Cost Principles Seminar

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Cost Principles Seminar
National Contract Management Association Southern
Nevada Chapter May 30, 2008
Randall K. Gibson, Director of Compliance,
NPS rgibson26_at_csc.com
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Computer Sciences Corporation

• CSC has about 90,000 employees in 80 countries
  worldwide
• In April 1959 - One Hundred Dollars and a Dream
• In the fiscal year ending March 38, 2008, Revenue
  was 16.5 billion
• FY 2007 Revenue from Continuing Operations
• 24 Department of Defense
• 11 Civil Agencies
• 1 Other U.S. Federal
• 36 Total U.S. Federal Government
• 26 U.S. Commercial
• 28 Europe
• 10 Other International
• 64 Total Global Commercial

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North American Public Sector

• IT, business operations and specialized
  engineering services for government clients
  throughout North America
• Headquartered in Falls Church, Virginia, CSC NPS
  serves government clients across North America
• NPS has approximately 26,000 employees in more
  than 600 locations worldwide.
• Annual revenue is approximately 5.1 billion
  (FY06).

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Plan for the Day

• Applicability and Scope of FAR Part 31.2
• General Cost Principles
• Allowability
• Reasonableness
• Allocability
• Selected Areas of Cost
• Overview of the 46 Cost Principles
• Focus on Selected Cost Principles
• Government Audit Rights
• Relationship of FAR to CAS

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Federal Acquisition Regulation

• FAR 31.000 Scope of part - This part contains
  cost principles and procedures for
• whenever cost analysis is performed
• the determination, negotiation, or allowance of
  costs when required by a contract clause.

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Federal Acquisition Regulation

• Part 31 - Cost Allowability Generally
• Allowable
• Reasonable, allocable, CAS/GAAP compliant,
  contract terms compliant, FAR compliant
• Allocable
• Incurred for contract, can be distributed in
  reasonable proportion to benefits received,
  necessary for operation of business
• Reasonable
• Prudent person in conduct of competitive business
• Government makes no presumption of reasonableness
• If cost challenged by Government, burden of proof
  on contractor to establish

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Federal Acquisition Regulation

• Part 31 Specific Areas of Cost

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Federal Acquisition Regulation Part 31
Specific Areas of Cost
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Total Cost

• FAR 31.201-1 Composition of total cost
• sum of the direct and indirect costs allocable to
  the contract, incurred or to be incurred
• plus any allocable cost of money pursuant to
  31.205-10,
• less any allocable credits.
• allowable costs to the Government are limited to
  those allocable costs which are allowable
  pursuant to Part 31

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Total Cost By Cost Element
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FAR 31.202 Direct Costs

• Direct cost means any cost that is identified
  specifically with a particular final cost
  objective.
• No contract shall have allocated to it as a
  direct cost any cost, if other costs incurred for
  the same purpose in like circumstances have been
  included in any indirect cost pool to be
  allocated to contracts.
• For reasons of practicality, the contractor may
  treat any direct cost of a minor dollar amount as
  an indirect cost if the accounting treatment
• (1) Is consistently applied to all final cost
  objectives and
• (2) Produces substantially the same results as
  treating the cost as a direct cost.

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FAR 31.203 Indirect Costs

• After direct costs have been determined and
  charged directly to the contract or other work,
  indirect costs are those remaining to be
  allocated .
• No contract shall have allocated to it as an
  indirect cost any cost, if other costs incurred
  for the same purpose, in like circumstances, have
  been included as a direct cost of that or any
  other contract.

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Indirect Cost expense pool

• Accumulate indirect costs by logical cost
  groupings with due consideration of the reasons
  for incurring such costs.

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Indirect Cost base

• The base selected shall allocate the grouping on
  the basis of the benefits accruing to contracts.
• For contracts other than those subject to full or
  modified CAS coverage, the base period for
  allocating indirect costs shall be the
  contractors fiscal year used for financial
  reporting purposes in accordance with generally
  accepted accounting principles.

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Allocability

• FAR 31.201-4 Determining allocability
• If it is assignable or chargeable to one or more
  cost objectives on the basis of relative benefits
  received or other equitable relationship.
• A cost is allocable to a Government contract if
  it
• Is incurred specifically for the contract
• Benefits both the contract and other work, and
  can be distributed to them in reasonable
  proportion to the benefits received or
• Is necessary to the overall operation of the
  business, although a direct relationship to any
  particular cost objective cannot be shown.

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Allowability

• FAR 31.201-2 Determining allowability A cost is
  allowable only when the cost complies with all of
  the following requirements
• Reasonableness
• Allocability
• Standards promulgated by the CAS Board, if
  applicable, otherwise, generally accepted
  accounting principles and practices appropriate
  to the circumstances.
• Terms of the contract
• Any limitations set forth in this subpart

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Allowability

• FAR 31.201-2 - Determining allowability -
• Contractor is responsible for accounting for
  costs . . ., including supporting documentation,
  adequate to demonstrate that costs claimed have
  been incurred, are allocable to the contract, and
  comply with applicable cost principles . . ..
• The contracting officer may disallow all or part
  of a claimed cost that is inadequately supported.
  

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FAR 31.201-3 Reasonableness

• A cost is reasonable if,
• It does not exceed that which would be incurred
  by a prudent person in the conduct of competitive
  business.
• No presumption of reasonableness shall be
  attached to the incurrence of costs.
• If an initial review of the facts results in a
  challenge, the burden of proof shall be upon the
  contractor to establish that such cost is
  reasonable.

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Reasonableness

• Depends upon a variety of considerations and
  circumstances, including
• (1) Whether it is the type of cost generally
  recognized as ordinary and necessary for the
  conduct of the contractors business or the
  contract performance
• (2) Generally accepted sound business practices,
  arms-length bargaining, and Federal and State
  laws and regulations
• (3) The contractors responsibilities to the
  Government, other customers, the owners of the
  business, employees, and the public at large and
  
• (4) Any significant deviations from the
  contractors established practices

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FAR 31.201-5 Credits

• The applicable portion of any income, rebate,
  allowance, or other credit relating to any
  allowable cost and received by or accruing to the
  contractor shall be credited to the Government
  either as a cost reduction or by cash refund.

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FAR 31.201-6 Accounting for Unallowable Costs

• Expressly unallowable or mutually agreed to be
  unallowable, including mutually agreed to be
  unallowable directly associated costs, shall be
  identified and excluded from any billing, claim,
  or proposal applicable to a Government contract.
• Costs that specifically become designated as
  unallowable or as unallowable directly associated
  costs of unallowable costs as a result of a
  written decision furnished by a contracting
  officer shall be identified if included in or
  used in computing any billing, claim, or proposal
  applicable to a Government contract.

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Accounting for Unallowable Costs

• Directly Associated
• A directly associated cost is any cost that is
  generated solely as a result of incurring another
  cost, and that would not have been incurred had
  the other cost not been incurred.

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Accounting for Unallowable Costs

• The practices for accounting for and presentation
  of unallowable costs must be those described CAS
  405, Accounting for Unallowable Costs.

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Accounting for Unallowable Costs

• Statistical sampling is an acceptable practice in
  accounting for and presenting unallowable costs
  provided the following criteria are met
• (i) The statistical sampling results in an
  unbiased sample that is a reasonable
  representation of the sampling universe.
• (ii) Any large dollar value or high risk
  transaction is separately reviewed for
  unallowable costs and excluded from the sampling
  process.
• (iii) The statistical sampling permits audit
  verification.

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Accounting for Unallowable Costs

• A penalty is imposed by 10 U.S.C. 2324(a) through
  (d) and 41 U.S.C. 256(a) through (d). The
  penalty can be assessed against contractors which
  include unallowable indirect costs in
• (1) Final indirect cost rate proposals or
• (2) The final statement of costs incurred or
  estimated to be incurred under a fixed-price
  incentive contract.
• The penalty assessable for all contracts in
  excess of 650,000
• except fixed-price contracts without cost
  incentives or any firm-fixed-price contracts for
  the purchase of commercial items.

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FAR 31.201-6 Accounting for Unallowable Costs

• When unallowable costs, including directly
  associated costs, would normally be part of an
  indirect cost allocation base, they remain in the
  base
• Unallowable costs are removed from the indirect
  expense pool for purposes of computing indirect
  expense rates.

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FAR 31.205-6 Compensation for personal services

• One of the largest components of cost incurred
• The cost principle is the longest and most
  detailed of the FAR cost principles.
• Defines the term compensation to include all
  remuneration paid currently or accrued, in
  whatever form and whether paid immediately or
  deferred, for services rendered by employees to
  the contractor.
• Compensation includes payments made or to be made
  in the future in the form of cash, corporate
  securities, such as stocks, bonds, and other
  financial instruments, and other assets,
  products, or services.

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FAR 31.205-6 Compensation for personal services

• General Criteria
• Criteria 1. Must be for work performed in the
  current year and may not represent a retroactive
  payment for work performed in prior years
  exceptions include severance pay, deferred
  compensation, pensions, and other postretirement
  benefits
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• Criteria 2. In total must be reasonable for the
  work performed. Factors the ACO may consider in
  analyzing the reasonableness of compensation
  include conformity with the compensation
  practices of other firms (i) Of the same size
  (ii) In the same industry (iii) In the same
  geographic area and (iv) Engaged in similar
  non-Government work under comparable
  circumstances. Upon challenge by the Government,
  the burden of proof is with contractor(FAR
  31.201-3(a))?

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FAR 31.205-6 Compensation for personal services

• General Criteria
• Criteria 3. Must have been paid in accordance
  with an established compensation plan or
  practice followed so consistently as to imply, in
  effect, an agreement to the payment.
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• Criteria 4. No presumption of allowability
  exsists where the contractor has made a major
  revision to its compensation plan or practice,
  without having notified the cognizant ACO of the
  change and provided the Government an opportunity
  to review it.
• Criteria 5. Costs that are unallowable under any
  other cost principle are not considered allowable
  simply because they constitute compensation.

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FAR 31.205-6 Compensation for personal services

• Criteria 6 Compensation costs for certain
  individuals give rise to the need for special
  consideration.

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FAR 31.205-6 Compensation for personal services

• Differential Pay principle expressly permits the
  cost of differential pay when services are
  performed in a foreign country
• including expenses associated with housing, cost
  of living adjustments, transportation, bonuses,
  additional Federal, State, local or foreign
  income taxes resulting from the foreign
  assignment
• Bonuses and Incentive Compensation Government
  auditors often assert that the bonus or incentive
  compensation was not paid pursuant to an
  agreement entered into before the services where
  performed, as required by the principle.

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FAR 31.205-6 Compensation for personal services

• Severance Pay
• defined as payment in addition to regular
  salaries and wages by the contractor to workers
  whose employment is being involuntarily
  terminated, is allowable
• Provided it is reasonable and required by law,
  employer-employee agreement, an established
  policy that effectively constitutes an implied
  agreement, or the circumstances of the particular
  employment
• If, however, the employee is employed by a
  replacement contactor under substantially equal
  conditions of employment and with credit for
  prior service, or if the employee is employed by
  an affiliate of the contractor, the severance pay
  is unallowable.

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FAR 31.205-6 Compensation for personal services

• All backpay is unallowable unless it is for work
  performed but underpaid.
• Corporate Securities (1) The securities must be
  valued at their fair market value on the
  measurement date, which is defined as the first
  date the number of shares awarded is known, and
  (2) any accruals for the cost of the securities
  before issuance to the employees must take into
  account the possibility that the employees
  interest in the accruals might be forfeited.
• Any compensation that is calculated , valued, or
  based on changes in the price of corporate
  securities is unallowable.

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FAR 31.205-6 Compensation for personal services

• Pensions.
• There are two basic types of pension plans
  defined benefit and defined contribution.
• Subject to the cost limitations and exclusions in
  paragraphs (j)(2) through (8) of the cost
  principle, pension costs incurred under either
  type of plan are allowable provided they are
  measured, allocated, and accounted for in
  compliance with CAS 412 and 413.
• To be allowable in the current year, pension
  costs must be funded by the time for filing of
  the Federal income tax return, including any
  extensions
• Pension payments must be paid pursuant to a
  good-faith agreement entered into before the work
  or services are performed and according to the
  terms and conditions of an established plan
• The Government has a right to share in the
  reversion of pension funds resulting from either
  the termination of an overfunded defined benefit
  pension plan or other constructive receipt of
  pension funds

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FAR 31.205-6 Compensation for personal services

• Post-retirement Benefits Other Than Pensions
• Must be reasonable and incurred pursuant to law,
  employer-employee agreement, or an established
  policy of the contractor.
• Costs must be funded by the time set for filing
  the contractors Federal income tax return.

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FAR 31.205-6 Compensation for personal services

• Deferred Compensation
• To allowable, it must, be based on current or
  future services and be measured, allocated, and
  accounted for in compliance with CAS 415.
• requires that the cost of deferred compensation
  be (a) measured by the present value of future
  benefits to paid, and (b) assigned to the cost
  accounting period in which the contractor incurs
  an obligation to compensate the employee.

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FAR 31.205-6 Compensation for personal services

• Special Rules for-Business Acquisitions golden
  parachutes and golden Handcuffs that are paid
  in connection with business acquisitions are
  unallowable.
• Fringe Benefits the cost principles proscribe
  the costs of employee rebate and purchase
  discount plans the portion of the costs of
  company-furnished automobiles related to personal
  use by the employee, including home-to-work
  transportation and the costs of membership in
  social dining, and country clubs.

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FAR 31.205-6 Compensation for personal services

• Limitations on Highly Compensated Employees.
• Costs of compensation of a senior executive in
  excess of the benchmark compensation amount
  determined applicable for the contractor fiscal
  year by the Administrator, Office of Federal
  Procurement Policy (OFPP) are unallowable
• Senior executive means -- Effective January 2,
  1999, the five most highly compensated employees
  in management positions at each home office and
  each segment of the contractor, whether or not
  the home office or segment reports directly to
  the contractors headquarters.

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FAR 31.205-1 Public relations and advertising
costs

• Allowable public relations costs include the
  following
• 1) Costs specifically required by contract.
• 2) Costs of
• Responding to inquiries on company policies and
  activities
• Communicating with the public, press,
  stockholders, creditors, and customers and
• Conducting general liaison with news media and
  Government public relations officers, to the
  extent that such activities are limited to
  communication and liaison necessary to keep the
  public informed on matters of public concern
• 3) Costs of participation in community service
  activities (e.g., blood bank drives, charity
  drives, savings bond drives, disaster assistance,
  etc.)?
• 4) Costs of plant tours and open houses
• 5) Costs of keel laying, ship launching,
  commissioning, and roll-out ceremonies, to the
  extent specifically provided for by contract.

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FAR 31.205-1 Public relations and advertising
costs

• The only allowable advertising costs are those
  that are
• (1) Specifically required by contract, or that
  arise from requirements of Government contracts
  and that are exclusively for
• (i) Acquiring scarce items for contract
  performance or
• (ii) Disposing of scrap or surplus materials
  acquired for contract performance.
• (2) Costs of activities to promote sales of
  products normally sold to the U.S. Government,
  including trade shows, which contain a
  significant effort to promote exports from the
  United States. However, such costs do not include
  the costs of memorabilia (e.g., models, gifts,
  and souvenirs), alcoholic beverages,
  entertainment, and physical facilities that are
  primarily used for entertainment rather than
  product promotion or
• (3) Allowable in accordance with
  31.205-34Recruitment costs)?

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FAR 31.205-7 Contingencies

• The allowability of the cost of contingencies
  depends upon whether the pricing is being done
  retroactively or prospectively.
• Contingencies are generally unallowable for
  historical costing purposes, such as
  retroactively determining the adjustment due for
  previously performed work.
• On the other hand, contingencies are not
  unallowable for estimating and forward pricing
  purposes. Contingencies that may arise from
  known and existing conditions, the effects of
  which can reasonably be foreseen and estimated,
  are allowable and should be included in the
  estimated cost. Contingencies that cannot
  reasonably be measured must be excluded from the
  estimate but disclosed separately to permit
  appropriate contractual coverage, such as through
  insurance costs or a re-opener clause.

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FAR 31.205-8 Contributions or donations

• Contributions or donations, including cash,
  property and services, regardless of recipient,
  are unallowable, except as provided in
  31.205-1(e)(3).

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FAR 31.205-10 Cost of Money

• Facilities capital cost of money is the imputed
  cost of investment income forgone when a
  contractor commits its resources to capital
  assets used to perform a contract.
• FCCM must be measured, assigned, and allocated to
  contracts in accordance with CAS 414, and cost of
  money as an element of capital assets under
  construction must be measured and added to the
  cost of capital assets under construction in
  accordance with CAS 417
• For FCCM only, the estimated cost of money must
  have been specifically identified and proposed in
  cost proposals relating to the contract under
  which the cost is to be claimed.

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FAR 31.205-11 Depreciation

• Contracts subject to CAS 409, must comply with
  that standard.
• Contracts not subject to CAS 409, except as
  otherwise provided by paragraphs (g) and (h) of
  the principle, allowable depreciation costs are
  limited to the amount used for financial
  accounting purposes, and must be determined in a
  manner consistent with the contractors
  depreciation policies and procedures followed in
  the same segment on non-Government business.
• No depreciation is allowed on property that has
  been fully depreciated by the contractor or any
  of its divisions, subsidiaries or affiliates
  under common control.
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FAR 31.205-13 Employee morale, health, welfare,
food service, and dormitory costs and credits

• Costs incurred on activities designed to improve
  working conditions, employer-employee relations,
  employee morale, and employee performance (less
  income generated by these activities) are
  allowable.
• Some examples of allowable activities are
• (1) House publications
• (2) Health clinics
• (3) Wellness/fitness centers
• (4) Employee counseling services and
• (5) Food and dormitory services, for the
  contractors employees at or near the
  contractors facilities.

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FAR 31.205-13 Employee morale, health, welfare,
food service, and dormitory costs and credits

• Costs of recreation are unallowable, except for
  the costs of employees participation in company
  sponsored sports teams or employee organizations
  designed to improve company loyalty, team work,
  or physical fitness.

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FAR 31.205-13 Employee morale, health, welfare,
food service, and dormitory costs and credits

• The allowability of food and dormitory losses are
  determined by the following factors
• (i) Losses from operating food and dormitory
  services are allowable only if the contractors
  objective is to operate such services on a
  break-even basis.
• (ii) Losses sustained because food services or
  lodging accommodations are furnished without
  charge or at prices or rates which obviously
  would not be conducive to the accomplishment of
  the above paragraph (d)(1)(i) are not allowable,
  except that
• (iii) A loss may be allowed to the extent that
  the contractor can demonstrate that unusual
  circumstances exist such that even with efficient
  management, operating the services on a
  break-even basis would require charging
  inordinately high prices, or prices or rates
  higher than those charged by commercial
  establishments offering the same services in the
  same geographical areas.

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FAR 31.205 - Entertainment

• Costs of amusement, diversions, social
  activities, and any directly associated costs
  such as tickets to shows or sports events, meals,
  lodging, rentals, transportation, and gratuities
  are unallowable.
• Costs made specifically unallowable under this
  cost principle are not allowable under any other
  cost principle.
• Costs of membership in social, dining, or country
  clubs or other organizations having the same
  purposes are also unallowable, regardless of
  whether the cost is reported as taxable income to
  the employees.

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FAR 31.205-23 Losses on other contracts

• An excess of costs over income under any other
  contract is unallowable.

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FAR 31.205-32 Precontract Costs

• Precontract costs are generally allowable
  provided they satisfy the circumstances
  prescribed by the cost principle.

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FAR 31.205-33 Professional and Consultant Service
Costs

• Except when incurred in any of the circumstances
  listed in paragraph (c) of the principle and as
  may be limited by other applicable cost
  principles, the costs of professional and
  consultant services are generally allowable when
  reasonable in relation to the services rendered
  and not contingent upon recovery of the costs
  from the Government.

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FAR 31.205-33 Professional and Consultant Service
Costs

• Paragraph (e) imposes 4 additional requirements
  to support the allowability of retainer fees.
• Paragraph (f) requires that be allowable, fees
  for professional and consultant services must be
  support by evidence of the nature and scope of
  the services furnished.

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FAR 31.205-41 Taxes

• With seven listed exceptions, taxes that are
  required to be paid and are paid or accrued in
  accordance with generally accepted accounting
  principles are allowable.
• The following types of costs are not allowable
• (1) Federal income and excess profits taxes.
• (2) Taxes in connection with financing,
  refinancing, refunding operations, or
  reorganizations
• (3) Taxes from which exemptions are available to
  the contractor directly, or available to the
  contractor based on an exemption afforded the
  Government,
• (4) Special assessments on land that represent
  capital improvements
• (5) Taxes (including excises) on real or personal
  property
• (6) Any excise tax
• (7) Income tax accruals designed to account for
  the tax effects of differences between taxable
  income and pretax income as reflected by the
  books of account and financial statements.

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FAR 31.205-42 Termination costs

• Contract terminations generally give rise to the
  incurrence of costs or the need for special
  treatment of costs that would not have arisen had
  the contract not been terminated.
• The cost principle addresses elements peculiar to
  termination situations and are to be used in
  conjunction with the other cost principles in
  Subpart 31.2
• Common items. The costs of items reasonably
  usable on the contractors other work shall not
  be allowable unless the contractor submits
  evidence that the items could not be retained at
  cost without sustaining a loss.

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FAR 31.205-42 Termination costs

• Initial costs. Initial costs, including starting
  load and preparatory costs, are allowable.
• Loss of useful value. Loss of useful value of
  special tooling, and special machinery and
  equipment is generally allowable, with listed
  provisions.
• Rental under unexpired leases. Rental costs under
  unexpired leases, less the residual value of such
  leases, are generally allowable when shown to
  have been reasonably necessary for the
  performance of the terminated contract, if --
• (1) The amount of rental claimed does not exceed
  the reasonable use value of the property leased
  for the period of the contract and such further
  period as may be reasonable and
• (2) The contractor makes all reasonable efforts
  to terminate, assign, settle, or otherwise reduce
  the cost of such lease.

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FAR 31.205-42 Termination costs

• Alterations of leased property. The cost of
  alterations and reasonable restorations required
  by the lease may be allowed when the alterations
  were necessary for performing the contract.
• Settlement expenses, including the following, are
  generally allowable
• (i) Accounting, legal, clerical, and similar
  costs reasonably necessary for --
• (A) The preparation and presentation, including
  supporting data, of settlement claims to the
  contracting officer and
• (B) The termination and settlement of
  subcontracts.
• (ii) Reasonable costs for the storage,
  transportation, protection, and disposition of
  property acquired or produced for the contract.
• (iii) Indirect costs related to salary and wages
  incurred as settlement expenses in (i) and (ii)
  normally, such indirect costs shall be limited to
  payroll taxes, fringe benefits, occupancy costs,
  and immediate supervision costs.
• Subcontractor claims. Subcontractor claims,
  including the allocable portion of the claims
  common to the contract and to other work of the
  contractor, are generally allowable.

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FAR 31.205-46 Travel

• Costs for transportation, lodging, meals, and
  incidental expenses.
• (1) Costs for transportation may be based on
  mileage rates, actual costs incurred, or on a
  combination thereof, provided the method used
  results in a reasonable charge.
• (2) Except as provided in subparagraph (a)(3) of
  this subsection, costs incurred for lodging,
  meals, and incidental expenses shall be
  considered to be reasonable and allowable only to
  the extent that they do not exceed on a daily
  basis the maximum per diem rates in effect at the
  time of travel as set forth in the
• (i) Federal Travel Regulations
• (ii) Joint Travel Regulation
• (iii) Standardized Regulations

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FAR 31.205-46 Travel

• In special or unusual situations, actual costs in
  excess of the above-referenced maximum per diem
  rates are allowable provided that such amounts do
  not exceed the higher amounts authorized for
  Federal civilian employees

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FAR 31.205-46 Travel

• Airfare costs in excess of the lowest customary
  standard, coach, or equivalent airfare offered
  during normal business hours are unallowable
  except when such accommodations require
  circuitous routing, require travel during
  unreasonable hours, excessively prolong travel,
  result in increased cost that would offset
  transportation savings, are not reasonably
  adequate for the physical or medical needs of the
  traveler, or are not reasonably available to meet
  mission requirements.
• However, in order for airfare costs in excess of
  the above standard airfare to be allowable, the
  applicable condition(s) set forth above must be
  documented and justified.

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Audit Rights and Access

• Audit and Records Negotiation (FAR 52.215-2)?
• Contract Terms and Conditions Required to
  Implement Statues or Executive Orders
  Commercial Items
• Requirements for Cost or Pricing Data or
  Information Other Than Cost or Pricing Data
• Allowable Cost and Payment (FAR 52.216-7)
  included in cost-reimbursement contracts other
  than facilities contracts regardless of dollar
  value.
• Payments Under Time-and-Material and Labor-Hour
  Contracts required in TM and LH contracts.

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Audit Rights and Access

• Economic Price Adjustment Labor and Material
  included in negotiated, fixed-price contracts
  that provide for an economic price adjustment on
  the basis of labor and material.
• Progress Payments included in fixed price
  contracts under which the Government will provide
  progress payments based on costs.
• Performance-Based Payments included in
  contracts under which the Government will provide
  performance-based payments.
• Advance Payments and Advance Payments Without
  Special Account included in contracts under
  which the Government provides advance payments.

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Audit Rights and Access

• Government audit rights and access are frequently
  obtained by mandatory contract terms and
  conditions
• Many include
• Right to examine and audit all records and other
  evidence sufficient to reflect properly all costs
  claimed . . ..
• Right to examine . . . those records, which
  include books, documents, accounting procedures
  and practices, and other data, regardless of type
  and form . . ..
• Shall permit any authorized representative of
  the Government to examine and make copies of any
  documents, papers, or records relating to
  compliance . . ..

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