Change order accounting procedures
Contractors must be prepared to segregate and account for all direct costs associated with change orders, as required by the Change Order Accounting clause.
Overview
FAR 43.203 outlines the procedures for accounting for costs associated with change orders in government contracts. It emphasizes that most contractors' accounting systems are not initially set up to segregate costs for changed work, so contracting officers should notify prospective contractors about the need to potentially revise their accounting systems to meet the requirements of the Change Order Accounting clause (FAR 52.243-6). The regulation identifies specific categories of direct costs that should be segregated and tracked separately when a change order is issued, including nonrecurring costs, costs of added distinct work, and costs of recurring work. This ensures transparency and accurate cost tracking for work resulting from change orders.
Key Rules
- Notification of Accounting Requirements
- Contracting officers must inform prospective contractors about the need to segregate costs for changed work before offers are submitted.
- Cost Segregation Categories
- Contractors must be able to separately account for nonrecurring costs, costs of added distinct work, and recurring work costs as required by the Change Order Accounting clause.
Responsibilities
- Contracting Officers: Advise contractors of potential accounting changes needed for change order compliance.
- Contractors: Revise accounting systems as necessary to segregate and track costs related to change orders.
- Agencies: Ensure oversight and enforcement of cost segregation requirements for change orders.
Practical Implications
- This section exists to ensure that costs associated with change orders are tracked accurately and transparently, preventing disputes and ensuring proper reimbursement.
- Contractors may need to update or modify their accounting systems, which can require additional resources and planning.
- Failure to properly segregate costs can lead to compliance issues, payment delays, or disputes over allowable costs.