The Cost Accounting Standards Board (CASB) recently announced that it seeks public comments on “whether and how” to amend the rules to clarify whether the CAS apply to indefinite value contract vehicles (or IDVs, otherwise known as indefinite-delivery / indefinite-quantity, or IDIQ, contracts). Comments are due no later than August 19, 2024. The full text of the notice is available here. The CASB also published a paper discussing six possible approaches and the criteria it will use to evaluate those approaches, but welcomed the public to identify alternatives for the CASB to consider.
For contractors who currently do not have CAS-covered contracts, but do hold IDIQ contracts not otherwise CAS exempt (e.g., the contractor is a small business or the contract is for commercial products or services), this potential amendment could affect CAS-coverage of orders issued under those IDIQ contracts. And, for contractors who do currently have CAS-covered contracts, this question is critical for quantifying cost impacts when making cost accounting practice changes and when the government alleges or asserts a claim for a CAS noncompliance.
The CASB’s six proposed approaches are:
- Treat each order as an individual contract for determining CAS coverage (as recommended in 2018 by the Advisory Panel on Streamlining Acquisition Regulations established by Section 809 of the 2016 National Defense Authorization Act);
- Apply CAS to all orders based on the maximum award value of the IDV, regardless of the value of the order;
- Apply CAS to all orders based on the minimum award guarantee amount, regardless of the value of the order;
- Apply CAS only when the cumulative value of all orders exceeds the threshold, at which point that order and all subsequent orders are CAS covered;
- Employ a hybrid of approaches 1 and 2: for multiple award IDVs, use approach 1 and treat each order as an individual contract, whereas for single award IDVs, use approach 2 and apply CAS based on the maximum value of the IDV; or
- Employ a hybrid of approaches 1 and 4: for multiple award IDVs, use approach 1 and treat each order as an individual contract, whereas for single award IDVs, use approach 4 and apply CAS when the cumulative value exceeds the threshold.
The Board noted that it intends to consider a number of criteria in making its determination, including the parties’ respective risks, oversight and compliance burdens, the encouragement of robust competition, minimizing complexity, and the promotion of consistency in the application of CAS. In our view, approach 1 best meets these criteria, and is also based on a sound interpretation of contract principles.
This is one of several developments we are tracking since the CASB reconvened earlier this year after a five-year hiatus due to lack of sufficient membership. The other major issues before the CASB include CAS-GAAP conformance for CAS 408, CAS 409, accounting changes, and operating revenue and lease accounting; pension harmonization; and raising the threshold from $15 million to $100 million for a CAS waiver if the business unit of the contractor or subcontractor that will perform the work is primarily engaged in the sale of commercial items and would not otherwise be subject to CAS, as provided in the 2017 NDAA.