Federal Acquisition Regulation; Cost Accounting Standards Administration, 11743-11761 [05-4093]

Agencies

• General Services Administration
• National Aeronautics and Space Administration
• DEPARTMENT OF DEFENSE

[Federal Register Volume 70, Number 45 (Wednesday, March 9, 2005)]
[Rules and Regulations]
[Pages 11743-11761]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-4093]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 30 and 52

[FAC 2005-01; FAR Case 1999-025; Item VI]
RIN 9000-AI70


Federal Acquisition Regulation; Cost Accounting Standards 
Administration

AGENCIES: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) have agreed on a final rule 
amending the Federal Acquisition Regulation (FAR) by revising language 
pertaining to the Cost Accounting Standards Administration, and the 
related FAR contract clause, Administration of Cost Accounting 
Standards. In addition, a new contract clause is added, Proposal 
Disclosure--Cost Accounting Practice Changes. The rule describes the 
process for determining and resolving the cost-impact on contracts and 
subcontracts when a contractor makes a compliant change to a cost 
accounting practice or follows a noncompliant practice. To assist in 
understanding the changes between the current FAR rule and this final 
FAR rule, a matrix that summarizes the major changes is provided in 
Section C, Supplementary Information, below.

DATES: Effective Date: April 8, 2005.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat at (202) 501-4755 
for information pertaining to status or publication schedules. For 
clarification of content, contact Mr. Richard C. Loeb, Acting Director, 
Office of Acquisition Policy, at (202) 208-3810. Please cite FAC 2005-
01, FAR case 1999-025.

SUPPLEMENTARY INFORMATION:

A. Background

    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 65 FR 20854, April 18, 2000, with a request for comments by 
June 19, 2000. Nine respondents submitted public comments. Additional 
comments were also provided by the public at a series of public 
meetings held on August 2, September 26, and October 17, 2000. As a 
result of the comments received, the Councils made significant changes 
to the proposed FAR rule and published a second proposed FAR rule in 
the Federal Register at 68 FR 40104, July 3, 2003, with a request for 
comments by September 2, 2003. An additional public meeting was held on 
August 5, 2003.
    Nine respondents submitted comments in response to the second 
proposed FAR rule. A discussion of these public comments are provided 
below. The Councils considered all comments and concluded that the 
proposed rule should be converted to a final rule, with changes to the 
proposed rule. Differences between the second proposed rule and final 
rule are discussed in Section B, Comments 8, 9, 12, 21, 26, 27, 28, 29, 
35 and Other Changes, below.

B. Public Comments

Public Meeting

    1. Comment: Four respondents recommended holding a public working 
group session to address the concerns and recommendations contained in 
the public comments submitted in response to the proposed rule.

[[Page 11744]]

    Councils' response: Nonconcur. With the removal of the calculation 
of increased cost in the aggregate from the final rule (see comment 
26), the Councils do not believe there are any issues that warrant 
holding another public meeting.

Complex and Prescriptive

    2. Comment: Five respondents asserted that the proposed rule is 
overly prescriptive. One respondent stated that the proposed rule is 
unnecessarily complicated and does not address the major reasons that 
the current process does not work. Two respondents asserted the 
proposed rule is so detailed and prescriptive that CFAOs will be unable 
to exercise good business judgment and consider the unique aspects of 
each contractor's business environment in settling issues. Another 
respondent stated that the highly prescriptive nature of this 
regulation will impede the expeditious and fair resolution of CAS 
issues. The respondent stated that CFAOs will interpret the proposed 
rule as significantly decreasing the flexibility regularly exercised 
under the current regulation. Yet another respondent asserted that the 
detailed requirements for a GDM are too prescriptive. This respondent 
stated that, in many cases, very high-level GDM's are all that is 
needed to determine if an impact is going to be immaterial, while in 
other cases, a GDM with more detail may be necessary. They stated that 
the GDM's require more flexibility than is provided for in the proposed 
amendment.
    Councils' response: Nonconcur. The Councils do not believe that the 
general content of the rule is overly prescriptive. The Councils 
believe that the CFAO and the contractor have significant flexibility 
in the proposed process, including the ability to determine materiality 
at any time during the process, the ability to submit a GDM in whatever 
format that is acceptable to the CFAO, and the ability to negotiate the 
cost-impact by adjusting a single contract, multiple contracts, or some 
other suitable method. However, the Councils concur with some of the 
specific recommendations made in the public comments regarding 
revisions to the proposed language. To the extent the respondents have 
provided specific comments regarding the prescriptive nature of the 
rule, the Councils have addressed those comments and made recommended 
revisions as deemed appropriate.

Define ``Cost Accumulation''

    3. Comment: One respondent recommended defining the term ``cost 
accumulation'' in FAR Part 31.001, Definitions, and clarifying the 
expression ``noncompliances that involve accumulating costs.''
    Councils' response: Nonconcur. The Councils do not agree that there 
is confusion as to the intent of the term. The Councils believe the 
term ``cost accumulation'' is self-evident and clearly understood. In 
addition, since the CAS Board defines ``accumulating costs'' in 48 CFR 
9904.401-30(a)(1), there is no need to add clarifying language 
regarding the expression ``noncompliances that involve accumulating 
costs.''

Adequacy Determination--Cost-Impact System

    4. Comment: One respondent recommended that the proposed rule be 
revised to ``require the CFAO to make a determination, in conjunction 
with DCAA, regarding a contractor's cost-impact system and their 
ability to submit cost-impact proposals. If a contractor has the 
ability to identify increased or decreased cost accumulations for each 
affected CAS-covered contract and subcontract and can properly 
summarize the increased or decreased cost by contract type and 
Government agency, the CFAO should be required to utilize that 
contractors system.''
    Councils' response: Nonconcur. The Councils are unaware of any 
criteria that have been established as the basis for a CFAO's 
determination of adequacy of a contractor's cost-impact system, unlike 
other systems upon which the Government makes determinations of 
adequacy, such as accounting or billing systems. The Councils also 
believe that such criteria are unnecessary. The effort necessary to 
establish and continuously review cost-impact systems would not be cost 
beneficial to the Government or the contractor. The proposed rule 
provides the contractor with the flexibility to submit a GDM and/or DCI 
proposal in any format that is acceptable to the CFAO. To the extent a 
contractor has a process that produces GDM and/or DCI proposals that 
are acceptable to the CFAO, the contractor will continue to be able to 
use that process under the proposed rule.

CFAO Acting for Non-DoD Agencies

    5. Comment: One respondent stated that the CFAO responsibilities 
set forth in the proposed rule will not work at contractors who have 
CAS-covered contracts and subcontracts with many Government agencies. 
The respondent further stated that agencies outside of DoD have refused 
to accept final incurred expense rates that have been audited by DCAA 
and approved by its ACO and, therefore, it is inconceivable that 
agencies such as DOE or USAID will allow a CFAO to execute a bilateral 
modification to one of its contracts.
    Councils' response: Nonconcur. The Councils have not changed the 
requirements under FAR 30.601, Responsibilities. CAS administration for 
all contracts and subcontracts in a business unit must be performed by 
a single agency. The proposed rule merely uses the term ``Cognizant 
Federal Agency Official (CFAO)'' instead of ``cognizant ACO.'' This 
does not change the responsibilities of the cognizant Federal agency.
    Under FAR 42.202(d), delegation of functions pertaining to cost 
accounting standards cannot be rescinded by any contracting agency. 
Furthermore, FAR 42.703 sets forth that a single agency shall be 
responsible for establishing final indirect cost rates for each 
business unit. These rates shall be binding on all agencies and their 
contracting offices, unless otherwise specifically prohibited by 
statute. An agency shall not perform an audit of indirect cost rates 
when the contracting officer determines that the objectives of the 
audit can reasonably be met by accepting the results of an audit that 
was conducted by any other department or agency of the Federal 
Government.

Materiality Determination--Guidelines

    6. Comment: One respondent recommended that the FAR Council provide 
guidelines for what constitutes adequate documentation in making a 
determination of materiality.
    Councils' response: Nonconcur. The Councils believe that any 
attempt to add guidelines for what constitutes adequate documentation 
would be overly prescriptive, could result in submittal of unnecessary 
documentation, would reduce the flexibility needed to resolve cost-
impacts in a timely manner, and could potentially lead to disputes. The 
Councils' position is consistent with the requirements at FAR 1.704, 
Determination and Findings (D&F). As noted at 30.601, Responsibilities, 
the CFAO is required to make all CAS-related required D&Fs for all CAS-
covered contracts and subcontracts. FAR 1.704 requires that each D&F 
include necessary supporting documentation to clearly and convincingly 
justify the specific determination made. However, since each case must 
be evaluated based on its particular facts and circumstances, FAR 1.704 
does not provide guidelines for what constitutes necessary supporting 
documentation. Similarly, since each cost-impact must be evaluated 
based on

[[Page 11745]]

the particular facts and circumstances, the Councils do not believe it 
is necessary to provide guidelines for what constitutes adequate 
documentation.

Immateriality Determination--Prior to GDM

    7. Comment: One respondent expressed concern with the wording of 
the proposed rule which allows for a determination of materiality 
before submittal of the GDM. The respondent asked how the CFAO can make 
such a determination and what data would have to be provided to the 
CFAO for this determination.
    Councils' response: The Councils believe there will be instances in 
which a determination of materiality can be made (based on the criteria 
at 48 CFR 9903.305) without submittal of a GDM. The data required to 
make such a determination would be identified by the CFAO on a case-by-
case basis, depending on the particular facts and circumstances 
involved. The Councils note that language at 30.602(b)(1) provides the 
CFAO with such flexibility, something that other respondents have 
emphasized is needed in the cost-impact process. The Councils also note 
that this language was endorsed by another respondent who stated that 
they ``* * * support the Council's efforts to clarify the process for 
determining and resolving cost-impacts and believes there are favorable 
aspects of the proposed amendment. For example, the proposed cost-
impact process begins without having to prepare a general dollar 
magnitude (GDM) proposal. In addition, the Cognizant Federal Agency 
Official (CFAO) has the ability to make materiality determinations at 
any time during the process.''

Immateriality Determination--Documentation

    8. Comment: One respondent recommended that whenever the CFAO 
determines the cost-impact is immaterial, the CFAO should be required 
to document the criteria used in making that determination.
    Councils' response: Concur. The Councils believe a requirement for 
the CFAO to document the immateriality determination is appropriate and 
has included the requirement at FAR 30.602(c)(2).

Clarify ``Assertion''

    9. Comment: One respondent recommended modifying or removing the 
term ``assertion'' in the statement at contract clause FAR 52.230-6(b) 
that reads ``a description of any cost accounting practice change to 
the Disclosure Statement and any assertion that the cost-impact of the 
change is immaterial.'' In addition, the respondent recommended that 
any statement by the contractor regarding whether the cost-impact of 
the change is immaterial should be in writing.
    Councils' response: Concur. To avoid potential confusion, the 
Councils agree that paragraph (b) of the contract clause at FAR 52.230-
6 be revised to require submission of a written statement that the 
cost-impact is immaterial. In addition, the term ``written statement'' 
replaces the term ``assertion'' at FAR 30.603-1(c)(2)(ii), 30.603-
2(c)(1)(ii), and 30.605(b)(2)(ii)(B).

Time Restrictions for Contractor

    10. Comment: One respondent recommended that the Council reinstate 
existing specific time limits for the contractor to provide information 
regarding accounting changes and noncompliances in all paragraphs where 
the phrase ``by a specified date'' is used.
    Councils' response: Nonconcur. The respondent's references to the 
CFAO affixing ``a specified time limit'' for contractors to submit a 
GDM (FAR 30.604(b)(1)(i)), revised GDM (FAR 30.604(f)(1)), or DCI (FAR 
30.604(f)(2)) does not provide flexibility to the CFAO to specify a 
date that is commensurate with the complexity of the issue(s). 
Ultimately, the total time allotted a contractor is addressed by FAR 
30.604(i), Remedies, which may be disputed by the contractor.

Time Restrictions for Government

    11. Comment: Two respondents stated that the proposed rule does not 
address one of the major problems associated with the resolution of 
cost-impact proposals related to noncompliances and accounting changes. 
One respondent stated that the problem is the fact that the Government 
has no time restrictions for performing its responsibilities. The 
respondent recommended that the proposed rule require all actions 
related to these issues be performed within specific time frames. In 
addition, the respondent recommended that reasonable response times be 
established for Government personnel.
    Councils' response: Nonconcur. The Councils believe a specific time 
requirement for CFAO action could increase disputes concerning the 
adequacy of contractor submissions since the time periods cannot 
reasonably start until an adequate submission is received. The Councils 
are not aware of, and the respondents did not provide, a remedy for 
Government failure to comply with a recommended time requirement.

DCI in Lieu of GDM

    12. Comment: Two respondents stated that the submittal of a GDM 
requires extra analysis and is less precise than a detailed cost 
proposal. The respondents asserted that the databases and cost-impact 
calculation systems used by CAS-covered contractors can provide a DCI 
that is much more precise than the calculations required by a GDM.
    Councils' response: Partially concur. The GDM proposal does not 
require extra analysis. Proposed FAR 30.604(d) and 30.605(d) allow the 
CFAO and contractor flexibility in the submittal of a GDM. For some 
contractors, the databases and cost-impact calculation systems they use 
allow for the computation of DCIs with relative ease. In such cases, it 
is anticipated that a contractor would submit the cost-impact 
calculation generated by its system as the GDM. However, the final rule 
has been revised at FAR 30.604(d)(3) and 30.605(d)(3) to clarify that 
the contractor may submit a DCI in lieu of a GDM proposal. The Councils 
believe that allowing, but not requiring, the submittal of a GDM gives 
contractors flexibility to submit proposals as complex and precise as 
they choose, up to and including the submittal of a full DCI.

Cost-Impact Approximations

    13. Comment: Two respondents stated that the use of approximations 
of prices and cost accumulations are not necessary. Both respondents 
stated that it is easy and more cost effective to calculate DCI 
proposals. One respondent also stated that it does not see why a 
contractor should be required to calculate the increased cost in the 
aggregate one way for a GDM proposal and another way for the cost-
impact calculation.
    Councils' response: Nonconcur. For some contractors, the databases 
and cost-impact calculation systems they use allow for the computation 
of detailed cost-impacts with relative ease. For other contractors, 
this is not necessarily the case. The Councils believe that allowing 
the submittal of a GDM that provides a reasonable approximation of the 
total increase in cost accumulations, gives contractors flexibility to 
submit proposals as complex and precise as they choose, up to and 
including the submittal of a full DCI. However, since some contractors 
may choose to go directly to the DCI, the final rule has been revised 
to specifically state that the contractor may

[[Page 11746]]

submit a DCI in lieu of a GDM proposal (see comment 12).

Representative Sample and Projections

    14. Comment: Two respondents stated that the use of a 
representative sample and the projection of that sample to determine 
the total increase or decrease in cost accumulations are problematic. 
Both respondents stated that they have had difficulties over the years 
in reaching agreement with the Government on what constitutes a 
representative sample.
    Councils' response: Nonconcur. The Councils believe that for some 
contractors, the projection of representative samples is a feasible 
method for computing increases and decreases in cost accumulations for 
the purposes of the submittal of a GDM (see FAR 30.604(e)(2)(i) and 
30.605(d)(2)(i)). For contractors that find it problematic to come to 
an agreement with the Government on what constitutes a representative 
sample, there are alternative methods for computing increases and 
decreases in cost accumulations in preparing for the submittal of a 
GDM. In addition, the final rule has been revised to permit contractors 
to submit a DCI in lieu of a GDM proposal (see comment 12).

Firm-Fixed-Price Contracts

    15. Comment: Six respondents commented that firm-fixed-price (FFP) 
contracts should not be included in cost-impacts for changes in cost 
accounting practices. One respondent asserted that ``increased costs to 
the Government only result from a change in contractor's cost 
accounting practices when the actual costs paid by the Government are 
more than they would have been had the contractor's practices not 
changed.'' The respondent further asserted that FFP contracts are not 
included in the cost-impact because the amount of costs a contractor 
assigns to FFP contracts due to a change in cost accounting practices 
has no effect on the amount ultimately paid by the Government.
    Councils' response: Nonconcur. FFP contracts are properly included 
in cost-impacts for changes in cost accounting practice in the subject 
rule. 48 CFR 9903.306(a) does not differentiate among contract types in 
its definition of increased costs to the Government. Further, 48 CFR 
9903.306(b) measures increased costs for FFP contracts by ``the 
difference between the contract price agreed to and the contract price 
that would have been agreed to had the contractor proposed in 
accordance with the cost accounting practices used during contract 
performance.'' The final rule at FAR 30.604 is consistent with the 
requirements at 48 CFR 9903.306(a) and (b).

Required Information

    16. Comment: One respondent questioned whether the benefits to be 
derived from the requirement at FAR 30.604(e)(3) to provide certain 
information when a unilateral change is involved are worth the costs to 
comply. The respondent's concern was based on its belief that FAR 
30.606(c)(3) neither justifies why the information is needed nor 
discusses how the information will be used.
    Councils' response: Nonconcur. The information required by FAR 
30.604(e)(3) (the increased or decreased costs by agency, and the 
increased or decreased costs for fixed-price contracts and subcontracts 
and flexibly-priced contracts and subcontracts) is required to 
determine how any adjustments will be handled. Specifically, the 
increase or decrease by agency is needed to assure that the contracts 
to be adjusted and the amounts of those adjustments are fairly 
allocated among the executive agencies. The breakout by firm-fixed 
price and flexibly-priced contracts is needed since the terms 
``increased costs'' and ``decreased costs'' mean different things when 
applied to fixed-price versus flexibly-priced contracts.

GDM Versus DCI

    17. Comment: One respondent commented that over the last decade, 
``technology has advanced to the stage where a very accurate cost-
impact proposal covering all affected pricing actions, (by contract, 
task, agency, contract type, etc.) is now practical. The speed and 
power of personal computers, combined with advances in database 
technology, now make it much easier to calculate precise cost-impacts 
in a very short time.'' Thus, ``the debate over GDM versus DCI cost-
impacts may well become moot.''
    Councils' response: Nonconcur. The Councils believe that retention 
of the GDM as an option available to the CFAO promotes the streamlining 
of the cost-impact process in many cases, such as those where the 
contractor does not have a sophisticated cost-impact system as 
envisioned by the respondent. The final rule at FAR 30.604(f)(1) 
provides that the CFAO may use the GDM to resolve cost-impacts without 
requiring the preparation of a DCI. The Councils believe that this 
option will result in a significant savings of resources for both the 
contractor and the Government.

Contradictory Rules

    18. Comment: One respondent stated that proposed FAR 30.604(h) 
seems to apply only to Detailed Cost-impact proposals (DCIs), but the 
proposed language in the FAR clause at FAR 52.230-6(f) applies the 
principle to both General Dollar Magnitude Proposals (GDMs) and DCIs. 
The respondent's conclusion is that these two paragraphs of the 
proposed rule are contradictory.
    Councils' response: Nonconcur. FAR 30.604(e)(1), General dollar 
magnitude proposal content, and FAR 30.604(g)(1), Detailed cost-impact 
proposal, both require computation of the cost-impact in accordance 
with 30.604(h), Calculating cost-impacts. Thus, the proposed rule is 
not contradictory.

Cost-Impact Computations

    19. Comment: One respondent stated that the required cost-impact 
computations set forth in FAR 30.604(h) and 30.605(h) cause additional 
administrative burden. These requirements preclude the respondent from 
utilizing its Government approved cost-impact system.
    Councils' response: Nonconcur. The proposed rule does not preclude 
the respondent from using its cost-impact system, provided that the 
system computes the cost-impact in accordance with FAR 30.604(h) and 
30.605(h). It is noted that the Government does not ``approve'' cost-
impact systems.

Closed Contracts and Closed Years

    20. Comment: Four respondents commented that the cost-impact 
calculation should not include closed contracts or years with final 
negotiated overhead rates.
    Councils' response: Nonconcur. The Councils believe that it is 
appropriate to include closed contracts and closed fiscal years in the 
cost-impact calculation. Under the CAS clause at 48 CFR 9903.201-
4(a)(5), the contractor in connection with this contract shall ``agree 
to an adjustment of the contract price or cost allowance, as 
appropriate, if the contractor or a subcontractor fails to comply with 
an applicable cost accounting standard, or to follow any cost 
accounting practice consistently and such failure results in any 
increased costs paid by the United States. Such adjustment shall 
provide for recovery of the increased costs to the United States, 
together with interest thereon computed at the annual rate established 
under Section 6621(a)(2) of the Internal Revenue Code of 1986 (26 
U.S.C. 6621(a)(2)) for such period, from the time the payment by the 
United States was made to the time the adjustment is effected.''

[[Page 11747]]

    The provision at 48 CFR 9903.201-4(a)(5) does not provide for the 
exclusion of closed contracts or closed fiscal years from the cost-
impact calculation. Since the CAS Board has not excluded such 
contracts, the Councils believe they must be included in the cost-
impact calculation. The Councils further note that this position is 
consistent with the treatment of closed contracts and final negotiated 
overhead rates for price adjustments under the Truth in Negotiations 
Act. Defective pricing claims are often brought after the contract is 
closed and closure is no barrier to Government relief. The Councils 
also believe this is consistent with the position historically taken by 
the Government on CAS.

Cost-Impacts in Prior Years

    21. Comment: One respondent stated that the proposed language at 
FAR 30.604(h)(1) infers that all cost-impacts occur in prior periods. 
The cost-impact calculation for all affected contracts generally 
involves the ``estimated cost to complete'' that will be incurred in 
future periods, after the change is implemented. To clarify that the 
cost-impact can involve existing contracts that will be performed in 
the future, insert the words ``or will be'' between ``were'' and 
``incurred.''
    Councils' response: Concur. The Councils agree that the 
respondent's recommendation will clarify the intent of the language at 
FAR 30.604(h)(1). However, the Councils believe the language at FAR 
30.604(h)(1), as well as 30.605(h)(1), would be better clarified by 
inserting the word ``are'' in place of the word ``were.''

Change in Cost Accumulation

    22. Comment: Two respondents expressed concern that the proposed 
rule requires that a GDM and/or DCI is required for a change in cost 
accumulation without regard to whether costs were billed. The 
respondents stated that the Government cannot be harmed until an actual 
billing has been submitted and paid. One respondent questioned how 
there can be any increased or decreased costs paid by the Government 
related to a unilateral change if contractors are complying with the 
current regulations.
    Councils' response: Nonconcur. The rule assumes that the 
contractor's system used to accumulate costs is also used to bill those 
costs. While the Government cannot be harmed until the costs are 
actually billed, the CFAO is required to take action to preclude the 
Government from paying increased costs. Thus, if action is not taken to 
correct the noncompliance in cost accumulation, the increased costs 
could ultimately be billed to the Government. Note that one of the 
actions that can be taken is the correction of the accumulated costs to 
correct the noncompliance.

Estimated Cost To Complete--Same Level of Work

    23. Comment: One respondent recommended that the language regarding 
the two estimates to complete at FAR 30.604(h)(3) be revised to state 
that they should be based on contractor performance at the same level 
of contract work. The respondent recommended adding the words ``in cost 
accumulation'' and the phrase ``required to perform the same level of 
contract work.''
    Councils' response: Nonconcur. The language at issue concerns the 
items to be included in a GDM and DCI proposal. Based on past 
experience, the Councils believe adding the recommended language is 
more likely to cause confusion and disputes rather than add clarity. In 
the CAS Board Announced Notice of Proposed Rulemaking on changes in 
cost accounting practice and in the first proposed rule on FAR Part 30, 
the language required that the estimates be based on a ``consistent 
baseline.'' In both instances, public comments were submitted that 
clearly showed confusion as to the intent of the proposed language and 
requested clarification as to what was meant by a ``consistent 
baseline.'' The Councils believe the revised final language at FAR 
30.604(h)(3) is sufficient for the parties to understand that the 
purpose of using an estimate to complete is to determine the difference 
in cost accumulations solely as a result of the changed practice, i.e., 
the two estimates to complete cannot use different work scopes, 
different anticipated wage increases, different anticipated material 
price increases, or any other differences that do not result from the 
use of a different accounting practice.

Estimated Cost To Complete

    24. Comment: Four respondents stated that the proposed rule 
requires the contractors to use current estimates-to-complete to 
calculate the cost-impact of changes to cost accounting practices. Two 
of the respondents asserted that such estimates may be so impacted by 
other events occurring subsequent to the award of a contract that they 
do not provide a reasonable basis for measuring increased costs to the 
Government.
    Councils' response: Nonconcur. Although not specifically stated, it 
appears that the respondents are addressing the use of current 
estimates to complete for determining the cost-impact on fixed-price 
contracts (see FAR 30.604(h)(3)). For flexibly-priced contracts, since 
the current estimates to complete represent the actual amount that will 
be reimbursed, there should be no issue regarding the use of such 
estimates.
    The Councils do not believe it is practical to use the original 
cost estimates for determining the cost-impact on fixed-price 
contracts. The Councils believe using current estimates to complete is 
the only feasible method for computing the cost-impact of changes in 
cost accounting practice. As noted in CAS Working Group Paper 76-9, 
there are several serious impediments to using original cost estimates 
for adjusting fixed-price contracts. While the parties to a fixed-price 
contract have agreed to a total price, there is often no agreement as 
to how much of the price represents cost and how much of the price 
represents profit, and seldom a meeting of the minds on the amount of 
any individual element of cost. Further, many fixed-price contracts 
will have undergone numerous price changes due to engineering 
modifications and other changes. In such cases, tracking an individual 
cost element may prove virtually impossible. There is also the danger 
that the confusion resulting from the attempt to reconstruct the 
original data will provide an opportunity to re-price loss portions of 
contract performance that have elapsed prior to the point of the 
change.

Define ``In the Aggregate''

    25. Comment: One respondent commented that the CAS Board should 
define ``in the aggregate.''
    Councils' response: The Councils recommend the respondent address 
its suggestion to the CAS Board, which can then decide if any action is 
necessary.

Increased Costs in the Aggregate

    26. Comment: Eight respondents stated that the proposed rule on 
increased costs in the aggregate was a violation of CAS and the 
statutory provision.
    Councils' response: The comment is no longer applicable--the final 
rule does not include the calculation of increased cost in the 
aggregate. The calculations at the following proposed coverage were 
removed from the final rule: 30.604(h)(3), and (4)(iv)(A) through (C); 
and 30.605(h)(5), (6), (8)(i) and (ii), and (9).
    In addition, revisions were made at the following proposed coverage 
as a result of the removal of the calculations: 30.604(h)(4)(i), (ii), 
and (iv)--now 30.604(h)(3)(i), (ii), and (iv); and

[[Page 11748]]

30.605(h)(3), (4), and (8)--now 30.605(h)(3), (4), and (6).

Offsets Between Contract Types

    27. Comment: Two respondents stated that the proposed rule 
incorrectly disallows offsets between contract types. In addition, one 
respondent asserted that the Government could be provided with a 
``windfall profit'' if offsets are not allowed between contract types 
in the case of any noncompliance or unilateral change that causes costs 
to shift between fixed-price contracts and subcontracts and flexibly-
priced contracts and subcontracts.
    Councils' response: The comment is no longer applicable--the final 
rule does not include the calculation of increased cost in the 
aggregate. The calculations were removed from the final rule (see 
comment 26).

Interest Computation--Calculation

    28. Comment: One respondent stated that it does not understand how 
interest can be calculated by multiplying the difference in indirect 
costs by an applicable base, and that the methodology used to compute 
interest at FAR 30.605(d)(2)(ii)(B) makes no sense.
    Councils' response: Concur. The Councils recognize that potential 
confusion could result from the language, and that the language may be 
overly prescriptive. The Councils have therefore revised the final rule 
to eliminate the discussion of interest by deleting proposed FAR 
30.605(d)(2)(ii)(B) to reduce the prescriptive nature of the language.

Interest Computation--Over and Underpayments

    29. Comment: One respondent stated that the proposed requirements 
for calculating quarterly interest payments associated with 
overpayments or underpayments for noncompliances are overly 
prescriptive.
    Councils' response: Concur. The Councils believe it is imperative 
for the contractor to provide information on when any increased costs 
were paid, so that the CFAO can compute interest in accordance with the 
statutory requirements. However, the Councils recognize that more 
flexibility can be inserted in the process. Therefore, the Councils 
revised the requirements for a GDM and DCI proposal at proposed FAR 
30.605(d)(3)(iii) (now 30.605(d)(4)(iii)) by adding ``for fixed-price 
and flexibly-priced contracts'' after the word ``underpayments'' in the 
first sentence, and deleting the second sentence that required total 
over and underpayments be broken down by quarter.

Quarterly Data

    30. Comment: One respondent asserted that the ``proposed rule 
mandates a schedule of increased or decreased costs paid by quarter (or 
an analysis to demonstrate why such a schedule is necessary) by 
Executive agency as a required part of a general dollar magnitude cost-
impact for an alleged noncompliance.'' The respondent stated that this 
administrative burden should be evaluated.
    Councils' response: Nonconcur. The proposed rule at FAR 
30.605(d)(3) does not require a schedule of increased or decreased 
costs paid by quarter by Executive agency as part of a general dollar 
magnitude cost-impact. The proposed rule requires that the GDM include 
the total overpayments and underpayments broken down by quarter, unless 
each of the quarterly amounts billed during the period of noncompliance 
were approximately equal. It does not require that such amounts also be 
broken down by Executive agency. It is noted that the Councils removed 
the requirement at proposed FAR 30.605(d)(3)(iii) that the overpayments 
and underpayments be broken down by quarter in the GDM proposal (see 
comment 29), as well as the requirement at proposed FAR 30.605(g)(2)(i) 
and (ii) concerning the computation of interest on the quarterly 
amounts billed.

Task Order Contracts

    31. Comment: One respondent stated that one of the many situations 
that greatly affect the cost accumulation calculation that is not 
addressed in the proposal is the trend toward task order contracts that 
may have both fixed fee and incentive fee tasks, as well as CAS covered 
and non-CAS covered tasks.
    Councils' response: Nonconcur. The Councils believe that this 
situation is adequately covered by the language at FAR 30.605(h)(5), 
and the definition of ``Affected CAS-covered contracts'' at FAR 30.001.
    FAR 30.605(h)(5) requires that the computation of the cost-impact 
include a calculation of the total increase or decrease in contract and 
subcontract incentives, fees, and profits associated with the increased 
or decreased costs to the Government in accordance with 48 CFR 
9903.306(c). Thus, if the task involves a fixed fee, the contractor 
would need to compute the increase or decrease in that fixed fee as a 
result of the change or noncompliance. Conversely, if the task involved 
an incentive fee, the contractor would need to compute the increase or 
decrease in the incentive fee as a result of the change or 
noncompliance.
    As for the issue of CAS-covered versus non-CAS-covered tasks, a 
contract cannot contain both CAS-covered and non-CAS-covered tasks. In 
order for CAS-coverage to differ between tasks, each task would have to 
be a separate contract. In such cases, the definition of affected CAS-
covered contracts would exclude the non-CAS covered tasks from the 
computation of the cost-impact.

Cost-Impact on Incentives, Fee, and Profit

    32. Comment: One respondent stated that FAR 30.605(h)(5) excludes 
flexibly-priced contract cost ceilings or target costs for determining 
increased costs in the aggregate for noncompliances involving 
estimating costs. The respondent stated that the proposed requirement 
is only applied to fixed price contracts, and asserted that ``the 
proposed coverage ignores the cost-impact on negotiated flexibly priced 
contract cost ceilings or target costs that were understated or 
overstated due to a contractor's proposal that contained estimated 
costs which were based on the use of a noncompliant practice.'' The 
respondent recommended that FAR 30.605(h)(5) be revised to include 
flexibly-priced contracts in the computation of increased costs in the 
aggregate for estimating noncompliances. The respondent also stated 
that under FAR 30.606(c)(4)(ii), as proposed, fixed price contracts 
would only be subject to downward price adjustment if there are ``net'' 
increased cost to the Government and opined that flexibly-priced 
contracts should not be excluded from the adjustment process. The 
respondent believes that the proposed approach to only recover the 
aggregate increased cost to the Government for fixed price contracts 
can result in inequities.
    Councils' response: Nonconcur. The Councils believe that flexibly-
priced contracts are properly included in the computation of increased 
costs in the aggregate. For a noncompliance in estimating costs, the 
Councils do not believe the impact on negotiated flexibly-priced 
contract cost ceilings or target costs should be included in the 
computation of increased costs in the aggregate. Under a flexibly-
priced contract, the Government reimburses the actual costs incurred. 
As a result, a noncompliance in estimating the costs does not affect 
the total costs the Government will ultimately reimburse on flexibly-
priced contracts. However, an estimating noncompliance may have a 
significant impact on the amount of

[[Page 11749]]

incentives, fees or profits for flexibly-priced contracts. Thus, the 
final rule requires inclusion of the impact on incentives, fees, and 
profits in computing the increased costs in the aggregate for 
estimating noncompliances.

Records Retention

    33. Comment: One respondent stated that problems with the current 
process for handling cost-impacts could be addressed by adding a 
requirement for contractors to retain cost proposals that were the 
basis for negotiating the value of the CAS-covered pricing actions.
    Councils' response: Nonconcur. The Councils disagree that adding a 
specific requirement to FAR Part 30 is appropriate. FAR 4.703, Policy-
Contractor Records Retention, already describes the record retention 
requirements for contract negotiations, administration, and audit 
requirements of the contracting agencies. The Councils believe these 
record retention requirements are adequate for purposes of CAS 
administration.

Adjust Each Individual Contract

    34. Comment: One respondent recommended that FAR 30.606(a)(2) 
include an analysis of the total payments that would be made if all 
affected contracts were individually adjusted so that the CFAO can 
determine whether one or more contracts are to be adjusted, or if an 
alternative method can be used to resolve the impact. The respondent 
asked how, without such data, the CFAO can determine that the 
Government will not pay more, in the aggregate, than would be paid if 
the CFAO had adjusted all affected contracts?
    Councils' response: Nonconcur. In an ideal world, the contractor 
would provide a detailed analysis of the total payments for each and 
every affected contract. However, the Councils recognize that this is 
often not feasible and, in fact, would impose a significant 
administrative burden on contractors, extending the cost-impact process 
by years. The Councils do not believe that individual contract data is 
necessary in every circumstance in order for the CFAO to determine 
increased costs in the aggregate. The final rule, therefore, provides 
the CFAO the flexibility to obtain data at a more macro level, if 
appropriate.

Combining Certain Types of Impacts

    35. Comment: Two respondents stated that they believe the proposed 
language at FAR 30.606(a)(3) is counter productive as it contains 
language that will further limit the Government and the contractor from 
resolving some of the more complex cost-impacts. The section precludes 
the Government from combining cost-impacts that include: (a) Changes 
implemented in different fiscal years, (b) changes and noncompliances, 
(c) two or more noncompliances, and (d) different categories of 
changes.
    Councils' response: Partially concur. The Councils believe that 
some language at FAR 30.606(a)(3) is necessary to protect the interests 
of the Government. However, the Councils also recognize that the 
proposed language should be revised to provide some additional 
flexibility to the CFAO in resolving cost-impacts. The Councils, 
therefore, revised the language at FAR 30.606(a)(3) to reflect the 
following:
    (a) Changes implemented in different fiscal years. The Councils 
agree with the respondent that implementing changes in different fiscal 
years should not be the basis for precluding the combination of such 
changes. The Councils have, therefore, deleted proposed 30.606(a)(3)(i) 
from the final rule.
    (b) Required/desirable changes combined with unilateral changes/
noncompliances. The actions taken to resolve a required or desirable 
change (negotiate an equitable adjustment) are different from the 
actions taken to resolve a unilateral change or a noncompliance 
(recover increased costs to the Government). Therefore, the Councils 
believe that combining cost-impacts of required/desirable changes with 
the cost-impacts of unilateral changes/noncompliances should be 
prohibited, as indicated at FAR 30.606(a)(3)(i).
    (c) Combining unilateral changes and/or noncompliances. When the 
individual cost-impact of each unilateral change and each noncompliance 
is increased costs in the aggregate, the Councils agree that the change 
and noncompliance may be combined for administrative ease in resolving 
cost-impacts, as indicated at FAR 30.606(a)(3)(ii). Such combinations 
can only be made by mutual agreement of both parties.
    The Councils further believe that combining the cost-impacts of 
unilateral changes and/or noncompliances must be precluded if any of 
the individual changes or noncompliances involved results in decreased 
costs in the aggregate. When there are two or more unilateral changes/
noncompliances, some with increased costs and others with decreased 
costs, combining the cost-impact of those changes does not comply with 
the statutory requirement that the Government recover the increased 
costs in the aggregate for each unilateral change/noncompliance. There 
is no statutory provision that permits offsetting the cost-impact of 
one unilateral change/noncompliance with the cost-impact of any other 
unilateral change/noncompliance.
    (d) Cost-impacts of a unilateral change affecting two or more 
segments. The Councils recognize that, in some circumstances, a 
unilateral change may affect more than one segment. When such a change 
affects the flow of costs between segments or implements a common cost 
accounting practice for two or more segments, the CFAO may treat this 
as a single change for cost-impact purposes, as indicated at FAR 
30.606(a)(3)(iii).

Mandatory Adjustments and Disallowance of Costs

    36. Comment: Regarding FAR 30.606, one respondent stated that ``The 
proposed mandatory provisions in (c)(3)(i) and (ii) appear incompatible 
with the CASB provision at 48 CFR 9903.201-6(b) and the proposed 
permissive provision at (c)(3)(iii).'' The respondent further stated 
that ``The proposed provision at (c)(3)(iii) provides the CFAO `may' 
adjust contract prices, including cost ceilings or target costs, 
provided contract prices are not increased in the aggregate.'' The 
respondent also stated that ``This appears predicated on the CASB 
regulatory provision at 48 CFR 9903.201-6(b), but the FAR proposal 
makes it subservient to the mandatory provisions at (c)(3)(i) and (ii) 
which do not sanction such adjustments.'' The respondent then stated 
that ``the proposed rule appears to conflict with the CAS rules, as 
amended on June 14, 2000,'' and cited similar inconsistencies with FAR 
30.606(c)(4). The respondent recommended that FAR 30.606(c)(3)(i) and 
(ii), and FAR 30.606(c)(4)(i) and (ii) be deleted and make the proposed 
provisions at (c)(3)(iii) and (c)(4)(iii) mandatory, for consistency 
with CAS rules. The respondent further recommended that the 
parenthetical at FAR 30.605(h)(3) be deleted because it does not 
require the adjustment of contract cost ceilings and target prices. 
Finally, the respondent recommended that, after adjusting the contract 
ceilings and target prices, FAR 30.606(c)(3) and (c)(4) include a 
``mandatory provision requiring the CFAO to disallow accumulated costs 
under flexibly-priced contracts, but only for the portion of estimated 
increased cost accumulations that remains in a cost overrun condition 
after contract cost ceiling adjustments, if any, are made.''
    Councils' response: Nonconcur. In an ideal world, the CFAO would 
adjust all

[[Page 11750]]

contracts so each and every dollar of the cost-impact is perfectly re-
allocated to each and every affected contract. This would include all 
contract ceilings and target prices. However, the Councils recognize 
that this is often not feasible and, in fact, would impose a 
significant administrative burden on contractors, extending the cost-
impact process by years. The CAS rules recognize the need for 
flexibility at 48 CFR 9903.306(f), which states:

    ``Whether cost-impact is recognized by modifying a single 
contract, several but not all contracts, or any other suitable 
technique, is a contract administration matter. The Cost Accounting 
Standards do not in any way restrict the capacity of the parties to 
select the method by which the cost-impact attributable to a change 
in cost accounting practice is recognized.''

    The Councils believe the final rule provides the CFAO the 
flexibility to adjust the contract cost ceilings and target prices when 
the CFAO deems appropriate, as provided for by the CAS rules.

Cost Accumulation Noncompliances

    37. Comment: One respondent commented that the FAR Council should 
rethink its requirement for cost accumulation noncompliances. The 
respondent asserted that the only harm to the Government in such 
noncompliances is the application of interest to the difference between 
a compliant and noncompliant billing.
    Councils' response: Nonconcur. The Councils do not agree with the 
respondent's assessment of the harm to the Government in the case of a 
noncompliance in accumulating costs. The respondent assumes that the 
contractor agrees to correct the noncompliance and immediately reflects 
the correction in subsequent billings to the Government. This may not 
always be the case since the Government and contractor may not agree on 
the nature and extent of the noncompliance and the contractor may 
decline to make appropriate adjustments to billed costs. In addition, 
the noncompliance may affect closed contracts for which there can be no 
corrections to billings. The calculation of the cost-impact of the 
accumulation noncompliance is necessary to ensure that the Government 
recovers the full extent of any increased costs as well as any 
statutorily required interest (see FAR 30.606(c)(5)).

Adjustment of Final Indirect Rates

    38. Comment: Two respondents stated that the adjustment of final 
indirect rates by the CFAO is inappropriate. They stated that since 
``final incurred cost rates are applicable to all Government contracts, 
not just CAS-covered Government contracts. Therefore, CAS issues are 
being forced on non CAS-covered contracts through the application of 
adjusted final incurred cost rates.'' One respondent also argued that 
the proposed rule does not reflect the position taken by the CAS Board 
in its second supplemental notice of proposed rulemaking, 64 FR 45700, 
August 20, 1999, in response to a respondent suggesting the use of the 
final indirect expense rate settlement process rather than contract 
price adjustments as a method to resolve a cost-impact. In response to 
that comment, the CAS Board stated ``Adjustments of indirect expense 
rates to settle a cost-impact action can result in the adjustment of 
the wrong contracts for the impact of the change in accounting 
practice. This method also results in the establishment of final 
indirect expense rates that are not consistent with a contractor's 
established and disclosed accounting practices for allocating indirect 
costs to final cost objectives.''
    Councils' response: Nonconcur. CAS issues are not being forced on 
non CAS-covered contracts because the contractor must agree to any 
adjustment of final indirect rates. FAR 30.606(d)(1) states that the 
CFAO may use an alternate method to resolve the cost-impact provided 
the contracting parties agree on the use of that alternate method. 
Thus, the impact of the change or noncompliance will not affect non 
CAS-covered contracts unless the contractor agrees. The CAS Board 
recognizes the use of an alternate method such as adjusting indirect 
rates at 48 CFR 9903.306(f), which states ``Whether cost-impact is 
recognized by modifying a single contract, several but not all 
contracts, or any other suitable technique, is a contract 
administration matter. The Cost Accounting Standards rules do not in 
any way restrict the method by which the cost-impact attributable to a 
change in cost accounting practice is recognized.''

Other Changes

    The Councils revised the clause language at FAR 52.230-6, 
Administration of Cost Accounting Standards, to be in accord with the 
changes made to the final rule as described in the Councils' responses 
to the public comments, above. In addition, the Councils made several 
editorial-type changes to the proposed language to enhance clarity and 
structure of the final rule.
    The Councils also made a clarifying change at FAR 30.001 to the 
definition of ``Fixed-price contracts and subcontracts'' to exclude 
fixed-price contracts with economic price adjustments (EPA) based on 
actual costs of labor or material (described at 16.203-1(a)(2)), and 
included these EPA contracts in the definition of ``Flexibly-priced 
contracts and subcontracts.''

C. Summary of Changes

------------------------------------------------------------------------
     Issue             Current FAR rule             Final FAR rule
------------------------------------------------------------------------
                               Definitions
------------------------------------------------------------------------
1..............  No definitions for           Added new definitions for
                  ``Affected CAS-covered       ``Affected CAS-covered
                  contract,'' ``Fixed-price    contract,'' ``Fixed-price
                  contracts,'' and             contracts,'' and
                  ``Flexibly-priced            ``Flexibly-priced
                  contracts.''.                contracts'' (30.001).
2..............  Included old CAS             Updated definitions to
                  definitions and              match CAS definitions and
                  terminology of ``Mandatory   terminology for
                  change,'' ``Voluntary        ``Required change,''
                  change,'' and ``Desirable    ``Unilateral change,''
                  change.''.                   and ``Desirable change''
                                               (30.001).
----------------
                            Responsibilities
------------------------------------------------------------------------
3..............  ACO is used throughout FAR   Changed Administrative
                  section.                     Contracting Officer (ACO)
                                               to Cognizant Federal
                                               Agency Official (CFAO) to
                                               be consistent with
                                               current CAS.
----------------

[[Page 11751]]

 
                             Determinations
------------------------------------------------------------------------
4..............  Did not contain actions for  Provides actions to be
                  what to do if Disclosure     taken when the Disclosure
                  Statement is adequate,       Statement is adequate
                  inadequate, compliant, or    (30.202-7(a)(2)(i)),
                  noncompliant.                inadequate (30.202-
                                               7(a)(2)(ii)), compliant
                                               (30.202-7(b)(2)), or
                                               noncompliant (30.605(b)).
----------------
                               Materiality
------------------------------------------------------------------------
5..............  No discussion of             Added new section on
                  materiality.                 materiality (30.602).
                                               Permits determination of
                                               immateriality at any time
                                               in the process;
                                               references CAS section on
                                               materiality in
                                               determining whether a
                                               change/noncompliance is
                                               immaterial; and requires
                                               CFAO to document
                                               rationale for any
                                               determination that the
                                               cost impact is
                                               immaterial.
----------------
                            Required Changes
------------------------------------------------------------------------
6..............  Did not address early        Requires CFAO to process
                  implementation of a          early implementation of a
                  required change.             required change as a
                                               unilateral change, unless
                                               determined to be
                                               desirable (30.603-
                                               1(d)(2)).
----------------
                    Unilateral and Desirable Changes
------------------------------------------------------------------------
7..............  Did not address how a        States that until a change
                  unilateral change is         is determined to be
                  treated if a decision on     desirable, it shall be
                  desirability has not been    treated as a unilateral
                  made.                        change (30.603-2(b)(2)).
8..............  Did not provide information  Provides specific factors
                  on how to determine          to consider in
                  whether a change is          determining whether a
                  desirable.                   change is desirable
                                               (30.603-2(b)(3)).
9..............  Did not address retroactive  Provides specific section
                  changes.                     on retroactive changes
                                               (30.603-2(d)). CFAO can
                                               make a change retroactive
                                               to the beginning of the
                                               fiscal year in which the
                                               change was made.
10.............  Did not include exemption    Includes current CAS
                  from contract price          exemption from contract
                  adjustments for changes      price adjustments for
                  related to external          changes related to
                  restructuring activities.    external restructuring
                                               activities (30.603-2(e)).
----------------
     Processing Changes to Disclosed or Established Cost Accounting
                Practices, And Processing Noncompliances
------------------------------------------------------------------------
11.............  No process for evaluating    Includes process for
                  changes or noncompliances.   evaluating changes
                                               (30.604(c)) and
                                               noncompliances (30.605).
12.............  No separation of cost        Separate cost impact
                  impact computation and       computation (30.604(h)
                  cost impact resolution.      and 30.605(h)) from cost
                                               impact resolution
                                               (30.606).
13.............  Required submittal of a GDM  Requires submittal of GDM
                  in format specified by ACO   in format specified by
                  for use in determining       CFAO, provided certain
                  whether cost impact is       basic information is
                  material.                    included (30.604(e)(3)).
                                               GDM can be used as basis
                                               to negotiate cost impact
                                               (30.604(f)(1) and
                                               30.605(e)(1)). Permits
                                               contractor to submit DCI
                                               proposal in lieu of GDM
                                               proposal (30.604(d)(3)
                                               and 30.605(d)(3)).
14.............  Required DCI showing cost    Requires DCI in format
                  impact for each contract.    specified by CFAO,
                  DCI required anytime cost    provided certain basic
                  impact is material.          information is included.
                                               DCI does not need to
                                               include every contract if
                                               CFAO and contractor can
                                               agree on sample and to
                                               project results to
                                               universe (30.604(e)(2)(i)
                                               and 30.605(d)(2)(i)). DCI
                                               only required when GDM is
                                               not adequate for
                                               resolving cost impact
                                               (30.604(f)(2) and
                                               30.605(e)(2)).
15.............  Provided no information on   Provides specific
                  what constituted increased   information on what
                  or decreased cost.           constitutes increased and
                                               decreased cost. Does not
                                               include how to compute
                                               increased cost in the
                                               aggregate
                                               (30.604(h)(3)(iv) and
                                               30.605(h)(6)). Also see
                                               Comment 26.
16.............  Did not discuss equitable    States that cost impact
                  adjustments for required     computation is used as
                  or desirable changes.        basis for determining
                                               amount of equitable
                                               adjustments resulting
                                               from required or
                                               desirable changes
                                               (30.604(h)(4)).
----------------
                                Interest
------------------------------------------------------------------------
17.............  Does not address use of      Does not address use of
                  simple versus compound       simple versus compound
                  interest in determining      interest in determining
                  amounts due resulting from   amounts due resulting
                  increased cost paid on a     from increased cost paid
                  noncompliance.               on a noncompliance
                                               (30.605(g)).
----------------
                         Resolving Cost Impacts
------------------------------------------------------------------------
18.............  Requires ACO to coordinate   Requires CFAO to
                  with all PCO's whose         coordinate with all PCO's
                  contracts will be affected   whose contracts will be
                  by $10,000 or more.          affected by $100,000 or
                                               more (30.606(a)).

[[Page 11752]]

 
19.............  Did not discuss which cost   Specifies which cost
                  impacts could and could      impacts cannot be
                  not be combined.             combined. Never combine a
                                               required change and a
                                               unilateral change; a
                                               required change and a
                                               noncompliance; a
                                               desirable change and a
                                               unilateral change; a
                                               desirable change and a
                                               noncompliance
                                               (30.606(a)(3)(i)). Never
                                               combine, unless all have
                                               increased costs, one or
                                               more unilateral changes;
                                               one or more
                                               noncompliances;
                                               unilateral changes and
                                               noncompliances
                                               (30.606(a)(3)(ii)). May
                                               treat as a single change
                                               any change affecting
                                               costs flowing between
                                               multiple segments and
                                               implementation of a
                                               common accounting
                                               prac