Is there a specific FAR clause that specifically speaks to the development of ROMs with respect to how they will, or should be, charged by the contractor?
1. Based on additional information that we have received, our response to this inquiry assumes that the contract in question is a cost-reimbursement contract with a business unit of a large corporation that is subject to Cost Accounting Standards (CAS) Regulations. Therefore, the CAS reference quoted below in pertinent part is applicable to this response.
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48 C.F.R. Part 9904 – Cost Accounting Standards
9904.402 Cost accounting standard—consistency in allocating costs incurred for the same purpose
(a) 9904.402, Cost Accounting Standard— Consistency in Allocating Costs Incurred for the Same Purpose, provides, in 9904.402–40, that ‘‘ * * * no final cost objective shall have allocated to it as a direct cost any cost, if other costs incurred for the same purpose, in like circumstances, have been included in any indirect cost pool to be allocated to that or any other final cost objective.’’
(b) This interpretation deals with the way 9904.402 applies to the treatment of costs incurred in preparing, submitting, and supporting proposals. In essence, it is addressed to whether or not, under the Standard, all such costs are incurred for the same purpose, in like circumstances.
(c) Under 9904.402, costs incurred in preparing, submitting, and supporting proposals pursuant to a specific requirement of an existing contract are considered to have been incurred in different circumstances from the circumstances under which costs are incurred in preparing proposals which do not result from such specific requirement. The circumstances are different because the costs of preparing proposals specifically required by the provisions of an existing contract relate only to that contract while other proposal costs relate to all work of the contractor.
(d) This interpretation does not preclude the allocation, as indirect costs, of costs incurred in preparing all proposals. The cost accounting practices used by the contractor, however, must be followed consistently and the method used to reallocate such costs, of course, must provide an equitable distribution to all final cost objectives.
2. The FAR reference quoted below in pertinent part is also applicable to this response.
FAR 42.302 -- Contract Administration Functions
(a)(11) In connection with Cost Accounting Standards (see 30.601 and 48 CFR Chapter 99)
(iii) Determine the contractor’s compliance with Cost Accounting Standards and disclosure statements
3. Pursuant to 48 C.F.R. 9904.402–61, the costs incurred in preparing, submitting and supporting proposals pursuant to a specific requirement of an existing contract are allocated directly to the contract. The development of a Rough Order Magnitude (ROM) cost estimate by the contractor to be provided to the Government to support pending contract requirements would be considered a proposal. Therefore, the costs of preparing and delivering this ROM cost estimate would be allocated directly to the contract, provided that the contractor’s business unit consistently applies this method to all of its contracts. In other words, to be compliant with CAS under this interpretation, the contractor cannot charge the preparation of a ROM cost estimate directly to one contract, but change the same activity as an indirect expense to support another contract.
4. The Defense Contract Management Agency (DCMA) is responsible for evaluating contractor compliance with Cost Accounting Standards and the contractor’s CAS disclosure statements as required by FAR 42.302(a)(11)(iii). Therefore, we recommend that the contracting activity request that DCMA verify that the contractor is consistently allocating the costs for the preparation of ROM cost estimates for a specific contract as a direct expense.