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CASB 44th Meeting
February 23, 2005

The 44th meeting of the Cost Accounting Standards Board (CASB) took place in the Old Executive Office Building, Washington, DC on February 23, 2005. The meeting was convened at 10:00 a.m. The Board, consisting of the Chair, Mr. David Safavian, Administrator for Federal Procurement Policy (OFPP), and Messrs. DiPasquale, Reed, and Waszily were in attendance. Also in attendance for the entire meeting were Messrs. Shipley and Capitano (acting as Board staff), and Mr. Burton, Deputy, OFPP.

The Board discussed the following issues:

CAS Board Staffing – Short-Term

The Chairmen informed members that he had arranged a detail of Mr. Capitano from DOD to serve as the CASB staff during the temporary absence of Dr. Abel. Mr. Capitano will report to the CASB Chairman but will also be available to all Board members and their staffs for discussions and progress reports on all CAS Board initiatives. Dr. Abel, upon his return, will re-assume staff responsibility for all CAS Board initiatives, with Mr. Capitano providing input when requested by the Board or Dr. Abel.

CAS Board Staffing – Long-Term

The Chairman informed members that, due to OMB/OFPP budget reductions, only one of the two previously funded permanent CASB staff positions would be retained. Members discussed the long-term CASB staffing options in light of these limitations. All agreed that it was important, at this time, to have a CASB staff member for continuity of on-going cases and administrative matters. The members also agreed that, for specific projects, the Board should utilize Government employees detailed from other agencies and/or working groups. The working groups would consist of Government employees and, to the extent permitted by FACA, industry representatives. The Chairman stated he would seek OMB General Counsel advice on FACA requirements as they might apply to joint industry and Government working groups. Members instructed the staff to develop some different options for how the working groups might operate for discussion at the next Board meeting.

Alternative Disclosure Statement for United Kingdom (UK) Contractors

The members discussed the request by the UK Ministry of Defence for use of an alternative disclosure statement by UK contractors. The Board was provided a draft interim rule permitting UK contractors to submit the British form "Questionnaire on Method of Allocation of Costs" (QMAC) and its supplement in lieu of the CASB DS-1. In response to prior CASB inquiries, the UK Ministry of Defence has also agreed to revise Item 6 of the current QMAC to address concerns expressed by several Board members. However, the UK Ministry of Defence deferred making the change until such time as the Board approved use of the alternative disclosure statement.

The Board approved the draft interim rule for publication, with the stipulation that the UK Ministry of Defence proceed with revising Item 6 of the instructions to the QMAC. The Board instructed the staff to (a) process the interim rule for publication, and (b) notify the U.K Ministry of Defence of the Board approval and advise it to proceed with revising Item 6 of the QMAC.

Employee Stock Ownership Plans (ESOPs)

The CASB published an ANPRM on August 20, 2003. Ten public comments were submitted in response to the ANPRM. A Government ESOP Working Group reviewed the ten public comments and provided its recommendations to the CASB, including draft language for inclusion in an NPRM.

The members discussed the working group’s recommendations and draft language. Board members Messrs. DiPasquale and Reed suggested some minor changes to the draft language. The Board agreed to issuance of an NPRM using the draft language submitted by the Working Group, modified to reflect the changes suggested by the Board members. The Board instructed the staff to develop the NPRM for publication.

The working group report also included a recommendation by Dr. Abel and Messrs Shipley and Solomon to consider addressing postretirement benefits in the purpose section of CAS 415. The Board agreed to take this matter under advisement as a possible separate case to be discussed at a future CASB meeting.

CAS 404.60(a) – Capitalization Illustration

The capitalization illustration at CAS 404.60(a) is inconsistent with the current capitalization provisions at CAS 404.40(b)(1). The illustration was not revised when the capitalization thresholds were raised to $5,000 in 1996. The members concluded that issuing a correction to the final rule issued in 1996 would be the most efficient method for correcting the inconsistency but expressed concern whether such a correction was statutorily permitted. The Board instructed the staff to obtain legal input as to whether a correction to the 1996 final rule was statutorily permitted, and report back to the members at the next meeting.

CAS 403 Operating Revenue Threshold

The operating revenue thresholds at CAS 403-40(c)(2), used in determining whether a contractor must allocate residual expenses using the three factor formula, were promulgated in December 1972. The thresholds have not been revised in the 33 years since the standard was promulgated.

The staff provided the Board with two options for revising the thresholds, (a) raising the thresholds to reflect the changes in the consumer price index from 1973 to the present time, and (b) obtaining actual statistics of various companies and conduct a staff study to determine the impact that various revisions would have on the number of companies subject to the three-factor formula.

The members discussed both of these options, and the Board agreed that the thresholds should be revised. The Board also agreed that the options presented by the staff provided adequate research to move forward with the four-step statutory process. Thus, the Board instructed the staff to develop a draft ANPRM, using the change in the consumer price index as the basis for raising the thresholds.

Contract Clause for Foreign Concerns

The members discussed the possible addition of a contract clause for foreign concerns. On November 4, 1993, the CASB revised the definition of modified coverage to include CAS 405 and 406, so that modified coverage currently includes CAS 401, 402, 405, and 406. In conjunction with the revised definition of modified coverage, the CAS Board also amended the clause at 9903.201-4(c) to include CAS 405 and 406. However, the requirement for foreign concerns to comply with only CAS 401 and 402 has remained unchanged. As a result, the contract clause at 9903.201-4(c), which was previously applicable to foreign concerns, can no longer be used for foreign concerns without modification by the parties.

The Board agreed that a contract clause requiring compliance with CAS 401 and 402 by foreign concerns should be added to the CAS. The Board instructed the staff to develop a clause for discussion at the next meeting.

Requirements for Foreign Companies to File Disclosure Statements

DoD has raised a potential CAS noncompliance issue that may involve prior communications with CASB staff. A U.S. contractor is informing a Dutch subcontractor that a CAS Disclosure Statement is not required unless the foreign company is an affiliate of a United States company. The position of the U.S. company is based in part on a July 8, 1994 letter that references a conversation the company says took place between a company representative and a CASB staff member. The staff informed members that it is unable to locate any record of a telephone discussion or a response to the letter by the CASB or its staff.

DoD has asked for CASB coordination on a draft letter informing the U.S. company that its position is not consistent with CAS. The members discussed the role of the CAS Board and concluded that, in accordance with its Statement of Objectives, Policies and Concepts, the Board will not intervene or supersede contractual and administrative procedures for resolving specific Cost Accounting Standards disputes arising under Government contracts.

Medicare Contract Reform

Mr. Shipley advised members that all negotiated contracts awarded for the new Medicare Administration Contracts under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 will be subject to the CAS rules and regulations.


The meeting was adjourned at 11:50 A.M.

Minutes submitted by David J. Capitano, March 4, 2005.