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Welcome to Apogee Consulting, Inc.

The CAS Board Does Stuff

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One of the joys of blogging is that, sometimes, you are wrong. You are wrong and it’s out there for the world to see. Like that time we criticized GSA but we didn’t put in the bit that GSA was really two GSAs and only one was bad. (But then GSA merged so we weren’t as wrong as we were before. We were prescient but with bad timing. So, you know. Like that. That’s our story and we’re going to stick with it.)

Speaking of bad timing, we very recently posted a blog article that criticized the CAS Board for meeting and meeting and talking and talking without, you know, actually accomplishing anything of substance. We wrote “Could somebody please light a fire under the chairs at the CAS Board? And maybe get them talking to other organizational elements of the OMB?” Basically, if you got the sense that, if hot air were gold bullion then we thought the Board members were all gazillionaires, then we were probably doing some effective writing. Or so we thought.

But no, it turns out that we were wrong about several things (not all things, but a lot of things).

We said the CAS Board hadn’t discussed the recent OMB legislative proposal to increase the CAS applicability threshold from $2 million to $15 million. That was an error.

We implied the CAS Board wasn’t dispositioning public input to the year-old SDP on conforming CAS 408 and 409. That was wrong; indeed, they have dispositioned those public comments.

So, yeah. Kind of not so good. We plead bad timing and bad Federal Register notifications. But still …

What’s the real story?

On March 19, 2020, the CAS Board published a notice of meetings in the Federal Register. That notice was brought to our attention and we wrote about it. The content of our blog article was based on that notice.

But that wasn’t the only notice the CAS Board published in the Federal Register on that day.

On that same day, the CAS Board published another notice, entitled “Notice on Principles and Other Matters To Guide Conformance of the Cost Accounting Standards to Generally Accepted Accounting Principles.”

In that other Federal Register notice, the CAS Board announce the availability of yet another piece of content. That was basically it. The notice literally said:

… publishing this notice to announce the availability of a notice discussing the Board's responses to public comments on its principles, roadmap, and template to address the conformance of the Cost Accounting Standards (CAS) to Generally Accepted Accounting Principles (GAAP). The comments were received in response to a Staff Discussion Paper (SDP) published on March 13, 2019.

Publishing a notice to announce the availability of a notice.

Sure. That was well-phrased. Especially when the “notice” wasn’t a notice at all, but instead a .pdf file hidden on the White House website.

Regardless of phrasing, what it told the astute reader (which was obviously not us) was that there was a third document—and this one might have some interesting content. But you can’t find that third notice on the Federal Register website, which is where you expect to find CAS Board content. Instead, you have to click the link provided in the second notice, which takes you out of the Federal Register and over to the White House website.

So: to our readers, here is a step-by-step instruction on how to find interesting CAS Board content:

Step (1) follow the link in this article to the second Federal Register notice. That’s the phrase “another notice” in bold font.

Step (2) when you get to the second notice, look for the link that says:

Availability: The full text of the notice is available on the Office of Management and Budget homepage at: https://www.whitehouse.gov/wp-content/uploads/2020/03/2020-03-supp-cas-gaap-gp.pdf.

Click the link and—voila!—you will be transported to a .pdf document entitled “Notice on Principles and Other Matters to Guide Conformance of the Cost Accounting Standards (CAS) to Generally Accepted Accounting Principles (GAAP).”

That’s the treasure you’ve been looking for!

(We know it’s a treasure because it took the equivalent of a treasure map to find it.)

When you find the treasure you can read it and learn lots of interesting stuff. A summary follows!

  1. Discussion of public comments received in response to the March 2019 SDP, and the Board’s responses thereto. In those responses, we learned that “the Board worked with the Office of Management and Budget on a legislative proposal that would raise the threshold for CAS applicability from $2 million to $15 million and reduce the number of CAS-covered business segments by approximately 60 percent. The proposal was transmitted to Congress at the end of April for consideration in the National Defense Authorization Act.” (See page 3.) So yeah, about that criticism. …

  2. An appendix to the document that establishes the Board’s “guiding principles” for conforming CAS to GAAP.

A treasure of CAS-related content indeed!

Anyway, let’s wrap this up. The CAS Board has been meeting, it’s been doing some stuff (but not as much as perhaps we wish they would), and it’s been publishing some content—for those who can follow the treasure map to find it. We were wrong about several things in our previous article and we regret those misstatements.

Also, Laurie Schmidgall has departed the CAS Board after eight years of serving as the industry representative. Trust us when we tell you that she has been a key player in pushing the CAS Board to accomplish whatever amount of progress it has made during her tenure. She will definitely be missed.

Last Updated on Monday, 30 March 2020 10:37

OMB Reminds Agencies to be Flexible in the COVID-19 Crisis

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On March, 20, 2020, the Office of Management and Budget (OMB) reminding Executive Agencies to be flexible with respect to contractor performance challenges during the COVID-19 crisis. Here’s a link to the official Memo, entitled “Managing Federal Contract Performance Issues Associated with the Novel Coronavirus (COVID-19).”

Having given you the link, we are now going to quote extensively from the Memo, because so many of you will not click the link.

Federal contractors play a vital role in helping agencies meet the needs of our citizens, including the critical response efforts to COVID-19. … This memorandum identifies steps to help ensure this safety while maintaining continued contract performance in support of agency missions, wherever possible and consistent with the precautions issued by the Centers for Disease Control and Prevention (CDC). Achieving these important goals - and maintaining the resilience of our Federal contracting base - requires continued communication by agencies with their contractors, both small and large, and effective leveraging of flexibilities and authorities to help minimize work disruption.

(Emphasis added.)

But there’s more!

Agencies are urged to work with their contractors … to evaluate and maximize telework for contractor employees, wherever possible. … Equally important, agencies should be flexible in providing extensions to performance dates if telework or other flexible work solutions, such as virtual work environments, are not possible, or if a contractor is unable to perform in a timely manner due to quarantining, social distancing, or other COVID-19 related interruptions. Agencies should take into consideration whether it is beneficial to keep skilled professionals or key personnel in a mobile ready state for activities the agency deems critical to national security or other high priorities. Additionally, agencies should also consider whether contracts that possess capabilities for addressing impending requirements such as security, logistics, or other function, may be retooled for pandemic response consistent with the scope of the contract.

(Emphasis added. Again.)

But we’re not done yet!

… agencies are encouraged to leverage the special emergency procurement authorities authorized in connection with the President's emergency declaration under section 501(b) of the … the "Stafford Act". These flexibilities include increases to the micro-purchase threshold, the simplified acquisition threshold, and the threshold for using simplified procedures for certain commercial items, all of which are designed to reduce friction for contractors, especially small businesses, and the government and enable more rapid response to the many pressing demands agencies face. The availability of these flexibilities does not mean they will always be suitable, and agencies should exercise sound fiscal prudence to maximize value for each taxpayer dollar spent. At the same time, the acquisition workforce should feel fully empowered to use the acquisition flexibilities, as needed, consistent with good business judgment in response to this national emergency.

(Emphasis added. Yet again.)

The OMB Memo ends with a set of “Frequently Asked Questions.” The FAQ addresses schedule delays and requests for equitable adjustments. We won’t quote the answers here; we’ve already quoted enough from the Memo. However, we strongly recommend you read them yourself. We provided a link to the Memo in the first paragraph. If you didn’t click the link then, we suggest you do so now.


CAS Board Continues to Meet with Little to Show for Board’s Efforts

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The good news is that the CAS Board has continued to meet and is working on stuff. The bad news is that the stuff the Board is working on isn’t being published.

What is being published on the Federal Register is a meeting notice regarding past meetings held in February and March, 2020. Remember, the Board’s meetings are closed to the public, so all we have to go on is what they tell us in the meeting notice(s). The meeting notice linked to above identifies the tasks that the CAS Board is addressing, to include:

  1. Conformance of CAS to GAAP. The Board is discussing comments received in response to the Staff Discussion Paper (SDP) that it published literally a year ago. That’s right. A year later, the Board is still discussing the public’s input. In addition, the Board discussing a possible Advance Notice of Proposed Rulemaking (ANPRM) regarding CAS 408 and 409. Finally, “more generally,” the Board is discussing whether conformance of CAS to GAAP would be considered to be a cost accounting practice change under the Board’s regulations and the CAS contract clauses.

  1. Application of CAS to ID/IQ and hybrid contract vehicles. The Board will “revisit” recommendations from the Section 809 Panel regarding application of CAS coverage to such contract types. This has been a known issue for about 25 years; we’re very happy to hear that the Board has put it on the agenda for discussion.

  1. Amending the waiver threshold. Section 820 of the 2017 NDAA increased the CAS waiver threshold (the threshold under which CAS application may be waived “if the business unit of the contractor or subcontractor that will perform the work is primarily engaged in the sale of commercial items and would not otherwise be subject to CAS.” The threshold was raised in the statute from $15 million to $100 million, but the CAS Board has not yet seen fit to revise its regulations to conform to the statute. It’s only been four years—what’s the hurry?

  1. Producing the required Annual Report to Congress. The Board was required, by public law, to submit a report to Congress regarding its activities for Government Fiscal Year 2019 (ending September 30, 2019). It’s only been six months so we shouldn’t be impatient, right? On the other hand, exactly how much content is there to talk about, anyway? Seems like a two- or three-page report, with pictures to fill in the blank spaces, ought to do just fine.

What’s not listed in the above is the OMB request to Congress to increase the CAS applicability threshold from $2 million to $15 million. Had it not been for the recent GAO report on CAS Board activities, we wouldn’t have known about that, because the CAS Board isn’t acknowledging that it happened. Which is kind of funny, right? Because the CAS Board is an organizational element of the Office of Federal Procurement Policy (OFPP). And the OFPP is an organizational element of the OMB. So basically, the left hand is not talking about what the right hand is doing. Strange. You’d think the CAS Board would be a key stakeholder in any efforts to revise the CAS applicability threshold. Apparently, not so much.

Lots of talking; little output to show for it. We’ve spoken with people who are close to the CAS Board and they tell us the problem isn’t the Board; the problem is the Office of Information and Regulatory Affairs (OIRA). For those who may not know, OIRA is a mandatory reviewer of proposed and final regulations. Nothing goes out without an OIRA review/approval. Apparently, that review/approval step is taking a really long time. Or so we are told. The weird thing is that OIRA is yet another organizational element of the OMB. Thus, this is yet another example of left hand/right hand dysfunctional communications.

Or so it seems to us.

Could somebody please light a fire under the chairs at the CAS Board? And maybe get them talking to other organizational elements of the OMB?

‘Cause that would seem to be the thing to do here.

Last Updated on Monday, 23 March 2020 18:32

DOD Increases Progress Payment Rates in Response to COVID-19 Crisis

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There was a time, not so long ago, when the DOD was contemplating lowering customary progress payment rates to 50 percent for large businesses, with an opportunity to earn higher rates based on meeting certain performance criteria. To be sure, that proposed rule was formally withdrawn, but DOD never withdrew from its initiative to reform contract financing payments and link those payments to “performance incentives” that would be established by DOD bureaucrats.

Public meetings on the topic were scheduled for early 2019. We never heard any feedback from those meetings; and since that time we’ve not seen any formal Federal Register publications on the topic. But we suspect the initiative has not gone away.

In any case, DOD recently issued a Class Deviation to increase customary progress payment rates. Class Deviation 2020-O0010, entitled “Class Deviation—Progress Payment Rates” provides contracting officers with alternate contract clauses that increase customary progress payment rates “to 90 percent for large business concerns and 95 percent for small business concerns,” effective immediately.

Which is a good thing!

Only … we wonder how effective it will be.

Our point is: the Class Deviation does not seem to apply to current, active, contracts. Instead, it seems to apply to new contract awards. Thus, if you are a defense contractor trying to address production concerns with your existing contracts, this Class Deviation does not seem to help you.

We can envision an scenario where a contractor in need approaches a contracting officer to modify an existing contract to incorporate the alternate clauses. According to contract theory, that would only happen if the contractor offered some form of consideration. For example, reduced profit. Then the parties negotiate and maybe—just maybe—the contract gets modified. But by then the crisis may be over, so what’s the point?

No, the alternate clauses with the increased progress payment rate seems focused on new contract awards, which are likely to be related to COVID-19 responses. Companies that would seem to be the beneficiaries will be those that produce masks, or ventilators, or other medical equipment. They are going to see the benefits of the increased progress payment rates, not the traditional defense contractors that produce more mundane products such as fighter jets and tanks.

And perhaps that’s appropriate, given the nation’s priorities at the moment.

EDITOR'S NOTE: It appears that Senior DOD Leadership has committed the agency to modify existing contracts, without consideration and potentially via "block change," even though nothing of that sort was mentioned in the Class Deviation. You had to read the DOD press release and then confirm via other sources. Still, all's well that ends well.

But remember, customary progress payments are based on costs incurred. Companies that don’t have any employees (because they are all at home) won’t have a lot of payroll costs to cover. Further, supply chain costs may be minimal, because the suppliers don’t have workers either. Companies that produce necessary medical supplies and equipment may be exempt from state or local “lock-downs”—we don’t know if that’s the case, but it would certainly make sense. If so, then strike this paragraph and skip to the next one.

Further, use of progress payments requires the contractors to have an adequate accounting system. Therefore, this Class Deviation is aimed at existing defense contractors, not at any non-traditional defense contractors that may start producing medical products in response to the invocation of the Defense Production Act. Would those non-traditional defense contractors even make use of progress payments based on costs? Remember, such contractors (and products) likely qualify for treatment as commercial items, based on FAR and DFARS definitions, already. If so, they probably don’t need progress payments based on costs and, instead, would like payment in full, in accordance with commercial terms.

Okay, so there’s a lot we don’t know; and this article contains a lot of speculation and “what-ifs” that may be completely unwarranted. What do you expect from me, sitting here in my home office? Obviously, somebody in the Pentagon thinks this is a good idea—and it may very well be a good idea! Certainly, it doesn’t hurt anything.

As they say: Primum non nocere.

Last Updated on Monday, 23 March 2020 16:59

COVID-19 and Government Contractors

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Well, it’s getting real now, isn’t it?

As employers we are having to face a number of issues related to the COVID-19 outbreak, including reductions/eliminations of travel, cancellation of training seminars, moving meetings from in-person to virtual, and deciding how to deal with production line issues.

Certainly, we are now seeing the “downside” of modern office life, with cubicle warrens, shared offices, and “bullpens.” Putting all those bodies in a concentrated space reduced office space costs, but at a price. If one infectious person comes to work then an entire activity or function can be taken out in a matter of days. Not good.

Meanwhile, your employees’ school districts are likely to have announced that children are now receiving an unplanned vacation, ranging in duration from two to four weeks, and now they have serious childcare issues that may require flexible work schedules and a lot of working from home.

OMB just issued guidance that encourages Federal agencies to—

… maximize telework flexibilities to eligible workers within those populations that the Centers for Disease Control and Prevention (CDC) has identified as being at higher risk for serious complications from COVID-19 … and to CDC-identified special populations including pregnant women …. These CDC-identified populations include older adults and individuals who have chronic health conditions, such as high blood pressure, heart disease, diabetes, lung disease or compromised immune systems. Agencies do not need to require certification by a medical professional, and may accept self-identification by employees that they are in one of these populations. Additionally, agencies are encouraged to consult with local public health officials and the CDC about whether to extend telework flexibilities more broadly to all eligible teleworkers in areas in which either such local officials or the CDC have determined there is community spread. Agencies are also encouraged to extend telework flexibilities more broadly to accommodate state and local responses to the outbreak, including, but not limited to, school closures.

Thus, feel free to emulate the Federal government and “maximize telework flexibilities” as much as possible.

Not to be outdone, the Department of Defense also announced that service members and civilian employees have had their travel plans halted.

This restriction will halt all domestic travel, including Permanent Change of Station, and Temporary Duty. This restriction will also pause civilian hiring at DoD installations and components for persons who do not reside within the hiring entity's local commuting area. Additionally, service members will be authorized local leave only, following Service guidelines. This new guidance is effective March 16 and continues through May 11.

Obviously, exceptions will be made, but right now we interpret that announcement to mean that there is going to be a significant reduction to travel. It may impact source selection decisions, or business system reviews, or contracting officer review boards, or even DCAA floorchecks. Some flexibility in how audits/reviews will be conducted and/or supported is obviously warranted.

There are any number of law firms and attorneys who have advice to offer in situations such as these. One firm we’ve been following is Covington. Covington has published several informative articles that we bring to your attention.

  • Checklist for U.S. Employers: Here

  • Mission-Essential Services: Article

That last article is interesting, because it discusses the “excusable delay” clauses and what contractual rights they confer. Here’s an excerpt:

Key here is that these provisions do not entitle the contractor to compensation. Non-compensable delays are delays for which the contractor is entitled to a time extension, but there is no entitlement to any additional monetary compensation. The theory is that neither the contractor nor the federal government has control over the non-compensable delay. Therefore, both parties assume their own additional costs. The contractor absorbs its delay costs for being out on the project longer and the federal government absorbs its costs by granting a time extension to the contractor and extending the contract.

Despite the contractual language discussed in the Covington article, it is likely that most contractors will see increased indirect costs stemming from the COVID-19 outbreak. There will likely be some inefficiencies created as companies respond to the situation. Employees may use more sick leave that usual. Compassionate leave may be granted. On its face, those increased costs would seem to be fully allowable.

However, to the extent that contractors have Forward Pricing Rate Agreements (FPRAs) or Provisional Billing Rate Agreements (PBRAs) based on 2020 budgets, it is possible that the additional costs (coupled with a potential reduction in direct costs) are going to blow those budgets out of the water. Thus, two points: (1) try to document the increased costs associated with the COVID-19 situation, and (2) as those costs are recorded, work to understand the impact on 2020 budgets. And a third point: communicate with your cognizant contracting officers and/or ACOs to let them know what you’re seeing.

The situation is fluid and will likely evolve over the next few weeks. But this is our assessment of what’s happening at this time.

Also: wash your hands.


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Effective January 1, 2019, Nick Sanders has been named as Editor of two reference books published by LexisNexis. The first book is Matthew Bender’s Accounting for Government Contracts: The Federal Acquisition Regulation. The second book is Matthew Bender’s Accounting for Government Contracts: The Cost Accounting Standards. Nick replaces Darrell Oyer, who has edited those books for many years.