greater than $50M in net CAS-covered awards in the preceding cost accounting period?

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No. And yes.

No, this parcticular contract is not subject to CAS because there are no CAS contract clauses for the SB Prime to flow down to the LB SubK. The SB cannot administer CAS since its prime contract is exempt.

Yes, the LB is "otherwise a CAS covered entity" and it is subject to Full CAS Coverage, based on the description provided. Accordingly, it must comply with CAS regulations and with the 19 Standards. It must disclose its CAS status on its Section K Reps & Certs.

If the LB Subcontractor is in noncompliance with some aspect of CAS, it must disclose that noncompliance and prepare a cost impact analysis to show the government the impact of the noncompliance on its CAS-covered contracts. The individual Subcontract it received from the SB Prime would not be included in that cost impact analysis.

Hope this helps.

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Guest Vern Edwards

help:

I think you mean that the large business must comply with CAS if it has CAS-covered contracts or subcontracts of its own, apart from the subcontract with the small business. Am I right?

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Thanks fellow Wifconers for your replies. We all agree that the prime contractor is exempt from CAS since it is a SB.

Consider that the SB decided include in the subcontract to its first tier LB, the clause at 52.230-6 Administration of Cost Account Standards but not the clauses at 52.230-1 or 2.

Do you agree with the following?

Althought the first tier LB subcontractor [under the prime contract mentioned above] is subject to full CAS coverage for all its CAS covered contracts, the LB would NOT

a) be subject to CAS compliance for the subcontract in question

B ) would properly designate this subcontract in its own accounting system as "Not CAS Covered"

Thanks in advance

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Guest Vern Edwards

Look, how can anybody answer that question? It's a practical matter for which there is no statutory or regulatory answer.

The SB put the clause in the contract (only God knows why) and the LB signed it (only God knows why). They're both stupid and incompetent, and I do not know of any law or regulation that says what to do when stupid incompetent private parties screw up and put clauses in their contracts that they should not have.

Tell the parties to do what anyone with even half a brain would do. Tell the parties to take the clause out of the stupid contract that both stupid entities signed up to. Why should they take it out? Because it does not belong there. And no, the SB does not need the Government's permission to take the clause out of its contract.

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Copy. Thanks Verne. This is a real scenario -- the subcontract hasn't yet been signed and we are pursuing getting the clause(s) removed. The answer is likely staring me in the face but CAS obviously baffles me sometimes so thanks in advacne for the hand-holding as I make another attempt at my question;

Assumingall the parties (Gov, Prime, Sub) behave rationally and all clauses are properly applied. Under these circumstances;

The LB sub would properly identify this subcontract it in its accounting system as a subcontract "not subject to CAS". Agree?

I ask the question this way because I'm trying to get a better grasp on how the CAS "allocation of costs" concepts for a LB Gov contractor are applied. In other words -

Cost accounting standards apply only to the universe of CAS covered contracts withing an entity's portfolio despite the fact that that portfolio may include a large percentage of US Gov contracts that are exempt due to the scenario above, or commerciality, or other exemptions in 9903.201.1. Agree?

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Guest Vern Edwards

I swear I thought here_2_help had already answered this question. If the CAS clause has properly been omitted from the contract, then the contract is not a CAS-covered contract. Go to the CAS regulations, specifically to 48 CFR 9903.301, Definitions, and look up the definition for "CAS-covered contract,"

CAS-covered contract,

as used in this part, means any negotiated contract or subcontract in which a CAS clause is required to be included.

Guess what -- if the contract is properly not "CAS-covered" it is... wait for it... not subject to CAS!

Now, please, go take a good course or two in government contracting. How about starting with "Federal Contracting Basics," offered by ESI International. Then take a good class in CAS. Public Contracting Institute offers one.

Of course, you should be asking these questions of a qualified attorney, not people you don't know at a website.

And there is no "e" at the end of Vern. I'm a boy.

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Gibson, the CAS Board has issued regulations defining what are CAS covered contracts and subcontracts. Under the CAS Board's rules, contracts are subject to the CAS unless they are exempt in accordance with the CASB's rules. Those same regulations require certain clauses to be included in contracts. Those clauses are required to be included in contracts and subcontracts unless a contract or subcontract is exempt from CAS coverage in accordance with the CASB rules. The clauses required by the CASB rules are FAR 52.230-2 through 5. (FAR 52.230-1 is a solicitation provision, not a contract clause.) The clauses mandated by the CASB's rules require contractors to comply with the applicable Standards and the contractor's disclosed or established cost accounting practices when performing CAS covered contracts. They do not require compliance with the CAS in regard to non-CAS covered contracts.

FAR 52.230-6 is not a clause that was promulgated by the CASB. It is strictly a FAR clause. The prescriptive language for that clause states it is to be included in contracts that contain one of the clauses at FAR 52.230-2 through 5. If one of these clause is not properly included in the contract or subcontract, the contractor is not required to comply with the CAS and FAR 52.230-6 is not to be included in the contract or subcontract.

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Guest Vern Edwards

Verne, I appreciate your help but hated the the condescending part. Sharing your vast knowledge of Gov contracting is generous but ridiculing is ill-mannered. But thanks anyway.

You're right. It was ill-mannered. But forgive me and set that side for the moment. What if we're wrong? How would you know? Do you really want to tell your boss that you got your answer from strangers at a web site?

I cannot fully respect people who are engaged in a heavily regulated business, don't know the regulations, and go to a website for answers from people they do not knwo without asking for citations in support of those answers so they can verify the info for themselves. It's getting help on the cheap. Such persons put themselves and their employers at risk.

Retread provided you with a very nice explanation, but without citing the CAS regulations, which are in 48 CFR Ch. 99. Do yourself a favor. Read them for yourself. Confirm what you have been told with your own eyes and mind. Seek licensed professional help for important business matters.

Now, I apologize for being condescending. Consider it the price for misspelling my name.

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Wow, this has been an unintended journey. Thanks Retreadfed for your comprehensive answer and Vern for your input also. I have to set the record straight regarding my use of this website for information. I usually rely on my own research of 48 CFR and always verify for myself when I get other input. But not unlike shopping for a big ticket item, I like to hear what others think. It usually enlightens in unexpected ways and helps me go in with my eyes wide open. If I had thought on my own to go to the definition of “CAS-Covered” at 9903.301 I would have found the answer I was looking for early on. That’s the piece of info you gave me Vern which was most helpful – but it wasn’t cheap!

I checked it out for myself and now able to provide guidance with great confidence (and references) to others. For me, FAR has never been an “easy read” although it’s better than it was as the ASPR. That reference will likely reveal how long it’s been since I took Federal Contracting Basics.

Wifcon is a great forum -- I only wish something like it had been available decades ago. Thanks again for your input.

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This won't be a popular opinion, but it seems to me if a contractor has mostly CAS-covered contracts, it would be difficult to pry one out and make it not follow CAS requirements.

Personally, I think once you are modified CAS, it is much easier to just do full-CAS since it is usually just around the corner and better to practice ahead of time than be taken by surprise as most contractors are, during audit, learning CAS via CAS violations. Which CAS are you trying so hard to avoid following? It is just cost allocation, how do you want to

allocate cost instead? I have never been able to get an answer to this question, but have never tried in this forum, and I know this forum has some die-hards like me who do not

just disappear when the questions get tough, so i am thinking this is the best place to ask.

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Guest Vern Edwards

This won't be a popular opinion, but it seems to me if a contractor has mostly CAS-covered contracts, it would be difficult to pry one out and make it not follow CAS requirements.

I think that you are correct, at least as a practical matter. I don't know why that statement would be unpopular with anyone.

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Hi Vern - It just seems I am always hearing contractors trying to avoid CAS like it was the plague or rocket science, when personally I think is the easiest and most logical part of the whole FAR in my opinion, but I have yet to ever hear anyone say specifically what part of CAS it is that they are so desperate to escape from. Aside from having to complete a CAS Disclosure Statement, which is horrible old Government form, as they all are, it is actually much easier to fill out one of those, especially for an inexperienced contractor than it is to develop an indirect rate structure on a blank piece of paper. So, aside from the form and the fact that you are pretty much stuck with your first choice or have to complete the dreaded cost impact analysis to make a change (if you are unable to persuade them it is only an administrative change), which of CAS is it that everyone fears so much? I know contractors who purposely avoid growth to specifically to avoid the CAS threshold, which to me just seems crazy. If you can follow the rest of the FAR, CAS is easy. Maybe I have just been doing it too long, but I truthfully cannot think of a cost allocation method that would be better than any of the CAS. I would love to hear examples if anyone here actually has one to share.

I also hear about the high cost of CAS, which I don't get either. Other than having to hire or rent a cost accountant or similar to set you up and provide instructions on what to put where, which is usually good to do anyway, it is pretty logical stuff. In my opinion, without a doubt, it is much easier to be CAS-compliant than to try to avoid it and win the argument, I think is what gets complicated and expensive. My soapbox.

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GC3D--

While I agree with much of what you wrote, the fact of the matter is that Rickover designed CAS to control contractors. Being subject to CAS limits agility and flexibility--unless you LIKE designing cost accounting practices so far in advance that you are positioned to give the government a 60-day advance notification letter. Management doesn't like losing control, and CAS takes that control away. Thus: one source of contractor angst.

But that's not the only source of angst, in my view.

As a practical matter, DCAA is slow to review Disclosure Statements and determine adequacy. Many auditors are insanely picky and a contractor has NO CHOICE but to do what they say, since an inadequate D.S. prevents receipt of a cost-type contract award.

Should an auditor allege noncompliance with a particular Standard, COs are largely clueless as to how to evaluate the finding(s), and have a tendency to rubber-stamp the audit report. Preparing cost impact analyses is time-consuming and expensive. Supporting DCAA audits of same is time-consuming and an exercise in frustration. DCAA's audit guidance is flawed. DOD's 2002 CO guidance is flawed. Dealing the question of "increased costs in the aggregate" is frustrating, to say the least--not to mention the issue of multiple concurrent changes in cost accounting practice stemming from a single event. Resolving a cost impact from a change in cost accounting practice, or a noncompliance, can take years and cost millions of dollars.

This situation is why DCMA initiated its ill-advised "Contractor Recovery Initiative" a couple of years ago. This is why companies like Sikorsky (CoFC) and Lockheed Martin (ASBCA) have hired the absolutely best (and most expensive) CAS attorneys they can find to litigate. That's why Raytheon keeps litigating--and mostly winning. So while I do agree with much of what you wrote, I think you gloss over some real--and real expensive--problems with the way that DOD administers CAS.

In other words, it's not CAS that contractors are afraid of, it's DOD's interpretation and implementation of CAS administration that has contractors running for the hills.

Also, to the point about the difference between Modified and Full Coverage, I think the difference is more substantive than you do. For instance, CAS 410 and 418 kick-in at Full Coverage. Otherwise, they are not applicable and a contractor would be free (within general constraints) to choose its own G&A allocation base. That's why Full Coverage is especially onerous for many.

Just my thoughts. Apologies for the length of the post.

Hope this helps someone.

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A reason contractors don't want to get involved in CAS-covered contracts is that there's a cost involved. You have to set up, in effect, two sets of books, one that complies with GAAP for financial accounting and another that complies with CAS for government cost accounting. Plus, there's a cost involved in dealing with disclosure statements, changes to accounting practices, etc.

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