Is this a potential CAS 401?
At a summary level, Cost Accounting Standard (CAS) 401 requires that a contractor’s cost accounting practices used in estimating costs for proposals be consistent with its cost accounting practices used in accumulating and reporting actual costs. Accordingly, in order to find a CAS 401 non-compliance, it would be necessary to identify the involvement of both a relevant cost accounting practice and a relevant inconsistency in the use of that practice.
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The Question Background does suggest an inconsistency may be involved. Specifically, the Question Background states that a stated value cap ($487,000) was “elect[ed]”. But the Question Background does not state the purpose (e.g., estimating costs for pricing proposals, accumulating and reporting actual costs, billing rates, etc.) for which this stated value cap based rate was/is used. As stated above, CAS 401 prohibits inconsistencies between practices used to estimate, accumulate, and report costs. Whether or not there is an actual inconsistency between estimating, accumulating, or reporting as prohibited by CAS 401 is relevant.
Further, and notwithstanding the above comments about inconsistency, it seems doubtful that either the use of the stated value ($487,000) or the “blended rate” as a method of determining allowable compensation costs (per FAR § 31.205-6 (p)) is a cost accounting practice as is addressed in CAS 401. Therefore, any inconsistency that might exist is not likely a Cost Accounting Standard 401 noncompliance, because any inconsistency does not involve a cost accounting practice (as defined by the CASB).
According to the Cost Accounting Standards Board (CASB) a “cost accounting practice” is “any disclosed or established accounting method or technique which is used for allocation of cost to cost objectives, assignment of cost to cost accounting periods, or measurement of cost (see 48 CFR 9903.302-1). The approach (specified amount or blended rate) to determine amount of allowable compensation (per FAR § 31.205-6 (p)) is none of these three. That is to say, it is not a method or technique used for allocation of cost to cost objectives; not a method or technique used for assignment of cost to cost accounting periods and; not a method or technique used for measurement of cost.
Computation of allowable compensation costs (per FAR § 31.205-6 (p)) were complicated over the past several years as statutory and regulatory caps or limitations were established resulting in a number of significantly different allowable cap amounts applicable to different contracts depending upon the award date of the relevant contract. The Director, Defense Pricing, specifically recognized the “potential for undue complexity and related costs to implement multiple rates” and deemed the use of a “blended rate” “a practical and cost efficient solution.” (see memorandum entitled “Use of Blended Rates to Implement Multiple Compensation Caps”, dated October 14, 2014) The cited Director’s memorandum also established DoD policy to execute advance agreements in accordance with FAR 31.109 for each contractor that chooses to employ the blended rate method. The use of this advance agreement and any related negotiations is expected to provide better protection for both the contractor and Government interests and should be considered in the circumstances at-hand.