Traditional vs Non-Traditional Contractors
The DoD uses the terms “traditional” or “non-traditional” defense contractor (sometimes abbreviated NDC) to determine cost-sharing requirements for Other Transaction agreement awards. Non-traditional defense contractor is also used in the Defense Federal Acquisition Regulation Supplement (DFARS) 212.102(a)(iii) for acquiring commercial items. In this context, it allows DoD Contracting Officers to treat supplies and services purchased from NDCs as Commercial Items. Why does this matter? It enables the DoD to use streamlined (read: faster!) procedures to award contracts to NDCs with the objectives of enhancing defense innovation and investment and creating incentives for NDCs to do business with the DoD.
Most small businesses will fall into the non-traditional category.
Traditional Defense Contractor
A “traditional” defense contractor has contract/s and/or subcontract/s that are subject to the Cost Accounting Standards (CAS). These are referred to as CAS-covered contracts. CAS-covered contracts are typically large, multi-million/multi-billion dollar contracts for weapons systems, aircraft, ships, space systems, IT business systems, etc.
What are Cost Accounting Standards (CAS)?
Cost Accounting Standards (CAS) are federal financial accounting standards set by the Cost Accounting Standards Board (CASB). They exist to ensure consistency in estimating, accumulating, and reporting costs. CAS are detailed in Chapter 99 of Title 48 of the Code of Federal Regulations (CFR).
Reference: 48 CFR Chapter 99
When are CAS applicable?
Cost Accounting Standards are applicable to negotiated contracts that do not meet any of the exceptions below. A negotiated contract is any contract awarded using other than sealed bidding procedures under FAR Part 14. This includes federal supply schedule awards (FAR subpart 8.4), commercial item acquisitions (FAR Part 12), awards using simplified acquisition procedure (FAR Part 13), and indefinite-delivery contracts (FAR subpart 16.5).
Cost Accounting Standards do not apply to:
- Contracts and subcontracts with small business concerns (as defined in FAR Part 2)
- Firm-fixed-price contracts or subcontracts awarded without submission of certified cost or pricing data
- Contracts and subcontracts for commercial items (as defined in FAR Part 2)
- Negotiated contracts and subcontracts not exceeding the Truth in Negotiations Act (TINA) threshold requiring certified cost and pricing data (currently $2 million)
- Contracts or subcontracts valued at less than $7.5 million, provided that, at the time of award, the business unit of the contractor or subcontractor is not currently performing any CAS-covered contracts or subcontracts valued at $7.5 million or greater
- Contracts and subcontracts in which the price is set by law or regulation
- Contracts and subcontracts with foreign governments
- Subcontractors under the NATO PHM Ship program to be performed outside the United States by a foreign concern
- Sealed bid contracts (FAR Part 14)
Reference: 48 CFR §9903.201-1
What are the types of CAS coverage?
CAS-covered contracts must comply with the CAS specified in FAR Part 9904. CAS coverage may be:
- Full – for single contract awards >$50 million, or for a business unit that received more than $50 million net CAS-contracts in the preceding cost accounting period
- Modified – for single covered contract awards < $50 million awarded to a business unit that received less than $50 million in net CAS-covered awards in the preceding cost accounting period
- For Educational Institutions – a public or nonprofit institution of higher education, e.g., an accredited college or university
- Subcontracts – require the same type of CAS coverage as would prime contracts awarded to the same business unit
- Foreign Concerns – requires compliance with specific CAS only
Reference: 48 CFR §9903.201-2
How do you know if you have a CAS-covered contract?
A CAS-covered contract or subcontract will not meet any of the exceptions discussed above and will include CAS clauses. CAS clauses are identified in FAR Part 30.201-4.
Non-Traditional Defense Contractor
A business entity that doesn’t currently have, or hasn’t had within a year, a full CAS-covered contract or subcontract can be considered a non-traditional defense contractor (NDC).
As defined in section 2302 of title 10 of the United States Code (10 U.S.C. § 2302 (9)), the term “non-traditional defense contractor”, with respect to a procurement or with respect to a transaction authorized under section 2371(a) or 2371b of this title, means an entity that is not currently performing and has not performed, for at least the one-year period preceding the solicitation of sources by the Department of Defense for the procurement or transaction, any contract or subcontract for the Department of Defense that is subject to full coverage under the cost accounting standards (CAS) prescribed pursuant to section 1502 of title 41 and the regulations implementing such section.
Many entities will find they qualify as non-traditional defense contractors because:
- They are a small business exempt from CAS requirements
- They exclusively perform contracts under commercial procedures
- They exclusively perform under firm-fixed-price (FFP) contracts with adequate price competition
- They performed less than $50 million in CAS covered efforts during the preceding cost accounting period