Public Comment

POGO Opposes Proposed Reductions in Oversight of Government Contracts

Mr. David J. Capitano

Cost Accounting Standards Board

Office of Federal Procurement Policy

Office of Management and Budget

725 17th Street, N.W.

Washington, D.C. 20503

Via E-mail: [email protected]

Via Facsimile: 202-395-5105

Re: Cost Accounting Standards Board Changes to Acquisition Thresholds -- Proposed Rule With Request for Comment

Dear Mr. Capitano:

Thank you for the opportunity to comment on the Cost Accounting Standards (CAS) Board’s Proposed Rule With Request for Comment, entitled “Cost Accounting Standards Board Changes to Acquisition Thresholds” (70 FR 73423, December 12, 2005). Founded in 1981, the Project On Government Oversight (POGO) is an independent nonprofit that investigates and exposes corruption and other misconduct in order to achieve a more accountable federal government. POGO has a keen interest in government contracting matters, especially those relating to the ongoing activities of the CAS Board.

Another Nail in the CAS Coffin?

As an initial matter, the proposed rule issued by the CAS Board is intensely odd. It does not follow the format of any other previous CAS Board notice of proposed rulemaking, but appears to follow the format used for changes to the Federal Acquisition Regulation (FAR), and the Defense Federal Acquisition Regulation Supplement (DFARS). Even stranger is the placement of the CAS Board’s proposed rule in the December 12, 2005 , Federal Register. The CAS Board’s proposed rule was published in the pages immediately following the Federal Acquisition Regulatory (FAR) Council’s proposal to adjust various acquisition-related thresholds. In this regard, the FAR Council’s proposed rule at page 73421 already includes some of the proposed CAS-related dollar applicability changes as if they have already been, or will soon be, approved by both the FAR Council and the CAS Board. POGO questions whether this CAS Board rulemaking is being undertaken independently of the FAR Council, especially inasmuch as the FAR is proposed to be amended in a manner that presupposes that the CAS Board will simply follow in the FAR Council’s wake. The CAS Board is supposed to be independent of the FAR Council, although this proposed rule seems to establish that any remaining pretense of independence is being erased.

POGO also notes that the listed contact for this proposed rule is a Department of Defense employee who serves as the Director of the Defense Acquisition Regulations System (DARS). In fact, telephone calls to the CAS Board’s offices were referred to the home telephone number of the DARS Director as listed in the Federal Register. Under the circumstances, this is one of the most unusual proposed rules ever issued by a supposedly independent regulatory body.

Substance of the Rule is Unnecessary, and Bad Public Policy

The CAS Board, under pressure from industry, has already increased CAS dollar applicability thresholds to levels that are simply unwise. In 2000, the CAS “full coverage” dollar applicability threshold was doubled from $25 million to $50 million, resulting in the elimination of well over half of all CAS-covered contractors from the statutory and regulatory requirements to consistently estimate, accumulate and report costs. See 65 FR 36767, June 9, 2000 . This was an amount far in excess of inflation at the time, especially since the CAS Board had already adjusted the full CAS dollar applicability threshold in 1993 by approximately 250% to account for inflation (and this similarly caused the elimination of over half of all full-CAS covered contractors). See 58 FR 58798, November 4, 1993 . Also in 2000, the CAS “trigger contract” dollar applicability threshold was increased 750% (from $1 million to $7.5 million), this after having been previously doubled in 1993. Id. The additional proposed increases in CAS dollar applicability thresholds are unwise and even potentially harmful to the government’s fiscal interests, especially as use of non-competitive and/or flexibly-priced contracts remain such a large part of the government’s overall contracting strategy.

To recap, CAS dollar applicability threshold increases since November 1993 (a little over 12 years) have been simply astounding, and far in excess of any inflationary price increases, no matter how measured. The full-CAS dollar applicability threshold was $10 million in 1993, it is now proposed to be increased to $56.5 million, an increase of 565%. The “trigger contract” threshold was $500,000 in 1993, and it is now proposed to be increased to $8.5 million, an increase of 1700%! There is simply no justification for these increases on an inflationary basis, and the justification on any cost accounting basis is completely absent.

The Legal Basis for the Proposed Rule is Flawed

The drafters of this rule seem to assume that this proposed change is required by law. POGO’s review of the cited law, Section 807 of the FY 2005 DOD Authorization Act (Pub. L. 108-375), causes us to strongly disagree with the conclusionary opening paragraph contained in the “Summary” section of the proposed rule.

Sec. 807 of the FY 2005 Defense Authorization Act provides for inflation adjustments of acquisition-related statutory dollar thresholds contained in the Federal Acquisition Regulation (FAR), not for adjustments to accounting rules that are merely incorporated or restated in the FAR as a matter of administrative convenience to FAR users. That is the case with the CAS Board’s rules, which are neither acquisition rules, nor rules subject to the jurisdiction of the FAR Council. Accordingly, the CAS Board’s rules are clearly not subject to Sec. 807.

Sec. 807 applies only to those statutory dollar thresholds that are under the original and exclusive regulatory issuance authority of the FAR Council, and whose publication in the FAR is as an original regulatory source. Statutory thresholds for which the FAR is not the original or primary regulatory source document cannot be covered by Sec. 807, because Sec. 807 is directed to the FAR Council, which by law only has cognizance over the FAR, not the CAS.

Moreover, Sec. 807 specifically refers to the FAR Council, so as a matter of simple grammatical construction, it cannot possibly be referring to rules issued by another body -- in this case, the CAS Board. Thus, the entire basis for this proposed rule, that it is required by Sec. 807, is fundamentally flawed. As such, this unnecessary and unwise rule should be withdrawn.

Putting the Cart Before the Horse?

Further underscoring POGO’s concern that the CAS Board is failing to independently consider this issue, and properly fulfilling its statutory mandate, are the minutes of CAS Board meeting no. 45 dated May 13, 2005 . The minutes for this CAS Board meeting, chaired by now disgraced and indicted former Office of Federal Procurement Policy Administrator and CAS Board Chair, David Safavian, who previously served as the Chief of Staff at the General Services Administration state:

On April 28, 2005 , the General Services Administration sent a letter to the CAS Board stating the FAR Council’s intention to publish a proposed rule changing the thresholds in FAR, including those in Part 30, CAS Administration. The letter stated that advance notice was being provided so that the Board could consider the impact of the proposed rule on the Board’s regulations.

The staff provided the Board a draft proposed rule to revise the acquisition thresholds in the CAS. After discussion of this issue, the Board approved the proposed rule, modified to reflect changes made by the Board. The Board noted that a change to FAR Part 30, without an accompanying change to the CAS, would result in a conflict between the FAR and the CAS.

These statements beg the question. Is the CAS Board now a Committee of the FAR Council that must amend CAS as dictated by the FAR Council? The meeting minutes certainly seem to say this, inasmuch as it was reported to the CAS Board that the FAR Council notified the Board that they intended to amend Part 30 of the FAR, and that unless the CAS Board acted, there would be a conflict between the two regulations. If this theory holds true, then it would now appear that the FAR Council can simply force CAS changes upon the Board by modifying the CAS requirements as incorporated or re-stated in the FAR. This is truly putting the cart before the horse, especially since: 1) CAS requirement are not actually contained in the FAR -- the basic requirements are merely restated as an administrative convenience to users of the FAR; and 2) if such a conflict between the CAS and FAR does develop, then CAS clearly controls.

When there is a conflict between FAR and CAS, the CAS regulation governs. Rice v. Martin Marietta Corp., 13 F.3d 1563, 1565 n.2 (Fed Cir. 1993); United States v. Boeing Co., 802 F.2d 1390, 1395 (Fed. Cir. 1986).

Other Considerations

For all the reasons discussed above, there is no statutory basis for the proposed rule and it should be withdrawn. However, POGO has no doubt that a group of industry trade associations, along with some affected contractors, will readily endorse this proposal -- primarily its purpose is to further eviscerate the CAS Board rules of applicability. The CAS Board should be mindful of its essential mission -- to promote uniformity and consistency in the measurement, assignment and allocation of costs to government contracts. This uniformity and consistency promotes the government’s ability to price and administer contracts. The spate of recent actions that have apparently been forced upon the CAS Board -- to constantly negate or otherwise reduce the role of CAS, are terrible public policy, and contribute to an atmosphere in which the public has little or no confidence in the integrity of the public contracting process. As an entity independent of the FAR Council, the CAS Board should rise above the self-interested motives of the government contracting industry, to promote the public interest objectives for which it was established.

Finally, POGO notes the absurdity of some of the proposed dollar thresholds contained in the rule, e.g.,, the change in waiver authority from $15 million to $17 million; the increase in the proposed full coverage threshold from $50 million to $56.5 million; the increase in the disclosure statement filing requirement from $10 million to $11.5 million; and, the increase in CAS coverage for educational institutions from $25 million to $28.3 million. None of these proposed dollar applicability thresholds can be thought of as anything other than complicated and difficult to remember. In fact, the only purpose they seem to serve is to squeeze the last CAS dollar applicability exemption out of the existing regulatory framework. This is hardly rule simplification. It is merely another sop to an already well-funded and well-rewarded special interest group -- the government-contracting industry.

Thank you for your consideration of these comments. If you have any questions, you may contact Scott Amey, General Counsel at (202) 347-1122.


Danielle Brian

Executive Director

cc: CAS Board Members