A Practical guide to how FAR and CAS shape cost tracking, billing, and accounting systems.
What Are FAR and CAS (and How Are They Different?)
If you’re working on a federal government contract, FAR and CAS already influence how your accounting works, even if you’re not thinking about them directly.
The Federal Acquisition Regulation (FAR) is the rulebook that governs how the federal government buys goods and services. It defines how contracts are structured, how costs are treated, and how contractors bill and support those costs.
Cost Accounting Standards (CAS) sit atop that framework. They apply in specific situations and define how costs must be measured, assigned, and allocated within your accounting system.
At a practical level, the distinction comes down to this:
- FAR defines what costs are allowable and how contracts are administered
- CAS defines how costs must be handled consistently across your accounting system
Most contractors operate under FAR. CAS becomes relevant when contract terms trigger CAS coverage and the associated requirements.
Why FAR and CAS Matter for Government Contractors
FAR and CAS don’t stay in the background. They shape how your accounting system operates day-to-day.
Cost tracking is where this becomes visible first. You need to separate direct and indirect costs clearly and apply that structure consistently across contracts. If that breaks down, everything that depends on it becomes less reliable.
That same structure drives:
- Billing
- Billing Support
- Contract performance evaluation
Without it, you start to see issues surface in places that feel unrelated.
Profitability is tied to this as well. If you don’t have clear visibility into how costs are accumulating, it’s challenging to understand whether a contract is performing the way you expected.
As contract activity grows, the limitations of a basic accounting setup become more obvious. FAR and CAS are what push that system to evolve into something that can support government contract work.
The FAR Rules That Shape Your Accounting System
FAR Part 31 defines how costs are treated on government contracts, and those rules directly shape how your accounting system is set up and used.
Allowable vs Unallowable Costs
FAR requires contractors to distinguish between allowable and unallowable costs.
This means your accounting system must:
- Identify and segregate unallowable costs
- Prevent those costs from being included in contract billings or indirect cost calculations
Without that structure, compliance becomes nearly impossible to maintain.
Direct vs Indirect Costs
FAR requires a clear distinction between direct and indirect costs.
Your system must support:
- Assigning direct costs to specific contracts
- Grouping indirect costs into defined cost pools
- Allocating indirect costs using a consistent method
If this separation is unclear, cost allocation and reporting become unreliable.
Labor Tracking and Timekeeping
FAR expectations require accurate labor tracking tied to contract work.
Your system must:
- Capture labor hours by contract
- Apply consistent labor classifications
- Support traceability from timekeeping to cost reporting
Documentation
FAR requires that costs charged to government contracts be supported.
Your system and processes must:
- Maintain supporting documentation for all costs
- Link documentation to specific contract charges
- Ensure records are available for review
Consistency in Cost Treatment
FAR requires costs to be treated consistently across contracts and periods.
Your system must support:
- Consistent cost classification
- Consistent application of allocation methods
- Consistent reporting structures over time
Inconsistency in cost treatment can create issues in both reporting and contract compliance.
When CAS Starts to Apply and What Changes When It Does
CAS doesn’t apply to every contractor, which is where much of the confusion comes from.
Applicability depends on the contracts you’re performing and whether those contracts are subject to CAS coverage or qualify for an exemption. Some contracts are exempt, while others trigger coverage depending on their characteristics.
When CAS starts to apply, expectations around your accounting system become more defined.
It’s no longer just about having a structure that works. That structure needs to be applied consistently across how costs are:
- Estimated
- Accumulated
- Reported
Cost allocation becomes more formal as well. Indirect cost pools must be clearly defined, and allocation methods must be applied consistently across contracts.
In some cases, contractors are required to formally document their accounting practices, including how costs are handled and reported.
Even before CAS applies, many contractors run into issues here. Systems that work at a smaller scale often don’t hold up as contract activity grows.
How FAR and CAS Show Up in FFP, CPFF, and T&M Contracts
Different contract types highlight different areas of your accounting system.
Firm-Fixed Price (FFP)
FFP contracts are not based on reimbursement of actual costs, but cost tracking still plays a central role.
You need visibility into how costs are accumulating so you can:
- Manage margin
- Understand contract performance
- Make adjustments while work is still underway
Without that visibility, profitability becomes harder to manage.
Cost-Plus Fixed Fee (CPFF)
CPFF contracts are directly tied to allowable costs, which makes your accounting structure more visible.
Costs need to be:
- Allowable under FAR cost principles
- Classified correctly
- Supported with documentation
This creates a direct link between your accounting system and contract compliance.
Time and Materials (T&M)
T&M contracts rely on labor tracking and billing at contract-specified hourly rates, along with reimbursement for materials as defined in the contract.
The system needs to support:
- Accurate recording of labor hours
- Assignment of those hours to the correct contract
- Billing at the correct contract rates
- Proper classification and support of material costs
If any part of that breaks down, it affects both billing and reporting.
Where Government Contractors Get FAR and CAS Wrong
Most issues don’t come from misunderstanding FAR or CAS. They come from how those requirements are applied in practice. Here’s what we tend to see.
Treating direct and indirect costs inconsistently: Direct and indirect costs aren’t always handled consistently across contracts or over time. That inconsistency creates confusion in both reporting and billing.
Weak timekeeping: Time isn’t consistently recorded or clearly tied to contract work. When that happens, labor distribution becomes less reliable and harder to support.
Poor documentation: Costs may be recorded correctly, but the supporting documentation isn’t always maintained at the same level. That creates issues when costs need to be reviewed later.
Using a general business accounting setup for government contracts: Some contractors rely on general business accounting setups that weren’t designed for government contract work. Those systems often lack the structure needed for cost allocation and reporting.
Waiting too long to clean up systems as contracts grow: As contract activity grows, the accounting system needs to evolve with it. Waiting too long to make those changes makes the transition more difficult and introduces unnecessary risk.
How Team 80 Helps Government Contractors
Government contract accounting requires a level of structure that most businesses don’t need until they start working with federal contracts.
We help contractors build that structure in a way that fits their business. That starts with setting up accounting systems that support clear cost classification, consistent cost allocation, and reliable reporting across contracts.
From there, we work with contractors to improve cost tracking, strengthen documentation practices, and make sure financial reporting reflects how contracts are performing in real time.
As contract types expand and requirements become more complex, we help maintain that structure so it continues to support the business rather than slow it down.
The goal is simple. Give you clear visibility into your contracts and confidence that your accounting system can support where your business is going.
FAR and CAS Guidelines Require the Right Accounting Foundation
FAR and CAS shape how your accounting system works across every contract.
When that system is structured correctly, cost tracking becomes clearer, billing becomes more consistent, and contract performance becomes easier to understand.
Build an accounting system that supports government contract growth.
Sarah Sinicki
Team 80 CEO
Sarah is a leader focused on serving small businesses in various industries. She has worked with a multitude of companies over the last 25 years and loves helping business owners find success. Sarah is genuinely committed to unburdening Team 80 clients so that they have the freedom to focus on their business. In her free time, you can find her spending time with her husband, two kids, and her Yorkies, Marley and Ziggy. When she is not helping business owners, you can find her in a Reb3l Groove class dancing it out. Sarah is also an avid Colorado Avalanche fan, so if you ever want to talk about hockey, she’s your gal.
Table of Contents
- What Are FAR and CAS
- Why FAR and CAS Matter for Government Contractors
- The FAR Rules That Shape Your Accounting System
- When CAS Starts to Apply and What Changes When It Does
- How FAR and CAS Show Up in FFP, CPFF, and T&M Contracts
- Where Government Contractors Get FAR and CAS Wrong
- How Team 80 Helps Government Contractors
