Win Cost Plus Awards With the Right Cost Accounting System

Keli W. Rodriguez

Winning cost plus awards can be a time to celebrate… or to groan. With the right cost accounting system and appropriate processes in place it is a time to revel in your new-found business growth. It is important to have the right system in place, but also what it takes to make it through the audit and sail through your future bids and ongoing revenue stream.

The right cost accounting system is a necessity when you are going after cost plus contracts. That is, if you expect to win them and get revenue from them. When you have the right system along with the attendant accounting policies and practices, you have a path to more cost plus awards. While the right cost accounting system does not guarantee you awards, it paves the way to making those awards easier to obtain… and keep. Let’s explore three components of what is involved.

1. Consistency
All Government contractors, whether or not they are subject to Cost Accounting Standards (CAS), must be compliant with CAS 401 and 402. This issue is typically lost on most small contractors. Most believe that because they are not subject to CAS they do not have to comply with CAS 401 and 402. Both standards require contractors to be consistent in estimating, accumulating and reporting costs as well as in allocating costs incurred for the same purpose. What is important here is that your estimating system, including practices, be disciplined by your consistently-applied cost accounting methods. What you do in practice to adhere to your cost accounting system methods will apply to what you do in estimating your new projects. This solid practice will decrease your chances for defective pricing. Be consistent in your pricing and cost accumulation methods.

2. Credibility
To be a credible Government contractor, you not only need the right accounting system but the “other” parts that make you a complete package, have an acceptable compliant system, and allow you to move more freely in the cost plus environment. Most contractors think it is just about the system itself. The system is not complete without adequate accounting policies, procedures/practices and people – an employee benefits manual will not do. Real credible contractors have written accounting policies and procedures. Your best pricing estimates should be supported by data from your managed cost accounting database. When you support your estimates with real live historical data, you are credible. You must include profitable bid considerations in designing your bid rates – otherwise why stay in business. DCAA emphasizes solid business systems which are supportable by good historical data and estimating that uses that data. You must have reliable source integrity to support the credibility of your estimates.

3. Conflict
When you have the right accounting system, along with appropriate accounting policies, procedures/practices and people, you greatly improve your chances for your outside auditor (be it DCAA or otherwise) to agree with almost all, if not all, of what you are doing. Once the auditor buys in to your adequate system, your audits will proceed much more smoothly and effortlessly. Your system will produce the results they are looking for and they already know that your policies and practices are up to par. This means that the amount of time the auditor spends with you is greatly reduced. That spells more productive time for you and your staff – not answering questions that are easily solved. Your staff’s interaction time with auditors to comply with their requests is tremendously diminished. Your accepted policies and practices already lay out the road map that shows your consistency.

These three elements are only the beginning of making it possible to win cost plus awards with the right accounting system. While there are several other factors, these three comprise a solid backbone of practices you will call on to support your bids. When you combine these factors with a well-designed accounting system, you are on the road to being able to win more awards.

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