The CAS board’s carrying out a mandate—and comments are now open

Terry Gerton We talked back when the 2026 National Defense Authorization Act first came out about the new cost accounting standards thresholds that were included there. And the Cost Accounting Standards Board is now out with a draft rule to implement the law. Comments due April 20th. We’ll dig into those particulars, but before we do, just refresh our memory. What is the problem that the NDAA and the new rule are trying to solve?

Dan Ramish So Terry, the cost accounting standards have been in place since the 1970s, and the requirements are among the most onerous regulatory burdens for government contractors. They provide prescriptive requirements for how contractors are required to measure, assign and allocate costs. And it’s one of the areas where operations, the accounting requirements, are most different from the commercial world. So there’s been a broader deregulatory effort within government contracts, and CAS has been one of the focus areas because it is more onerous than some of the other areas. And so there have been efforts, on the one hand, to make changes to conform the cost accounting standards to GAAP, the generally accepted accounting principles, partly to make the accounting more similar to the commercial world. But there have also been efforts to limit who, which contractors, through their contracts are subject to the cost accounting standards. And so that’s the threshold piece; it’s paring back the contracts and subcontracts that will be subject to CAS.

Terry Gerton Well, the threshold piece is certainly the big headline here, changing the exemption level up to $35 million and the jump to $100 million for full CAS coverage. What does that change actually mean for contractors?

Dan Ramish Well, so there’s some nuances here. The board, the Cost Accounting Standards board, is trying to balance, on the one hand, trying to have transparency and accountability in how the federal government is spending its dollars. And on the other hand, it is promoting this deregulatory agenda with the administration. But all of these new thresholds were set intending to reduce the number of entities that are subject, for example, to full CAS coverage while still having transparency into most of the dollars. So the board estimated, for example, the full CAS coverage — which requires more compliance with all 19 cost-counting standards, so is really the full banana, so to speak — the changes in the full CAS coverage threshold would remove nearly 30% of entities subject to full coverage, while maintaining by the board’s estimate nearly 99% of the dollars have been subject to it. So, a good trade-off as far as reducing the burden without really narrowing the government’s insights into the contracts and having the assuredness of these requirements.

Terry Gerton The law and the rule also both tackle the disclosure statement threshold, raising that to $100 million and eliminating the 30% segment exemption. Tell us how that is going to play out in practice.

Dan Ramish Disclosure statements generally track with the full CAS coverage. They’re separate thresholds, but full CAS-coverage threshold was increased to $100 million. Disclosures statement threshold actually wasn’t addressed in the NDAA. That’s actually only in the CAS regulations, but the CAS board found that it made sense to also increase the threshold for disclosure statements, which is one of the major requirements of CAS and is more involved. They eliminated some of the other exceptions. There has been a standing exemption for segments for which CAS-covered contracts accounted for fewer than 30% of total segment sales and less than $10 million. The CAS board found that that shouldn’t be necessary based on the higher thresholds. And that was following the recommendations of the last big, blue-ribbon procurement reform initiative, the Section 809 panel.

Terry Gerton I’m speaking with Dan Ramish. He’s a partner at Haynes Boone. Dan, the board in this rule also finally addresses what’s been a sore point around CAS for indefinite delivery contracts, but maybe not as clearly as folks would have liked. So tell us what’s going on there.

Dan Ramish Well, so I mentioned the Section 809 panel made various recommendations about CAS. One of the recommendations they made was to clarify coverage of indefinite delivery contracts. So, of course, when there’s an IDIQ contract, there is a very low minimum amount that’s established really just to provide for consideration. And then there’s a high ceiling. And in many cases, the actual awarded orders will never approach the ceiling on an indefinite delivery contract. And so the Section 809 panel’s recommendation was to just have CAS coverage addressed at the order level for indefinite delivery contracts. Now the board looked at it, looked at the data in FPDS and said, actually it makes sense to divide how indefinity delivery contracts are treated based on whether the contract is single-award or multiple-award. They said that for multiple-award contracts, which seemed to be the focus of the 809 panel, the amounts that were actually ordered under the contract didn’t approach the ceiling, so the ceiling wasn’t a good value to compare against the thresholds. But for single-award contracts, often the ordered amounts were close to the ceiling or in many cases more than 90% of the ceiling. So they felt that it was fair to use the overall contract ceiling value for single-award contracts, but stick with the order-level assessment for multiple awards.

Terry Gerton And that’s not going to be too confusing for contractors or contracting officers.

Dan Ramish Well, we’ll have to see what the reaction is from industry. That’s part of the comment process is supposed to air out some of these kinds of concerns. And obviously, not everyone’s contract portfolio is the same. And so I think we’ll see whether there are concerns raised about this split treatment.

Terry Gerton Well, speaking of concerns, are there issues related to CAS that the rule doesn’t specifically address or resolve?

Dan Ramish So a few things on that, Terry. There were some additional reforms that are specified in the NDAA that aren’t addressed in this proposed rulemaking. It looks like the CAS board kind of decided to take it in stages. So there is a provision that talks about exempting portions of covered contracts and subcontracts where there are a couple of established exemptions, for example, contracts for commercial products or services, prices set by law or regulation, or fixed-price contracts with adequate price competition where there’s no certified cost-pricing data. The NDAA calls for if there are portions of contracts that fall within those exemptions, allowing those portions to be exempt from CAS. So that hasn’t been implemented yet. There are also some changes to the composition of the CAS board and the operation of the CAS board that are going to be addressed separately, presumably. And the other big issue that contractors are going to be watching is there is a rewrite called for under the NEAA of the rules on contract price adjustments for changes in cost accounting practices. And that is kind of separate from the coverage issue, at least. So, that also will be subject to a follow-on regulation.

Terry Gerton Dan, with the comments that are due April 20th, what should contractors and contracting officers and acquisition policy teams really be paying closest attention to in this proposal, and what changes do you think would make the biggest difference if the board adopts them?

Dan Ramish I think the biggest thing that the board might consider and give another look to is the coverage of existing contracts. So the way the cost accounting standards work, CAS coverage is addressed by contract and subcontract … and it’s also determined at the time of award. And so to the extent that there are, you know, contractors have contracts and sub-contracts are subject to especially full CAS, where the value of the contract was above the previous thresholds but is below the new higher threshold, $100 million for full CAS coverage, the existing regulations would contemplate that they would continue to comply with full CAS for those contracts. Now, the CAS board is clearly trying to do everything it can to relieve the burden on contractors, and so they might consider as they are responding to comments, offering further relief, accelerating the relief that’s provided by having some sort of off-ramp mechanism, maybe authorizing the contracting officer to bilaterally modify contracts, to remove CAS requirements if the contracts are below the new higher thresholds. There might also be provisions addressed when the FAR Council and the DAR Council are reviewing the procurement regulations, the corresponding sections of those regulations. But I think it would be helpful for the CAS board to look at this and see if they might include a mechanism to encourage the FAR and DAR councils along.