ORIGIN OF GOVERNMENT CONTRACT COST PRINCIPLES

The first U.S. government purchases were on a firm-fixed-price basis for such items as horses, guns, and cannons. Over the years, the rules and regulations on the allowability of costs under government contracts have evolved from simple directives first developed during World War I into rather complex and substantial rules. The Revenue Act of 1916 contained the first cost principles, which consisted of a mere one page of cost allowability rules. In the late 1930s, the Treasury Department began to issue Treasury Decisions (TDs) regarding cost-type contract costs and profits. TD 5000, which was issued in 1940, contained only about six pages of guidelines on both cost allowability and cost allocability. TD 5000 continued to be used as the basic cost rules until the first Armed Services Procurement Regulation (ASPR) was published in 1949. A major revision of the ASPR was promulgated in 1959. In 1978, the title of the ASPR was changed to the Defense Acquisition Regulation (DAR).

The Federal Procurement Regulation (FPR) was developed almost concurrently with the ASPR and the DAR and, for the most part, was modeled after the defense regulations. Civilian (nondefense) agencies used the FPR, although several (e.g., National Aeronautics and Space Administration, Department of Energy) developed their own regulations based either on the ASPR and the DAR or on the FPR.

After several years of study and development, governmentwide acquisition regulations were issued as the Federal Acquisition Regulation (FAR) on April 1, 1984. To accommodate special departmental and agency needs, organizations were authorized to publish supplemental regulations to the FAR. These supplemental regulations could be more stringent than those in the FAR, but they could not contradict or establish as allowable any cost made specifically unallowable by the FAR. In addition to the FAR (and the agencies’ supplemental regulations), promulgations by the Cost Accounting Standards Board (CASB), generally accepted accounting principles (GAAP), and federal and state laws all play important roles in determining contract cost allowability.