The following table identifies the changes made to this Subtopic.
This Subtopic provides guidance to government contractors on accounting costs related to federal government contracts.
All federal government contracts and contract modifications for supplies and services or experimental, developmental, or research work, negotiated on the basis of cost with commercial entities (whether on a fixed-price or cost-plus basis), must adhere to the cost principles mandated by Federal Acquisition Legislation and Regulations in pricing negotiated supply, service, experimental, developmental, and research contracts and contract modifications whenever cost analysis is to be performed in the procurement process.
Termination of war and defense contracts for the convenience of the government is a means of adjusting the production of materials to the varying requirements of the military services. Because terminations transfer active contracts in process of execution into claims in process of liquidation, they, like contract renegotiations and cost-plus-fixed-fee contracts, may have important effects on the financial statements of defense contractors.
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section
912-10-15.
Indirect costs that are allowable or allocable under pertinent government contract regulations may be allocated to federal government contracts as indirect costs if otherwise allowable under generally accepted accounting principles (GAAP) .
The rights of the contracting parties in a default termination of a fixed-price contract differ significantly from those in a convenience termination; consequently, the accounting must reflect these differences. Contractors shall record, in addition to normal contract liabilities, those liabilities arising from a default termination (for example, damages, excess reprocurement costs, and progress payments to be repaid).
Program accounting is a method of accounting for the costs of certain products manufactured for delivery under production-type contracts. Under this method, costs are accumulated and accounted for by programs rather than by individual units or individual contracts. A program consists of the estimated number of units of a product to be produced by an entity in a continuing, long-term production effort for delivery under existing and anticipated contracts. The program is used as the accounting cost center for accumulating costs and allocating costs to cost of sales.
The unique aspects of the government procurement process make estimating the market and timing of deliveries extremely difficult. For example, estimating quantities and prices of future purchases by the government would be affected directly by the amount and timing of funding allocated to the program. If funding were reduced or eliminated, the effect on the program could be substantial.
For guidance on presentation of terminated contracts, see Section
912-220-45.