Sec. 811. Defense cost accounting standards
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Chapter 7 of title 10, United States Code, is amended by adding at the end the following new section: The Defense Cost Accounting Standards Board is an independent board in the Office of the Secretary of Defense. The Board consists of 7 members. One member is the Chief Financial Officer of the Department of Defense or his or her designee, who serves as Chairman. The other 6 members, who shall have experience in contract pricing, finance, or cost accounting in either the Federal government or the private sector, are as follows: 3 representatives of the Department of Defense appointed by the Secretary of Defense; and 3 individuals from the private sector, each of whom is appointed by the Secretary, and— 1 of whom is a representative of an nontraditional defense contractor as defined in section 2302(9) of this title; and 1 of whom is a representative from a public accounting firm.
A member appointed under paragraph (1)(A) may not continue to serve after ceasing to be an officer or employee of the Department of Defense. The Defense Cost Accounting Standards Board has exclusive authority, with respect to the Department of Defense, to prescribe, amend, and rescind cost accounting standards, and interpretations of the standards, designed to achieve uniformity and consistency in the cost accounting standards governing measurement, assignment, and allocation of costs to contracts with the Department of Defense.
The Chief Financial Officer of the Department of Defense, after consultation with the Board, shall prescribe rules and procedures governing actions of the Board under this section. The Under Secretary when prescribing rules shall ensure the following: Cost accounting standards used by contractors to the Department of Defense shall to the maximum extent practicable rely on commercial standards and accounting practices and systems. The Secretary, in consultation with the Defense Cost Accounting Standards Board, shall review the cost accounting standards under section 1502 of title 41 and make recommendations to the Cost Accounting Standards Board to conform these standards where practicable to United States Generally Accepted Accounting Principles (GAAP). 180 days after this review, the Under Secretary of Acquisitions, Technology, and Logistics may promulgate new cost accounting standards as they apply to direct costs under cost type contracts at the Department of Defense to conform to the Secretary’s recommendations.
Indirect costs under cost type contracts shall be determined under procedures developed by the Department of Defense Cost Accounting Standards Board using cost accounting records in compliance with United States Generally Accepted Accounting Principles (GAAP). Any cost information necessary to allocate incentives on fixed-price incentive contracts shall be determined using cost accounting records in compliance with United States Generally Accepted Accounting Principles (GAAP).
However, incentives under fixed price incentive contracts should to the maximum extent practicable be performance-based and not cost-based. The Board shall develop standards to ensure that commercial operations performed by government employees at the Department of Defense adhere to cost accounting standards that inform managerial decision making. These standards should be based on cost accounting standards established under this section or United States Generally Accepted Accounting Principles (GAAP).
Members of the Board who are officers or employees of the Department of Defense shall not receive additional compensation for services but shall continue to be compensated by the employing department or agency of the officer or employee. Each member of the Board appointed from the private sector shall receive compensation at a rate not to exceed the daily equivalent of the rate for level IV of the Executive Schedule for each day (including travel time) in which the member is engaged in the actual performance of duties vested in the Board.
While serving away from home or regular place of business, Board members and other individuals serving on an intermittent basis shall be allowed travel expenses in accordance with section 5703 of title 5. . The table of sections at the beginning of chapter 7 of such title is amended by adding after the item relating to section 189 the following new item: 190. Defense Cost Accounting Standards Board. . Chapter 137 of title 10, United States Code, is amended by adding at the end the following new section:
Cost accounting standards prescribed under section 190(c)(2) of this title are mandatory for use by the Department of Defense and by contractors and subcontractors in estimating, accumulating, and reporting costs in connection with the pricing and administration of, and settlement of disputes concerning, all negotiated prime contract and subcontract procurements with the Federal Government in excess of the amount set forth in section 2306a(a)(1)(A)(i) of this title as the amount is adjusted in accordance with applicable requirements of law.
Paragraph
(1)does not apply to— a contract or subcontract for the acquisition of a commercial item; a contract or subcontract where the price negotiated is based on a price set by law or regulation; a firm, fixed-price contract or subcontract; or 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 subcontractor that will perform the work has not been awarded at least one contract or subcontract with a value of more than $7,500,000 that is covered by the standards. The Defense Cost Accounting Standards Board established under section 190 of this title may— exempt classes of contractors and subcontractors from the requirements of this section; and establish procedures for the waiver of the requirements of this section for individual contracts and subcontracts. The Secretary of Defense may waive the applicability of the cost accounting standards for a contract or subcontract if the Secretary determines in writing that the segment of the contractor or subcontractor that will perform the work— is primarily engaged in the sale of commercial items; and would not otherwise be subject to the cost accounting standards under this section. In exceptional circumstances, the head of a military service or defense agency may waive the applicability of the cost accounting standards for a contract or subcontract under exceptional circumstances when necessary to meet the needs of the service or agency. A determination to waive the applicability of the standards under this paragraph shall be set forth in writing and shall include a statement of the circumstances justifying the waiver. . The table of sections at the beginning of chapter 137 of such chapter is amended by adding at the end the following new item: 2338. Defense cost accounting standards. . The amendments made by paragraphs
(1)and
(2)shall take effect on October 1, 2018. Not later than December 31, 2019, the Comptroller General of the United States shall submit to the congressional defense committees an annual report on the adequacy of the Department of Defense's approach to applying commercial cost accounting standards to indirect and fixed price incentive contracts. Commercial accounting firms shall audit the adequacy of information presented in compliance with United States Generally Accepted Accounting Principles (GAAP). DCAA shall audit direct costs on cost contracts and rely on commercial audits of indirect costs, except that in the case of companies or business units that have more than 50 percent of government cost type contracts as a percentage of sales, DCAA shall audit both direct and indirect costs.