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    1. The FAR references quoted below in pertinent part are applicable to this response.

    FAR 30.202-6 -- Responsibilities
      (b) The contracting officer shall not award a CAS-covered contract until the cognizant Federal agency official (CFAO) has made a written determination that a required Disclosure Statement is adequate unless, in order to protect the Government’s interest, the agency head, on a nondelegable basis, authorizes award without obtaining submission of the required Disclosure Statement (see 48 CFR 9903.202-2). In this event, the contractor shall submit the required Disclosure Statement and the CFAO shall make a determination of adequacy as soon as possible after the award.
      (c) The cognizant auditor is responsible for conducting reviews of Disclosure Statements for adequacy and compliance.
      (d) The CFAO is responsible for issuing determinations of adequacy and compliance of the Disclosure Statement.

    FAR 30.603-2 – Unilateral and Desirable Changes
    (a) Unilateral changes.
    (1) The contractor may unilaterally change its disclosed or established cost accounting practices, but the Government shall not pay any increased cost, in the aggregate, as a result of the unilateral change.

    (2) Prior to making any contract price or cost adjustments under the applicable paragraph(s) addressing a unilateral change at 52.230-2, 52.230-3, or 52.230-5, the CFAO shall determine that—
      (i) The contemplated contract price or cost adjustments will protect the Government from the payment of the estimated increased costs, in the aggregate; and
      (ii) The net effect of the contemplated adjustments will not result in the recovery of more than the increased costs to the Government, in the aggregate.

    2. The following references from Title 48 of the Code of Federal Regulations, Chapter 99--Cost Accounting Standards Board, Office or Federal Procurement Policy, Office of Management and Budget quoted in pertinent part are also applicable to this response.

    9904.402 Cost accounting standard—consistency in allocating costs incurred for the same purpose. [i.e., CAS 402]
    The purpose of this standard is to require that each type of cost is allocated only once and on only one basis to any contract or other cost objective. The criteria for determining the allocation of costs to a product, contract, or other cost objective should be the same for all similar objectives. Adherence to these cost accounting concepts is necessary to guard against the overcharging of some cost objectives and to prevent double counting. Double counting occurs most commonly when cost items are allocated directly to a cost objective without eliminating like cost items from indirect cost pools which are allocated to that cost objective.

    9904.418 Allocation of direct and indirect costs. [i.e., CAS 418]
    The purpose of this Cost Accounting Standard is to provide for consistent determination of direct and indirect costs; to provide criteria for the accumulation of indirect costs, including service center and overhead costs, in indirect cost pools; and, to provide guidance relating to the selection of allocation measures based on the beneficial or causal relationship between an indirect cost pool and cost objectives. Consistent application of these criteria and guidance will improve classification of costs as direct and indirect and the allocation of indirect costs.

    3. Because the contractor’s proposal for this new contract award is based on a revised CAS Disclosure Statement that has not yet been approved by the CFAO (i.e., DCMA), it is our opinion that, pursuant to FAR 30.202-6(b), the Contracting Officer may not award a T&M contract with a fixed billing price that includes a direct charge for depreciation expense until the CFAO determines that the revised Disclosure Statement is adequate, unless the Agency Head grants a waiver. Furthermore, because this CAS change represents a unilateral change on the part of the contractor, then pursuant to FAR 30.603-2(a)(2), the CFAO must also determine that the Government will not pay any increased costs, nor would the contractor recover more costs than it is otherwise entitled, under this unilateral change. Therefore, the Contracting Officer also may not take any action that may result in any such overpayments, such as including any amounts for depreciation expense in the fixed hourly rate. Based on these regulations, we believe that the Contracting Officer cannot proceed to include any of the proposed depreciation costs into the fixed flight hourly rate until the CFAO makes the determinations as described above. Assuming that the CFAO determines the revised Disclosure Statement to be adequate as it pertains to the direct charge of depreciation expense, then we believe that a resonable amount can be negotiated into the fixed hourly rate to cover this expense.

    4. However, we also believe that the contractor’s assertion regarding CAS 402 is incorrect. CAS 402 simply states that the same cost must be consistently applied either on a direct or on an indirect basis. Therefore, “depreciation expense” is a cost and as such, must be described in the Disclosure statement as being applied either directly or indirectly for a given purpose. Furthermore, CAS 418 sets standards for allocating any given cost as either a direct or indirect expense and applies to all costs.  Therefore, we do not understand the point of the contractor’s statement that CAS 418 “pertains to aircraft”. They must elaborate further.

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