The Office of Federal Procurement Policy checked off another accomplishment in its quest to modernize the federal procurement system.

The 51-year-old approach to ensure government contractors measure, assign and allocate costs to contracts as a way to prevent waste, fraud and abuse has been simplified, updated and brought closer to commercial standards.

In a final rule released earlier this week, the Office of Management and Budget and the Cost Accounting Standards Board wholly rescinded two sections and removed most provisions in two others as part of the goal to conform to Generally Accepted Accounting Principles (GAAP).

An OMB official says the final rule eliminated 68 of the 72 individual requirements and removed over 10,000 words of regulatory text.

“These changes individually and in conjunction with the board’s ongoing broader CAS-to-GAAP conformance efforts and modernization of the CAS programmatic requirements are expected to simplify CAS administration and reduce barriers to entry for non-traditional contractors, including new mid-size entities who no longer qualify as small businesses,” the final rule stated. “These actions should increase competition in federal contracting, as envisioned by the Senate Armed Services Committee in promoting CAS-to-GAAP conformance.”

Changes do not sacrifice effectiveness

Last September, OMB issued a notice of proposed rulemaking and sought comments on the changes to CAS.

At the time, Kevin Rhodes, now the OFPP administrator and then a senior advisor to OMB, said, “Holding contractors responsible for properly and transparently accounting for their costs is good stewardship, but forcing contractors to maintain overlapping books and records is wasteful and creates barriers that discourage talented companies from working with the government to meet the needs of our taxpayers.”

OMB only received four sets of comments on the proposed rule and the commenters generally agreed with the changes.

David Mader, a former OMB controller during the Obama administration, said in an email to Federal News Network that he thinks the revisions make sense and are good.

“Reducing unnecessary and redundant rules should be something that we do on a continuous basis. Our aim is to make government more efficient without sacrificing effectiveness. This change meets those criteria,” said Mader. “It is very straightforward and well documented including how they addressed the public comments which were supportive.”

OMB expects the impact of the rule, which takes effect on Aug. 7, to be significant on contractors.  The OMB official says the final rule will reduce the number of contractors who have to use these accounting standards by half. Vendors can now rely on standard commercial practices outlined in GAAP for measuring and assigning costs for compensated personal leave, capitalization and depreciation of capital assets and acquisition costs of material.

Overlap has been a long-time complaint

The official also said the final rule increases the basic threshold to use CAS to $35 million from the current $2.5 million.

In all, the official says these changes will not only reduce the burden for contractors but also for external and government auditors as well as improve the oversight functions by reducing duplicative compliance requirements.

Erin Rankin, a partner with Crowell & Moring, said while the final rule and reduction of CAS requirements is a welcome development, contractors still must comply with the cost accounting standards.

“The fundamentals of CAS still exist and how contractors allocate, assign and measure costs are still in place for cost and pricing. The changes lighten the compliance burden,” Rankin said in an interview with Federal News Network. “It’s all about reducing regulatory obligations on contractors particularly when the government’s interest is largely protected by contractor’s compliance with GAAP.”

Rankin said contractors had complained for several years that there were overlapping requirements between CAS and GAAP and these changes go a long way to address those challenges.

In fact, OFPP and the board write in the final rule that “despite the difference in general focus between CAS and GAAP, there has been significant convergence over the years as GAAP has evolved to address cost measurement and assignment of costs to accounting periods.”

The idea of reducing the CAS requirements and moving to GAAP has been under discussion for several years, getting a major boost in 2019 as one of the recommendations in the Section 809 panel report.

The panel determined that “CAS program requirements that are out of touch with today’s business practices in the public and private sectors.” The panel suggested 11 changes, including raising the monetary threshold to $100 million and expanding the exemption to include any fixed-price type contract whose price is based on price analysis without the submission of certified cost or pricing data.

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