CAS 405 - Accounting for Unallowable Costs

9904.405-20 Purpose

(a) The purpose of this Cost Accounting Standard is to facilitate the negotiation, audit, administration and settlement of contracts by establishing guidelines covering:

(1) Identification of costs specifically described as unallowable, at the time such costs first become defined or authoritatively designated as unallowable, and

(2) The cost accounting treatment to be accorded such identified unallowable costs in order to promote the consistent application of sound cost accounting principles covering all incurred costs.

The Standard is predicated on the proposition that costs incurred in carrying on the activities of an enterprise—regardless of the allowability of such costs under Government contracts—are allocable to the cost objectives with which they are identified on the basis of their beneficial or causal relationships.

(b) This Standard does NOT govern the allowability of costs. This is a function of the appropriate procurement or reviewing authority.

9904.405-30 Definitions

(a) The following are definitions of terms which are prominent in this Standard.

(1) Directly Associated Cost means any cost which is generated solely as a result of the incurrence of another cost, and which would not have been incurred had the other cost not been incurred.

(2) Expressly Unallowable Cost means a particular item or type of cost which, under the express provisions of an applicable law, regulation, or contract, is specifically named and stated to be unallowable.

(3) Indirect Cost means any cost not directly identified with a single final cost objective, but identified with two or more final cost objectives or with at least one intermediate cost objective.

(4) Unallowable Cost means any cost which, under the provisions of any pertinent law, regulation, or contract, cannot be included in prices, cost reimbursements, or settlements under a Government contract to which it is allocable.

Requirements

• Costs expressly unallowable, or mutually agreed to be unallowable, shall be identified and excluded from any billing, claim, or proposal to the Government.
• Costs which become designated as unallowable as a result of a CO’s written decision pursuant to disputes procedures shall be identified if included or used in the computation of any billing, claim, or proposal.
• Costs directly associated with unallowable costs that would not have been incurred if not for the incurrence of the unallowable costs are also unallowable.
• Costs of any project not contractually authorized shall be accounted for in a manner which allows ready separation from costs of authorized projects.
• Where unallowable costs are normally part of a base(s) for the allocation of indirect expenses, the unallowable costs shall remain a part of the base(s).

Applicability

• Applies under modified and full coverage. 48 CFR 9904.405