Recent and Proposed Changes to the FAR Cost Principles: New Controversies

Originally published March 2004

In its latest Federal Acquisition Circular dealing with cost principles (FAC 2001-18), the Defense and Civilian Agency Acquisition Councils amended the compensation cost principle on: pensions, Federal Acquisition Regulation (FAR) 31.205-6(j);¹ insurance, FAR 31.205-19; depreciation, FAR 31.205-11; and rental costs, FAR 31.205-36.² These changes became effective on January 12, 2004. Additionally, the Councils have issued a second proposed rule to amend the training and education cost principle, FAR 31.205-44. A discussion of these changes follows.

The subject of pension costs has been very controversial during the past decade. In 1989, the Councils amended the cost principle requiring contractors to refund or credit the government its "equitable share" of excess or surplus assets. In 1995, the Cost Accounting Standards (CAS) Board amended CAS 412 and 413, most notably in the realm of segment closures and refunds to the