FAR 30.606—Resolving cost impacts.
Plain-English Summary
FAR 30.606 explains how the Cognizant Federal Agency Official (CFAO) resolves the dollar impact of a change in cost accounting practice or a cost accounting noncompliance. It covers coordination with affected contracting officers when the estimated impact on any contract is at least $100,000, the CFAO’s sole authority to negotiate and resolve the impact, and the ability to allocate the impact across one contract, several contracts, all contracts, or another suitable method. The section also limits how different types of cost impacts may be combined, including special treatment for unilateral changes, noncompliances, required changes, and desirable changes, and it allows certain unilateral changes affecting multiple segments to be treated as a single change. It then addresses negotiations, including the requirement to negotiate on behalf of all Government agencies and to issue a negotiation memorandum to the auditor and affected contracting officers. Finally, it covers contract adjustments for material cost impacts, including pro rata allocation, rules for fixed-price and flexibly-priced contracts, special procedures for estimating-cost and cost-accumulation noncompliances, correction of the contractor’s accounting records, adjustment of invoices and vouchers, and execution of bilateral modifications when contract adjustments are made. In practice, this section is the roadmap for turning a CAS change or noncompliance finding into actual contract price, cost, and payment adjustments while preventing the Government from paying more than it should and ensuring the contractor corrects its accounting practices.
Key Rules
CFAO controls resolution
The CFAO must coordinate with affected contracting officers when any estimated cost impact on a contract is at least $100,000, but the CFAO alone has authority to negotiate and resolve the cost impact. This centralizes the Government’s position while still requiring coordination with the contracts that will be affected.
Flexible allocation methods
The CFAO may resolve the cost impact by adjusting one contract, several contracts, all contracts, or any other suitable method. The goal is to match the adjustment approach to the facts of the case and the contracts affected.
Limits on combining impacts
The CFAO may not combine certain categories of cost impacts, such as required changes with unilateral changes or noncompliances, or desirable changes with unilateral changes or noncompliances. In addition, unilateral changes and noncompliances generally may not be combined unless all resulting impacts are increased costs to the Government.
Single-change treatment for multi-segment unilateral changes
A unilateral change affecting two or more segments may be treated as a single change if it affects the flow of costs between segments or implements a common cost accounting practice for multiple segments. This prevents artificial splitting of one accounting event into multiple impacts.
Desirable changes need management context
For desirable changes, the CFAO should consider the estimated cost impact of associated management actions on contract costs. This means the resolution should reflect not only the accounting change itself, but also the operational effects that follow from it.
Negotiation and documentation
The CFAO must negotiate and resolve the cost impact on behalf of all Government agencies and, when negotiations end, prepare a negotiation memorandum and send copies to the auditor and affected contracting officers. This creates a formal record of the basis for the resolution.
Pro rata contract adjustments
When adjusting contracts with a material cost impact, the CFAO should, to the maximum extent practical, allocate adjustments pro rata based on each Executive agency’s share of the total cost impact. This promotes equitable distribution across affected contracts.
Unilateral change and noncompliance limits
For unilateral changes and noncompliances, the CFAO should avoid upward price adjustments on fixed-price contracts and must prevent the Government from paying aggregate increased costs. That is done by reducing fixed-price contract prices, disallowing costs on flexibly-priced contracts, or both, while keeping any upward adjustments offset by downward adjustments elsewhere.
Estimating-cost noncompliance remedies
If the noncompliance involves estimating costs, the CFAO must require the contractor to correct the noncompliance and adjust invoices already paid based on the noncompliant prices. The CFAO may also adjust contract prices, but the aggregate price of all affected contracts may not be increased.
Cost-accumulation noncompliance remedies
If the noncompliance involves cost accumulation, the CFAO must require the contractor to correct its cost accounting records and adjust interim payment requests and final vouchers, or alternatively adjust contract prices. If contract prices are adjusted, the aggregate price of all affected contracts may not be increased and the contractor must align its records and payment requests to the adjusted prices.
Bilateral modifications when needed
When contract adjustments are made, the CFAO must execute bilateral modifications as applicable. This ensures the contract file and contract terms are formally updated to reflect the negotiated resolution.
Responsibilities
CFAO
Coordinate with affected contracting officers when the estimated cost impact on any contract is at least $100,000; retain sole authority to negotiate and resolve the cost impact; choose an appropriate allocation method; avoid prohibited combinations of cost impacts; consider management actions for desirable changes; negotiate on behalf of all Government agencies; prepare and distribute the negotiation memorandum; determine and implement contract adjustments; require correction of noncompliances; and execute bilateral modifications when contract adjustments are made.
Affected Contracting Officers
Participate in coordination with the CFAO when their contracts are materially affected; provide contract-specific input during negotiations and any consultation on price adjustments; and receive the negotiation memorandum and resulting contract adjustment information for their contracts.
Auditor
Receive a copy of the negotiation memorandum after negotiations conclude and use it as part of the audit trail supporting the cost impact resolution.
Contractor
Accept and implement required corrections to cost accounting practices or noncompliant accounting processes; correct cost accounting records, cost accumulations, invoices, interim payment requests, progress payments, and final vouchers as directed; and comply with any contract price adjustments and related bilateral modifications.
Government Agencies
Be represented by the CFAO in the negotiation and resolution of the cost impact; accept the CFAO’s Government-wide resolution approach; and implement resulting contract adjustments within their affected contracts.
Practical Implications
This section is the mechanism that turns a CAS change or noncompliance finding into actual dollars, so the details matter: a poor allocation method can shift costs unfairly or create disputes later.
The $100,000 coordination threshold is important in practice because it triggers broader involvement, but it does not reduce the CFAO’s authority to decide the outcome.
Contract type matters a lot. Fixed-price contracts, flexibly-priced contracts, estimating-cost noncompliances, and cost-accumulation noncompliances are handled differently, especially on whether prices may be increased and how overpayments are recovered.
A common pitfall is trying to offset one type of cost impact against another when the rule prohibits combining them. Another is failing to distinguish between estimating-cost and cost-accumulation noncompliances, which have different corrective actions.
Contractors should expect to correct their accounting systems and possibly repay or credit amounts already billed; contracting officers should ensure the contract file, invoices, vouchers, and modifications all match the negotiated resolution.
Official Regulatory Text
(a) General. (1) The CFAO shall coordinate with the affected contracting officers before negotiating and resolving the cost impact when the estimated cost impact on any of their contracts is at least $100,000. However, the CFAO has the sole authority for negotiating and resolving the cost impact. (2) The CFAO may resolve a cost impact attributed to a change in cost accounting practice or a noncompliance by adjusting a single contract, several but not all contracts, all contracts, or any other suitable method. (3) In resolving the cost impact, the CFAO- (i) Shall not combine the cost impacts of any of the following: (A) A required change and a unilateral change. (B) A required change and a noncompliance. (C) A desirable change and a unilateral change. (D) A desirable change and a noncompliance. (ii) Shall not combine the cost impacts of any of the following unless all of the cost impacts are increased costs to Government: (A) One or more unilateral changes. (B) One or more noncompliances. (C) Unilateral changes and noncompliances; and (iii) May consider the cost impacts of a unilateral change affecting two or more segments to be a single change if- (A) The change affects the flow of costs between segments; or (B) Implements a common cost accounting practice for two or more segments. (4) For desirable changes, the CFAO should consider the estimated cost impact of associated management actions on contract costs in resolving the cost impact. (b) Negotiations. The CFAO shall- (1) Negotiate and resolve the cost impact on behalf of all Government agencies; and (2) At the conclusion of negotiations, prepare a negotiation memorandum and send copies to the auditor and affected contracting officers. (c) Contract adjustments. (1) The CFAO may adjust some or all contracts with a material cost impact, subject to the provisions in paragraphs (c)(2) through (c)(6) of this section. (2) In selecting the contract or contracts to be adjusted, the CFAO should assure, to the maximum extent practical and subject to the provisions in paragraphs (c)(3) through (c)(6) of this section, that the adjustments reflect a pro rata share of the cost impact based on the ratio of the cost impact of each Executive agency to the total cost impact. (3) For unilateral changes and noncompliances, the CFAO shall- (i) To the maximum extent practical, not adjust the price upward for fixed-price contracts; (ii) If contract adjustments are made, preclude payment of aggregate increased costs by taking one or both of the following actions: (A) Reduce the contract price on fixed-price contracts. (B) Disallow costs on flexibly-priced contracts; and (iii) The CFAO may, in consultation with the affected contracting officers, increase or decrease individual contract prices, including contract cost ceilings or target costs on flexibly-priced contracts. In such cases, the CFAO shall limit any upward contract price adjustments on affected contracts to the amount of downward price adjustments to other affected contracts, i.e., the aggregate price of all contracts affected by a unilateral change shall not be increased (48 CFR 9903.201-6(b)). (4) For noncompliances that involve estimating costs, the CFAO- (i) Shall, to the extent practical, not adjust the price upward for fixed-price contracts; (ii) Shall, if contract adjustments are made, preclude payment of aggregate increased costs by reducing the contract price on fixed-price contracts; (iii) May, in consultation with the affected contracting officers, increase or decrease individual contract prices, including costs ceilings or target costs on flexibly-priced contracts. In such cases, the CFAO shall limit any upward contract price adjustments to affected contracts to the amount of downward price adjustments to other affected contracts, i.e., the aggregate price of all contracts affected by a noncompliance that involves estimating costs shall not be increased (48 CFR 9903.201-6(d)); (iv) Shall require the contractor to correct the noncompliance, i.e., ensure that compliant cost accounting practices will now be utilized to estimate proposed contract costs; and (v) Shall require the contractor to adjust any invoices that were paid based on noncompliant contract prices to reflect the adjusted contract prices, after any contract price adjustments are made to resolve the noncompliance. (5) For noncompliances that involve cost accumulation, the CFAO- (i) Shall require the contractor to- (A) Correct noncompliant contract cost accumulations in the contractor’s cost accounting records for affected contracts to reflect compliant contract cost accumulations; and (B) Adjust interim payment requests (public vouchers and/or progress payments) and final vouchers to reflect the difference between the costs paid using the noncompliant practice and the costs that should have been paid using the compliant practice; or (ii) Shall adjust contract prices. In adjusting contract prices, the CFAO shall preclude payment of aggregate increased costs by disallowing costs on flexibly-priced contracts. (A) The CFAO may, in consultation with the affected contracting officers, increase or decrease individual contract prices, including costs ceilings or target costs on flexibly-priced contracts. In such cases, the CFAO shall limit any upward contract price adjustments to affected contracts to the amount of downward price adjustments to other affected contracts, i.e., the aggregate price of all contracts affected by a noncompliance that involves cost accumulation shall not be increased (48 CFR 9903.201-6(d)). (B) Shall require the contractor to- (1) Correct contract cost accumulations in the contractor’s cost accounting records to reflect the contract price adjustments; and (2) Adjust interim payment requests (public vouchers and/or progress payments) and final vouchers to reflect the contract price adjustments. (6) When contract adjustments are made, the CFAO shall- (i) Execute the bilateral modifications if the CFAO and contractor agree on the amount of the cost impact and the adjustments (see 42.302 (a)(11)(iv)); or (ii) When the CFAO and contractor do not agree on the amount of the cost impact or the contract adjustments, issue a final decision in accordance with 33.211 and unilaterally adjust the contract(s). (d) Alternate methods. (1) The CFAO may use an alternate method instead of adjusting contracts to resolve the cost impact, provided the Government will not pay more, in the aggregate, than would be paid if the CFAO did not use the alternate method and the contracting parties agree on the use of that alternate method. (2) The CFAO may not use an alternate method for contracts when application of the alternate method to contracts would result in- (i) An under recovery of monies by the Government ( e.g., due to cost overruns); or (ii) Distortions of incentive provisions and relationships between target costs, ceiling costs, and actual costs for incentive type contracts. (3) When using an alternate method that excludes the costs from an indirect cost pool, the CFAO shall- (i) Apply such exclusion only to the determination of final indirect cost rates (see 42.705 ); and (ii) Adjust the exclusion to reflect the Government participation rate for flexibly-priced contracts and subcontracts. For example, if there are aggregate increased costs to the Government of $100,000, and the indirect cost pool where the adjustment is to be effected has a Government participation rate of 50 percent for flexibly-priced contracts and subcontracts, the contractor shall exclude $200,000 from the indirect cost pool ($100,000/50% = $200,000).