41 U.S.C. § 1502 — Cost accounting standards

Page 35 TITLE 41—PUBLIC CONTRACTS § 1502 § 1502. Cost accounting standards (a) AUTHORITY.— (1) COST ACCOUNTING STANDARDS BOARD.—The Cost Accounting Standards Board has exclu- sive authority to prescribe, amend, and re- scind cost accounting standards, and interpre- tations of the standards, designed to achieve uniformity and consistency in the cost ac- counting standards governing measurement, assignment, and allocation of costs to con- tracts with the Federal Government. (2) ADMINISTRATOR FOR FEDERAL PROCURE- MENT POLICY.—The Administrator, after con- sultation with the Board, shall prescribe rules and procedures governing actions of the Board under this chapter. The rules and procedures shall require that any action to prescribe, amend, or rescind a standard or interpretation be approved by majority vote of the Board. (b) MANDATORY USE OF STANDARDS.— (1) SUBCONTRACT.— (A) DEFINITION.—In this paragraph, the term ‘‘subcontract’’ includes a transfer of commercial products or commercial services between divisions, subsidiaries, or affiliates of a contractor or subcontractor. (B) WHEN STANDARDS ARE TO BE USED.— Cost accounting standards prescribed under this chapter are mandatory for use by all ex- ecutive agencies and by contractors and sub- contractors in estimating, accumulating, and reporting costs in connection with the pricing and administration of, and settle- ment of disputes concerning, all negotiated prime contract and subcontract procure- ments with the Federal Government in ex- cess of the amount set forth in section 3702(a)(1)(A) of title 10 as the amount is ad- justed in accordance with applicable require- ments of law. (C) NONAPPLICATION OF STANDARDS.—Sub- paragraph (B) does not apply to— (i) a contract or subcontract for the ac- quisition of a commercial product or com- mercial service; (ii) a contract or subcontract where the price negotiated is based on a price set by law or regulation; (iii) a firm, fixed-price contract or sub- contract awarded on the basis of adequate price competition without submission of certified cost or pricing data; or (iv) a contract or subcontract with a value of less than $7,500,000 if, when the contract or subcontract is entered into, the segment of the contractor or subcon- tractor that will perform the work has not been awarded at least one contract or sub- contract with a value of more than $7,500,000 that is covered by the standards. (2) EXEMPTIONS AND WAIVERS BY BOARD.—The Board may— (A) exempt classes of contractors and sub- contractors from the requirements of this chapter; and (B) establish procedures for the waiver of the requirements of this chapter for indi- vidual contracts and subcontracts. (3) WAIVER BY HEAD OF EXECUTIVE AGENCY.— (A) IN GENERAL.—The head of an executive agency may waive the applicability of the cost accounting standards for a contract or subcontract with a value of less than $100,000,000 if that official determines in writing that the segment of the contractor or subcontractor that will perform the work— (i) is primarily engaged in the sale of commercial products or commercial serv- ices; and (ii) would not otherwise be subject to the cost accounting standards under this sec- tion. (B) IN EXCEPTIONAL CIRCUMSTANCES.—The head of an executive agency may waive the applicability of the cost accounting stand- ards for a contract or subcontract under ex- ceptional circumstances when necessary to meet the needs of the agency. A determina- tion to waive the applicability of the stand- ards under this subparagraph shall be set forth in writing and shall include a state- ment of the circumstances justifying the waiver. (C) RESTRICTION ON DELEGATION OF AUTHOR- ITY.—The head of an executive agency may not delegate the authority under subpara- graph (A) or (B) to an official in the execu- tive agency below the senior policymaking level in the executive agency. (D) CONTENTS OF FEDERAL ACQUISITION REG- ULATION.—The Federal Acquisition Regula- tion shall include— (i) criteria for selecting an official to be delegated authority to grant waivers under subparagraph (A) or (B); and (ii) the specific circumstances under which the waiver may be granted. (E) REPORT.—The head of each executive agency shall report the waivers granted under subparagraphs (A) and (B) for that agency to the Board on an annual basis. (c) REQUIRED BOARD ACTION FOR PRESCRIBING STANDARDS AND INTERPRETATIONS.—Before pre- scribing cost accounting standards and interpre- tations, the Board shall— (1) take into account, after consultation and discussions with the Comptroller General, pro- fessional accounting organizations, contrac- tors, and other interested parties— (A) the probable costs of implementation, including any inflationary effects, compared to the probable benefits; (B) the advantages, disadvantages, and im- provements anticipated in the pricing and administration of, and settlement of dis- putes concerning, contracts; and (C) the scope of, and alternatives available to, the action proposed to be taken; (2) prepare and publish a report in the Fed- eral Register on the issues reviewed under paragraph (1); (3)(A) publish an advanced notice of proposed rulemaking in the Federal Register to solicit comments on the report prepared under para- graph (2); (B) provide all parties affected at least 60 days after publication to submit their views and comments; and Page 36 TITLE 41—PUBLIC CONTRACTS § 1502 (C) during the 60-day period, consult with the Comptroller General and consider any rec- ommendation the Comptroller General may make; and (4) publish a notice of proposed rulemaking in the Federal Register and provide all parties affected at least 60 days after publication to submit their views and comments. (d) EFFECTIVE DATES.—Rules, regulations, cost accounting standards, and modifications thereof prescribed or amended under this chapter shall have the full force and effect of law, and shall become effective within 120 days after publica- tion in the Federal Register in final form, unless the Board determines that a longer period is necessary. The Board shall determine implemen- tation dates for contractors and subcontractors. The dates may not be later than the beginning of the second fiscal year of the contractor or subcontractor after the standard becomes effec- tive. (e) ACCOMPANYING MATERIAL.—Rules, regula- tions, cost accounting standards, and modifica- tions thereof prescribed or amended under this chapter shall be accompanied by prefatory com- ments and by illustrations, if necessary. (f) IMPLEMENTING REGULATIONS.—The Board shall prescribe regulations for the implementa- tion of cost accounting standards prescribed or interpreted under this section. The regulations shall be incorporated into the Federal Acquisi- tion Regulation and shall require contractors and subcontractors as a condition of contracting with the Federal Government to— (1) disclose in writing their cost accounting practices, including methods of distinguishing direct costs from indirect costs and the basis used for allocating indirect costs; and (2) agree to a contract price adjustment, with interest, for any increased costs paid to the contractor or subcontractor by the Fed- eral Government because of a change in the contractor’s or subcontractor’s cost account- ing practices or a failure by the contractor or subcontractor to comply with applicable cost accounting standards. (g) NONAPPLICABILITY OF CERTAIN SECTIONS OF TITLE 5.—Functions exercised under this chapter are not subject to sections 551, 553 to 559, and 701 to 706 of title 5. (Pub. L. 111–350, § 3, Jan. 4, 2011, 124 Stat. 3696; Pub. L. 114–328, div. A, title VIII, § 820(a)(2), Dec. 23, 2016, 130 Stat. 2274; Pub. L. 115–232, div. A, title VIII, § 836(b)(1), Aug. 13, 2018, 132 Stat. 1860; Pub. L. 117–81, div. A, title XVII, § 1702(h)(3), Dec. 27, 2021, 135 Stat. 2158.) HISTORICAL AND REVISION NOTES Revised Section Source (U.S. Code) Source (Statutes at Large) 1502(a) ........ 41:422(f)(1), (3). Pub. L. 93–400, § 26(f), as added Pub. L. 100–679, § 5(a), Nov. 17, 1988, 102 Stat. 4060; Pub. L. 103–355, title II, § 2453, title VIII, § 8301(d), Oct. 13, 1994, 108 Stat. 3326, 3397; Pub. L. 104–106, title XLII, § 4205, title XLIII, § 4321(h)(4), Feb. 10, 1996, 110 Stat. 656, 675; Pub. L 106–65, title VIII, § 802(a), (b), Oct. 5, 1999, 113 Stat. 701; Pub. L 109–163, div. A, title VIII, § 822, Jan. 6, 2006, 119 Stat. 3386. 1502(b)(1) .... 41:422(f)(2), (4). 1502(b)(2) .... 41:422(f)(4). 1502(b)(3) .... 41:422(f)(5). 1502(c) ........ 41:422(g)(1). Pub. L. 93–400, § 26(g), (h)(1), as added Pub. L. 100–679, § 5(a), Nov. 17, 1988, 102 Stat. 4061. 1502(d) ........ 41:422(g)(2) (1st, 2d sentences). 1502(e) ........ 41:422(g)(2) (last sen- tence). 1502(f) ........ 41:422(h)(1). 1502(g) ........ 41:422(g)(3). In subsection (a)(1), the word ‘‘make’’ is omitted as being included in ‘‘prescribe’’. In subsection (b)(2)(A), the word ‘‘categories’’ is omit- ted as being included in ‘‘classes’’. In subsection (b)(3)(A)(ii), the words ‘‘as in effect on or after the effective date of this paragraph’’ are omit- ted as obsolete. Editorial Notes AMENDMENTS 2021—Subsec. (b)(1)(B). Pub. L. 117–81 substituted ‘‘section 3702(a)(1)(A)’’ for ‘‘section 2306a(a)(1)(A)(i)’’. 2018—Subsec. (b)(1)(A). Pub. L. 115–232, § 836(b)(1)(A), substituted ‘‘commercial products or commercial serv- ices’’ for ‘‘commercial items’’. Subsec. (b)(1)(C)(i). Pub. L. 115–232, § 836(b)(1)(B), sub- stituted ‘‘commercial product or commercial service’’ for ‘‘commercial item’’. Subsec. (b)(3)(A)(i). Pub. L. 115–232, § 836(b)(1)(C), sub- stituted ‘‘commercial products or commercial services’’ for ‘‘commercial items’’. 2016—Subsec. (b)(3)(A). Pub. L. 114–328 substituted ‘‘$100,000,000’’ for ‘‘$15,000,000’’ in introductory provi- sions. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2018 AMENDMENT Amendment by Pub. L. 115–232 effective Jan. 1, 2020, subject to a savings provision, see section 836(h) of Pub. L. 115–232, set out as an Effective Date of 2018 Amend- ment; Savings Provision note under section 453b of Title 6, Domestic Security. EFFECTIVE DATE OF 2016 AMENDMENT Amendment by Pub. L. 114–328 effective Oct. 1, 2018, see section 820(d) of Pub. L. 114–328, set out as a note under section 1501 of this title. EFFECTIVE DATE OF AMENDMENT BY PUB. L. 106–65; REGULATIONS; IMPLEMENTATION; CONSTRUCTION Pub. L. 106–65, div. A, title VIII, § 802(c)–(e), (g)–(i), Oct. 5, 1999, 113 Stat. 701, 702, provided that: ‘‘(c) REGULATION ON TYPES OF CAS COVERAGE.—(1) The Administrator for Federal Procurement Policy Page 37 TITLE 41—PUBLIC CONTRACTS § 1504 1 See References in Text note below. shall revise the rules and procedures prescribed pursu- ant to section 26(f) of the Office of Federal Procure- ment Policy Act ([former] 41 U.S.C. 422(f)) [now 41 U.S.C. 1502(a), (b)] to the extent necessary to increase the thresholds established in section 9903.201–2 of title 48 of the Code of Federal Regulations from $25,000,000 to $50,000,000. ‘‘(2) Paragraph (1) requires only a change of the state- ment of a threshold condition in the regulation referred to by section number in that paragraph, and shall not be construed as— ‘‘(A) a ratification or expression of approval of— ‘‘(i) any aspect of the regulation; or ‘‘(ii) the manner in which section 26 of the Office of Federal Procurement Policy Act [now 41 U.S.C. 1501 et seq.] is administered through the regulation; or ‘‘(B) a requirement to apply the regulation. ‘‘(d) IMPLEMENTATION.—The Administrator for Fed- eral Procurement Policy shall ensure that this section [see Tables for classification] and the amendments made by this section are implemented in a manner that ensures that the Federal Government can recover costs, as appropriate, in a case in which noncompliance with cost accounting standards, or a change in the cost accounting system of a contractor segment or subcon- tractor segment that is not determined to be desirable by the Federal Government, results in a shift of costs from contracts that are not covered by the cost ac- counting standards to contracts that are covered by the cost accounting standards. ‘‘(e) IMPLEMENTATION OF REQUIREMENTS FOR REVISION OF REGULATIONS.—(1) Final regulations required by sub- section (c) shall be issued not later than 180 days after the date of the enactment of this Act [Oct. 5, 1999]. ‘‘(2) Subsection (c) shall cease to be effective one year after the date on which final regulations issued in ac- cordance with that subsection take effect. ‘‘(g) INAPPLICABILITY OF STANDARDS TO CERTAIN CON- TRACTS.—The cost accounting standards issued pursu- ant to section 26(f) of the Office of Federal Procure- ment Policy Act ([former] 41 U.S.C. 422(f)) [now 41 U.S.C. 1502(a), (b)], as amended by this section, shall not apply during fiscal year 2000 with respect to a con- tract entered into under the authority provided in chapter 89 of title 5, United States Code (relating to health benefits for Federal employees). ‘‘(h) CONSTRUCTION REGARDING CERTAIN NOT-FOR- PROFIT ENTITIES.—The amendments made by sub- sections (a) and (b) [see Tables for classification] shall not be construed as modifying or superseding, nor as intended to impair or restrict, the applicability of the cost accounting standards described in section 26(f) of the Office of Federal Procurement Policy Act ([former] 41 U.S.C. 422(f)) [now 41 U.S.C. 1502(a), (b)] to— ‘‘(1) any educational institution or federally funded research and development center that is associated with an educational institution in accordance with Office of Management and Budget Circular A–21, as in effect on January 1, 1999; or ‘‘(2) any contract with a nonprofit entity that pro- vides research and development and related products or services to the Department of Defense. ‘‘(i) EFFECTIVE DATE.—The amendments made by sub- sections (a) and (b) [see Tables for classification] shall take effect 180 days after the date of enactment of this Act [Oct. 5, 1999], and shall apply with respect to— ‘‘(1) contracts that are entered into on or after such effective date; and ‘‘(2) determinations made on or after such effective date regarding whether a segment of a contractor or subcontractor is subject to the cost accounting standards under section 26(f) of the Office of Federal Procurement Policy Act ([former] 41 U.S.C. 422(f)) [now 41 U.S.C. 1502(a), (b)], regardless of whether the contracts on which such determinations are made were entered into before, on, or after such date.’’ § 1503. Contract price adjustment (a) DISAGREEMENT CONSTITUTES A DISPUTE.—If the Federal Government and a contractor or subcontractor fail to agree on a contract price adjustment, including whether the contractor or subcontractor has complied with the applicable cost accounting standards, the disagreement will constitute a dispute under chapter 71 of this title. (b) AMOUNT OF ADJUSTMENT.—A contract price adjustment undertaken under section 1502(f)(2) of this title shall be made, where applicable, on relevant contracts between the Federal Govern- ment and the contractor that are subject to the cost accounting standards so as to protect the Federal Government from payment, in the ag- gregate, of increased costs, as defined by the Cost Accounting Standards Board. The Federal Government may not recover costs greater than the aggregate increased cost to the Federal Gov- ernment, as defined by the Board, on the rel- evant contracts subject to the price adjustment unless the contractor made a change in its cost accounting practices of which it was aware or should have been aware at the time of the price negotiation and which it failed to disclose to the Federal Government. (c) INTEREST.—The interest rate applicable to a contract price adjustment is the annual rate of interest established under section 6621 of the Internal Revenue Code of 1986 (26 U.S.C. 6621) for the period. Interest accrues from the time pay- ments of the increased costs were made to the contractor or subcontractor to the time the Federal Government receives full compensation for the price adjustment. (Pub. L. 111–350, § 3, Jan. 4, 2011, 124 Stat. 3699.) HISTORICAL AND REVISION NOTES Revised Section Source (U.S. Code) Source (Statutes at Large) 1503(a) ........ 41:422(h)(2). Pub. L. 93–400, § 26(h)(2)–(4), as added Pub. L. 100–679, § 5(a), Nov. 17, 1988, 102 Stat. 4062. 1503(b) ........ 41:422(h)(3). 1503(c) ........ 41:422(h)(4). § 1504. Effect on other standards and regulations (a) PREVIOUSLY EXISTING STANDARDS.—All cost accounting standards, waivers, exemptions, in- terpretations, modifications, rules, and regula- tions prescribed by the Cost Accounting Stand- ards Board under section 719 of the Defense Pro- duction Act of 1950 (50 U.S.C. App. 2168)— 1 (1) remain in effect until amended, super- seded, or rescinded by the Board under this chapter; and (2) are subject to the provisions of this divi- sion in the same manner as if prescribed by the Board under this division. (b) INCONSISTENT AGENCY REGULATIONS.—To ensure that a regulation or proposed regulation of an executive agency is not inconsistent with a cost accounting standard prescribed or amend- ed under this chapter, the Administrator, under the authority in sections 1121, 1122(a) to (c)(1), 1125, 1126, 1130, 1131, and 2305 of this title, shall rescind or deny the promulgation of the incon- sistent regulation or proposed regulation and take other appropriate action authorized under sections 1121, 1122(a) to (c)(1), 1125, 1126, 1130, 1131, and 2305.