The contract administration and transportation accounts

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1. Two more accounts with bounds

Two other surcharges on Foreign Military Sales cases collect into accounts that the Defense Security Cooperation Agency (DSCA) manages much like the administrative surcharge account. One holds contract administration services (CAS) surcharges (SAMM C9.16). The other holds transportation collections (SAMM C9.17). Each has a lower bound, an upper bound and a schedule of reviews, but the numbers behind them differ. The administrative account is covered in managing the administrative surcharge account.

2. The CAS account’s safety level

The CAS Cost Clearing Account must carry enough surcharge collections to reimburse the service providers for their actual expense (SAMM C9.16.1). The safety level gives DSCA time to react to significant changes in the balance (SAMM C9.16.1.1). It takes account of swings in sales and in the value of procurement delivered, and it is calculated every fiscal year.

The method differs from the administrative account’s. DSCA sets the safety level on three years of estimated annual expenditures (SAMM C9.16.1.2). The manual states that three years of expenditures, plus obligational authority still outstanding from earlier years, is needed to cover all of the account’s possible expenses. The figure is calculated at the start of the fiscal year and sent to the Defense Finance and Accounting Service (DFAS).

It is evaluated in the first quarter of each fiscal year (SAMM C9.16.1.3). The review uses the DFAS year-end report on the account, the final report of prior year sales, and future inflation projections from the Comptroller’s office. The outcome of the latest budget and program review cycle feeds in as well.

Money moves in and out on set events. CAS surcharges are earned and credited to the account when payments are made to contractors, whether progress payments or bills for incurred costs (FMR Vol. 15, Ch. 3, para. 4.8.3). DSCA funds the performing activities directly to reimburse their CAS costs on sales and capacity building cases (FMR Vol. 15, Ch. 3, para. 4.5.2.4).

3. The CAS account’s upper control

The upper control guards against over collection, so that DSCA does not collect more than it needs to support contract-related activities (SAMM C9.16.2.1). With the safety level it forms a control box, which signals a dramatic change in the operating environment if collections move outside normal variation (SAMM C9.16.2.2). That may prompt an out-of-cycle comprehensive review.

The upper control is built in layers (SAMM C9.16.2.3). It starts with outstanding obligational authority from the prior year and two years of budget projections. Three more years are added with an adjustment factor. The factor reflects prior year growth, the Comptroller’s inflation factors, mainly for civilian personnel, and sales trends.

4. Reviewing the CAS account

An annual assessment in the first quarter gives a financial overview of the account, examines both bounds, reviews actual CAS spending and sets out an outlook for the coming year (SAMM C9.16.3.1). It ends in an annual report of the account’s activity, balances and any rate change. Each month, using DFAS reports, DSCA checks that the balance stays between the two bounds (SAMM C9.16.3.2). The monthly review also looks for signs that the account is paying out too much or collecting too little to hold the safety level.

A comprehensive review follows every five years, absent a rate change or a breach of either bound, and looks at 60 months of rate data (SAMM C9.16.3.3). The DSCA Director may bring it forward or delay it, with a signed justification for any delay. The review examines the CAS rate, both bounds and their assumptions (SAMM C9.16.3.3.3). Its inputs include providers’ budget requests against actual execution, their five-year projections of expense and workload, and sales projections. It also uses the monthly DFAS report on the account and CAS pricing in the Defense Security Assistance Management System.

5. The transportation account

The Transportation Cost Clearing Account is described as a reserve of operating capital sufficient to keep sales and Building Partner Capacity shipments moving on time and the account solvent (SAMM C9.17.1.1). Its floor is called a lower control rather than a safety level. It ensures the account holds enough delivery term code collections to meet transportation requirements for shipments that carry those codes. The account is reviewed annually.

The lower control rests on five years of history (SAMM C9.17.1.2). DSCA sets it on five years of estimated annual expenditures, and the manual states that five years of historical expenditures and balances are needed to cover all possible expenses. It is calculated, documented and approved at the start of the fiscal year, and sent to DFAS for awareness. The upper control uses two years of annual expenditures plus an adjustment for the forecast change in shipments over the following two years (SAMM C9.17.2.3). That adjustment reflects prior year growth, inflation factors and shipment trends.

Transportation surcharges are earned and credited when Defense Department components report items as physically delivered (FMR Vol. 15, Ch. 3, para. 4.8.2.1). Actual transportation costs, from carrier bills, are charged against the same account (FMR Vol. 15, Ch. 3, para. 4.8.2.2).

6. Watching transport money daily

Of the three accounts, only the transportation account also has a daily review. An annual review in the first quarter considers the DFAS year-end report, legislative proposals, the geopolitical environment and the delivery term code rates (SAMM C9.17.3.1). A monthly review checks that transportation bills are accurate and correctly allocated, and that DFAS reconciliations match the daily balances at month end (SAMM C9.17.3.2). DSCA gives DFAS and the military departments any corrective actions that follow (SAMM C9.17.3.2.1).

A daily review looks for abnormal transactions (SAMM C9.17.3.3). DSCA monitors collections and spending every day, notes any abnormal swings, and alerts DFAS and the military departments to review and correct them (SAMM C9.17.3.3.1). How the transportation charges themselves are billed is covered in how transportation costs are billed.

Key terms

CAS Cost Clearing Account	The account that collects contract administration surcharges and reimburses the providers.
Transportation Cost Clearing Account	The account that holds delivery term code transportation collections.
Lower control	The transportation account’s floor, based on five years of history.
Adjustment factor	An allowance for growth, inflation and sales or shipment trends used in setting an upper control.
Daily review	DSCA’s daily check of the transportation account for abnormal transactions.

Every statement above links to the document behind it. The full source list for this piece is on the sources page.

This page describes public United States government programs for general information. It is not legal, regulatory or procurement advice, and it does not address the facts of any particular case.

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