PART 13

COST PRINCIPLES AND AUDIT CONSIDERATIONS

**Table of Contents**

13.1 FIXED-PRICE CONTRACTS. [1](#fixed-price-contracts.)

13.2 COST PRINCIPLES. [1](#cost-principles.)

13.2.1 Contracts With Commercial Organizations.
[1](#contracts-with-commercial-organizations.)

13.2.2 Contracts With Educational Institutions.
[2](#contracts-with-educational-institutions.)

13.2.3 Contracts With State and Local Governmental Organizations.
[2](#contracts-with-state-and-local-governmental-organizations.)

13.2.4 Contracts With Nonprofit Organizations.
[2](#contracts-with-nonprofit-organizations.)

13.3 CONTRACT AUDIT SERVICES. [3](#contract-audit-services.)

13.4 AUDIT OF NON-FEDERAL ORGANIZATIONS.
[3](#audit-of-non-federal-organizations.)

13.5 AUDIT RESOLUTION, FOLLOW-UP AND SETTLEMENT.
[4](#audit-resolution-follow-up-and-settlement.)

### 13.1 FIXED-PRICE CONTRACTS.

***POLICY:*** When the CO deems it necessary to use cost data as
described in 12.5.2, or for other purposes, the applicable subpart of
Part 13 shall be used as a basis for evaluation of those costs. However,
application of cost principles to fixed-price contracts and subcontracts
shall not be construed as a requirement to negotiate agreements on
individual elements of cost in arriving at agreement on the total price.
The final price accepted by the parties reflects agreement on the total
price. Further, notwithstanding the mandatory use of cost principles,
the objective will continue to be the negotiation of prices that are
fair and reasonable, cost and other factors considered.

### 13.2 COST PRINCIPLES.

***POLICY:*** BPA will generally follow Federal contract cost principles
as a matter of policy. However, those cost principles may be modified by
the HCA on a class or individual basis if necessary for valid business
purposes. Class deviations will be documented in the BPI; individual
deviations will be documented in the contract file.

#### 13.2.1 Contracts With Commercial Organizations.

***INFORMATION:*** This category includes all contracts and contract
modifications for supplies, services or experimental, developmental or
research work on the basis of costs negotiated with organizations other
than educational institutions (see 13.2.3), State and local governments
(see 13.2.3), and nonprofit organizations (see 13.2.4).

***POLICY:***

\(a\) The cost principles and procedures in Appendix 13-A, Contract Cost
Principles for Commercial Organizations, shall be used in pricing
negotiated supply, service, construction, experimental, developmental,
and research contracts and contract modifications with commercial
organizations whenever cost analysis is performed.

\(b\) In addition, the CO shall incorporate the cost principles and
procedures in Appendix 13-A by reference in contracts with commercial
organizations as the basis for:

\(1\) Determining reimbursable costs under cost-reimbursement contracts
(and cost reimbursement subcontracts under these contracts) performed by
commercial organizations, and the cost-reimbursement portion of time and
materials contracts, except when material is priced on a basis other
than at cost;

\(2\) Negotiating indirect cost rates;

\(3\) Proposing, negotiating, or determining costs under terminated
contracts;

\(4\) Pricing changes and other contract modifications.

#### 13.2.2 Contracts With Educational Institutions.

***POLICY:*** Office of Management and Budget (OMB) Circular No. A-21,
"Cost principles for Educational Institutions," provides principles for
determining the costs applicable to research and development, training,
and other work performed by educational institutions under contracts
with the Government. The CO shall incorporate the cost principles and
procedures in A-21 by reference in cost\--reimbursement contracts with
educational institutions as the basis for \--

\(a\) Determining reimbursable costs under the contract and
cost-reimbursement subcontracts thereunder performed by educational
institutions;

\(b\) Negotiating indirect cost rates;

\(c\) Settling costs of terminated contracts; and

\(d\) Evaluating costs when negotiating fixed-price contracts.

#### 13.2.3 Contracts With State and Local Governmental Organizations.

***POLICY:*** Office of Management and Budget (OMB) Circular A-87, "Cost
Principles for State and Local Governments," sets forth the principles
for determining the allowable costs of contracts and subcontracts with
State, local and federally recognized Indian tribal governments. These
principles are for cost determination and are not intended to identify
the circumstances or dictate the extent of Federal and State or local
participation in financing a particular contract. The CO shall
incorporate the cost principles and procedures of OMB Circular A-87 by
reference in cost-reimbursement contracts with State, local and
federally-recognized Indian tribal governments.

#### 13.2.4 Contracts With Nonprofit Organizations.

***POLICY:*** Office of Management and Budget (OMB) Circular NO. A-122,
"Cost Principles for Nonprofit Organizations," sets forth principles for
determining the costs applicable to work performed by nonprofit
organizations under contracts (also applies to grants and other
agreements) with the Government. A nonprofit organization is defined as
a business entity organized and operated exclusively for charitable,
scientific, or educational purposes, of which no part of the net
earnings inure to the benefit of any private shareholder or individual,
and which are exempt from Federal income taxation under section 501 of
the Internal Revenue Code. The CO shall incorporate the cost principles
and procedures of OMB Circular A-122 by reference in cost reimbursement
contracts with nonprofit- organizations.

### 13.3 CONTRACT AUDIT SERVICES.

***INFORMATION:***

\(a\) Effective purchasing and contract management sometimes requires
that the CO seek the services of professional auditors. Such services
are available primarily from BPA\'s Internal Audit office. However,
audit services for a non-Federal contractor (entity) is typically
provided by the audit office of the Federal agency assigned single audit
responsibilities, as per the Single Audit Act of 1984 (as amended).Audit
services may also be provided by the DOE Inspector General and through
cross-servicing agreements.with the Defense Contract Audit Agency and
the Health and Human Services Inspector General.

\(b\) The primary areas of potential audit support include:

\(1\) Accounting system reviews (12.5.5).

\(2\) Evaluation of costs or prices of proposed contracts or contract
modifications (12.5.2)

\(3\) Review of contractor invoices where necessary to support cost
allowability determinations.

\(4\) Interim and close-out audits of costs incurred on cost-type
contracts (cost-reimbursement, time-and-materials, and labor-hours
contracts) (4.2.2)

\(5\) Reviews to establish billing rates for indirect costs and final
indirect cost rates.

\(6\) Review of claims for contract price or other relief (20.4.4), or
of contractor settlement proposals in terminations (20.4.4.2).

### 13.4 AUDIT OF NON-FEDERAL ORGANIZATIONS. 

***INFORMATION:***

\(a\) OMB Circular A-133, "Audits of States, Local Governments, and
Non-Profit Organizations," is the implementation of the Single Audit Act
of 1984 (P.L. 98-502), as amended. It applies to contracts and
intergovernmental contracts entered into by BPA with all non-Federal
organizations (state and local governments, institutions of higher
education, federally recognized Indian tribes, and other nonprofit
organizations), whether they are direct recipients of BPA awards, or are
subrecipients expending BPA awards received from a pass-through entity
(a recipient or another subrecipient). The circular does not apply to
non-U.S. based organizations, either directly as a recipient or
indirectly as a subrecipient. This circular rescinds Circular A-128,
"Audits of State and Local Governments," dated April 12, 1985, and
supersedes the prior Circular A-133, "Audits of Institutions of Higher
Education and Other Non-Profit Institutions," dated April 22, 1996. This
amended circular is effective for all audits of fiscal years beginning
after June 30, 1996, except for allowances to minimize disruption in
existing contracts for audit services, the effective date for which is
June 30, 1998.

\(b\) Under A-133, non-Federal organizations that expend \$300,000 or
more in a year in Federal awards are required to have a single or
program-specific audit for that year. Recipients receiving less than
\$300,000 a year in Federal awards are exempt from the Federal audit
requirement for that year, with some exceptions noted in the circular.
However, the organization must make its records available for review or
audit by appropriate officials of the Federal agency, pass-through
entity, and the General Accounting Office (GAO).

\(c\) The description of \"state\" in A-133 includes multi-state,
regional or interstate entities that have governmental functions and any
Indian Tribe that is recognized by the United States as eligible for the
special programs and services provided by the United States to Indians
because of their status as Indians.

\(d\) OMB Circular A-133 implements the The Single Audit Act (as
amended) to provides that an audit made in accordance with the circular
shall be in lieu of any financial or financial compliance audit required
under individual Federal assistance programs. To the extent that a
single audit provides Federal agencies with information and assurances
they need to carry out their overall responsibility, they shall rely
upon and use such information. The circular retains the concept of a
cognizant Federal agency to oversee the audits performed. The circular
does not limit the authority of Federal agencies to make or contract for
additional audits and evaluations of Federal financial assistance
programs. Any additional audits required to carry out responsibilities
under Federal law and regulation should be planned and carried out in
such a way as to avoid duplication.

### 13.5 AUDIT RESOLUTION, FOLLOW-UP AND SETTLEMENT.

\(a\) ***INFORMATION:*** The CO may request that an audit be performed
in order to administer the financial aspects of contract. Audit reports
pertaining to a specific contract may also be received as a result of
program audits initiated by the Office of the Inspector General or other
cognizant audit activity. Based on a review of the audit findings and
recommendations, the CO generally reviews the amount of contract costs
questioned, recommends costs to be disallowed, the corrective actions
required, then settles such determinations with the contractor. The
audit resolution and implementation policies and procedures contained
herein are in consonance with the independent decision-making of the CO
and the advisory role of the auditor.

\(b\) ***POLICY:*** The CO shall determine the action to be taken on
each audit recommendation within two months of the receipt of the audit
report. Disposition in this context means that the CO has determined
what action is to be taken, and has initiated that action. The action
need not be completed within the six-month period; however the accepted
audit recommendations shall be implemented expeditiously. Audit
resolution decisions, actions and settlements shall be documented in the
file.