Statement of cost accounting practices

A statement of cost accounting practices is a formal disclosure by a contractor of the practices it uses to account for costs. It identifies the contractor's direct and indirect costs and explains the methods used to allocate indirect costs. The Government of Canada uses it in contract pricing and cost analysis, particularly where a contract price is built from estimated or actual costs.

The term comes from older Public Works and Government Services Canada material. Current CanadaBuys guidance calls the same document a Cost Accounting Practices Submission, usually shortened to CAP Submission. The CanadaBuys Supply Manual glossary defines it as a formal disclosure of a contractor's cost-accounting practices.

From "Statement" to "CAP Submission": the change in terminology

Older editions of the PWGSC Supply Manual list "Statement of Cost Accounting Practices" as a procurement-pricing topic. You can see it in the 2005 Supply Manual, volume 1 and the 2005 Supply Manual, volume 2. Current guidance from Public Services and Procurement Canada (PSPC) uses Cost Accounting Practices Submission instead. If a solicitation, contract file or older internal template uses the earlier name, it refers to the same disclosure.

What the disclosure contains

The submission describes how a supplier organizes and assigns its costs. It has three core elements:

• The supplier's cost-accounting practices.
• The identification of direct costs and indirect costs.
• The methods used to allocate indirect costs.

PSPC's Practitioner's Guide for Procurement Pricing has a dedicated section on the CAP Submission and an annex that describes the process steps.

When PSPC asks for a CAP Submission

A PSPC price advisor may require a CAP Submission when the contract price will be based on estimated or actual costs. In these cost-based contracts, the total contract cost is built from the applicable direct and indirect costs incurred or allocated in performing the work. The CanadaBuys guidance on analyzing and negotiating costs sets out this requirement.

The submission is used in the pre-contract award period. Its purpose is to make sure the relevant practices are disclosed and understood before the contract is awarded. Acceptance is documented in a CAP submission acceptance letter, which clarifies the cost-accounting practices to be used for contract pricing. PSPC states that contract costs must be determined according to the contractor's cost-accounting practices as accepted by Canada and applied consistently over time. Further background is available in the CanadaBuys page on cost accounting and pricing.

What the submission does not decide

The CAP Submission concerns the nature of costs and the practices used to account for them. It does not establish whether individual cost amounts are reasonable. Reasonableness is assessed separately during cost analysis. CanadaBuys states that the submission reinforces the contractor's obligation to comply with the applicable contract cost principles.

The same principle appears outside PSPC. Innovation, Science and Economic Development Canada applies it in the Technology Demonstration Program, where eligible costs must be determined according to the recipient's accepted cost-accounting practices and applied consistently over time. See Annex 3 of the program's application guide.

What it means for a supplier bidding on Canadian public contracts

If your bid will lead to a contract priced on estimated or actual costs, expect PSPC to ask you to describe your cost-accounting practices. Be ready to identify your direct and indirect costs and to explain how you allocate indirect costs. Once Canada accepts your practices, apply them consistently when you price and report costs on the contract. Review the CAP Submission section of the Practitioner's Guide before you prepare your response.