43.203 Change order accounting procedures
Source: FAR 43.203 on acquisition.gov
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.
(a) Contractors’ accounting systems are seldom designed to segregate the costs of performing changed work. Therefore, before prospective contractors submit offers, the contracting officer should advise them of the possible need to revise their accounting procedures to comply with the cost segregation requirements of the Change Order Accounting clause at 52.243-6.
(b) The following categories of direct costs normally are segregable and accountable under the terms of the Change Order Accounting clause:
(1) Nonrecurring costs (e.g., engineering costs and costs of obsolete or reperformed work).
(2) Costs of added distinct work caused by the change order (e.g., new subcontract work, new prototypes, or new retrofit or backfit kits).
(3) Costs of recurring work (e.g., labor and material costs).