This
final rule is based upon the NPRM published in the Federal Register
on November 29, 1994 (59 FR 60948), wherein public comments were
invited. Nine sets of comments were received from government contractors,
industry associations and Federal agencies. The more significant
comments received, and the Board's actions taken in response thereto,
are summarized below. Many other comments that were more of an
editorial nature have been incorporated in the document where
appropriate.
Comment: Two commenters suggested that compliant as well as
non-compliant cost accounting practices should be described
in the Disclosure Statement.
Response: The Board agrees that the actual cost accounting practices
being followed must be described. However, where the Disclosure
Statement provides a list of alternative practices, only compliant
alternatives will be listed. If the contractor's practice is
not one of the listed alternatives, the actual practice must
be described on a continuation sheet. This will not be tantamount
to conceding that the practice is non-compliant since such a
determination can only be made after appropriate analysis and
review.
Comment: Several commenters indicated that although the NPRM
has been significantly improved and streamlined, the draft still
contains too many questions of a detailed nature that may, in
the future, increase rather than decrease the opportunities
for disputes.
Response: The Board has, once more, consulted with the respondents
to the NPRM and all the concerns have been subjected to additional
review. As a result, some changes have been made to the version
incorporated in the NPRM that should contribute to further streamlining
and clarification of the final document. This comment applies
in particular to Part VII of the Disclosure Statement.
Comment: At least two commenters indicated that, in their opinion
the revised document still contains too many pages.
Response: In the final format there is no substantial difference
in the length of the original and the final Disclosure Statement.
Comment: One commenter stressed that whenever possible, existing
CAS wording or definitions should be used.
Response: The Board agrees with this suggestion and, wherever
appropriate, the Disclosure Statement has accordingly been changed.
Comment: Several contractors indicated that throughout the document
the term "CAS-covered contracts" rather than "Federal contracts"
should be used.
Response: The Disclosure Statement deals with the cost accounting
practices of an entity such as a segment or home office and
it is presumed that cost accounting practices are applied consistently
to all the applicable final cost objectives. Although the dollar
amount of CAS-covered contracts received is crucial in determining
whether a Disclosure Statement has to be filed, once the requirement
to file has been met, the disclosure will cover all of the entity's
policies and practices as they affect cost measurement and allocation
to all contracts. Therefore, a broader term, such as "Federal
contracts", seems preferable to a narrower term such as "CAS-covered
contracts".
Comment: Two commenters suggested a shorter implementation period
than the one proposed in the NPRM.
Response: While the Board encourages early adoption of the new
form, it does not believe that it can adequately envision all
the circumstances that might arise necessitating a delay in
the introduction of the new form. It believes that any deadline
imposed for the introduction of the new form should make ample
provision for any unexpected difficulties that may arise at
the implementation stage. Therefore, the final filing date for
existing contractors has not been changed, although the Board
hopes that an earlier adoption is possible in most cases.
Comment: Several commenters expressed some criticism of the
procedure outlined in General Instructions that allows parts
of contractors' accounting manuals to be incorporated by reference
in the Disclosure Statement.
Response: The wording in the Instructions has been changed to
make it clear that the procedure in question is an optional
one -- particularly from the perspective of the contractor.
Comment: Several commenters suggested that the language be clarified
to indicate the appropriate circumstances in which home offices
may be able to complete Parts V, VI, or VII to be filed by segments
reporting to the home office.
Response: The language in the General Instructions has been
clarified. In particular, it has been made clear that where
the home office establishes the applicable cost accounting policies
and procedures, it may also complete the relevant Parts of the
Disclosure Statement to be submitted by its subordinate segments.
Comment: Several commenters offered suggestions for clarifying
the layout and terminology used on the Cover Sheet.
Response: Certain changes have been made to the Cover Sheet,
in particular to item 0.2, Reporting Unit Classification, in
order to introduce standard CAS terminology and definitions
whenever appropriate.
Comment: Several commenters pointed out that in Part I, General
Information, the wording of several items could be improved
in order to ensure that the questions are more clearly focused
and take into account current practices.
Response: Some changes have been made to Part I to reflect the
suggestions made by several commenters. In particular, the question
dealing with unallowable costs has been reformatted so as to
reflect the basic structure of CAS 9904.405, Accounting for
Unallowable Costs.
Comment: A number of comments were received concerning the formulation
of questions in Part II, Direct Costs, dealing with direct material,
direct labor and other direct costs. Some commenters suggested
that the questions included in this part might be more appropriate
elsewhere, such as in Part III, Direct vs. Indirect Costs, of
the Disclosure Statement.
Response: The basic characteristic of Part II, as a section
dealing with direct material, direct labor and other direct
costs has been retained. The purpose here is to obtain information
on how certain elements of cost are treated once it has been
determined that they represent direct costs for government contract
costing purposes. Therefore, items such as the question dealing
with employee travel expenses that are directly charged to contracts
have been retained.
On the other hand, as suggested by several commenters, the question
dealing with interorganizational transfers has been eliminated
primarily because it requested information about the cost accounting
practices of the transferor and not of the transferee who is
preparing the Disclosure Statement. It cannot be assumed that
such information is always readily available to the transferee.
The transferee's practices in this area are covered in Part
IV, Indirect Costs.
Comment: A few commenters suggested that Part III should be
drastically recast -- including a suggestion that instead of
long lists of functions, elements of cost and transactions,
the equivalent information should be described on a continuation
sheet.
Response: The existing format has been retained as it seems
to be the most effective way to obtain the relevant information
on whether an item of cost is being treated as a direct cost,
as an indirect cost or as a sometimes direct/sometimes indirect
cost. The lists of functions, elements of cost and transactions
have been somewhat modified on the basis of comments received.
Comment: In Part IV, several commenters pointed out that the
subtitles used to describe various methods of allocating General
and Administrative (G&A) expense did not properly reflect the
requirements of CAS 9904.410, Allocation of Business Unit General
and Administrative Expenses to Final Cost Objectives.
Response: The subtitles in question have been modified to conform
more closely to the requirements of CAS 9904.410.
Comment: A number of commenters were concerned about the amount
of detail required in Part IV dealing with modified allocations
from indirect cost pools using a modified allocation base or
a rate that is either more or less than the normal "full rate".
Some commenters indicated that too much detail was requested
regarding those modified allocations whereas others expressed
the view that more information should be made available.
Response: Certain parts of Part IV, in particular the question
dealing with the application of overhead and G&A rates to specified
transactions or costs, have been restated in an attempt to present
a more effective and balanced data gathering instrument. It
should, once more, be remembered that the aim has been to provide
a vehicle for a contractor to disclose its CAS compliant cost
accounting practices. Therefore, the Disclosure Statement should
not be regarded as a substitute for an audit check list. It
is for this reason that non-compliant practices have been expressly
excluded from the Disclosure Statement.
Comment: Several commenters suggested changes in the format
in which questions regarding Independent Research and Development
(IR&D) and Bid and Proposal (B&P) costs were presented in Part
IV.
Response: The two questions that previously dealt separately
with IR&D and B&P respectively have been combined to provide
a more compact approach to the topic. In particular, the new
approach, unlike the one in the NPRM, does not presuppose that
every contractor who incurs B&P expense also has incurred IR&D
expense -- a supposition that does not necessarily hold for
civilian agencies.
Comment: One commenter suggested that the headings in the question
in Part VI, Other Costs and Credits, dealing with charging and
crediting vacation, holiday and sick pay be rearranged.
Response: The column headings have been changed to reflect the
fact that salaried exempt and non-exempt employees (as defined
by the Fair Labor Standards Act) are generally treated differently
in this area.
Comment: Regarding Part VII, Deferred Compensation and Insurance
Costs, most commenters representing contractors expressed the
view that too much detailed and possibly superfluous and ambiguous
information was required with respect to the various pension,
post-retirement health, deferred compensation and insurance
plans. One commenter had actually tested the proposed NPRM requirements
by using actual plan data in completing selected parts of the
various sections in Part VII. The estimated time to complete
these various sections were clearly significant and possibly
burdensome when extrapolated to cover the whole of Part VII.
Even though the data submitted was not verified on an overall
basis, it did provide valuable insight into the relative amount
of time required to complete the various individual questions.
The data also distinguished between time required on a "recurring"
basis to keep the Disclosure Statement current, as contrasted
with the initial effort of "non-recurring" time required to
prepare the original submission. The general comments regarding
time required to complete Part VII were frequently supplemented
by specific suggestions regarding individual sections or questions.
Response: The Board is grateful to those commenters who spent
significant amounts of time to prepare constructive comments
on this part of the Disclosure Statement. In particular, the
Board would like to express its gratitude to the commenter who
actually completed sections of Part VII and made the relevant
data available to the Board.
As a result of the input received from commenters, Part VII
has been substantially redesigned in order to make it more "user
friendly". When dealing with pension plans, post-retirement
health benefits, employee group insurance, deferred compensation,
and worker's compensation and property insurance, the amount
of detailed information related to various aspects of cost measurement
has been substantially reduced. The detailed data is required
only for those plans or policies that account for 80-percent
of the relevant category of costs -- provided data on at least
three plans is disclosed. Only a limited amount of general plan
information is sought for all the other plans. By excluding
the less significant plans from the more detailed disclosure
requirements, it is anticipated that the paperwork burden will
be significantly eased.
Some commenters also inferred that in certain instances actual
numeric data was requested that would have to be updated annually.
It has been made clear in the final document that when dealing
with such items as actuarial assumptions, only the basis used
to determine numeric values need be disclosed and not the actual
values themselves. This clarification should ensure that no
regular annual updates of the Disclosure Statement are prepared
and submitted merely to reflect changes in the relevant numeric
values.
Other, more specific changes to the various sections of Part
VII are summarized below:
Pension
Plans. The number of General Plan Information questions
has been reduced from nine in the NPRM to six in the final document.
In the NPRM, the information requested for Defined Contribution
Plans applied to all plans of this type. In the final version,
if there are more than three plans, this information has to
be supplied only for plans that account for 80-percent of the
defined contribution plan costs.
Defined
Benefit Plans. The number of questions asked in this area
has not been changed. However, the topics covered and the manner
of presentation have been somewhat changed. In particular, it
has been made clear that regarding actuarial assumptions, no
disclosure of actual numeric values is required. Only the basis
for determining these numeric values need be described.
Post-retirement
Benefits (PRBs).. This section has been rearranged to conform
with the pattern established for pension plans in the previous
section. In the NPRM, the questions posed were applicable to
all PRB plans. In the final rule, questions dealing with general
plan information have been separated from questions dealing
with more specific aspects of PRB cost determination. The latter
group consists of five questions and they have to be completed
only for those plans that, in the aggregate, account for at
least 80-percent of the total PRB costs. However, if there are
three plans or less, then data on all the plans must be disclosed.
Employee
Group Insurance Programs. Responses to this section of Part
VII of the NPRM indicated that it was the most time consuming
section to complete. Therefore, some significant changes have
been made to the amount of information to be disclosed. First,
if there are more than three policies or self-insurance plans,
the applicable information should be provided only for those
policies and self-insurance plans that, in the aggregate, account
for at least 80-percent of the costs of the program for each
category of insured risk. Second, the information previously
requested under three separate questions has been recast as
a single question in a tabular form. Third, a number of specific
questions dealing with treatment of dividends, earned refunds,
and employee contributions have been dropped as these items
are largely covered by the provision of CAS 9904.416, Accounting
for Insurance Costs. It is anticipated that the time needed
to complete this section of Part VII will be significantly reduced
as a result of the changes listed above.
Deferred
Compensation Plans. This section has been recast to conform
to the format used in the sections dealing with pension plans
and PRBs. Therefore, the first five questions dealing with general
plan information are applicable to all the plans. Two other
questions, of a more substantive nature, should be completed
for all the plans if there are no more than three plans. If
there are more than three plans, the information should be provided
for those plans that in the aggregate account for at least 80-percent
of these deferred compensation costs.
Employee
Stock Ownership Plans (ESOPs). Questions in this section
have been reformulated, and, as a result, the total number of
these general plan information questions has been increased
by two as compared with the NPRM. These questions must be completed
for all ESOPs.
Worker's
Compensation Liability and Property Insurance. This section
has been rearranged to conform to the format used in dealing
with employee group insurance plans. In addition, the term "line
of insurance" has been introduced in an attempt to clarify the
nature of the aggregation of costs for which the relevant cost
data has to be disclosed. In this context, for the purpose of
guidance, "line of insurance" has the meaning attributed to
it in Generally Accepted Auditing Standards (GAAS) literature
(see AICPA Audit and Accounting Guide, Audits of Property and
Liability Insurance Companies) and includes groupings such as
fire and similar perils, general liability, marine perils, automobile
liability and property damage, worker's compensation, theft,
etc. If there are more than three policies or self-insurance
plans, the applicable information should be provided only for
those policies and plans that in the aggregate account for at
least 80-percent of the applicable costs for a line of insurance.
Also, two separate questions have been combined into a single
question in a tabular form.
Comment: Several comments relating to Part VIII, Corporate or
Group Expenses, dealt with the requirement in the NPRM to "list
all active segments and groups that are material in size reporting
to the home ... office". Suggestions received included deletion
of the words "all", "active", and "that are material in size"
in the above quote from the first question in this part. At
least one commenter suggested that if the term "material" is
used, criteria for materiality should be developed.
Response: The suggestions regarding deletions have been accepted
by the Board. The restated sentence reads: "list segments and
other intermediate level home offices reporting to this home
office."
The Board believes that this is an area where the individuals
implementing the Standards and other regulations necessarily
must exercise their own judgment in carrying out their tasks.
The objective of this provision in the Disclosure Statement
is to obtain a listing of segments and other entities to which
home office expenses may be allocated. This allocation is part
of the cost determination process for government contract costing
purposes. Furthermore, this cost determination process, which
includes all the relevant pronouncements of the Board, is subject
to the materiality provisions of 9903.305. Specific reiteration
of the materiality provision in each instance is not needed.
Therefore, the requirement in the present instance is to list
all the segments or other entities reporting to the home office
that may have other than immaterial impact on the cost allocation
process from the home office to its subordinate entities.
Comment: Several suggestions were received to improve and streamline
the main section of Part VIII that deals with the pooling and
allocation of home office expenses.
Response: Several of the suggestions received have been adopted.
An addition has been made to the list of allocation base codes
used and one question in the NPRM has been eliminated and its
substance combined with another question.
List
of Subjects in 48 CFR Part 9903
Cost accounting standards, Government procurement.
Richard C. Loeb
Executive Secretary, Cost Accounting Standards Board
For the reasons set forth in this preamble, chapter 99 of title
48 of the Code of Federal Regulations is amended as set forth
below:
- The
authority citation for Part 9903 continues to read as follows:
Authority: Public Law 100-679, 102 Stat. 4056, 41 U.S.C. 422.
PART 9903 - CONTRACT COVERAGE Subpart 9903.2 - CAS Program Requirements
- Section
9903.202 is amended by deleting the illustrated CASB DS-1 and
inserting a revised CASB DS-1.
Index
General
Instructions
Part I - General Information
Part II - Direct Costs
Part III - Direct vs. Indirect
Costs
Part IV - Indirect Costs
Part V - Depreciation and Capitalization
Practices
Part VI - Other Costs and Credits
Part VII - Deferred Compensation
and Insurance Cost
Part VIII - Home Office Expenses