Federal Circuit Explains the Difference Between CAS and Cost Principles

Cost AccountingThe Federal Circuit’s decision in Raytheon Co. v. United States, No. 2013-5004 & 2013-5006 (Fed. Cir. April 4, 2014) [pdf] affirms a $59-million judgment arising from a government challenge to Raytheon’s calculation and payment of pension fund adjustments. One of the more interesting components of the court’s decision is its discussion of the relationship between the Cost Accounting Standards (CAS) and the cost principles set forth in FAR Part 31.  The court summarized the differences between allowability under the FAR and allocability under the CAS: 

  1. The FAR Cost Principles govern matters of cost allowability, i.e., whether the cost is of the type the government will pay.
  2. The CAS addresses the measurement, assignment, and allocability of costs.  Allocability addresses the relationship between a cost and a cost objective, such that the cost objective bears the appropriate portion of a cost.
  3. If there is a conflict between the CAS and the FAR as to an issue of allocability, the CAS governs.
  4. An agency may include a provision in its contracts or regulations that disallow certain types of costs because they are unreasonable in amount or contrary to public policy. Unallowable costs may nevertheless be allocable to a contract.

The decision also concludes that the Government bears the burden of proving that a contractor’s accounting practices do not comply with the CAS.