ERP5 min readNetray Engineering TeamUpdated March 4, 2025

Cost Accounting Standards (CAS) for Defense Contractors

The Cost Accounting Standards are a set of federal rules, codified at 48 CFR Chapter 99, that govern how contractors measure, assign, and allocate costs to government contracts. Where FAR Part 31 decides whether a cost is allowable, CAS decides how it must be accounted for and allocated, and requires that you do it the same way every time. Nineteen standards exist, and a handful drive nearly all practical compliance work for defense manufacturers. Non-compliance is not merely a finding: it can trigger a cost impact calculation and repayment of the government's increased costs.

CAS Coverage: Who Is Subject and to What Degree

CAS applicability turns on contract value and award history. A negotiated contract above the trigger threshold, currently $7.5 million, brings a business unit into coverage, after which subsequent awards above the lower threshold also become CAS-covered. Full coverage, requiring compliance with all nineteen standards, generally applies when a business unit receives a single CAS-covered award of $50 million or more, or received $50 million or more in net CAS-covered awards during the preceding cost accounting period. Otherwise modified coverage applies, requiring only CAS 401, 402, 405, and 406. Several exemptions matter in practice, including sealed bid contracts, commercial item acquisitions, and awards to small businesses. Confirm coverage contract by contract; assumptions here are expensive to correct later.

The Standards That Drive Day-to-Day ERP Configuration

Four standards do most of the work. CAS 401 requires consistency between the practices used to estimate costs in a proposal and those used to accumulate and report them, which means your quoting model and your job cost structure must line up. CAS 402 prohibits charging costs incurred for the same purpose in like circumstances as both direct and indirect. CAS 405 requires identification and exclusion of unallowable costs, including directly associated costs. CAS 406 fixes the cost accounting period, normally the fiscal year. Beyond modified coverage, CAS 410 governs allocation of general and administrative expense to final cost objectives using a cost input base, and CAS 418 governs the allocation of direct and indirect costs generally, requiring homogeneous indirect cost pools and causal or beneficial allocation bases.

CAS 401: proposal estimating structure must mirror the ERP cost accumulation and reporting structure
CAS 402: a cost type cannot be direct on one contract and indirect on another in like circumstances
CAS 405: unallowable costs and their directly associated costs must be identified and excluded from billings
CAS 418: indirect cost pools must be homogeneous, with allocation bases reflecting a causal or beneficial relationship

Disclosure Statements and Changes in Practice

Contractors meeting the disclosure thresholds must file a CASB Disclosure Statement, Form CASB DS-1, describing their actual cost accounting practices in detail: direct cost categories, indirect pool composition and allocation bases, depreciation and capitalization policies, and treatment of unallowable costs. The Disclosure Statement then becomes the standard your practices are audited against. Any change to a disclosed practice requires advance notification and a general dollar magnitude estimate of the cost impact. Changes fall into categories with very different consequences: required changes to comply with a new standard, unilateral voluntary changes where the government must be made whole for increased costs, and desirable changes agreed with the contracting officer. Reorganizing indirect pools in ERP without running this process first is a common and costly mistake.

Common CAS Findings and How ERP Configuration Causes Them

Most findings trace to structural drift rather than intent. A new plant or product line is added with its own overhead pool that is not actually homogeneous. An engineering group starts charging some projects directly while remaining in overhead for others, breaching CAS 402. A G&A base quietly shifts from total cost input to value-added treatment because someone changed which accounts feed the base. Estimating templates evolve to use different labor categories than the job structure accumulates, breaching CAS 401. Each of these begins as a reasonable operational decision made inside the ERP by someone who was never told it was a disclosed accounting practice, which is why change control over pool and base configuration belongs in the compliance program.

Put indirect pool and allocation base changes in ERP under formal change control with finance approval
Test pool homogeneity periodically: if the allocation would differ materially when split, the pool is not homogeneous
Reconcile estimating labor categories and cost elements to the job cost structure at least annually
Keep the Disclosure Statement synchronized with actual ERP configuration, and file revisions when practices change

How Netray Helps Defense Manufacturers Stay CAS-Compliant

Netray maps your disclosed cost accounting practices against how your ERP is actually configured, then deploys agents that watch for divergence. The agents detect new indirect pools and allocation base changes, flag cost elements being charged both directly and indirectly across contracts, monitor unallowable account activity for costs flowing into billable pools, and compare proposal cost element structures against job cost accumulation to surface CAS 401 exposure before an auditor does. For contractors approaching full coverage or preparing a Disclosure Statement revision, we build the current-state practice documentation directly from ERP configuration rather than from memory and legacy narratives.

Frequently Asked Questions

What is the difference between CAS and FAR Part 31?

FAR Part 31 sets cost principles determining whether a cost is allowable, allocable, and reasonable on a government contract. CAS governs how costs must be measured, assigned to accounting periods, and allocated to cost objectives, and requires consistency in applying those practices. A cost can be fully allowable under FAR Part 31 yet allocated in a way that violates CAS. Contractors under CAS coverage must satisfy both frameworks simultaneously.

Which CAS standards apply under modified coverage?

Modified coverage requires compliance with four standards: CAS 401 on consistency in estimating, accumulating, and reporting costs; CAS 402 on consistency in allocating costs incurred for the same purpose; CAS 405 on accounting for unallowable costs; and CAS 406 on the cost accounting period. Full coverage adds the remaining fifteen standards, including G&A allocation under CAS 410, material cost accounting under CAS 411, pension standards, and cost of money under CAS 414.

What happens if a contractor changes a disclosed cost accounting practice?

Changes require advance notification to the cognizant contracting officer with a description of the change and a general dollar magnitude estimate of its cost impact on CAS-covered contracts. If the change is a unilateral voluntary change that increases costs to the government, the contractor is generally responsible for making the government whole. Reconfiguring indirect cost pools or allocation bases in ERP without going through this process is a frequent source of findings.

Key Takeaways

1CAS Coverage: Who Is Subject and to What Degree: CAS applicability turns on contract value and award history. A negotiated contract above the trigger threshold, currently $7.5 million, brings a business unit into coverage, after which subsequent awards above the lower threshold also become CAS-covered.
2The Standards That Drive Day-to-Day ERP Configuration: Four standards do most of the work. CAS 401 requires consistency between the practices used to estimate costs in a proposal and those used to accumulate and report them, which means your quoting model and your job cost structure must line up.
3Disclosure Statements and Changes in Practice: Contractors meeting the disclosure thresholds must file a CASB Disclosure Statement, Form CASB DS-1, describing their actual cost accounting practices in detail: direct cost categories, indirect pool composition and allocation bases, depreciation and capitalization policies, and treatment of unallowable costs. The Disclosure Statement then becomes the standard your practices are audited against.

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