An adequate or approved accounting system is not required for all government contractors. Although it is a good idea to maintain an accounting system that properly charges costs to contracts by cost element, an adequate government contract accounting system is only required for contractors that perform cost type contracts (see FAR Subpart 16 on cost type contracts). Contracting officers are only supposed to award cost type contracts to contractors that maintain an adequate accounting system. Adequate accounting systems are validated by DCAA through their accounting system audits. These audits are typically requested by the contracting office when there is a government need. Contractors that perform fixed priced contracts are not subject to this requirement. Contractors that base fixed priced contracts on pricing subject to cost or pricing data requirements (FAR 15.4) are required to provide adequate cost or pricing data. This usually involves the ability to properly pool indirect costs, segregate direct costs from indirect costs and exclude unallowable costs. This is necessary to calculate indirect cost rates for cost proposals. Competitive fixed priced contracts based on adequate price competition and other contracts exempt from cost or pricing data such as commercial items contracts are exempt from cost or pricing data requirements. In these two cases an adequate accounting system is not normally required.
Edward D. Moore
dcaaConsulting is a professional consulting company specializing in Defense Contract Audit Agency audits and related matters, government contract proposals and pricing, the Federal Acquisition Regulation and the Cost Accounting Standards.