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To Contents	Cost Accounting Standards for Requirements Contracts
By Glen on Monday, December 09, 2002 - 11:00 am: I'm looking for help on trying to determine how determine if a fixed rate (per widget processed) requirements contract should have Cost Accounting Standards (CAS) applied. I've been told that as it a requirements contract and we do not know the final cost of the contract that it should be treated as a cost plus contract. My position is because we have a fixed rate and full control of the number of units processed that this should be treated a Fixed Price Contract. The head of the contracting shop says; because there is an unwritten policy that all requirements contracts are to be treated as cost type contracts the FAR reference to the contracting officer determining CAS coverage, does not apply. Glen By AnonYmus on Monday, December 09, 2002 - 11:14 am: Question: If this is a fixed-rate-per-unit contract and it is treated as a cost-plus contract type, in what way does it differ from a cost-plus-percentage-of-cost contract type? Actually, I think your question is somewhat answered by the CAS language at 48 CFR 9903.201-1(a), which states (in part) -- "Negotiated contracts not exempt in accordance with 9903.201-1(b) shall be subject to CAS." Requirements contract are not exempted. A more intriguing question is "what is the contract value of a requirements contract (or multiple-award ID/IQ contract)?" Remember that the contract value may determine the CAS coverage (exempt, modified or full). Is it the minimum order amount, the maximum ceiling value (which is rarely reached), or some other amount? The regulations are a bit murky on this one. By anonymous2 on Monday, December 09, 2002 - 02:29 pm: Are you asking whether CAS coverage applies to a resulting requirements contract, after the contract unit-prices have been determined? What would you intend to use the CAS cost data for?????? By Glen on Monday, December 09, 2002 - 04:46 pm: I agree that if the contractor determines the requirement for processing the widgets then you have a cost plus percentage of cost. However, in our case the number of transactions is outside of the contractor's control. I think the only purpose of the CAS data would be to say that we are in compliance with the FAR. Glen By AnonYmus on Monday, December 09, 2002 - 05:13 pm: Well, maybe I'm just not getting this, but I don't think we are on the same page. "CAS data" is a non sequitur. Do you mean certified cost and pricing data? Do you mean a Form CASB DS-1 Disclosure Statement? Do you mean the contract value for purposes of applying the (various) CAS clauses? I'm sorry, but you are losing me. Maybe somebody else can come to the rescue. By Vern Edwards on Tuesday, December 10, 2002 - 06:13 am: Glen: No one can determine whether or not CAS apply to a requirements contract on the basis of the information that you have provided. Was the contract awarded by sealed bidding or negotiation? Was it awarded to a small business or to a foreign government? Were the prices set by law or regulation? Will the orders placed against the contract be firm-fixed-price for commercial items? Will the orders be firm-fixed-price and was the contract awarded on the basis of adequate price competition? See FAR 9903.201-1(b) for all of the exemptions. I never heard of any policy, written or unwritten, to the effect that requirements contracts are to be treated as cost type contracts, and any such policy would be absurd. A requirements contract should be treated as a cost-type contract only if it is a cost-type contract. However, the fact that the contract schedule includes a "fixed rate" does not mean that the contract is fixed-price. Time-and-materials contracts include fixed-rates and they are not CAS-exempt. As for the dollar value of a requirements contract for the purpose of determining CAS applicability, it is the maximum amount. See FAR 1.108(c). By AnonYmus on Tuesday, December 10, 2002 - 09:02 am: Vern, Don't you think that taking the FAR convention for determining "applicability" of the FAR requirements to a contract action and imputing it to the determination of the applicability of a public law to a contract action is kind of reaching? I also think Cibinic & Nash (Nash, I think?) took a different view in a published item in the newsletter in 1994. (Note: I believe the position was with respect to multiple-award ID/IQ contracts, not necessarily vanilla requirements types.) Not that that necessarily means anything, but I wanted to apprise you of the (potential) disagreement. I believe the matter is less settled than your answer indicates ... but I honestly don't have a solidly grounded answer of my own. By Vern Edwards on Wednesday, December 11, 2002 - 05:46 am: AnonYmus: No, I don't think it's "reaching." FAR Part 9900 implements the CAS, so it's not "reaching" to interpret the FAR in accordance with FAR guidance for interpreting the FAR. And you think that I've taken a different view from something that Nash & Cibinic might have said, but that you're not sure about (Nash, you think, and maybe in 1994, and perhaps about IDIQ contracts), something that you don't quote and for which you don't provide a reference? Who's reaching? By John Ford on Wednesday, December 11, 2002 - 05:28 pm: Vern, maybe we are getting into semantics, but do you perceive a difference in the meaning of "anticipated" as used in FAR 1.108 and "estimated" as used in FAR 16.503? If yes, how do you determine CAS applicability on requirements contracts? By Vern Edwards on Wednesday, December 11, 2002 - 09:05 pm: John: We are getting into semantics, but that's okay. Semantics are good. I don't perceive a difference between anticipated and estimated. What else is an estimate but what you anticipate? When you say, "I estimate that the dollar value will be...", you could just as easily say, "I anticipate that the dollar value will be... ." For the benefit of other readers, here's the pertinent text of FAR 1.108(c): "Dollar thresholds. Unless otherwise specified, a specific dollar threshold for the purpose of applicability is the final anticipated dollar value of the action, including the dollar value of all options. If the action establishes a maximum quantity of supplies or services to be acquired or establishes a ceiling price or establishes the final price to be based on future events, the final anticipated dollar value must be the highest final priced alternative to the Government, including the dollar value of all options." I think that text is addressed to contracting officers who must decide which policies apply to a prospective contract. The last sentence tells us how to apply dollar thresholds to indefinite-quantity and requirements contracts. According to FAR 16.503(a), a solicitation for a requirements contract and the contract itself must include an estimated quantity and may include a maximum quantity. I think that "anticipated" in FAR 1.108(c) refers to what the contracting officer anticipates will be the value of the contract, based on either the estimated (i.e., anticipated) quantity or, if included, the maximum quantity.

Cost Accounting Standards for Requirements Contracts

By Glen on Monday, December 09, 2002 - 11:00 am:

I'm looking for help on trying to determine how determine if a fixed rate (per widget processed) requirements contract should have Cost Accounting Standards (CAS) applied. I've been told that as it a requirements contract and we do not know the final cost of the contract that it should be treated as a cost plus contract. My position is because we have a fixed rate and full control of the number of units processed that this should be treated a Fixed Price Contract. The head of the contracting shop says; because there is an unwritten policy that all requirements contracts are to be treated as cost type contracts the FAR reference to the contracting officer determining CAS coverage, does not apply.

Glen

By AnonYmus on Monday, December 09, 2002 - 11:14 am:

Question: If this is a fixed-rate-per-unit contract and it is treated as a cost-plus contract type, in what way does it differ from a cost-plus-percentage-of-cost contract type?

Actually, I think your question is somewhat answered by the CAS language at 48 CFR 9903.201-1(a), which states (in part) -- "Negotiated contracts not exempt in accordance with 9903.201-1(b) shall be subject to CAS."

Requirements contract are not exempted.

A more intriguing question is "what is the contract value of a requirements contract (or multiple-award ID/IQ contract)?" Remember that the contract value may determine the CAS coverage (exempt, modified or full). Is it the minimum order amount, the maximum ceiling value (which is rarely reached), or some other amount?

The regulations are a bit murky on this one.

By anonymous2 on Monday, December 09, 2002 - 02:29 pm:

Are you asking whether CAS coverage applies to a resulting requirements contract, after the contract unit-prices have been determined?
What would you intend to use the CAS cost data for??????

By Glen on Monday, December 09, 2002 - 04:46 pm:

I agree that if the contractor determines the requirement for processing the widgets then you have a cost plus percentage of cost. However, in our case the number of transactions is outside of the contractor's control.
I think the only purpose of the CAS data would be to say that we are in compliance with the FAR.
Glen

By AnonYmus on Monday, December 09, 2002 - 05:13 pm:

Well, maybe I'm just not getting this, but I don't think we are on the same page. "CAS data" is a non sequitur. Do you mean certified cost and pricing data? Do you mean a Form CASB DS-1 Disclosure Statement? Do you mean the contract value for purposes of applying the (various) CAS clauses?

I'm sorry, but you are losing me. Maybe somebody else can come to the rescue.

By Vern Edwards on Tuesday, December 10, 2002 - 06:13 am:

Glen:

No one can determine whether or not CAS apply to a requirements contract on the basis of the information that you have provided. Was the contract awarded by sealed bidding or negotiation? Was it awarded to a small business or to a foreign government? Were the prices set by law or regulation? Will the orders placed against the contract be firm-fixed-price for commercial items? Will the orders be firm-fixed-price and was the contract awarded on the basis of adequate price competition? See FAR 9903.201-1(b) for all of the exemptions.

I never heard of any policy, written or unwritten, to the effect that requirements contracts are to be treated as cost type contracts, and any such policy would be absurd. A requirements contract should be treated as a cost-type contract only if it is a cost-type contract. However, the fact that the contract schedule includes a "fixed rate" does not mean that the contract is fixed-price. Time-and-materials contracts include fixed-rates and they are not CAS-exempt.

As for the dollar value of a requirements contract for the purpose of determining CAS applicability, it is the maximum amount. See FAR 1.108(c).

By AnonYmus on Tuesday, December 10, 2002 - 09:02 am:

Vern,

Don't you think that taking the FAR convention for determining "applicability" of the FAR requirements to a contract action and imputing it to the determination of the applicability of a public law to a contract action is kind of reaching?

I also think Cibinic & Nash (Nash, I think?) took a different view in a published item in the newsletter in 1994. (Note: I believe the position was with respect to multiple-award ID/IQ contracts, not necessarily vanilla requirements types.) Not that that necessarily means anything, but I wanted to apprise you of the (potential) disagreement.

I believe the matter is less settled than your answer indicates ... but I honestly don't have a solidly grounded answer of my own.

By Vern Edwards on Wednesday, December 11, 2002 - 05:46 am:

AnonYmus:

No, I don't think it's "reaching."

FAR Part 9900 implements the CAS, so it's not "reaching" to interpret the FAR in accordance with FAR guidance for interpreting the FAR.

And you think that I've taken a different view from something that Nash & Cibinic might have said, but that you're not sure about (Nash, you think, and maybe in 1994, and perhaps about IDIQ contracts), something that you don't quote and for which you don't provide a reference?

Who's reaching?

By John Ford on Wednesday, December 11, 2002 - 05:28 pm:

Vern, maybe we are getting into semantics, but do you perceive a difference in the meaning of "anticipated" as used in FAR 1.108 and "estimated" as used in FAR 16.503? If yes, how do you determine CAS applicability on requirements contracts?

By Vern Edwards on Wednesday, December 11, 2002 - 09:05 pm:

John:

We are getting into semantics, but that's okay. Semantics are good.

I don't perceive a difference between anticipated and estimated. What else is an estimate but what you anticipate? When you say, "I estimate that the dollar value will be...", you could just as easily say, "I anticipate that the dollar value will be... ." For the benefit of other readers, here's the pertinent text of FAR 1.108(c):

"Dollar thresholds. Unless otherwise specified, a specific dollar threshold for the purpose of applicability is the final anticipated dollar value of the action, including the dollar value of all options. If the action establishes a maximum quantity of supplies or services to be acquired or establishes a ceiling price or establishes the final price to be based on future events, the final anticipated dollar value must be the highest final priced alternative to the Government, including the dollar value of all options."

I think that text is addressed to contracting officers who must decide which policies apply to a prospective contract. The last sentence tells us how to apply dollar thresholds to indefinite-quantity and requirements contracts. According to FAR 16.503(a), a solicitation for a requirements contract and the contract itself must include an estimated quantity and may include a maximum quantity. I think that "anticipated" in FAR 1.108(c) refers to what the contracting officer anticipates will be the value of the contract, based on either the estimated (i.e., anticipated) quantity or, if included, the maximum quantity.