Feasibility of Applying Uniform Cost-Accounting Standards To Negotiated Defense Contracts

A growing proportion of procurements by the Department of Defense (DOD) have been contracted for on a negotiated, rather than a formally advertised bid basis. In the last five fiscal years an average of over 86 percent of DOD procurements by contract were obtained through negotiation. Out of an average of approximately $38 billion a year awarded for military procurements, approximately $33 billion was committed through negotiated contracts. Uniform cost-accounting standards are necessary mainly because of substantially increased costs of procurement and difficulties in contract administration. The effectiveness of general cost principles and procedures for use in negotiated DOD contracts is impaired because they (1) were constructed initially for use by the Internal Revenue Service (IRS) and not intended to serve contract costing procedures, (2) lack specific criteria for the use of alternative accounting principles and indirect cost allocation methods, and (3) are only mandatory for cost-reimbursement type contracts. It is feasible to establish and apply cost-accounting standards to provide a greater degree of uniformity and consistency in cost accounting as a basis for negotiating and administering procurement contracts. However, under the variety of circumstances involved in Government contracting, it is not feasible to establish and apply cost-accounting standards in such detail as would be necessary to ensure a uniform application of precisely prescribed methods of computing costs for each of the different kinds of cost.