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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


April 2019
Vol. XX, No. 4
[pdf version]

CONTENTS


Comments Sought on Conforming Cost Accounting Standards to GAAP
EPA to Provide Award Term Incentive Policies
GSA Announces Award for Entity Validation Services
AIDAR to Address Information Security
VAAR Cleans Up Construction, A-E Contract Coverage



Comments Sought on Conforming
Cost Accounting Standards to GAAP

The Cost Accounting Standards Board (CASB), a subdivision of the Office of Federal Procurement Policy (OFPP), is seeking public comments on a Staff Discussion Paper (SDP) on conformance of the Cost Accounting Standards (CAS) to Generally Accepted Accounting Principles (GAAP). The SDP was prepared in accordance with the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2017 (Public Law 114-328, Section 820, Defense Cost Accounting Standards, which amended Title 41 of the United States Code, Section 1501, Cost Accounting Standards Board (41 USC 1501), to require the CASB to review the CAS and conform them, where practicable, to the GAAP. The SDP is available at https://www.whitehouse.gov/wp-content/uploads/2019/03/2019-01-SDP-supp1.pdf.

The CAS consist of 19 standards that were promulgated in 1970 to achieve uniformity and consistency in the cost accounting practices used by contractors for measurement, assignment, and allocation of costs to contracts with the U. S. government (generally contracts that exceed $7,500,000 and are either cost-reimbursement or fixed-price where price reasonableness is established through the use of certified cost and pricing data). According to the SDP, “uniformity of the standards used across contractors provides the government the ability to compare contract proposals and performance. Consistency provides the government protection from the effects of inconsistent or improper contractor cost accounting, which could result in entities shifting costs incurred in one segment to another segment or on one contract to another contract, e.g., between private sector and the government contracts.”

GAAP is a set of financial accounting standards established by the Financial Accounting Standards Board (FASB) for recording and reporting financial information. The financial statements produced using GAAP focus on the financial performance of segments of the company and the entity as a whole. These financial statements are used internally to operate the business and externally by interested parties, such as shareholders (owners of the company), investment firms, banks, and other stakeholders. For example, the Securities and Exchange Commission requires publicly traded entities to file certain statements, which are made available to the public, including financial statements that are published in compliance with GAAP.

“While CAS and GAAP record and present the same costs, they do so with different perspectives and for different purposes,” the SDP continues. “CAS is focused at the contract level with a strong focus on the method of cost allocations to contracts to achieve the right recognition of costs for each contract for the benefit of the government. In contrast to CAS, GAAP is focused on reporting at a product line, segment or entity level, not by individual contract. Costs measured and assigned according to GAAP are consolidated into financial reports at these higher levels…When considering the need for CAS in 1970, Congress concluded that GAAP and other financial accounting standards could not satisfy the government’s requirements for evaluating contract costing and pricing because ‘unlike financial accounting, which concentrates on a company’s total operations for a given period, cost accounting is concerned with allocating a part of a company’s total expenses to a specific product or service’.”

Despite the differences in purpose and focus of the CAS and GAAP, there appear to be some areas of overlap that have arisen since CAS was first promulgated. This overlap has arisen as GAAP has evolved with the addition of a number of requirements related to the measurement and assignment of costs. Today, in practice, government contractors follow concurrently a mixed blend of GAAP and CAS. Where there is conflict between CAS and GAAP, the requirements of CAS supersede those of GAAP for government contract costing and pricing purposes.

The growth in GAAP content presents potential opportunities to modify or eliminate overlapping CAS requirements where GAAP standards may be applied reasonably as a substitute for CAS to support contract cost and pricing. Such reductions might help to reduce overall burden in the procurement process by allowing contractors to more heavily rely on GAAP, which they are already using to report on their daily business activities.

To effectively analyze where CAS-GAAP conformance may be beneficial, the SDP proposes: (1) guiding principles that can serve as guardrails in evaluating the benefits and drawbacks of any proposed action, and (2) a global roadmap to help the CASB prioritize where it should focus its attention from among the 19 CAS that are currently in effect. The SDP then provides a preliminary comparison of CAS to GAAP for two standards identified in the roadmap as early candidates for analysis: CAS 408, Accounting for Costs of Compensated Personal Absence, and CAS 409, Cost Accounting Standard Depreciation of Tangible Capital Assets. The requirements of each cost accounting standard are delineated in a chart that shows corresponding coverage in GAAP, if any, and initial CASB observations. Finally, the SDP discusses recent changes in GAAP that may require changes to CAS.

The CASB welcomes comments on any part of the SDP, including reactions to: (1) the cited examples of potential benefits and drawbacks of CAS-GAAP conformance; (2) the guiding principles proposed for evaluating benefits and drawbacks of actions to conform CAS to GAAP; (3) the prioritization for action, and initial thinking on where action may not be beneficial, as outlined in the global roadmap; (4) views on the initial analysis of CAS 408 and CAS 409, including the CASB’s preliminary observations and specific questions for public feedback; and (5) the CASB’s preliminary thinking on where CAS may need to be modified to conform to GAAP.

Respondents are encouraged to submit comments electronically to CASB@omb.eop.gov, and include name, title, organization, and reference “Case CASB 2019-01.” Respondents who are unable to submit comments electronically must submit their comments by regular mail to Office of Federal Procurement Policy, 725 17th Street NW, Washington, DC 20503, ATTN: Raymond Wong.



EPA to Provide Award Term Incentive Policies

The Environmental Protection Agency (EPA) is proposing to amend EPA Acquisition Regulation (EPAAR) subpart 1516.4, Incentive Contracts, to remove ambiguity and provide clarity on what is required for a contractor to successfully earn award terms.

Award terms are a form of incentive contract that offers additional periods of performance without a new competition, rather than additional profit or fee as a reward for achieving prescribed performance measures. Award term incentives were developed in 1997 by the Department of the Air Force and are not described in the Federal Acquisition Regulation (FAR). To assist EPA contracting officers seeking to use award term incentives, EPA believes it is necessary to amend the EPAAR to provide clear language of the requirements needed to successfully award and earn award terms.

The following are the changes that would be made by this proposed rule:

Comments on this proposed rule must be submitted no later than May 28, 2019, identified as “Docket ID No. EPA-HQ-OARM-2018-0610,” at the Federal eRulemaking Portal (http://www.regulations.gov).



GSA Announces Award for Entity Validation Services

The General Services Administration (GSA) has announced it has selected Ernst and Young LLP (E&Y) to provide entity validation services for the federal award process. The $41,751,329 contract is for a one-year base period and four option periods extending through March 2024. GSA will use the unique entity identifier developed by E&Y in place of the Data Universal Numbering System (DUNS®) numbers currently used to identify entities. DUNS® are provided and owned by Dun and Bradstreet (D&B). The E&Y-developed identifier will be owned by the government.

The government must validate the identity of each entity (company, individual, organization, etc.) wanting to do business with the government. For decades these services were provided by D&B though its DUNS® numbers. The government required its contractors to obtain and report a unique DUNS® number as a condition for receiving a contract award. This proprietary number permitted the government to: (1) uniquely identify a contractor entity; and (2) roll-up government procurements to the ultimate parent organization to show the corporate family receiving U.S. obligations.

However, the Digital Accountability and Transparency Act of 2014 (DATA Act) (Public Law 113-101) specifically states that the data shall, to the extent reasonable and practicable, “incorporate a widely accepted, nonproprietary, searchable, platform-independent computer-readable format” and “include unique identifiers for federal awards and entities receiving federal awards that can be consistently applied governmentwide” (emphasis added).

In anticipation of D&B’s contract expiring in 2018, GSA released two Requests for Information (RFI) “for government-wide entity identification and validation services…The government has a need for assignment and maintenance of a unique numbering system to consistently identify specific commercial, nonprofit, or government entities. The overarching government requirement is for business identification and validation services associated with that unique number” (for more on the RFIs, see the March 2017 Federal Contracts Perspective article “GSA Looking for Alternates to DUNS® Numbers”). Following the evaluation of comments submitted in response to the RFIs, GSA prepared and issued a request for proposals (RFP) in August 2018.

In addition, the Federal Acquisition Regulation (FAR) was amended by a final rule in Federal Acquisition Circular (FAC) 2005-91 to replace “Data Universal Numbering System (DUNS) number” and “Data Universal Numbering System +4 (DUNS+4) number” with “unique entity identifier” (“a number or other identifier used to identify a specific commercial, non-profit, or government entity”) and “Electronic Funds Transfer (EFT) indicator” (“a four-character suffix to the unique entity identifier”) (for more on FAC 2005-91, see the October 2016 Federal Contracts Perspective article “FAC 2005-91 Finalizes Rule on Women-Owned Small Business Sole Source Contracts”).

“Securing this five-year contract means that the federal government will have a safe, secure, and unified method for validating entities, while also simplifying the process for those who seek awards,” said GSA Office of Systems Management Assistant Commissioner Judith Zawatsky. “This award greatly improves the government’s ability to manage data and is an important step forward to competitively procuring entity validation services on behalf of the entire government award community.”

During the transition to E&Y, the government will receive continued service from D&B to maintain award reporting and data integrity.



AIDAR to Address Information Security

The United States Agency for International Development (USAID) is proposing to amend its USAID Acquisition Regulation (AIDAR) by adding AIDAR part 739, Acquisition of Information Technology, and corresponding clauses to incorporate a revised definition of information technology and other requirements relating to information security and information technology approvals.

USAID is proposing to address security for information and information systems that support the operations and assets of the agency, including those managed by contractors by making the following changes to the AIDAR:

Comments on this proposed rule must be submitted no later than May 20, 2019, identified as “Security and Information Technology Requirements,” by either of the following methods: (1) the Federal eRulemaking Portal: http://www.regulations.gov; or (2) mail: USAID, Bureau for Management, Office of Acquisition & Assistance, Policy Division, Room 867-F, SA-44, Washington, DC 20523-2052.



VAAR Cleans Up Construction, A-E Contract Coverage

The Department of Veterans Affairs (VA) continues its cleanup of the VA Acquisition Regulation (VAAR) to revise or remove any policy that has been superseded by changes in the FAR; remove any procedural guidance that is internal to the VA; incorporate new regulations and policies; correct inconsistencies within the VAAR; remove redundant and duplicate material already covered by the FAR; delete outdated material or information; and renumber VAAR text, clauses, and provisions to conform to the FAR format, numbering, and arrangement. This final rule addresses the VAAR coverage of construction and architect-engineer contracts, primarily VAAR part 836, Construction and Architect-Engineer Contracts.

The following are the most significant changes made to the VAAR by this final rule:





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