How Are CAS Relief and the Fixed-Price Contracts Mandate Reshaping GovCon Accounting and Finance Teams?

For years, the finance and accounting teams at our government contractor clients have been built around a standard set of priorities: government accounting, indirect rates, cost allocation, CAS compliance, DCAA audits and contract reporting.

We’re starting to see this model change now that two significant federal policy changes have taken effect. On April 30, an executive order, Promoting Efficiency, Accountability, and Performance in Federal Contracting, directed federal agencies to make fixed-price and performance-based contracts the default, with implementation and related FAR changes currently underway.

And on October 1, the threshold for basic CAS coverage increased from $2.5 million to $35 million, while the threshold for full CAS coverage rose from $50 million to $100 million.

For many GovCon CFOs, the compliance burden just became substantially lighter. And if the company is increasingly pursuing fixed-price work, the finance and accounting teams have a different focus: Did we price the work correctly, and will we make money on it?

What Changed on October 1?

How Should Finance and Accounting Become More Active Participants in the Contract Lifecycle?

The CAS changes don’t eliminate government accounting requirements. They narrow the universe of contractors subject to CAS and simplify the rules for determining when CAS applies. For CFOs, that creates an opportunity to rethink where finance resources add the most value.

At the same time, the shift toward fixed-price contracting makes early finance involvement more important. Under fixed-price contracts, the contractor absorbs more of the risk. If labor, subcontractor or other costs come in higher than expected, the contractor’s margin takes the hit.

This means finance and accounting should be involved before a contract is won, not just after it is booked.

• Before award: Finance should work with business development, contracts and operations on pricing and estimating, including labor assumptions, indirect rates, escalation, subcontractor costs and key risks.
• During performance: Finance should monitor actual costs against the assumptions in the bid, using forecasting, estimate-at-completion analysis, staffing reviews and margin analysis to identify problems early.

The finance and accounting teams become active partners in pricing the work, managing the risk and protecting the margin from bid through completion.

What New Skill Sets Will Be Needed?

Traditional finance and accounting organizations remain important. Controllers still need to ensure accurate financial reporting, strong internal controls and compliance with applicable government requirements. But the role may soon require additional skill sets.

Pricing & Estimating

Pricing professionals will have a larger role in determining whether the company can win work and make money on it. That requires understanding cost structures, labor rates, indirect costs, competitive positioning and contract risk.

Program Finance

Program finance professionals sit much closer to the business. They monitor individual contracts, work with program managers and identify changes in cost, schedule and staffing that could affect profitability.

FP&A

As contractors manage a larger portfolio of fixed-price work, forward-looking analysis becomes increasingly important. Finance leaders need to understand not just where the company has been, but where individual programs are headed.

Controllers

The controller role isn’t going away. But companies may increasingly look for controllers who combine strong compliance and accounting expertise with an understanding of profitability, forecasting and operational finance. Our guide to hiring a GovCon controller covers the salary ranges, skills and interview questions that search is built on.

What Should Hiring Managers Look For?

When hiring finance and accounting talent in this new environment, consider whether candidates can answer questions such as:

• How have you identified margin erosion before it appeared in the financial statements?
• How involved were you in pricing or estimating new contracts?
• How have you challenged a program manager’s forecast?
• What metrics do you use to determine whether a fixed-price program is performing as expected?
• Can you explain the financial implications of a staffing change on a contract?
• How have you balanced compliance requirements with the need to provide useful, timely business insights?

Technical government contracting experience still matters. But compliance expertise alone may not be enough for the next generation of finance and accounting leaders.

When a team needs that capability before a full-time search can close, fractional CFO support and interim coverage are two ways GovCon finance leaders bridge the gap.

Final Thoughts

CAS relief doesn’t eliminate the need for strong government finance and accounting teams. Fixed-price contracting doesn’t eliminate the need for controllers.

But together, these changes could alter where finance and accounting teams spend their time and which skills companies value most. Their roles will evolve from being focused primarily on compliance and reporting toward serving as pricing, forecasting and contract-performance partners.

For GovCon CFOs, the question may no longer be simply, “Do we have enough accounting and compliance expertise?” It may increasingly be: “Do we have the talent to know whether we’re going to make money on the work we’re pursuing?”

— The SpectrumCareers team

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