The Government Contractor's Glossary

Glossary of Terms

A, B, C, D, E, F, G, H, I, J, K, L, M, N, O, P, Q, R, S, T, U, V, W, X, Y, Z

ABC inventory system
Inventory system that classifies items into categories based on sales or profits generated for each category for a specified period.

Accelerated Cost Recovery System (ACRS)
A system of computing and allocating depreciation of property and equipment over one or more periods as prescribed by the Internal Revenue Code.

Accounting equation
A mathematical expression used to describe the relationship between the assets, liabilities and owner's equity of the business model. The basic accounting equation states that assets equal liabilities and owner's equity, but can be modified by operations applied to both sides of the equation, e.g., assets minus liabilities equal owner's equity.

Accrual basis of accounting
An accounting basis wherein revenue and expenses are recorded in the period in which they are earned or incurred regardless of whether cash is received or disbursed in that period. This is the accounting basis that generally is required to be used in order to conform to generally accepted accounting principles (GAAP) in preparing financial statements for external users.

Accumulating costs
The collecting of cost data in an organized manner, such as through a system of accounts. (FAR 31.001)

Acquisition
The acquiring by contract with appropriated funds of supplies or services (including construction) by and for the use of the Federal Government through purchase or lease, whether the supplies or services are already in existence or must be created, developed, demonstrated, and evaluated. (FAR 2.101)

Actual cost
An amount determined on the basis of cost incurred as distinguished from forecasted cost. (FAR 30.301)

Administrative change
A unilateral contract change, in writing, that does not affect the substantive rights of the parties. (FAR 43.101)

Administrative contracting officer (ACO)
A contracting officer having responsibility for the administration of one or more particular contracts. In some cases the term is used to identify a contracting officer who specializes in performing contract administration functions.

Advance agreement
An agreement negotiated in advance of the incurrence of a particular cost by a contractor specifying how that cost will be treated for purposes of determining its allowability (and thus its allocability) to Government contracts. An advance agreement may be negotiated before or during a contract (but before the incurrence of the subject cost), and must be in writing. For a given contractor, advance agreements may be specific to a particular contract, a group of contracts, or all the contracts of a contracting office, an agency or several agencies. (See FAR 31.109)

Advance payment
An advance of money made by the Government to a contractor prior to, in anticipation of, and for the purpose of performance under a contract or contracts. (ASPM-Appendix B)

Affiliates
Business concerns, organizations, or individuals are affiliates of each other if, directly or indirectly, (a) either one has the power to control the other, or (b) a third party controls or has the power to control both. Indicia of control include, but are not limited to, interlocking management or ownership, identity of interests among family members, shared facilities and equipment, common use of employees, or a business entity organized following the debarment, suspension or proposed debarment of a contractor which has the same or similar management, ownership, or principal employees as the contract or that was debarred, suspended or proposed for debarment. (FAR 9.403) A similar, although more detailed, definition has been formulated by the Small Business Administration for use in applying the small business size standards under the SBA's 8(a) program.

Affirmative action program
A contractor's program that complies with Department of Labor regulations to assure equal opportunity in employment to minorities and women. (FAR 22.801)

Agency supplements
Regulations issued by individual Federal Government agencies for the purpose of implementing or supplementing the basic Federal Acquisition Regulation. An example is the Department of Defense Federal Acquisition Regulation Supplement (DFARS).

Allocable cost
A cost which is assignable or chargeable to one or more cost objectives in accordance with the relative benefits received or other equitable relationships defined or agreed to between contractual parties. (ASPM-Appendix B)

Allocate
To assign an item of cost, or a group of items of cost, to one or more cost objectives. This term includes both direct assignment of cost and the reassignment of a share from an indirect cost pool. (FAR 31.001)

Allocation base
The base used for determining the allocation rate for an indirect cost pool. The result that obtains from dividing the total of the indirect cost pool by the allocation base is the indirect cost rate for that pool.

Allowable cost
A cost which meets the tests of reasonableness and allocability, is in consonance with standards promulgated by the Cost Accounting Standards Board (if applicable), or otherwise conforms to generally accepted accounting principles, specific limitations or exclusions set forth in FAR 31, or agreed-to terms between contractual parties. (ASPM-Appendix B)

Annual funding
The current Congressional practice of limiting authorizations and appropriations to one fiscal year at a time. (FAR 17.101)

Any-quantity rates
Quoted "per item" rates for goods or services that do not vary according to the quantity ordered.

Armed Services Board of Contract Appeals (ASBCA)
The executive branch entity responsible for deciding appeals of contracting officers' decisions with respect to contracts for the acquisition by the Department of Defense of supplies and services, other than those related to automated data processing.

Asset-based lending
The practice of making loans that use assets such as receivables and inventory as collateral for the loan. In asset-based lending, the quality of the collateral becomes preeminent in determining the creditworthiness of the customer.

Audit
The systematic examination of records and documents and the securing of other evidence by confirmation, physical inspection, or otherwise, for one or more of the following purposes: determining the propriety or legality of proposed or consummated transactions, ascertaining whether all transactions have been recorded and are reflected accurately in accounts; determining the existence of recorded assets and inclusiveness of recorded liabilities; determining the accuracy of financial or statistical statements or reports and the fairness of the facts they present; determining the degree of compliance with established policies and procedures relative to financial transactions and business management; and appraising an accounting system and making recommendations concerning it. (ASPM-Appendix B)

Audit (of financial statements)
An examination of the accounting records of a business, by a certified public accountant, leading to the expression of an opinion on the fairness of its financial statements.

Audit trail
The evidence of actions (whether automated or manual) performed upon data from original documents to final disposition. The existence of a reliable, easy-to-follow audit trail is considered one indication of good internal control in an organization.

Automated clearing house (ACH)
A facility used by financial institutions to distribute electronic debit and credit entries to bank accounts and settle such entries. Under the automated clearinghouse system, banks exchange checks and drafts drawn upon each other and settle their daily balances.

Balance sheet
A financial statement comprising a listing of the assets, liabilities and owner's equity of a business as of a particular date. Under the accounting equation, assets are always equal to (and thus in balance with) liabilities and owner's equity; hence, the term "balance sheet."

Bank acceptance
A draft for money drawn on and payable by a bank.

Banker's acceptance
A short term credit instrument consisting of a bill of exchange draft, payable at maturity, which is drawn by a creditor against his or her debtor. A banker's acceptance is often used by persons in international trade and may be sold on market at a discount.

BASIC
An acronym for "Beginner's All-purpose Symbolic Instruction Code", a high-level computer language that is especially popular in the personal computer environment. As implied by its name, BASIC is often used by beginning programmers in learning how to program, although modern implementations of the language are very powerful.

Basic ordering agreement
A written instrument of understanding, negotiated between an agency, contracting activity, or contracting office and a contractor, that contains (1) terms and clauses applying to future contracts (orders) between the parties during its term, (2) a description, as specific as practicable, of supplies or services to be provided, and (3) methods for pricing, issuing, and delivering future orders under the basic ordering agreement. A basic ordering agreement is not a contract. (FAR 16.703)

Batch processing
A serial form of processing in which groups or batches of transactions are gathered over a period of time and input to the system. Batch processing stands in contrast to real time processing in which information is processed immediately upon initial input. Batch processing is often preferred because it typically costs less to perform.

Best and final offer (BAFO)
For negotiated procurements, a contractor's final offer issued upon request by the contracting officer after the contractor has been notified that discussions have been concluded. Requests for best and final offers normally are issued only to contractors who have been determined to be within the competitive range via the proposal evaluation process.

Bid and proposal (B&P) cost
The cost incurred in preparing, submitting, or supporting any bid or proposal which effort is neither sponsored by a grant, nor required in the performance of a contract. (FAR 30.301)

Bid guarantee
A form of security assuring that the bidder (a) will not withdraw a bid within the period specified for acceptance and (b) will execute a written contract and furnish required bonds, including any necessary coinsurance or reinsurance agreements, within the time specified in the bid, unless a longer time is allowed, after receipt of the specified forms. (FAR 28.001)

Billing lag
The time lag between the incurrence of contract costs and the submission of an invoice to the Government. A billing lag generally results from the inability to physically bill a contract until the necessary accounting data has been processed; the term is most often associated with the billing of invoices for time-and-materials and cost-plus contracts.

Billing rate
An indirect cost rate (a) established temporarily for interim reimbursement of incurred indirect costs and (b) adjusted as necessary pending establishment of final indirect cost rates. (FAR 42.701)

Bill of materials
A descriptive and quantitative listing of materials, supplies, parts, and components required to produce a designated complete end-item of material or assembly or subassembly. May also show estimated costs or fixed prices. (ASPM-Appendix B)

Binary number system
A system of representing numbers using only 0 and 1; also known as "base two".

Book value
An accounting term used to describe the original cost of an asset less accumulated depreciation, depletion or amortization; also called net book value.

Breakeven point
The sales volume at which total revenue equals total costs.

Breakeven analysis
The process of computing a company's breakeven point for a given set of assumptions regarding the company's levels of fixed costs and variable costs.

Broad form coverage
A term used to describe comprehensive extended insurance coverage that often covers losses resulting from breakage of glass, falling objects, weight of snow, ice or sleet and water damage.

Bulk funding
A system whereby a contracting officer receives authorization from a fiscal and accounting officer to obligate funds on purchase documents against a specified lump sum of funds reserved for the purpose for a specified period of time rather than obtaining individual obligational authority on each purchase document. (FAR 13.101)

Business logistics
A term used to describe the management of all activities that facilitate movement and coordination of supply and demand in the creation of time and place utility of goods.

Business unit
Any segment of an organization, or an entire business organization which is not divided into segments. (FAR 31.001)

Buying-in
Submitting an offer below anticipated costs, expecting to (a) increase the contract amount after award; or (b) receive follow-on contracts at an artificially high price to recover losses incurred on the buy-in contract. (FAR 3.101-4)

Capital stock
The shares in a corporation representing a percentage of ownership in the business.

Capitalization of earnings method
A method used in valuing a business that assumes the business will yield constant, regular earnings (sometimes called "normalized earnings"). The value of the business is determined by multiplying the normalized earnings figure by a capitalization rate that is essentially the reciprocal of the rate of return desired by the investor.

Cash basis of accounting
The accounting basis in which revenue and expenses are recorded in the period they are actually received or expended in cash. Use of the cash basis generally is not considered to be in conformity with generally accepted accounting principles (GAAP) and is therefore used only in selected situations, such as for very small businesses and (when permitted) for income tax reporting.

Cash collateral account
An account in the name of a borrower that serves as a clearing account with its bank, usually for the purpose of securing and servicing an indebtedness. With a cash collateral account, money is deposited in a lockbox account; when the funds are collected and the deposits have cleared, the debt served by the account is reduced. A cash collateral account cannot be drawn upon like a checking account and essentially is considered a zero balance account.

Causal forecasting models
A forecasting model where reliance is placed upon highly refined and specific information about the relationships between the factor to be forecast and other factors, such as related business and socioeconomic factors.

Certificate of Competency
A certificate issued by the Small Business Administration (SBA) stating that the holder is responsible (with respect to all elements of responsibility, including but not limited to capability, competency, capacity, credit, integrity, perseverance, and tenacity) for the purpose of receiving and performing a specific Government contract. (FAR 19.601)

Certificate of current cost and pricing data
A form of certification as set forth in FAR 15.804-4 that must be executed by a contractor certifying the contractor's current cost and pricing data when required to do so under FAR 15.804-2.

Certified cost and pricing data
Cost and pricing data that has been certified as accurate, complete, and current as of the date of price agreement between the Government and the contractor by execution of a certificate of current cost and pricing data.

Change order
A written order, signed by the contracting officer, directing the contractor to make a change that the Changes clause authorizes the contracting officer to order without the contractor's consent. (FAR 43.101)

Channel of distribution
The route taken by the title of ownership of goods and services as they move from the producer to the ultimate consumer, or business user.

Civilian Agency Acquisition Council (CAAC)
A group composed of representatives of the Departments of Agriculture, Commerce, Energy, Health and Human Services, Interior, Labor, State, Transportation, Treasury and Veterans Affairs, the Environmental Protection Agency, and the Small Business Administration, which is charged with maintenance of the Federal Acquisition Regulation (FAR) on a joint basis with the Defense Acquisition Regulatory Council (DARC).

Claim
A written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract. A claim arising under a contract, unlike a claim relating to that contract, is a claim that can be resolved under a contract clause that provides for the relief sought by the claimant. However, a written demand or written assertion by the contractor seeking the payment of money exceeding $50,000 is not a claim under the Contract Disputes Act of 1978 until certified as required under the Act and [FAR] 33.207. A voucher, invoice, or other routine request for payment that is not in dispute when submitted is not a claim. The submission may be converted to a claim, by written notice to the contracting officer as provided at [FAR] 33.206(a), if it is disputed either as to liability or amount or is not acted upon in a reasonable time. (FAR 33.201)

Clarification
As used in FAR 15.6, "Contracting by Negotiation: Source Selection", means communication with an offeror for the purpose of eliminating minor irregularities, informalities, or apparent clerical mistakes in the proposal. It is achieved by explanation or substantiation, either in response to Government inquiry or as initiated by the offeror. Unlike discussion, clarification does not give the offeror an opportunity to revise or modify its proposal, except to the extent that correction of apparent clerical mistakes results in a revision. (FAR 15.601)

Classified information
Any information or material, regardless of its physical form or characteristics, that is owned by the United States Government, and determined pursuant to Executive Order 12356, April 2, 1982 or prior orders to require protection against unauthorized disclosure, and is so designated. (FAR 3.104-4)

COBOL
An acronym for "Common Business Oriented Language"; a high-level computer language often used for business applications.

Cognizant audit agency
The audit agency having responsibility, as determined under the administrative principles enumerated in FAR 42, for performing contract audits of a contractor. Such audit agencies include the Defense Contract Audit Agency (DCAA) of the Department of the Defense and the Office of the Inspector General (OIG) for each of the various civilian departments.

Collection period
The average number of days it takes a business to collect its accounts receivable.

Competition In Contracting Act (CICA)
A public law enacted for the purpose of increasing the number of Government procurements conducted under the principles of full and fair competition, as opposed to contracts that are issued under noncompetitive arrangements such as "sole source" or "set-aside" awards.

Commerciality
One of two conditions which must be met if an item is to qualify for the established catalog or market price requirement for the submission of cost or pricing data. A commercial item (which may be either supplies or services) if of a class or kind that is (1) regularly used for other than Government purposes, and (2) sold or traded in the course of conducting normal business operations. (The other condition that the item be sold in substantial quantities to the general public is met when the facts support a reasonable conclusion that the quantities regularly sold to other than affiliates of the seller for end use by other than the Government agencies are sufficient to constitute a real commercial product.) (ASPM-Appendix B)

Commercial paper
Bills of exchange (drafts), promissory notes, bank checks, and other negotiable instruments for the payment of money, which are such instruments by virtue of their form.

Comparability
A condition that exists between an offered price and some other price against which it is compared. This condition is necessary for effective price comparison and exists when all price related differences have been identified and accounted for so that prices being compared are based on relatively equal assumptions. (ASPM-Appendix B)

Compensated personal absence
Any absence from work for any reason such as illness, vacation, holidays, jury duty, military training, or personal activities for which an employer pays compensation directly to an employee in accordance with a plan or custom of the employer. (FAR 31.001)

Competition
An environment of varying dimensions relating to buy-sell relationships in which the buyer induces, stimulates, or relies on conditions in the marketplace that cause independent sellers to contend confidently for the award of a contract. (ASPM-Appendix B)

Competitive proposals
A competitive procurement that (1) is initiated by a request for proposals, which sets out the Government's requirements and the criteria for evaluation of offers, (2) contemplates the submission of timely proposals by the maximum number of possible offerors, (3) usually provides discussions with those offerors found to be within the competitive range, and (4) concludes with the award of a contract to the one offeror whose offer is most advantageous to the Government, considering only price and the other factors included in the solicitation. (ASPM-Appendix B)

Competitive range
A range appropriate to the post-evaluation, pre-award phase of competitive procurements. Determined by the contracting officer on the basis of price, cost, or technical or other salient factors. Unless excepted by circumstances prescribed by regulations, the contracting officer must conduct written or oral discussions with all responsible offerors who submit proposals within the competitive range. (ASPM-Appendix B)

Compilation (of financial statements)
The process whereby an accountant presents, in the form of financial statements, information that is the representation of management (owners), without undertaking to express any assurance on the statements.

Completed contract method of accounting
A method of revenue recognition for long-term contracts (i.e., contract which span more than one accounting period) whereby the total contract revenue and related cost of performance are recognized in the period in which the contract is completed. This method stands in contrast to the percentage-of-completion method of accounting and is most often used when significant uncertainty exists with respect to the total cost of performing the contract and, accordingly, the ultimate amount of profit to be recognized thereon.

Constructive change
During contract performance, an oral or written act or omission by the contracting officer or other authorized Government official, which is of such a nature that it is construed to have the same effect as a written change order. (ASPM-Appendix B)

Contingent fee
Any commission, percentage, brokerage, or other fee that is contingent upon the success that a person or concern has in securing a Government contract. (FAR 3.104-4)

Contract
A mutually binding legal relationship obligating the seller to furnish supplies or services (including construction) and the buyer to pay for them. (FAR 2.101)

Contract administration office
An office that performs (a) assigned post-award functions related to the administration of contracts and (b) assigned pre-award functions. (FAR 2.101)

Contracting
Purchasing, renting, leasing, or otherwise obtaining supplies or services from nonfederal sources. Contracting includes description of supplies and services required, selection and solicitation of sources, preparation and award of contracts, and all phases of contract administration. It does not include grants or cooperative agreements. (FAR 2.101)

Contracting activity
An element of an agency designated by the agency head and delegated broad authority regarding acquisition functions. (FAR 2.101)

Contracting office
An office that awards or executes a contract for supplies or services and performs post-award functions not assigned to a contract administration office. (FAR 2.101)

Contracting officer
A person with the authority to enter into, administer, and/or terminate contracts and make related determinations and findings. The term includes certain authorized representatives of the contracting officer acting within the limits of their authority as delegated by the contracting officer. "Administrative contracting officer (ACO)" refers to a contracting officer who is administering contracts. "Termination contracting officer (TCO)" refers to a contracting officer who is settling terminated contracts. A single contracting officer may be responsible for may be responsible for duties in any or all of these areas. Reference in [the FAR] to administrative contracting officer or termination contracting officer does not (a) require that a duty be performed at a particular office or activity or (b) restrict in any way a contracting officer in the performance of any duty properly assigned. (FAR 2.101)

Contracting officer's technical representative (COTR)
Term used to describe an individual possessing specialized technical expertise relevant to a specific procurement for the purpose of assisting the contracting officer in evaluating various contract matters and who acts as a liaison between the contracting officer and the contractor concerning technical issues.

Contract modification
Any written change in the terms of a contract. (FAR 43.101)

Contractor-acquired property
Property acquired or otherwise provided by the contractor for performing a contract and to which the Government has title. (FAR 45.101)

Contractor team arrangement
An arrangement in which (a) two or more companies form a partnership or joint venture to act as potential prime contractor; or (b) A potential prime contractor agrees with one or more other companies to have them act as its subcontractors under a specified Government contract or acquisition program. (FAR 9.601)

Contribution margin
A term used to describe the amount of gross profit from each sale that contributes towards covering fixed costs and profits. The contribution margin is equal to revenue less variable costs and may be expressed as a total, unit amount, or ratio.

Core time
In a flexible time program, core time is the period when all employees must be present.

Corporate administrative contracting officer (CACO)
A contracting officer having overall administrative contracting responsibility, i.e., on a corporate-wide basis, for certain contractors with two or more operational locations, each of which has a resident administrative contracting officer assigned. The assignment of a CACO generally is for the purpose of achieving consistency and efficiency in the contract administration function. (See FAR 42.601 et seq.)

Cost accounting standards (CAS)
Specific accounting policies prescribed by the Cost Accounting Standards Board (CASB) to ensure consistency in the application of cost accounting principles to Government contracts. The cost accounting standards are enumerated in FAR 30, along with the criteria that dictate which contractors are subject to their application.

Cost Accounting Standards Board
A body established for the purpose of establishing Government cost accounting standards (CAS).

Cost analysis
The review and evaluation of the separate cost elements and proposed profit of (a) an offeror's or contractor's cost or pricing data and (b) the judgmental factors applied in projecting from the data to the estimated costs in order to form an opinion on the degree to which the proposed costs represent what the cost of the contract should be, assuming reasonable economy and efficiency. (FAR 15.801)

Cost and pricing data
All facts as of the date of price agreement that prudent buyers and sellers would reasonably expect to affect price negotiations significantly. Cost or pricing data are factual, not judgmental, and are therefore verifiable. While they do not indicate the accuracy of the prospective contractor's judgment about estimated future costs or projections, they do include the data forming the basis for that judgment. Cost or pricing data are more than historical accounting data; they are all the facts that can be reasonably expected to contribute to the soundness of estimates of future costs and to the validity of determination of costs already incurred. They also include such factors as (a) vendor quotations; (b) nonrecurring costs; (c) information on changes in production methods and in production or purchasing volume; (d) data supporting projections of business prospects and objectives and related operations costs; (e) unit-cost trends such as those associated with labor efficiency; (f) make or buy decisions; (g) estimated resources to attain business goals; and (h) information on management decisions that could have a significant bearing on costs. (FAR 15.801)

Cost input
The cost, except general and administrative (G&A) expenses, which for contracting purposes is allocable to the production of goods and services during a cost accounting period. (FAR 31.001)

Cost objective
A function, organizational subdivision, contract, or other work unit for which cost data are desired and for which provision is made to accumulate and measure the cost of processes, products, jobs, capitalized projects, etc. (FAR 30.301, 31.001)

Cost of capital committed to facilities
An imputed cost determined by applying a cost of money rate to individual facilities capital. (FAR 31.001)

Cost of money
An imputed cost determined by applying a cost-of-money rate to facilities capital employed in contract performance, or to an investment in tangible and intangible assets while they are being constructed, fabricated or developed for the contractor's own use. Although technically not a recovery of interest, as specifically expressed in FAR 31.205-10, cost of money is intended to compensate a contractor for the capital cost of employing certain facilities in the performance of contracts, and therefore has many of the characteristics of a reimbursement for interest. A cost of money provision is allowable only if the contractor's capital investment is accounted for in accordance with the relevant Cost Accounting Standards and is specifically identified or proposed in the contractor's cost proposal for a given contract. (See FAR 31.201-10)

Cost-plus-award-fee (CPAF) contract
A cost-reimbursement contract which provides for a fee consisting of (1) a base amount fixed at inception of the contract and (2) an award amount that the contractor may earn in whole or in part during performance and that is sufficient to provide motivation for excellence in such areas as quality, timeliness, technical ingenuity, and cost effective management. The amount of the award fee to be paid is determined by the Government's judgmental evaluation of the contractor's performance in terms of the criteria stated in the contract. This determination is made unilaterally by the Government and is not subject to the disputes clause. (FAR 16.404-2)

Cost-plus-fixed-fee (CPFF) contract
A cost-reimbursement contract which provides payment to the contractor of a negotiated fee that is fixed at the inception of the contract. The fixed fee does not vary with actual cost, but may be adjusted as a result of changes in the work to be performed under the contract. This contract type permits contracting for efforts that might otherwise present too great a risk to contractors, but it provides the contractor only a minimum incentive to control costs. (FAR 16.306)

Cost-plus-incentive-fee (CPIF) contract
A cost-reimbursement contract that provides for the initially negotiated fee to be adjusted later by a formula based on the relationship of total allowable costs to total target costs. This contract type specifies a target cost, a target fee, minimum and maximum fees, and a fee adjustment formula. After contract performance, the fee payable to the contractor is determined in accordance with the formula. The formula provides, within limits, for increases in fee above target fee when total allowable costs are less than target costs, and decreases in fee below target fee when total allowable costs exceed target costs. This increase or decrease is intended to provide an incentive for the contractor to manage the contract effectively. When total allowable cost is greater than or less than the range of costs within which the fee adjustment formula operates, the contractor is paid total allowable costs, plus the minimum or maximum fee. (FAR 16.404-1)

Cost-reimbursement contract
A type of contract which provides for payment of allowable incurred costs, to the extent prescribed in the contract. These contracts establish an estimate of total cost for the purpose of obligating funds and establishing a ceiling that the contractor may not exceed (except at its own risk) without the approval of the contracting officer. (FAR 16.301-1)

Cost-sharing contract
A cost-reimbursement contract in which the contractor receives no fee and is reimbursed only for an agreed-upon portion of its allowable costs. (FAR 16.303)

Currently performing
A contractor has been awarded a contract, but has not yet received final notification of acceptance of all supplies, services, and data deliverable under this contract (including options). (FAR 30.301)

Cycle count
In a perpetual inventory system, a test count of certain product lines or items taken on a periodic basis. This physical method is used to determine the accuracy of the perpetual inventory quantities and to control shrinkage problems.

Cycles of exchange
The period of time between the acquisition of goods and services for resale and the time funds received in payment from the sale of these goods and services are used to acquire replacement goods and services.

Data base management system (DBMS)
Term used to describe software that organizes, catalogues, locates, retrieves and maintains data in a data base.

Debarment
An action taken by a debarring official under FAR 9.406 to exclude a contractor from Government contracting or Government approved subcontracting for a reasonable specified period. (FAR 9.403)

Debt service ratios
Measurements used to assess a company's ability to repay debt. Some common debt service ratios include the following:

Defective cost or pricing data
Certified cost or pricing data subsequently found to have been inaccurate, incomplete, or noncurrent as of the effective date of the certificate. In this case, the Government is entitled to an adjustment of the negotiated price, including profit or fee, to exclude any significant sum by which the price was increased because of the defective data, provided the data were relied upon by the Government (ASPM-Appendix B)

Defense Acquisition Regulatory Council (DARC)
A group composed of representatives from each Military department, the Defense Logistics Agency and the National Aeronautics and Space Administration that is charged with maintenance of the Federal Acquisition Regulation (FAR) on a joint basis with the Civilian Agency Acquisition Council (CAAC).

Defense Contract Audit Agency (DCAA)
The audit agency responsible for carrying out the audit function for contracts with the Department of Defense. The DCAA is probably the best known and most influential of the various Government audit agencies. It has broad authority to perform a variety of contract audits as well as to assist in reviewing and evaluating contract cost, pricing, performance and administration. The DCAA also makes its services available to those civilian departments needing such assistance.

Defense contractor
Any person who enters into a contract with the United States for the production of material or performance of services for the national defense. (FAR 30.301)

Defense subcontractor
Any person other than the United States who contracts, at any tier, to perform any part of a defense contractor's contract. (FAR 30.301)

Deferred compensation
An award made by an employer to compensate an employee in a future cost accounting period or periods for services rendered in one or more cost accounting periods before the date of the receipt of compensation by the employee. (FAR 31.001)

Definite quantity contract
A contract which provides for delivery of a definite quantity of specific supplies or services for a fixed period, with deliveries to be scheduled at designated locations upon order. (FAR 16.503)

Department of Defense Federal Acquisition Regulation Supplement (DFARS)
An agency supplement issued by the Department of Defense for the purpose of implementing the basic Federal Acquisition Regulation in accordance with the specific policies of the Department.

Depreciation
An accounting term used to describe the systematic cost allocation through which the decline in usefulness of a company's tangible assets are recorded over time.

Determination and findings
A special form of written approval by an authorized official that is required by statute or regulation as a prerequisite to taking certain contract actions. The "determination" is a conclusion or decision supported by the "findings". The findings are statements of fact or rationale essential to support the determination and must cover each requirement of the statute or regulation. (FAR 1.701)

Differential rate
Term used to describe a deviation from some established standard rate structure.

Direct cost
Any cost which is identified specifically with a particular final cost objective. (FAR 30.301)

Directly associated cost
Any cost which is generated solely as a result of the incurrence of another cost, and which would not have been incurred had the other cost not been incurred. (FAR 31.001)

Disclosure statement (cost accounting standards)
Persons or firms required to complete and submit a disclosure statement (Form CASB-DS-1) describe their contract cost accounting practices by providing data that are responsive to the form's requirements. (ASPM-Appendix B, as abridged)

Discounted future earnings method
A method used in valuing a business which estimates a series of future earnings along with a terminal residual value, each of which is discounted to its present value based on the rate of return desired by the investor.

Discussion
As used in FAR 15.6, "Contracting by Negotiation: Source Selection", any oral or written communication between the Government and an offeror (other than communications conducted for the purpose of minor clarification), whether or not initiated by the Government, that (a) involves information essential for determining the acceptability of a proposal, or (b) provides the offeror an opportunity to revise or modify its proposal. (FAR 15.601)

Distributed network model
An organization where individual branches are relatively independent and communication and inventory sharing are done on an informal basis. Under this model, headquarters may offer some functions such as billing, purchasing and accounting, but for the most part, branches operate anonymously.

Domestic end product
(a) An unmanufactured end product mined or produced in the United States, or (b) an end product manufactured in the United States, if the cost of its components mined, produced, or manufactured in the United States exceeds 50 percent of the cost of all its components. (FAR 25.101)

Domestic offer
An offered price for a domestic end product, including transportation to destination. (FAR 25.101)

Domestic services
Services performed in the United States. If services provided under a single contract are performed both inside and outside the United States, they shall be considered domestic if 25 percent or less of their total cost is attributable to services performed outside the United States. (FAR 25.301)

Drop shipper
A limited-function distributor that carries little or no inventory. The term is sometimes used to describe certain systems integrators that configure a systems solution based on hardware and software obtained from many different vendors and then coordinate the delivery and installation by those vendors without directly handling the related items.

Economically disadvantaged individuals
Socially disadvantaged individuals whose ability to compete in the free enterprise system is impaired due to diminished opportunities to obtain capital and credit as compared to others in the same line of business who are not socially disadvantaged.

Economic order quantity (EOQ)
The size of an order at which the combined cost of procuring and carrying inventory is at a minimum.

Economic price adjustment
An alteration permitted and specified by contract provisions for the upward or downward revision of a stated contract price upon the occurrence of certain contingencies that are defined in the contract. (ASPM-Appendix B)

Electronic data interchange
Transmission of information between computers using highly standardized electronic versions of common business documents.

Emerging small business
A small business concern whose size is no greater than 50 percent of the numerical size standard applicable to the Standard Industrial Classification code assigned to a contracting opportunity. (FAR 19.1002)

End product
Those articles, materials, and supplies to be acquired for public use under the contract. (FAR 25.101)

Equity
An accounting term used to describe the net investment of owners or stockholders in a business. Under the accounting equation, equity also represents the result of assets less liabilities.

Established catalog price
A price included in a catalog, price list, schedule or other form that (1) is regularly maintained by a manufacturer or vendor, (2) is published or made available for inspection by customers, and (3) states prices at which sales are currently or were last made to a significant number of buyers constituting the general public. (ASPM-Appendix B)

Established market price
A current price, established in the usual and ordinary course of trade between buyers and seller free to bargain, which can be substantiated from sources independent of the manufacturer or vendor, although such pricing data may have to come from the seller. (ASPM-Appendix B)

Estimating costs
The process of forecasting a future result in terms of cost, based on information available at the time. (FAR 31.001)

Excess insurance
Coverage beyond the primary or first layer of insurance; for example, excess coverage of $1,000,000 beyond $500,000 of primary coverage.

Expressly unallowable cost
A particular item or type of cost which, under the express provisions of an applicable law, regulation, or contract, is specifically named and stated to be unallowed. (FAR 31.001)

Facilities capital
The net book value of tangible capital assets and of those intangible capital assets that are subject to amortization. (FAR 31.001)

Facilities contract
A contract under which Government facilities are provided to a contractor or subcontractor by the Government for use in connection with performing one or more related contracts for supplies or services. (FAR 45.101)

Fair and reasonable price
A price that is fair to both parties, considering the agreed-upon conditions, promised quality, and timeliness of contract performance. Although generally a fair and reasonable price is a function of the law of supply and demand, there are statutory, regulatory, and judgmental limits on the concept. (ASPM-Appendix B)

Fair market value
The price (cash or equivalent) that a buyer could reasonably be expected to pay and a seller could reasonably be expected to accept, if the business were for sale on the open market for a reasonable period of time, both buyer and seller being in possession of all pertinent facts, and neither being under any compulsion to act.

Federal Acquisition Regulation (FAR)
The body of regulations which is the primary source of authority governing the Government procurement process. The FAR, which is published as Chapter 1 of Title 48 of the Code of Federal Regulations, is prepared, issued, and maintained by under the joint auspices of the Secretary of Defense, the Administrator of General Services, and the Administrator of the National Aeronautics and Space Administration. Actual responsibility for maintenance and revision of the FAR is vested jointly in the Defense Acquisition Regulatory Council (DARC) and the Civilian Agency Acquisition Council (CAAC). The FAR provisions are implemented and augmented by the various agency supplements, and are subject to interpretation by the entities such as the Federal courts, the Armed Services Board of Contract Appeals (ASBCA), the General Services Board of Contract Appeals (GSBCA) and others.

Federal Information Resource Management Regulation (FIRMR)
The body of regulations that has primary jurisdiction over the acquisition by the Government of supplies and services related to automated data processing. In cases of conflict with the Federal Acquisition Regulation (FAR), the provisions of the FIRMR have precedence.

Fee
In specified cost reimbursement pricing arrangements, fee represents an agreed-to amount beyond the initial estimate of costs. In most instances, fee reflects a variety of factors, including risk, and is subject to statutory limitations. Fee may be fixed at the outset of performance, as in a cost-plus-fixed-fee contract, or may vary (within a contractually specified minimum-maximum range) as in a cost-plus-incentive fee contract. (ASPM-Appendix B, as modified)

Final cost objective
A cost objective that has allocated to it both direct and indirect costs and, in the contractor's accumulation system, is one of the final accumulation points. (FAR 31.001)

Final indirect cost rate
The indirect cost rate established and agreed upon by the Government and the contractor as not subject to change. It is usually established after the close of the contractors fiscal year (unless the parties decide upon a different period) to which it applies. In the case of cost-reimbursement research and development contracts with educational institutions, it may be predetermined; that is, established for a future period on the basis of cost experience with similar contracts, together with supporting data. (FAR 42.701)

Final indirect rate proposal
A document required to be prepared and submitted annually by contractors performing cost-reimbursement contracts in which the contractor enumerates the composition of its claimed indirect cost pools and the resulting indirect cost rates for the year. The proposal is subject to audit by the Government before final rates are determined.

Firm-fixed-price (FFP) contract
A fixed-price contract which provides for a price that is not subject to any adjustment on the basis of the contractor's cost experience in performing the contract. This contract type places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss. It provides maximum incentive for the contractor to control costs and perform efficiently and imposes a minimum administrative burden upon the contracting parties. (FAR 16.202-1)

First in, first out (FIFO)
An accounting term used to describe the inventory method that allocates cost on the assumption that the cost of the first goods purchased is the cost of the first goods sold.

Firm-fixed price, level-of-effort term contract (FFP-LOE)
A contract which requires (a) the contractor to provide a specified level of effort, over a stated period of time, on work that can be stated only in general terms and (b) the Government to pay the contractor a fixed dollar amount. (FAR 16.207-1)

Fiscal year
The accounting period for which annual financial statements are regularly prepared, generally a period of 12 months, 52 weeks, or 53 weeks.

Fixed assets
Term used to describe tangible assets having relatively long lives such as property, plant and equipment.

Fixed costs
Costs that do not vary with the level of activity during a given period. In practice, some fixed costs are difficult to distinguish from variable costs; it has been said that all costs are fixed in the short run and variable in the long run.

Fixed-price contract with economic price adjustment
A fixed-price contract which provides for upward or downward revision of the stated contract price upon the occurrence of specified contingencies. (FAR 16.203-1)

Fixed-ceiling-price contract with retroactive price redetermination
A fixed-price contract which provides for (a) a fixed ceiling price and (b) retroactive price redetermination within the ceiling after completion of the contract. (FAR 16.206-1)

Fixed-price (FP) contract
A contract type which provides for a firm price or, in appropriate cases, an adjustable price. Fixed-price contracts providing for an adjustable price may include a ceiling price, a target price (including target cost), or both. Unless otherwise specified in the contract, the ceiling price or target price is subject to adjustment only by operation of contract clauses providing for equitable adjustment or other revision of the contract price under stated circumstances. (FAR 16.201)

Fixed-price contract with prospective price redetermination
A fixed-price contract which provides for (a) a firm fixed price for an initial period of contract deliveries or performance and (b) prospective redetermination, at a stated time or times during performance, of the price for subsequent periods of performance. (FAR 16.205-1)

Fixed-price incentive (FPI) contract
A fixed-price contract that provides for adjusting profit and establishing the final contract price by application of a formula based on the relationship of total final negotiated cost to total target cost. The final price is subject to a price ceiling, negotiated at the outset. (FAR 16.403)

Foreign offer
An offered price for a foreign end product, including transportation to destination and duty (whether or not a duty-free entry certificate is issued). (FAR 25.101)

Forward pricing rate agreement
A written agreement negotiated between a contractor and the Government to make certain rates available during a specified period for use in pricing contracts or modifications. (FAR 15.801)

Freedom of Information Act (FOIA)
A public law established for the purpose of providing for the disclosure to the general public of Government information not classified in accordance with national security or other confidentiality requirements.

Fringe pool
A type of indirect cost pool that commonly is established for the purpose of accumulating employee fringe benefit costs. This type of pool has become increasingly popular in recent years. Common costs accumulated in such pools include those for compensated absences, health insurance, bonuses, retirement plans, and payroll taxes.

Fringe rate
An indirect cost rate which expresses the relationship between costs accumulated in a fringe pool and the related base for allocating such costs, for a given period of time. A typical allocation base for a fringe pool is the related labor dollars.

Full and open competition
With respect to a contract action, means that all responsible sources are permitted to compete. (FAR 6.003)

General Accounting Office (GAO)
The audit agency of the United States Congress. GAO has broad authority to conduct investigations on behalf of the Congress and to review certain contract decisions, including protests of contract awards and decisions of contracting officers' with respect to the acquisition by the Government of supplies and services related to automated data processing.

General and administrative expense (G&A)
Any management, financial, and other expense which is incurred by or allocated to a business unit and which is for the general management and administration of the business unit as a whole. G&A expense does not include those management expenses whose beneficial or casual relationship to cost objectives can be more directly measured by a base other than a cost input base representing the total activity of a business unit during a cost accounting period. (FAR 31.001)

G&A pool
A type of indirect cost pool that commonly is established for the purpose of accumulating general and administrative expenses. G&A expenses are often distinguished from expenses included in one or more overhead pools on the basis that the G&A expenses are less directly associated with contract activities than overhead costs. Costs typically segregated in a G&A pool include general management salaries, salaries of employees engaged in administration, finance and accounting, and a proportionate share of items such as rent, depreciation, taxes, and general business insurance associated with general and administrative activities. The G&A pool is also the repository for Bid and Proposal (B&P) and Independent Research and Development (IR&D) costs, as well as certain other business development costs.

G&A rate
An indirect cost rate which expresses the relationship between costs accumulated in a G&A pool and the related base for allocating such costs, for a given period of time. The base for allocating G&A expenses in determining the G&A rate usually consists of total cost inputs for a business unit before G&A expenses.

Generally accepted accounting principles (GAAP)
Term used to describe broadly the body of principles that governs the accounting for financial transactions underlying the preparation of a set of financial statements. Generally accepted principles are derived from a variety of sources, including promulgations of the Financial Accounting Standards Board and its predecessor, the Accounting Principles Board, and the American Institute of Certified Public Accountants. Other sources include the general body of accounting literature consisting of textbooks, articles, papers, etc.

General Services Board of Contract Appeals (GSBCA)
The executive branch entity responsible for deciding appeals of contracting officers' decisions with respect to contracts for the acquisition by the Government, other than the Department of Defense, of supplies and services. In addition to its role as the primary appeals body for the civilian agencies, the GSBCA also shares responsibility with the General Accounting Office (GAO) for deciding appeals of decisions issued with respect to automated data processing acquisitions on a Government-wide basis.

Government-furnished property
Property in the possession of or directly acquired by the Government and subsequently made available to the contractor. (FAR 45.101)

Head of the contracting activity
The official who has overall responsibility for managing the contracting activity. (FAR 2.101)

Home office
An office responsible for directing or managing two or more, but not necessarily all, segments of an organization. It typically establishes policy for, and provides guidance to, the segments in their operations. It usually performs management, supervisory, or administrative functions, and may also perform service functions in support of the operations of the various segments. An organization which has intermediate levels, such as groups, may have several home offices which report to a common home office. An intermediate organization may be both a segment and a home office. (FAR 31.001)

Improper influence
Any influence that induces or tends to induce a Government employee or officer to give consideration or to act regarding a Government contract on any basis other than the merits of the matter. (FAR 3.101-4)

Incurred cost submission
A term commonly used to describe a final indirect rate proposal prepared in the format required by the Defense Contract Audit Agency.

Incurred cost audit
Term used to describe the audit of a contractor's incurred cost submission, primarily for the purpose of determining the allowability of costs charged to cost-reimbursement type contracts.

Indefinite quantity contract
A contract which provides for an indefinite quantity, within stated limits, of specific supplies or services to be furnished during a fixed period, with deliveries to be scheduled by placing orders with the contractors. (FAR 16.504)

Independent research and development (IR&D) cost
The cost effort which is neither sponsored by a grant, nor required in performing a contract, and which falls within any of the four following areas: (a) basic research, (b) applied research, (c) development, and (d) systems and other concept formulation studies. (FAR 31.001)

Indirect cost
A grouping of costs not directly identified with a single final cost objective, but identified with two or more final cost objectives or with at least one intermediate cost objective. (FAR 30.301)

Indirect cost pool
A grouping of indirect costs identified with two or more objectives but not identified specifically with any final cost objective. (FAR 30.301, 31.001)

Indirect cost rate
The percentage or dollar factor that expresses the ratio of indirect costs incurred in a given period to direct labor cost, manufacturing cost, or another appropriate base for the same period. (FAR 42.701)

Intangible capital asset
An asset that has no physical substance, has more than minimal value, and is expected to be held by the enterprise for continued use beyond the current accounting period for the benefits it yields. (FAR 31.001)

Kickback
Any money, fee, commission, credit, gift, gratuity, thing of value, or compensation of any kind which is provided, directly or indirectly, to any prime contractor, prime contractor employee, subcontractor, or subcontractor employee for the purpose of improperly obtaining or rewarding favorable treatment in connection with a prime contract or in connection with a subcontract relating to a prime contract. (FAR 3.104-4)

Labor cost at standard
A preestablished measure of the labor element of cost, computed by multiplying labor-rate standard by labor-time standard. (FAR 31.001)

Labor hour contract
A variation of a time and materials ( T&M) contract, differing only in that materials are not supplied by the contractor. (FAR 16.602)

Labor-rate standard
A preestablished measure, expressed in monetary terms, of the price of labor. (FAR 31.001)

Labor-time standard
A preestablished measure, expressed in temporal terms, of the price of labor. (FAR 31.001)

Last in, first out (LIFO)
An accounting term used to describe the inventory method that allocates cost on the assumption that the cost of the last goods purchased is the cost of the first goods sold.

Lead agency
Term often used to describe, for a particular contractor (or a business unit or segment of a contractor), that Federal Government agency (or contract administration office) with primary responsibility for certain contract matters, such as negotiation of advance agreements and settlement of final indirect cost rates. In connection with the negotiation of advance agreements covering independent research and development costs, the term has the specific meaning attributed to it at FAR 42.1003 regarding the vesting of authority for such agreements within a single agency.

Lead time
The period of time between the determination of need for an item and the actual manufacture and delivery of the item.

Lease-to-ownership program (LTOP)
A contract for the lease of property that provides for the automatic transfer of title to the property to the Government upon the expiration of the lease.

Lease-with-option purchase
A contract for the lease of property that provides the Government with the options to purchase the property at one or more points during the lease, or upon its expiration.

Letter contract
A written preliminary contractual instrument that authorizes the contractor to begin immediately manufacturing supplies or performing services. (FAR 16.603-1)

Leveraged buy-out
A mechanism under which a company is acquired by a person or entity using the value of the company's assets to finance its acquisition; this allows for the acquirer to minimize its outlay of cash in making the purchase.

Liabilities
Amounts owed by a business to its creditors.

Limitation of Cost clause
A clause prescribed for inclusion in cost-reimbursement type contracts that establishes requirements for notifying the Government a) at any point at which the contractor has reason to believe that the total cost for performance of the contract will be either greater or substantially less than had been previously estimated, or b) when incurred costs as of a given date plus costs expected to be incurred over the subsequent 60-day period are expected to exceed 75% of the contract target cost. The notification provision is designed to allow the Government an opportunity to assess the contract progress and to issue a stop-work order if it decides not to continue. The notification to be provided must be in writing. Failure to comply with this clause is one of the most common bars to recovery of cost overruns on cost-reimbursement type contracts. (See FAR 52.232-20 and 52.232.21)

Limitation of Funds clause
A clause prescribed for inclusion in cost-reimbursement type contracts that establishes requirements for notifying the Government when incurred costs as of a given date plus costs expected to be incurred over the subsequent 60-day period are expected to exceed 75% of the total amount so far allotted by the Government (i.e., the funded amount). The notification provision is designed to allow the Government to designate additional funding for the contract in order to proceed in a timely manner. The notification to be provided must be in writing. (See FAR 52.232.22)

Liquidity
The ability of a business to meet its obligations as they come due; the more liquid a business is, the better able it is to meet short-term financial obligations.

Liquidity ratios
Measurements used to calculate the degree of a company's liquidity, i.e., its ability to meet its obligations as they come due. Some common liquidity ratios and the formulas for calculating them are as follows:

Lockbox
A bank facility that accelerates the collection of receivables by reducing mail and processing time associated with remittance handling. Under a lockbox arrangement, customers mail remittances to a uniquely zip-coded post office box (lockbox) which the bank then uses to rapidly process credits to a customer's account. All documents accompanying the remittances are forwarded to the company through prearranged channels.

Market data method
A method used in valuing a business which uses sales of comparable businesses as a base and adjusts the figures for differences.

Material cost at standard
A preestablished measure of the material elements of cost, computed by multiplying material price standard by material-quantity standard. (FAR 31.001)

Material management
The process of procuring and moving materials, parts, or finished inventory from the point of purchase to assembly plants, warehouses, or the final customer.

Material-price standard
A preestablished measure, expressed in monetary terms, of the price of material. (FAR 31.001)

Material-quantity standard
A preestablished measure, expressed in physical terms, of the quantity of material.

Modification
The addition of new work to a contract, or the extension of a contract, which requires a justification and approval. (FAR 3.104-4)

Modified Accelerated Cost Recovery System (MACRS)
A system of computing and allocating depreciation of property and equipment over one or more periods that is prescribed by the Internal Revenue Code. The MACRS system is a modification of the Accelerated Cost Recovery System method of depreciation introduced in the Tax Reform Act of 1986.

Moving average cost
An inventory costing method under which an average unit cost is computed after each acquisition by adding the cost of the newly acquired units to the cost of the units of inventory on hand and dividing this figure by the new total number of units. (FAR 31.001)

Multiyear contracts
Contracts covering more than one-year's but not in excess of five-year's requirements. Each program year is annually budgeted and funded and, at the time of award, funds need only to have been appropriated for the first year. (FAR 17.101)

Negotiated subcontract
Any subcontract except a firm fixed-price subcontract made by a contractor or subcontractor after receiving offers from at least two persons not associated with each other or with such contractor or subcontractor, providing (a) the solicitation to all competitors is identical, (b) price is the only consideration in selecting from among the competitors solicited, and (c) the lowest offer received in compliance with the solicitation from among those solicited is accepted. (FAR 30.301)

Negotiation
Contracting through the use of either competitive or other-than-competitive proposals and discussions. Any contract awarded without using sealed bidding procedures is a negotiated contract. (FAR 15.101)

Net awards
The total obligated value of negotiated national defense prime contract and subcontract awards received during the reporting period minus cancellations, terminations, and other related credit transactions. (FAR 30.301)

Net income
The net return (earnings or profit) earned by a business after deducting all selling and administrative costs, depreciation, taxes and any other adjustments prior to dividends and withdrawals.

Novation agreement
A legal instrument executed by (a) the contractor (transferor), (b) the successor in interest (transferee), and (c) the Government by which, among other things, the transferor guarantees performance of the contract, the transferee assumes all obligations under the contract, and the Government recognizes the transfer of the contract and related assets. (FAR 42.701)

Operating cycle of a business
The average period of time between acquisition of merchandise or materials by a business and realization of cash from the sale of merchandise or products manufactured from raw materials.

Operating revenue
Amounts accrued or charged to customers, clients, and tenants, for the sale of products manufactured or purchased for resale, for services, and for rental of property held primarily for leasing to others.

Overhead pool
A term that is often used to describe a type of indirect cost pool in which common costs related to a one or more groups of cost objectives are accumulated. Although the term frequently is used in a comparatively broad sense, it is probably most often employed for the purpose of designating pools that contain costs that are general in nature, such as indirect labor, rent, supplies, insurance, and depreciation. An overhead pool is often used to accumulate costs that are distinct from those necessary to the overall operation of a business (which are often termed "general and administrative" costs), or those that may have a greater degree of commonality (such as employee fringe benefits). Overhead pools are commonly established using a variety of indicators of allocability such as costs associated with individual business units, geographic locations, or groups of related cost objectives.

Overhead rate
An indirect cost rate which expresses the relationship between costs accumulated in an overhead pool and the related base for allocating such costs, for a given period of time. A typical allocation base for an overhead pool is the related direct labor dollars.

Percentage-of-completion method of accounting
A method of revenue recognition for long-term contracts (i.e., contracts which span more than one fiscal period) under which a portion of the total contract revenue, and a share of contract costs, is recorded in each period based on the relative cost or effort applied during that period. This method stands in contrast to the completed contract method of accounting, and is considered appropriate when the total cost of performing the contract and, accordingly, the ultimate profit to be recognized thereon, is reasonably determinable and predictable.

Periodic inventory method
Using a "purchases" account, this system of inventory adds beginning inventory to net purchases and subtracts ending inventory to determine cost of goods sold. Inventory is thus periodically calculated rather than perpetually recorded.

Perpetual inventory method
An inventory recording system that keeps a continuous record of all goods in stock; as items are sold, the cost is transferred to a cost of goods sold account.

Physical distribution management
The integration of two or more activities for the purpose of planning the efficient flow of raw materials, in-process inventory and finished goods from point of origin to point of consumption.

Pre-award survey
An evaluation by a surveying activity of a prospective contractor's capability to perform a proposed contract. (FAR 9.101)

Price analysis
The process of examining and evaluating a proposed price without evaluating its separate cost elements and proposed profit. (FAR 15.801)

Pricing
The process of establishing a reasonable amount or amounts to be paid for supplies or services. (FAR 31.001)

Procurement Automated Source System (PASS)
A database maintained by the A HREF="#Small Business Administration (SBA)">Small Business Administration (SBA) which lists the capabilities of contractors certified under the SBA's 8(a) program for the benefit of Government agencies and larger contractors who wish to utilize such 8(a) firms.

Procurement official
Any civilian or military official or employee of an agency who has participated personally and substantially in the conduct of the agency procurement concerned, including all officials and employees who are responsible for reviewing and approving the procurement. (FAR 3.104-4)

Profitability ratios
Measurements used to assess the relative profitability of a company. Some common profitability ratios and the formulas for calculating them are as follows:

Profit center
The smallest organizationally independent segment of a company charged by management with profit and loss responsibilities. (FAR 31.001)

Prompt Payment Act
A law enacted in order to ensure that companies transacting business with the Government are paid in a timely manner. With certain exceptions, the Act requires that the Government make payment within 30 days from the date of submission of a properly prepared invoice by a contractor. For amounts not paid within the required period, the Government is obligated to pay interest at a rate established by the Secretary of the Treasury. At the time of original enactment, the law provided for a 15-day grace period in addition to the basic 30-day period; this provision was subsequently repealed due to perceived abuse by the Government. (See FAR 32.9)

Proposal
Any offer or other submission used as a basis for pricing a contract, contract modification, or termination settlement or for securing payments thereunder. (FAR 31.001)

Protest
A written objection by an interested party to a solicitation by an agency for offers for a proposed contract for the acquisition of supplies or services or a written objection by an interested party to a proposed award or the award of such a contract. (FAR 33.101)

Provisional rate
An alternate term for a billing rate.

Qualified bidders list (QBL)
A list of bidders who have had their products examined and tested and who have satisfied all applicable qualification requirements for that produce or have otherwise satisfied all applicable qualification requirements. (FAR 9.201)

Qualified manufacturers list (QML)
A list of manufacturers who have had their products examined and tested and who have satisfied all applicable qualification requirements for that product. (FAR 9.201)

Qualified products list (QPL)
A list of products which have been examined, tested, and have satisfied all applicable qualification requirements. (FAR 9.201)

Qualification requirement
A Government requirement for testing or other quality assurance demonstration that must be completed before award of a contract. (FAR 9.201)

Qualitative forecasting techniques
Forecasting techniques that use expert judgment and experience combined with a rating system to develop projections of future events and results.

Quick closeout
The settlement of indirect costs for a specific contract in advance of the determination of relevant final indirect cost rates. The use of quick closeout procedures generally is permitted only when the potential for audit differences between final and proposed indirect rates is low and/or the amounts of unsettled indirect costs are insignificant. (See FAR 42.708)

Rate variance
A measure of the difference between a particular actual indirect cost rate and the related provisional rate or billing rate.

Real time processing
A form of processing in which information is processed more-or-less immediately as it is input into the system.

Replacement cost method
A method used in valuing a business which focuses on valuing specific components of the investment such as individual business assets.

Requirements contract
A contract which provides for filling all actual purchase requirements of designated Government activities for specific supplies or services during a specified contract period, with deliveries to be scheduled by placing orders with the contractor. (FAR 16.503)

Responsible
Term used to describe one of the principal criteria that a contractor must meet in order to eligible for the award of a particular contract. A contractor generally is deemed to be responsible if it: has adequate financial resources to perform the contract; is capable of complying with the proposed performance of delivery schedule; has a satisfactory performance record; has a satisfactory record of integrity; has the necessary organization, experience, accounting and operational controls, and technical skills, or the ability to obtain them; has the necessary production, construction, and technical equipment and facilities, or the ability to obtain them; and is otherwise qualified and eligible to receive an award. (See FAR 9.104)

Retained earnings
The portion of after-tax net income of a corporation not paid out to shareholders in the form of dividends, but which instead is retained for use in the business.

Review (of financial statements)
The process of performing inquiry and analytical procedures that provide a certified public accountant with a reasonable basis for expressing limited assurance that there are no material modifications that should be made to a company's financial statements in order for them to be in conformity with generally accepted accounting principles or, if applicable, with another comprehensive basis of accounting. A review provides less assurance than an audit, more assurance than a compilation (which provides no assurance).

Risk management
The process for the identification, analysis, and treatment of loss exposure as well as the administration of techniques to accomplish the goals of a company in minimizing potential financial loss from such exposure.

Segment
One of two or more divisions, product departments, plants or other subdivisions of an organization reporting directly to a home office, usually identified with responsibility for profit and/or producing a product or service. The term includes Government-owned contractor operated (GOCO) facilities, and joint ventures and subsidiaries (domestic and foreign) in which the organization has a majority ownership. The term also includes those joint ventures and subsidiaries (domestic and foreign) in which the organization has less than a majority of ownership, but over which it exercises control.

Service life
The period of usefulness of a tangible capital asset (or group of assets) to its current owner. The period may be expressed in units of time or output. The estimated service life of a tangible capital asset (or group of assets) is a current forecast of its service life and is the period over which depreciation cost is to be assigned. (FAR 31.001)

Size standards
Measures established by the Small Business Administration for the purpose of determining whether a business qualifies as a small business for purposes of implementing the socioeconomic programs enumerated in Part 19 of the Federal Acquisition Regulation. SBA size standards establish ceilings on either number of employees or the amount of annual revenue for each industry code contained in the Standard Industrial Classification Manual published by the Government.

Small Business Administration (SBA)
The Government agency that has primary responsibility for the advancement of small business. The SBA serves as a small business advocate through its many programs designed to assist small businesses in areas such as training, financing, and the identification of opportunities.

Small business
Any concern, firm, person, corporation, partnership, cooperative, or other business enterprise which, under 15 U.S.C. 637(b)(6) and the rules and regulations of the Small Business Administration in Part 121 of Title 13 of the Code of Regulations, is determined to be a small business concern for the purpose of Government contracting. (FAR 30.301)

Small business concern
A concern, including its affiliates, that is independently owned and operated, not dominant in the field of operation in which it is bidding on government contracts, and qualified as a small business under the criteria and size standards in 13 CFR Part 121. (FAR 19.001)

Small business innovative research (SBIR) contract
A type of contract designed to foster technological innovation by small businesses. Eligibility for SBIR contracts is limited to for-profit businesses with 500 or fewer employees. The SBIR contract program provides for a three-phased approach to research and development projects. The first phase is used to establish technological feasibility and ability of the contractor to fully develop the concept or idea; Phase I contracts generally are for six months and are limited to $50,000. Phase II contracts embody the primary research effort; this phase is usually limited to two years with a funding maximum of $500,000. Phase III entails the effort to convert the technology to a commercial application. Phase III efforts are not funded by the Government; instead, funding is provided by third parties such as venture capitalists or large corporations.

Small disadvantaged business concern
A small business concern that is at least 51 percent unconditionally owned by one or more individuals who are both socially and economically disadvantaged, or a publicly owned business that has at least 51 percent of its stock unconditionally owned by one or more socially and economically disadvantaged individuals and that has management and daily business controlled by one or more such individuals. (FAR 19.001)

Small purchase
An acquisition of supplies, nonpersonal services, and construction in the amount of $25,000 or less using small purchase procedures. (FAR 13.101)

Socially disadvantaged individuals
Individuals who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their qualities as individuals. (FAR 19.001)

Sole source acquisition
A contract for the purchase of supplies or services that is entered into or proposed to be entered into by an agency after soliciting and negotiating with only one source. (FAR 6.003)

Specification
A description of the technical requirements for a material, product, or service that includes the criteria for determining whether these requirements are met. Specifications shall only state the Government's actual minimum needs and be designed to promote full and open competition, with due regard to the nature of the supplies or services to be acquired. (FAR 10.001)

Standard
A document that establishes engineering and technical limitations and applications of items, materials, processes, methods, designs, and engineering practices. It includes any related criteria deemed essential to achieve the highest practical degree of uniformity in materials or products, or interchangeability of parts used in those products. (FAR 10.001)

Standard cost
Any cost computed with the use of preestablished measures. (FAR 31.001)

Standard Industrial Classification code (SIC)
A code representing a category within the Standard Industrial Classification System administered by the Statistical Policy Division of the U.S. Office of Management and Budget. The system was established to classify all industries in the U.S. economy. A two-digit code designates each major industry group, which is coupled with a second two-digit code representing subcategories.

Statement of cash flows
A financial statement that reports net cash provided or used as a result of a company's operating, investing, and financing activities and the net effect of those cash flows on cash and cash equivalents for a given period in a manner that reconciles beginning and ending cash and cash equivalents.

Statement of income
A financial statement whose purpose is to show the results of a company's operations, i.e., whether or not the business has earned a profit for a specific period of time. The statement of income lists the various revenue and expenses of the business along with related net income.

Statement of retained earnings
A financial statement that illustrates the change in equity resulting from earnings or losses and dividends declared. The statement of retained earnings is often combined with the income statement or incorporated into the statement of shareholder's equity.

Statement of shareholder's equity
A financial statement that illustrates the change in the various components of shareholder's equity for a given period, including change in the capital stock and retained earnings accounts.

Supplemental agreement
A contract modification that is accomplished by the mutual action of the parties. (FAR 43.101)

Suspension
An action taken by a suspending official under FAR 9.407 to disqualify a contractor temporarily from Government contracting and Government-approved subcontracting. (FAR 9.403)

Tangible capital asset
An asset that has physical substance, has more than minimal value, and is expected to be by an enterprise for continued use or possession beyond the current accounting period for the service it yields. (FAR 31.001)

Technical analysis
The examination and evaluation by personnel having specialized knowledge, skills, experience, or capability in engineering, science, or management of proposed quantities and kinds of materials, labor, processes, special tooling, facilities, and associated factors set forth in a proposal in order to determine and report on the need for and reasonableness of the proposed resources assuming reasonable economy and efficiency. (FAR 15.801)

Termination contracting officer (TCO)
A contracting officer having responsibility for settling one or more particular contracts. In some cases the term is used to identify a contracting officer who specializes in the settlement of terminated contracts.

Termination for convenience
The termination of a contract by the Government for reasons other than nonperformance or default when the Government deems it to be in its interest to do so. A termination for convenience is a unilateral contract action undertaken by the Government under the provisions appearing at FAR 49 and the various termination for convenience contract clauses. In a termination for convenience action, the contractor generally is entitled to negotiate a settlement agreement for the purpose of providing an equitable recovery of costs reasonably incurred by the contractor in anticipation of fulfilling the contract, and a reasonable profit thereon.

Termination for default
The termination of a contract by the Government for failure to perform the contract in accordance with its requirements. A termination for default is a unilateral contract action undertaken by the Government under the provisions appearing at FAR 49 (and especially FAR 49.4). In a termination for default action, the contractor generally is not entitled to any payment for undelivered items, and may be liable to the Government for the repayment of progress payments or advances, liquidated or other damages, and the excess cost of acquiring the undelivered items from another source.

Time-and-materials (T&M) contract
A contract which provides for acquiring supplies or services on the basis of (1) direct labor hours at specified fixed hourly rates that include wages, overhead, general and administrative expenses, and profit and (2) materials at cost, including, if appropriate, material handling costs as part of materials costs. (FAR 16.601)

Time series analysis forecast
A method that uses statistical techniques and relies on historical data, emphasizing patterns and pattern changes for forecasting.

Truth In Negotiations Act (TINA)
A public law enacted for the purpose of providing for full and fair disclosure by contractors in the conduct of negotiations with the Government. The most significant provision included in TINA is the requirement that contractors submit certified cost and pricing data for negotiated procurements above a defined threshold.

Unallowable cost
Any cost which, under the provisions of any pertinent law, regulation, or contract, cannot be included in prices, cost-reimbursements, or settlements under a Government contract to which it is allocable. (FAR 31.001)

Uncompensated overtime
As defined in DFARS 252.237-7019, the term describes "hours worked in excess of an average of 40 hours per week by direct charge employees who are exempt from the Fair Labor Standards Act without compensation". In actual practice, the term is often used more broadly to describe any situation in which an employee who is involved directly or indirectly in the performance of Government contracts works hours in excess of a standard amount (usually eight hours per day or 40 hours per week) without additional compensation above the employee's regular salary.

Unsolicited proposal
A written proposal that is submitted to an agency on the initiative of the submitter for the purpose of obtaining a contract with the Government and which is not in response to a formal or informal request (other than an agency request constituting a publicized general statement of needs). (FAR 15.501)

Variable cost
A cost that varies in direct proportion to changes in volume, but which is uniform for each unit. In practice, some variable costs are difficult to distinguish from fixed costs; it has been said that all costs are fixed in the short run and variable in the long run.

Voluntary standard
A standard established by a private sector body and available for public use. (FAR 10.001)

Walsh-Healy Act
A public law designed to prevent the practice of "bid brokering", i.e., the practice of buying items and then reselling them to the Government without the adding of any value to the item by the reseller. The Act provides that contracts subject to its provisions (generally contracts over $10,000) may be awarded only to "manufacturers" or "regular dealers", as defined.

Weighted average cost
An inventory costing method under which an average unit cost is computed periodically by dividing the sum of the cost of beginning inventory plus the cost of acquisitions by the total number of units included in these two categories. (FAR 31.001)

Zero-based budgeting
The process of preparing an operating plan or budget that starts with no authorized funds. In a zero-based budget, each activity to be funded must be justified every time a new budget is prepared.

Acronym Table

ACMS
Advanced Cost Management Systems

ACO
Administrative Contracting Officer

ACRS
Accelerated Cost Recovery System

A/E
Architect/Engineer

AFAA
Air Force Audit Agency

AICPA
American Institute of Certified Public Accountants

AID
Agency for International Development

AMIS
Agency Management Information System

ASBCA
Armed Services Board of Contract Appeals

ASPM
Armed Services Pricing Manual

ASPR
Armed Services Procurement Regulation

BAFO
Best and Final Offer

BATF
Bureau of Alcohol, Tobacco and Firearms

BLM
Bureau of Land Management

BLS
Bureau of Labor Statistics

B&P
Bid and Proposal (cost)

BOA
Basic Ordering Agreement

BPO
Bargain Purchase Option

BPO
Blanket Purchase Order

CAAC
Civilian Agency Acquisition Council

CACO
Corporate Administrative Contracting Officer

CAD/CAM
Computer Assisted Design/Computer Assisted Manufacturing

CALS
Computer-aided Acquisition & Logistics System

CAS
Cost Accounting Standards

CASB
Cost Accounting Standards Board

CCDR
Contract Cost Data Report

CECSR
Contractor Employee Compensation System Review

CFSR
Contract Funds Status Report

CFTC
Commodity Futures Trading Commission

CICA
Competition in Contracting Act

CIPR
Contractor Insurance/Pension Review

CO
Contracting Officer

COC
Certificate of Competency

COTR
Contracting Officer's Technical Representative

CPA
Certified Public Accountant

CPAF
Cost-Plus-Award-Fee (contract)

CPCM
Certified Professional Contract Manager

CPFF
Cost-Plus-Fixed-Fee (contract)

CPIF
Cost-Plus-Incentive-Fee (contract)

CPR
Cost Performance Report

CPSC
Consumer Products Safety Commission

CPSR
Contract Procurement System Review

CRAG
Contractor Risk Assessment Guide

CSCSC
Cost/Schedule Control System Criteria

CSRA
Civil Service Reform Act

CSSR
Cost /Schedule Status Report

DAC
Defense Acquisition Circular

DAR
Defense Acquisition Regulation

DARC
Defense Acquisition Regulatory Council

DCAA
Defense Contract Audit Agency

DCAI
Defense Contract Audit Institute

DCAAM
Defense Contract Audit Agency Audit Manual

DCMAO
Defense Contract Management Area Operations

DCMC
Defense Contract Management Command

DCMD
Defense Contract Management District

DEA
Drug Enforcement Agency

DESC
Defense Electronic Supply Center

DFARS
Department of Defense Federal Acquisition Regulation Supplement

DFAS
Defense Finance and Accounting Service

DIA
Defense Intelligence Agency

DLA
Defense Logistics Agency

DOD
Department of Defense

DODD
Department of Defense Directive

DODI
Department of Defense Instruction

DODIG
Department of Defense Inspector General

DOE
Department of Energy

DOJ
Department of Justice

DOL
Department of Labor

DOT
Department of Transportation

DPA
Defense Production Act

DTIC
Defense Technical Information Center

EAC
Estimate at Completion (cost)

EEOC
Equal Employment Opportunity Commission

EPA
Environmental Protection Agency

EOQ
Economic order quantity

ERISA
Employee Retirement Income Security Act

ESOP
Employee Stock Option Plan

ESS
Estimating System Survey

ETC
Estimate to Complete

FAC
Federal Acquisition Circular

FAR
Federal Acquisition Regulation

FASB
Financial Accounting Standards Board

FCA
Farm Credit Administration

FAA
Federal Aviation Administration

FBI
Federal Bureau of Investigation

FCC
Federal Communication Commission

FDA
Food and Drug Administration

FDIC
Federal Deposit Insurance Corporation

FEC
Federal Election Commission

FEMA
Federal Emergency Management Agency

FERC
Federal Energy Regulatory Commission

FFP
Firm-Fixed Price (contract)

FHA
Federal Highway Administration

FHA
Federal Housing Administration

FICA
Federal Insurance Contributions Act

FIFO
First In, First Out (inventory method)

FIRMR
Federal Information Resource Management Regulation

FLRA
Federal Labor Relations Authority

FLSA
Fair Labor Standards Act

FMC
Federal Maritime Commission

FMCS
Federal Mediation and Conciliation Service

FMIS
Field Management Information System

FMS
Foreign Military Sales

FMV
Fair Market Value

FNMA
Federal National Mortgage Association

FOIA
Freedom of Information Act

FPDC
Federal Procurement Data Center

FPI
Fixed Price Incentive (contract)

FPR
Fixed Price Redeterminable (contract)

FPRA
Forward Pricing Rate Agreement

FRA
Federal Railway Administration

FRS
Federal Reserve System

FUTA
Federal Unemployment Tax Act

G&A
General and Administrative (cost)

GAAP
Generally Accepted Accounting Principles

GAAS
Generally Accepted Auditing Standards

GAGAS
Generally Accepted Government Auditing Standards

GAO
General Accounting Office

GASB
Government Accounting Standards Board

GBL
Government Bill of Lading

GNMA
Government National Mortgage Administration

GOCO
Government Owned, Contractor Operated

GPO
Government Printing Office

GSA
Government Services Administration

GSBCA
General Services Board of Contract Appeals

HCFA
Health Care Financing Administration

HHS
Department of Health and Human Services

HR
House of Representatives

HRSA
Health Resources and Services Administration

HUD
Housing and Urban Development

ICC
Interstate Commerce Commission

ICQ
Internal Control Questionnaire

IDIQ
Indefinite Delivery, Indefinite Quantity (contract)

IFB
Invitation for Bids

IG
Inspector General

IIA
Institute of Internal Auditors

IBIS
Industrial Base Information System

IRC
Internal Revenue Code

IR&D
Independent research and development

IRS
Internal Revenue Service

ITA
International Trade Administration

ITC
International Trade Commission

JTR
Joint Travel Regulation

LIFO
Last In, First Out (inventory method)

LTOP
Lease to Ownership Plan

LWOP
Lease With Option to Purchase

MAAR
Mandatory Annual Audit Requirement

MBDA
Minority Business Development Agency

MICOM
U.S. Army Missile Command

MRP
Material Requirements Planning

MWS
Major Weapon System

NARDAC
Navy Regional Data Automation Center

NASA
National Aeronautics and Space Administration

NCMA
National Contract Management Association

NEA
National Endowment for the Arts

NGB
National Guard Bureau

NHTSA
National Highway and Transportation Safety Administration

NIH
National Institutes of Health

NIST
National Institute of Standards and Technology

NLRB
National Labor Relations Board

NOAA
National Oceanic and Atmospheric Administration

NRC
Nuclear Regulatory Commission

NSF
National Science Foundation

NTIS
National Technical Information Service

OFCCP
Office of Federal Contract Compliance Programs

OFPP
Office of Federal Procurement Policy

OIG
Office of Inspector General

OMB
Office of Management and Budget

ONR
Office of Naval Research

OPIC
Overseas Private Investment Corporation

OPM
Office of Personnel Management

OSHA
Occupational Safety and Health Administration

OTS
Office of Thrift Supervision

PACO
Principal Administrative Contracting Officer

PAO
Procurement Assistance Office

PASS
Procurement Automated Source System

PBGC
Pension Benefit Guaranty Corporation

PBIS
Performance Based Incentive System

PCO
Procuring Contracting Officer

PHS
Public Health Service

PTO
Patent and Trademark Office

QBL
Qualified bidders list

QML
Qualified manufacturers list

QPL
Qualified products list

REA
Rural Electrification Administration

RFP
Request for Proposal

RFQ
Request for Quote

RTC
Resolution Trust Corporation

SADBUS
Small and Disadvantaged Business Utilization Specialist

SAS
Statement on Auditing Standards

SBA
Small Business Administration

SBIR
Small Business Innovative Research (contract)

SDB
Small Disadvantaged Business

SEC
Securities and Exchange Commission

SF
Standard Form

SIC
Standard Industrial Classification

SSA
Social Security Administration

TACT
Total Audit Concept Technique

TBSR
Total Business Systems Review

TCO
Terminating Contracting Officer

TEFRA
Tax Equity and Fiscal Responsibility Act

TINA
Truth in Negotiations Act

T&M
Time and materials (contract)

TOP
Trade Opportunities Program

TQM
Total quality management

TRASOP
Tax Reduction Act Stock Ownership Plan

TSC
Technical Service Center

TVA
Tennesee Valley Authority

CC
Uniform Commercial Code

USAF
United States Air Force

USACD
United States Arms Control and Disarmament Agency

U.S.C.
United States Code

USCG
United States Coast Guard

USDA
United State Department of Agriculture

USGS
United States Geological Survey

USIA
United States Information Agency

USMC
United States Marine Corps

USPS
United States Postal Service

USN
United State Navy

VA
Veterans Administration

WBS
Work Breakdown Structure