CAS Exemption

A CAS exemption is a statutory or regulatory exclusion from Cost Accounting Standards compliance requirements under FAR Part 30, removing specific contracts, contract types, or contractor categories from the requirement to follow CASB standards for cost measurement, assignment, and allocation, regardless of contract dollar value.

What is a CAS Exemption?

FAR 30.201-1 lists the categories of contracts exempt from CAS regardless of value: sealed-bid contracts (where competitive pricing obviates the need for cost accounting consistency); contracts and subcontracts below $2M (the coverage threshold); contracts with small businesses (protecting small contractors from the compliance burden that would otherwise make large government contracts inaccessible); contracts for commercial items (FAR Part 12); contracts with foreign governments or international organizations; contracts with educational institutions (covered under OMB Circular A-21); and contracts to be performed entirely outside the United States.

The small business exemption is particularly significant. A small business under the applicable NAICS size standard is fully exempt from CAS regardless of the contract value or contract type. This exemption allows small businesses to maintain simpler accounting systems without investing in CAS-compliant cost accounting structures. However, when a small business grows past the applicable size standard, it loses this exemption on new contracts, a transition that requires careful accounting system planning.

The commercial item exemption covers contracts awarded under FAR Part 12 for items sold based on established catalog or market prices. The government's rationale is that commercial pricing is determined by market forces rather than cost analysis, making CAS cost accounting consistency requirements unnecessary. Contractors whose products qualify as commercial items benefit significantly from this exemption in both reduced compliance burden and reduced government audit rights.

CAS exemptions are applied at the contract level, not at the contractor level. A contractor may simultaneously hold a CAS-covered cost-plus contract and a CAS-exempt FFP commercial item contract. The contractor's cost accounting system must maintain the required consistency for covered contracts without that consistency requirement affecting its commercial work.

Why CAS Exemptions Matter for Government Contractors

Understanding which contracts are CAS-exempt enables contractors to simplify accounting systems for eligible work and to make informed decisions about which opportunities to pursue. A growing contractor approaching the $2M threshold should proactively invest in CAS-compliant accounting infrastructure before it is required, avoiding the compliance scramble that comes when a large award suddenly triggers coverage. Conversely, a contractor with primarily commercial item contracts should preserve commercial item eligibility carefully, the exemption is a significant compliance and audit rights advantage.

Example

A veteran-owned cybersecurity firm with $18M annual revenue holds two contracts: a $12M CPFF task order (CAS-covered, modified coverage) and a $4M FFP contract for commercial software licenses under FAR Part 12 (CAS-exempt). The firm maintains separate accounting treatment for each: the CPFF contract follows CAS 401 and 402 consistency requirements with full documentation; the commercial item contract is priced from its commercial catalog without cost allocation requirements. When the firm wins a $55M CPFF contract later in the year, full CAS coverage attaches to all its covered contracts, requiring a Disclosure Statement submission and full compliance with all 19 standards.

Frequently Asked Questions

Does the small business CAS exemption apply to subcontracts?

Yes. A small business subcontractor is exempt from CAS regardless of the subcontract value or the CAS coverage status of the prime contract. The prime contractor's CAS obligations flow to large business subcontractors above the coverage thresholds, but small business subcontractors retain their exemption. Primes must verify subcontractor CAS status when awarding cost-type subcontracts to large businesses, as CAS compliance obligations may pass through.

What happens to CAS coverage when a company is acquired and no longer qualifies as a small business?

Size status is determined at the time of offer (for small business set-asides) or at the time of award. A business that was small at award retains the benefits of small business status for the duration of that contract, even if it subsequently grows beyond the size standard. However, for new contracts after the size change, the company is no longer small and no longer qualifies for the small business CAS exemption on those new awards.

Are fixed-price contracts ever CAS-covered?

Yes. FAR 30.201-1 makes sealed-bid FFP contracts CAS-exempt, but negotiated FFP contracts above $2M are not automatically exempt. A negotiated FFP contract awarded above $2M (without another applicable exemption) is CAS-covered, even though there is no ongoing cost billing. CAS applies to the cost accounting practices the contractor uses to estimate the FFP price, ensuring those practices are consistent with how costs are actually incurred. In practice, DCAA rarely audits negotiated FFP contracts for CAS compliance because there is no cost claim to audit, but the technical coverage requirement exists.

Can a contractor voluntarily accept CAS requirements on an otherwise exempt contract?

Yes, though this is uncommon. A contractor bidding on a CAS-exempt contract may agree to CAS compliance as a contract term if the government requests it or if the contractor believes CAS compliance will be advantageous (for example, to demonstrate accounting system sophistication to a risk-averse contracting officer). Once CAS terms are incorporated by agreement into a CAS-exempt contract, the contractor is bound by those terms for that contract's duration, even though the statutory exemption would otherwise apply.