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  • Question

    We are a subcontractor to a Prime who is contracted on a new construction building that will be split between 60% federally funded (HHS) and 40% Prime funded. We have been issued a $63M IDIQ contract in 2015. Due to the split funding, would we be subject to full CAS regulations or would this be modified CAS? The contract is requiring Davis Bacon Prevailing Wage, therefore it seems apparent, that at a minimum, we would need to follow modified CAS regulations.


    Answer

    Summary/Conclusion:
    Applicability of Cost Accounting Standards (CAS), as well as the contractor’s eligibility for the “modified” coverage election, is made for each contract awarded.   The regulation implementing CAS does not explicitly address sources of funding but rather impose CAS on negotiated contracts or subcontracts awarded by executive agencies of the United States.  If the contract at issue for you is a negotiated contract awarded by an executive agency of the United States and doesn’t meet one of the several exemptions provided in the regulation, the application of the thresholds for determination of the level of CAS coverage (“full” or “modified”) would appropriately be the dollar value of the contract(s) and subcontract(s) irrespective of the source of funds. 
     
    Discussion/Analysis:
    A reading of the question and background provided implies that a determination of Cost Accounting Standards applicability to the subcontract in question has conclusively been made.  So, that issue will not be revisited.  However, the determination of the level of CAS coverage (i.e., “full” or “modified”) does appear to be an open issue.
     
    In the way of background, there are two types of CAS coverage, “full” or “modified” coverage.  Contractors/subcontractors may elect “modified” coverage when they are eligible to do so (see FAR 52.230-1 II).   Generally, the “election” procedure is implemented by way of FAR standard provisions to be included in requests for proposals (RFPs) that require any potential “modified” coverage election to be made prior to award thereby allowing the appropriate CAS clause(s) (“full” or “modified”) to be included in the awarded contract.  Conversely, this means that when CAS is otherwise applicable to a contract/subcontract, but a “modified” coverage election has not properly been made by the contractor “full” CAS coverage is applicable.  The prime contractor should be exercising similar processes when flowing the CAS requirement down to subcontractors.
     
    At the heart of the question posed herein is a determination of what role the funding source (e.g., U.S. Government private funds, foreign government fund) has, if any, in the application of the dollar thresholds for determining level of CAS coverage.  The regulations implementing CAS do not explicitedly address sources of funding but rather impose CAS on negotiated contracts or subcontracts awarded by executive agencies of the United States.  When a contract at issue is awarded by an executive agency of the United States (subject to Federal Acquisition Regulations) but the funds are provided by another, the United States is in effect acting as an agent of the funding source.

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