41 USC 1503 - Contract price adjustment

Collapse to view only § 1503. Contract price adjustment

§ 1501. Cost Accounting Standards Board
§ 1502. Cost accounting standards
§ 1503. Contract price adjustment
§ 1504. Effect on other standards and regulations
§ 1505. Examinations
§ 1506. Authorization of appropriations

§ 1501. Cost Accounting Standards Board

(a)Organization.—The Cost Accounting Standards Board is an independent board in the Office of Management and Budget.

(b)Membership.—

(1)Members, chairman, and appointment.—The Board shall consist of 5 voting members and 2 nonvoting members.

(A)Voting members.—One voting member is the Administrator of Federal Procurement Policy, who serves as Chairman. The other 4 members, all of whom shall have experience in Federal Government contract cost accounting, are as follows:

(i) 2 representatives of the Federal Government, each of whom has substantial experience in administering and managing covered contracts—(I) one of whom is a representative of the Department of Defense appointed by the Secretary of Defense; and(II) one of whom is an officer or employee of the General Services Administration appointed by the Administrator of General Services.

(ii) 2 individuals from the private sector, each of whom is appointed by the Director of the Office of Management and Budget—(I) one of whom is a senior employee or retired senior employee of a Government contractor with substantial experience in the private sector involving administration and management of covered contracts; and(II) one member of the accounting profession, with substantial experience as an accountant.

(B)Nonvoting members.—There may be up to 2 nonvoting members appointed by the Board from academia, a nonprofit organization, or a private entity with substantial experience in establishing financial accounting and reporting standards in compliance with Generally Accepted Accounting Principles.

(2)Term of office.—

(A)Length of term.—The term of office of each member, other than the Administrator, is 4 years, which may be extended for an additional 4-year period by the individual who appointed such member under paragraph (1). The terms are staggered, with the terms of 2 members expiring in the same year, the term of another member expiring the next year, and the term of the last member expiring the year after that.

(B)Individual required to remain with appointing agency.—A member appointed under paragraph (1)(A)(i) may not continue to serve after ceasing to be an officer or employee of the agency from which that member was appointed.

(3)Vacancy.—A vacancy on the Board shall be filled in the same manner in which the original appointment was made. A member appointed to fill a vacancy serves for the remainder of the term for which that member’s predecessor was appointed.

(4)Ineligibility.—Beginning on January 1, 2028, an individual who is a member of an audit entity of an executive agency is not eligible to serve as a member of the Board.

(c)Duties.—The Board shall—

(1) ensure that the cost accounting standards used by Federal contractors rely, to the maximum extent practicable, on commercial standards and accounting practices and systems;

(2) not later than 180 days after the date of enactment of this paragraph, and biennially thereafter, review any cost accounting standards established under section 1502 of this title and eliminate or conform such standards, where practicable, to Generally Accepted Accounting Principles;

(3) annually review disputes involving such standards brought to the boards established in section 7105 of this title or Federal courts, and consider whether greater clarity in such standards could avoid such disputes, and take necessary action to clarify or improve such standards if misinterpretation or lack of clarity in a standard was a primary component of such dispute; and

(4) ensure that any action taken pursuant to paragraph (3) is not taken solely for the purpose of tailoring such standard to favor a party in the dispute.

(d)Meetings.—The Board shall meet not less than once each quarter and shall publish in the Federal Register notice of each meeting and its agenda before such meeting is held.

(e)Report.—The Board shall annually submit a report to the congressional defense committees, the Committee on Oversight and Government Reform of the House of Representatives, and the Committee on Homeland Security and Governmental Affairs of the Senate describing the actions taken during the prior year—

(1) to conform the cost accounting standards established under section 1502 of this title with Generally Accepted Accounting Principles;

(2) to minimize the burden on contractors while protecting the interests of the Federal Government; and

(3) including a summary of rulemaking activities related to any changes to such standards and any associated timelines for such activities.

(f)Senior Staff.—The Administrator, after consultation with the Board—

(1) without regard to the provisions of title 5 governing appointments in the competitive service—

(A) shall appoint an executive secretary; and

(B) shall appoint, or detail pursuant to section 3341 of title 5, not less than four additional staff members; and

(2) may pay those employees without regard to the provisions of chapter 51 and subchapter III of chapter 53 of title 5 relating to classification and General Schedule pay rates, except that those employees may not receive pay in excess of the maximum rate of basic pay payable for level IV of the Executive Schedule.

(g)Other Staff.—The Administrator may appoint, fix the compensation of, and remove additional employees of the Board under the applicable provisions of title 5.

(h)Detailed and Temporary Personnel.—For service on advisory committees and task forces to assist the Board in carrying out its functions and responsibilities—

(1) the Board, with the consent of the head of a Federal agency, may use, without reimbursement, personnel of that agency; and

(2) the Administrator, after consultation with the Board, may procure temporary and intermittent services of personnel under section 3109(b) of title 5.

(i)Compensation.—

(1)Officers and employees of the government.—Members of the Board who are officers or employees of the Federal Government, and officers and employees of other agencies of the Federal Government who are used under subsection (h)(1), shall not receive additional compensation for services but shall continue to be compensated by the employing department or agency of the officer or employee.

(2)Appointees from private sector.—Each member of the Board appointed from the private sector shall receive compensation at a rate not to exceed the daily equivalent of the rate for level IV of the Executive Schedule for each day (including travel time) in which the member is engaged in the actual performance of duties vested in the Board.

(3)Temporary and intermittent personnel.—An individual hired under subsection (h)(2) may receive compensation at a rate fixed by the Administrator, but not to exceed the daily equivalent of the rate for level V of the Executive Schedule for each day (including travel time) in which the individual is properly engaged in the actual performance of duties under this chapter.

(4)Travel expenses.—While serving away from home or regular place of business, Board members and other individuals serving on an intermittent basis under this chapter shall be allowed travel expenses in accordance with section 5703 of title 5.

(j)Covered Contract Defined.—In this section, the term “covered contract” means a contract that is subject to the cost accounting standards issued pursuant to section 1502 of this title.

(Pub. L. 111–350, § 3

§ 1502. Cost accounting standards

(a)Authority.—

(1)Cost accounting standards board.—The Cost Accounting Standards Board has exclusive authority to prescribe, amend, and rescind cost accounting standards, and interpretations of the standards, designed to achieve uniformity and consistency in the cost accounting standards governing measurement, assignment, and allocation of costs to contracts with the Federal Government.

(2)Administrator for federal procurement policy.—The Administrator, after consultation with the Board, shall prescribe rules and procedures governing actions of the Board under this chapter. The rules and procedures shall require that any action to prescribe, amend, or rescind a standard or interpretation be approved by majority vote of the Board.

(b)Mandatory Use of Standards.—

(1)Subcontract.—

(A)Definition.—In this paragraph, the term “subcontract” includes a transfer of commercial products or commercial services between divisions, subsidiaries, or affiliates of a contractor or subcontractor.

(B)When standards are to be used.—Cost accounting standards prescribed under this chapter are mandatory for use by all executive agencies and by contractors and subcontractors in estimating, accumulating, and reporting costs in connection with the pricing and administration of, and settlement of disputes concerning, all negotiated prime contract and subcontract procurements with the Federal Government in excess 1

1 So in original. Probably should be followed by “of”.

$35,000,000, as adjusted in accordance with applicable requirements of law, including requirements relating to inflation in section 1908 of this title.

(C)Nonapplication of standards.—Subparagraph (B) does not apply to—

(i) a contract or subcontract (or the portion of a contract or subcontract) for the acquisition of a commercial product or commercial service;

(ii) a contract or subcontract (or the portion of a contract or subcontract) where the price negotiated is based on a price set by law or regulation; or

(iii) a firm, fixed-price contract or subcontract (or the portion of such contract or subcontract) awarded on the basis of adequate price competition without submission of certified cost or pricing data.

(2)Exemptions and waivers by board.—The Board may—

(A) exempt classes of contractors and subcontractors from the requirements of this chapter; and

(B) establish procedures for the waiver of the requirements of this chapter for individual contracts and subcontracts.

(3)Waiver by head of executive agency.—

(A)In general.—The head of an executive agency may waive the applicability of the cost accounting standards for a contract or subcontract with a value of less than $100,000,000, as adjusted for inflation in accordance with section 1908 of this title, if that official determines in writing that the segment of the contractor or subcontractor that will perform the work—

(i) is primarily engaged in the sale of commercial products or commercial services; and

(ii) would not otherwise be subject to the cost accounting standards under this section.

(B)In exceptional circumstances.—The head of an executive agency may waive the applicability of the cost accounting standards for a contract or subcontract under exceptional circumstances when necessary to meet the needs of the agency. A determination to waive the applicability of the standards under this subparagraph shall be set forth in writing and shall include a statement of the circumstances justifying the waiver.

(C)Restriction on delegation of authority.—The head of an executive agency may not delegate the authority under subparagraph (A) or (B) to an official in the executive agency below the senior policymaking level in the executive agency.

(D)Contents of federal acquisition regulation.—The Federal Acquisition Regulation shall include—

(i) criteria for selecting an official to be delegated authority to grant waivers under subparagraph (A) or (B); and

(ii) the specific circumstances under which the waiver may be granted.

(E)Report.—The head of each executive agency shall report the waivers granted under subparagraphs (A) and (B) for that agency to the Board on an annual basis.

(c)Required Board Action for Prescribing Standards and Interpretations.—Before prescribing cost accounting standards and interpretations, the Board shall—

(1) take into account, after consultation and discussions with the Comptroller General, professional accounting organizations, contractors, and other interested parties—

(A) the probable costs of implementation, including any inflationary effects, compared to the probable benefits;

(B) the advantages, disadvantages, and improvements anticipated in the pricing and administration of, and settlement of disputes concerning, contracts; and

(2) prepare and publish a report in the Federal Register on the issues reviewed under paragraph (1); and

(3) publish a notice of proposed rulemaking in the Federal Register and provide all parties affected at least 60 days after publication to submit their views and comments.

(d)Effective Dates.—Rules, regulations, cost accounting standards, and modifications thereof prescribed or amended under this chapter shall have the full force and effect of law, and shall become effective within 120 days after publication in the Federal Register in final form, unless the Board determines that a longer period is necessary. The Board shall determine implementation dates for contractors and subcontractors. The dates may not be later than the beginning of the second fiscal year of the contractor or subcontractor after the standard becomes effective.

(e)Accompanying Material.—Rules, regulations, cost accounting standards, and modifications thereof prescribed or amended under this chapter shall be accompanied by prefatory comments and by illustrations, if necessary.

(f)Implementing Regulations.—The Board shall prescribe regulations for the implementation of cost accounting standards prescribed or interpreted under this section. The regulations shall be incorporated into the Federal Acquisition Regulation and shall require contractors and subcontractors as a condition of contracting with the Federal Government to—

(1) disclose in writing their cost accounting practices, including methods of distinguishing direct costs from indirect costs and the basis used for allocating indirect costs; and

(2) agree to a contract price adjustment, with interest, for any increased costs paid to the contractor or subcontractor by the Federal Government because of a change in the contractor’s or subcontractor’s cost accounting practices or a failure by the contractor or subcontractor to comply with applicable cost accounting standards.

(g)Nonapplicability of Certain Sections of Title 5.—Functions exercised under this chapter are not subject to sections 551, 553 to 559, and 701 to 706 of title 5.

(Pub. L. 111–350, § 3, Jan. 4, 2011, 124 Stat. 3696; Pub. L. 114–328, div. A, title VIII, § 820(a)(2), Dec. 23, 2016, 130 Stat. 2274; Pub. L. 115–232, div. A, title VIII, § 836(b)(1), Aug. 13, 2018, 132 Stat. 1860; Pub. L. 117–81, div. A, title XVII, § 1702(h)(3), Dec. 27, 2021, 135 Stat. 2158; Pub. L. 119–60, div. A, title XVIII, § 1806(d)(1), (2), (e), Dec. 18, 2025, 139 Stat. 1239, 1240.)

§ 1503. Contract price adjustment

(a)Disagreement Constitutes a Dispute.—If the Federal Government and a contractor or subcontractor fail to agree on a contract price adjustment, including whether the contractor or subcontractor has complied with the applicable cost accounting standards, the disagreement will constitute a dispute under chapter 71 of this title.

(b)Amount of Adjustment.—A contract price adjustment undertaken under section 1502(f)(2) of this title shall be made, where applicable, on relevant contracts that are subject to the cost accounting standards so as to protect the Federal Government from payment, in the aggregate, of increased costs, as defined by the Cost Accounting Standards Board and in accordance with the following requirements:

(1) The Federal Government may not recover costs greater than the aggregate increased cost to the Federal Government, as defined by the Board, on the relevant contracts subject to the price adjustment unless the contractor or subcontractor made a change in its cost accounting practices of which the contractor or subcontractor was aware or should have been aware at the time of the price negotiation and which contractor or subcontractor failed to disclose to the Federal Government.

(2) For such changes in cost accounting practices—

(A) costs recovered by the Federal Government shall exclude any contract or subcontract (or any portion of such contract or subcontract) that is firm, fixed-price, or that is not price-redeterminable based on costs; and

(B) for a fiscal year, for any contract or subcontract (or any portion of such contract or subcontract) that is not a firm, fixed-price contract or subcontract the costs recovered by the Federal Government shall not exceed the net increased costs, if any, paid to the contractor or subcontractor for all changes in cost accounting practices implemented within the same fiscal year.

(c)Interest.—The interest rate applicable to a contract price adjustment is the annual rate of interest established under section 6621 of the Internal Revenue Code of 1986 (26 U.S.C. 6621) for the period. Interest accrues from the time payments of the increased costs were made to the contractor or subcontractor to the time the Federal Government receives full compensation for the price adjustment.

(Pub. L. 111–350, § 3, Jan. 4, 2011, 124 Stat. 3699; Pub. L. 119–60, div. A, title XVIII, § 1806(f)(1), Dec. 18, 2025, 139 Stat. 1240.)

§ 1504. Effect on other standards and regulations

(a)Previously Existing Standards.—All cost accounting standards, waivers, exemptions, interpretations, modifications, rules, and regulations prescribed by the Cost Accounting Standards Board under section 719 of the Defense Production Act of 1950 (50 U.S.C. App. 2168)— 1

1 See References in Text note below.

(1) remain in effect until amended, superseded, or rescinded by the Board under this chapter; and

(2) are subject to the provisions of this division in the same manner as if prescribed by the Board under this division.

(b)Inconsistent Agency Regulations.—To ensure that a regulation or proposed regulation of an executive agency is not inconsistent with a cost accounting standard prescribed or amended under this chapter, the Administrator, under the authority in sections 1121, 1122(a) to (c)(1), 1125, 1126, 1130, 1131, and 2305 of this title, shall rescind or deny the promulgation of the inconsistent regulation or proposed regulation and take other appropriate action authorized under sections 1121, 1122(a) to (c)(1), 1125, 1126, 1130, 1131, and 2305.

(c)Costs Not Subject to Different Standards.—Costs that are the subject of cost accounting standards prescribed under this chapter are not subject to regulations established by another executive agency that differ from those standards with respect to the measurement, assignment, and allocation of those costs.

(Pub. L. 111–350, § 3, Jan. 4, 2011, 124 Stat. 3699.)

§ 1505. Examinations

To determine whether a contractor or subcontractor has complied with cost accounting standards prescribed under this chapter and has followed consistently the contractor’s or subcontractor’s disclosed cost accounting practices, an authorized representative of the head of the agency concerned, of the offices of inspector general established under chapter 4 of title 5, or of the Comptroller General shall have the right to examine and copy documents, papers, or records of the contractor or subcontractor relating to compliance with the standards.

(Pub. L. 111–350, § 3, Jan. 4, 2011, 124 Stat. 3700; Pub. L. 117–286, § 4(b)(71), Dec. 27, 2022, 136 Stat. 4350.)

§ 1506. Authorization of appropriations

Necessary amounts may be appropriated to carry out this chapter.

(Pub. L. 111–350, § 3, Jan. 4, 2011, 124 Stat. 3700.)