CASB
45th Meeting
May
13, 2005
The 45th meeting of the Cost Accounting Standards Board (CASB) took place
in the Old Executive Office Building, Washington, DC, on May 13, 2005. The
meeting was convened at 2:00 P.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. Abel, Shipley and Capitano (Board staff),
and Mr. Burton, Deputy, OFPP.
The Board discussed the following issues:
CAS Board
Staffing – Long-Term
The Board discussed various options for formulating working groups. The
Board approved the following structure for the working groups:
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The working groups will consist of Government members from various agencies,
including a member(s) of the Board staff. The working groups may, when
the situation warrants, also include Special Government Employees (e.g.,
industry members that have complied with the requirements to act as
Special Government Employees).
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The working group may, depending on the particular circumstances, seek
informal input from industry, public interest groups, academia, and
other organizations to gather information for formulation of a Staff
Discussion Paper, ANPRM, NPRM, or final rule.
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When circumstances warrant, public meetings may also be held at any
time during the promulgation process to discuss issues and/or obtain
input on specific language.
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The reports will be signed by working group members only.
The Board instructed
the staff to present a list of possible issues that merit working groups
for consideration at the next 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. At the last
meeting, 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 staff informed the Board that OMB Legal Counsel
has concluded that issuance of the correction to CAS 404.60(a) was statutorily
permitted. The Board then approved the correction. The staff was instructed
to process the correction for publication.
CAS
403 Operating Revenue Threshold
The operating
revenue thresholds at CAS 403-40(c)(2), which are 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. At the last
meeting, the Board instructed the staff to develop a Staff Discussion
Paper (SDP) and an Advanced Notice of Proposed Rulemaking (ANPRM), using
the change in the consumer price index as the basis for raising the thresholds.
The staff
provided the Board with a draft SDP and a draft ANPRM, using the annual
change in the consumer price index as the basis for raising the thresholds.
The Board approved both the SDP and the ANPRM, modified to reflect changes
made by the Board. These changes included revising the computation of
the inflation factor so that it is based on the quarterly changes in the
Consumer Price Index, rather than the annual change used by the staff.
It also included amending the Federal Register Notice to state that concurrent
issuance of the SDP and the ANPRM was warranted in this situation, but
that such issuance does not establish a precedent. The Board noted that
this specific issue is very narrow and has already been specifically identified,
i.e., if and how to adjust the thresholds for application of the three
factor formula.
The Board instructed the staff to process the SDP and the ANPRM for concurrent
publication.
Contract
Clause for Foreign Concerns
On November
4, 1993, the Board 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 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.
At the last
meeting, 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 foreign concerns.
The staff provided the Board with the draft clause for foreign concerns,
to be issued as a proposed rule. The Board approved the proposed rule, modified
to reflect changes made by the Board. The staff was instructed to process
the proposed rule for publication.
CAS
416 – Definition of Catastrophic Insurance
CAS 416-50(b)(1)
requires that a loss that is incurred by a segment shall be identified
with that segment except when the contractor's home office is, in effect,
a reinsurer of its segments against catastrophic losses. In such cases,
a portion of the catastrophic losses shall be allocated to, or identified
with, the home office. Questions have been raised as to the appropriate
application of the term “catastrophic” in CAS 416, and whether
the term should possibly be revised.
The Board
concluded that a review of the provisions and related illustrations in
CAS 416 is warranted. The staff was instructed to develop an SDP addressing
the CAS 416 provisions for reinsurance by the home office for catastrophic
losses. The SDP should provide the historical background of the CAS provision,
the established definition(s) of catastrophic insurance used in the insurance
industry, and potential revisions to CAS 416 (if any) for consideration
by the Board.
Time
& Material and Labor-Hour Contracts for Commercial Items
Section
1432 of the National Defense Authorization Act for Fiscal Year 2004 (Pub.
L. 108-136, referred to as SARA) amends FASA to expressly authorize the
use of time-and-material (T&M) and labor-hour (LH) contracts for certain
categories of commercial services under specified conditions. As part
of the process to implement this amendment, the FAR Council published
an ANRPM in the Federal Register on September 20, 2004 (69 F.R. 5631-56322)
to amend the FAR. The ANPRM did not provide an exemption from CAS.
The staff
provided the Board a proposed rule that would provide a CAS exemption
for T&M and LH contracts for commercial items. After discussion of
this issue, the Board approved the proposed rule, modified to reflect
changes made by the Board. The staff was instructed to process the proposed
rule for publication.
Adjustment
of Thresholds for Inflation
Section
807 of the Ronald W. Reagan National Defense Authorization Act for Fiscal
Year 2005 ((pub. L. 108-375) provides for adjustment every 5 years (starting
October 2005) of acquisition related thresholds, except Davis-Bacon, Service
Contract Act, and Trade Agreements thresholds. Section 807 defines “acquisition-related
threshold” as a “dollar threshold that is specified in law
as a factor in defining the scope of the applicability of a policy, procedure,
requirement, or restriction provided in that law to the procurement of
property or services by an executive agency, as determined by the Federal
Acquisition Regulatory Council.”
On April
28, 2005, the General Services Administration sent a letter to the CAS
Board stating the FAR Council’s intention to publish a proposed
rule changing the thresholds in FAR, including those in Part 30, CAS Administration.
The letter stated that advance notice was being provided so that the Board
could consider the impact of the proposed rule on the Board’s regulations.
The staff
provided the Board a draft proposed rule to revise the acquisition thresholds
in the CAS. After discussion of this issue, the Board approved the proposed
rule, modified to reflect changes made by the Board. The Board noted that
a change to FAR Part 30, without an accompanying change to the CAS, would
result in a conflict between the FAR and the CAS. The Board concluded
that, since OFPP controls the FAR and CAS processes, any changes to the
CAS thresholds in the FAR and CAS should be made concurrently. The staff
was instructed to process the proposed rule for publication and to assure
that it was published concurrently with the threshold changes to FAR Part
30.
Letter
from U.S. Agency for International Development
On February
4, 2005, USAID sent a letter to the Board requesting input regarding the
CAS exemption for “contracts and subcontracts to be executed and
performed entirely outside the United States, its territories, and possessions.”
(referred to hereafter as “the United States”). The USAID
requested an interpretation as to whether the exemption applies when costs
are incurred in the United States but the contract is actually performed
outside the United States. USAID states that “the issue at hand
is the incurrence of indirect and possibly direct cost within the United
States, its territories, and possessions.” USAID further states
that examples of such costs include preparation of billings, purchasing,
and other activities performed within the United States.
The staff
provided the Board a draft letter to be sent to USAID. The Board approved
the letter, modified to reflect changes made by the Board. The Board agreed
that the letter specifically state that the Board believes an interpretation
on this issue is not warranted. The staff was instructed to process the
letter for issuance by the Chairman.
The Board
members also agreed that the subject exemption should be reviewed to determine
if it is still needed, and if so, whether it should be modified in any
way. The staff was instructed to develop a SDP addressing the exemption,
including the promulgation history and various alternatives for consideration
by the Board.
Adjournment
The meeting
was adjourned at 3:40 P.M.
Minutes submitted by David J. Capitano, May 31, 2005.
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