FAR 30.605—Processing noncompliances.
Plain-English Summary
FAR 30.605 explains how the Government processes alleged and actual Cost Accounting Standards (CAS) noncompliances before it makes any contract price or cost adjustment. It covers the contracting federal agency’s administrative steps after an auditor reports a possible noncompliance, the contractor’s opportunity to respond, the contracting federal agency official’s (CFAO’s) determination of compliance or noncompliance, and what happens when the cost impact is immaterial. It also addresses how the contractor must correct a noncompliance, including submitting a description of the corrective cost accounting practice change, and how the Government evaluates the resulting cost impact through a general dollar magnitude (GDM) proposal or, in some cases, a disclosure cost impact (DCI) proposal. The section further limits adjustments so the Government recovers no more than its increased costs in the aggregate, including special rules for estimating noncompliances and cost accumulation noncompliances. In practice, this section is the procedural roadmap for turning a CAS issue into a formal determination and, if needed, a negotiated cost impact adjustment without over- or under-recouping Government costs.
Key Rules
No over-recovery
Before making any price or cost adjustment, the CFAO must ensure the contemplated adjustment protects the Government from increased costs but does not recover more than the Government’s increased costs in the aggregate. This same anti-overrecovery principle applies to invoice adjustments for estimating noncompliances and interim/final voucher adjustments for cost accumulation noncompliances.
Prompt notice after audit report
Within 15 days of receiving an auditor’s report of alleged noncompliance, the CFAO must either tell the auditor the allegation is disputed or issue a notice of potential noncompliance to the contractor and provide a copy to the auditor. This starts the formal response process and prevents delay.
Contractor response opportunity
The notice of potential noncompliance must describe the exact nature of the issue and give the contractor 60 days, or another mutually agreeable date, to explain why its practices comply and to support any claim that the cost impact is immaterial. The contractor gets a meaningful chance to rebut the allegation before a final determination.
Compliance determination
The CFAO must review the contractor’s response, make a compliance determination consistent with FAR 1.704, and notify both the contractor and the auditor in writing of the result and the basis for it. If the CFAO finds noncompliance, the cost-impact procedures in paragraphs (c) through (h) apply unless the impact is immaterial.
Immaterial cost impact path
If the CFAO determines the noncompliance is immaterial, the CFAO must tell the contractor to correct the issue and reserve the Government’s right to adjust the contract later if the issue becomes material. In that case, the cost-impact process ends with no contract adjustment.
Corrective change submission
Under the CAS clause, the contractor must submit a description of the cost accounting practice change needed to correct the noncompliance within 60 days after agreement that a noncompliance exists or after the CFAO’s noncompliance determination, whichever comes first. The CFAO reviews the proposed change for both adequacy and compliance.
GDM proposal requirements
If the corrective change is adequate and compliant, the CFAO requests a general dollar magnitude proposal unless the cost impact is immaterial. The GDM must estimate the total increase or decrease in contract and subcontract prices and cost accumulations, the Government’s increased or decreased costs, and total overpayments and underpayments, and it may use representative sampling, rate/base methods, or another reasonable approximation method.
DCI proposal option
The contractor may submit a disclosure cost impact proposal instead of a GDM proposal if it complies with the requirements for a DCI proposal. This gives the contractor an alternate way to present the cost impact when appropriate.
Evaluation and resolution
The CFAO must promptly evaluate the GDM proposal. If the cost impact is immaterial, the CFAO follows the immaterial-impact path; otherwise, the CFAO negotiates and resolves the cost impact under FAR 30.606 and may request additional support as needed.
Responsibilities
Contracting Federal Agency Official (CFAO)
Determine whether contemplated adjustments will protect the Government without over-recovering costs; act within 15 days of an auditor report; issue notices; review contractor responses; make and document compliance/noncompliance determinations; decide whether the cost impact is immaterial; require corrective submissions; review proposed corrective changes for adequacy and compliance; request and evaluate GDM proposals; and negotiate or resolve the cost impact when required.
Contractor
Respond to the notice of potential noncompliance within the allowed time; explain why existing practices comply or why the cost impact is immaterial; submit a description of the corrective cost accounting practice change within 60 days after agreement or determination of noncompliance; provide a GDM proposal or an acceptable DCI proposal; and identify affected CAS-covered contracts and subcontracts when requested.
Auditor
Report alleged noncompliance to the CFAO and receive notice of the CFAO’s disagreement or the contractor notice. The auditor is kept informed of the determination and may be involved in the cost impact process through the report and copy of the notice.
Agency / Government
Ensure any resulting price or cost adjustments are limited to the Government’s increased costs in the aggregate and that invoice or voucher corrections do not recover more than the Government paid in excess. The agency must also preserve the right to adjust later if an immaterial issue becomes material.
Practical Implications
This section is heavily procedural, so missed deadlines matter. Contractors should track the 60-day response window for the notice of potential noncompliance and the 60-day deadline to describe the corrective change, while CFAOs must act within 15 days of an auditor report.
The Government cannot use CAS noncompliance adjustments as a penalty. The adjustment must be tied to actual increased costs to the Government, which means both sides need solid cost-impact analysis and careful documentation.
Immateriality is not the same as compliance. A noncompliance can be found but still end the cost-impact process if the effect is immaterial, with the Government reserving the right to act later if the issue grows in significance.
The GDM proposal is often the key cost-impact document, and its quality drives the negotiation. Contractors should make sure the proposal identifies affected contracts, distinguishes fixed-price from flexibly priced work, and captures incentives, fees, profits, overpayments, and underpayments.
A common pitfall is treating the corrective change and the cost impact as the same issue. The contractor must both fix the practice and separately support the financial impact, and the CFAO reviews both adequacy/compliance and dollar impact.
Official Regulatory Text
(a) General. Prior to making any contract price or cost adjustments under the applicable paragraph (s) addressing noncompliance at 52.230-2 , 52.230-3 , or 52.230-5 , the CFAO shall determine that- (1) The contemplated contract price or cost adjustments will protect the Government from the payment of increased costs, in the aggregate; (2) The net effect of the contemplated contract price or cost adjustments will not result in the recovery of more than the increased costs to the Government, in the aggregate; (3) The net effect of any invoice adjustments made to correct an estimating noncompliance will not result in the recovery of more than the increased costs paid by the Government, in the aggregate; and (4) The net effect of any interim and final voucher billing adjustments made to correct a cost accumulation noncompliance will not result in the recovery of more than the increased cost paid by the Government, in the aggregate. (b) Notice and determination. (1) Within 15 days of receiving a report of alleged noncompliance from the auditor, the CFAO shall- (i) Notify the auditor that the CFAO disagrees with the alleged noncompliance; or (ii) Issue a notice of potential noncompliance to the contractor and provide a copy to the auditor. (2) The notice of potential noncompliance shall- (i) Notify the contractor in writing of the exact nature of the noncompliance; and (ii) Allow the contractor 60 days or other mutually agreeable date to- (A) Agree or submit reasons why the contractor considers the existing practices to be in compliance; and (B) Submit rationale to support any written statement that the cost impact of the noncompliance is immaterial. (3) The CFAO shall- (i) If applicable, review the reasons why the contractor considers the existing practices to be compliant or the cost impact to be immaterial; (ii) Make a determination of compliance or noncompliance consistent with 1.704 ; and (iii) Notify the contractor and the auditor in writing of the determination of compliance or noncompliance and the basis for the determination. (4) If the CFAO makes a determination of noncompliance, the CFAO shall follow the procedures in paragraphs (c) through (h) of this section, as appropriate, unless the CFAO also determines the cost impact is immaterial. If immaterial, the CFAO shall- (i) Inform the contractor in writing that- (A) The noncompliance should be corrected; and (B) If the noncompliance is not corrected, the Government reserves the right to make appropriate contract adjustments should the noncompliance become material in the future; and (ii) Conclude the cost-impact process with no contract adjustments. (c) Correcting noncompliances. (1) The clause at 52.230-6 requires the contractor to submit a description of any cost accounting practice change needed to correct a noncompliance within 60 days after the earlier of- (i) Agreement with the CFAO that there is a noncompliance; or (ii) Notification by the CFAO of a determination of noncompliance. (2) The CFAO should review the proposed change to correct the noncompliance concurrently for adequacy and compliance (see 30.202-7 ). The CFAO shall- (i) When the description of the change is both adequate and compliant- (A) Notify the contractor in writing; (B) Request that the contractor submit by a specified date a general dollar magnitude (GDM) proposal, unless the CFAO determines the cost impact is immaterial; and (C) Follow the procedures at paragraph (b)(4) of this section if the CFAO determines the cost impact is immaterial. (ii) If the description of the change is inadequate, request a revised description of the new cost accounting practice; or (iii) If the disclosed practice is noncompliant, notify the contractor in writing that, if implemented, the CFAO will determine the cost accounting practice to be noncompliant and process it accordingly. (d) General dollar magnitude proposal content . The GDM proposal- (1) Shall calculate the cost impact in accordance with paragraph (h) of this section; (2) May use one or more of the following methods to determine the increase or decrease in contract and subcontract price or cost accumulations, as applicable: (i) A representative sample of affected CAS-covered contracts and subcontracts affected by the noncompliance. (ii) When the noncompliance involves cost accumulation, the change in indirect rates multiplied by the applicable base for flexibly-priced contracts and subcontracts. (iii) Any other method that provides a reasonable approximation of the total increase or decrease in contract and subcontract prices and cost accumulations; (3) The contractor may submit a DCI proposal in lieu of a GDM proposal provided the DCI proposal is in accordance with paragraph (f) of this section. (4) May be in any format acceptable to the CFAO but, as a minimum, shall include the following data: (i) The total increase or decrease in contract and subcontract prices and cost accumulations, as applicable, by Executive agency, including any impact the noncompliance may have on contract and subcontract incentives, fees, and profits, for each of the following groups: (A) Fixed-price contracts and subcontracts. (B) Flexibly-priced contracts and subcontracts. (ii) The increased or decreased costs to the Government for each of the following groups: (A) Fixed-price contracts and subcontracts. (B) Flexibly-priced contracts and subcontracts. (iii) The total overpayments and underpayments for fixed-price and flexibly-priced contracts made by the Government during the period of noncompliance; and (5) When requested by the CFAO, shall identify all affected CAS-covered contracts and subcontracts. (e) General dollar magnitude proposal evaluation. The CFAO shall promptly evaluate the GDM proposal. If the cost impact is immaterial, the CFAO shall follow the requirements in paragraph (b)(4) of this section. Otherwise, the CFAO shall- (1) Negotiate and resolve the cost impact (see 30.606 ). If necessary, the CFAO may request the contractor submit a revised GDM proposal by a specified date, with specific additional data needed to resolve the cost impact ( e.g., an expanded sample of affected CAS-covered contracts and subcontracts or a revised method of computing the increase or decrease in contract and subcontract price and cost accumulations); or (2) Request that the contractor submit a DCI proposal by a specified date if the CFAO determines that the GDM proposal is not sufficient to resolve the cost impact. (f) Detailed cost-impact proposal. If the contractor is required to submit a DCI proposal, the CFAO shall promptly evaluate the DCI proposal and follow the procedures at 30.606 to negotiate and resolve the cost impact. The DCI proposal- (1) Shall calculate the cost impact in accordance with paragraph (h) of this section. (2) Shall show the increase or decrease in price and cost accumulations, as applicable for each affected CAS-covered contract and subcontract unless the CFAO and contractor agree to- (i) Include only those affected CAS-covered contracts and subcontracts having- (A) Contract and subcontract values exceeding a specified amount when the noncompliance involves estimating costs; and (B) Incurred costs exceeding a specified amount when the noncompliance involves accumulating costs; and (ii) Estimate the total increase or decrease in price and cost accumulations for all affected CAS-covered contracts and subcontracts using the results in paragraph (f)(2)(i) of this section; (3) May be in any format acceptable to the CFAO but, as a minimum, shall include the information in paragraph (d)(4) of this section; and (4) When requested by the CFAO, shall identify all affected CAS-covered contracts and subcontracts. (g) Interest. The CFAO shall- (1) Separately identify interest on any increased cost paid, in the aggregate, as a result of the noncompliance; (2) Compute interest from the date of overpayment to the date of repayment using the rate specified in 26 U.S.C. 6621(a)(2) . (h) Calculating cost impacts. The cost impact calculation shall- (1) Include all affected CAS-covered contracts and subcontracts regardless of their status ( i.e. , open or closed) or the fiscal year in which the costs are incurred ( i.e., whether or not the final indirect cost rates have been established); (2) Combine the cost impact for all affected CAS-covered contracts and subcontracts for all segments if the effect of a change results in costs flowing between those segments; (3) For noncompliances that involve estimating costs, determine the increased or decreased cost to the Government for fixed-price contracts and subcontracts as follows: (i) When the negotiated contract or subcontract price exceeds what the negotiated price would have been had the contractor used a compliant practice, the difference is increased cost to the Government. (ii) When the negotiated contract or subcontract price is less than what the negotiated price would have been had the contractor used a compliant practice, the difference is decreased cost to the Government; (4) For noncompliances that involve accumulating costs, determine the increased or decreased cost to the Government for flexibly-priced contracts and subcontracts as follows: (i) When the costs that were accumulated under the noncompliant practice exceed the costs that would have been accumulated using a compliant practice (from the time the noncompliant practice was first implemented until the date the noncompliant practice was replaced with a compliant practice), the difference is increased cost to the Government. (ii) When the costs that were accumulated under the noncompliant practice are less than the costs that would have been accumulated using a compliant practice (from the time the noncompliant practice was first implemented until the date the noncompliant practice was replaced with a compliant practice) the difference is decreased cost to the Government; (5) Calculate the total increase or decrease in contract and subcontract incentives, fees, and profits associated with the increased or decreased costs to the Government in accordance with 48 CFR 9903.306(c) . The associated increase or decrease is based on the difference between the negotiated incentives, fees, and profits and the amounts that would have been negotiated had the contractor used a compliant practice; (6) Determine the cost impact of each noncompliance that affects both cost estimating and cost accumulation by combining the cost impacts in paragraphs (h)(3), (h)(4), and (h)(5) of this section; and (7) Calculate the increased cost to the Government in the aggregate. (i) Remedies. If the contractor does not correct the noncompliance or submit the proposal required in paragraph (d) or (f) of this section within the specified time, or any extension granted by the CFAO, the CFAO shall follow the procedures at 30.604 (i).