Utilization-Based Rate Pool & CAS

Hi - I'd like to get folks opinions on defining and managing overhead pools by the utilization of professional staff. For instance, a company might have a High-Utilization Overhead Pool and a Low-Utilization overhead pool. For sake of discussion, let's say that to be included within the High-Utilization OH Pool that a professional's time must be at or above 75% directly billable. Anyone with less than 75% directly billable utilization "lives" in the Low-Utilization Pool. For definition purposes, I'm assuming that utilization is the relative number of directly billable dollars or hours to total available dollars or hours, with available hours being 2,080 less paid absences. Pretty straightforward scenario so far, right?

The challenges (and potential CAS issues) that I can potentially foresee are in managing utilization-based OH pools once they are implemented. Since professional staff utilization is constantly in flux from week to week, and month to month, it is entirely conceivable that someone could have 80% utilization in January and 60% utilization in December and, thus, qualify for inclusion in different OH pools in different time periods.

My big question is - does the movement of an individual's direct and indirect cost from one OH pool to another OH pool constitute a cost accounting practice change?

In my opinion - it has the potential to be a cost accounting practice change as defined in 9903.302-2 because the shifting of employees from High OH Pool business units/departments to Low OH Pool business units/departments is tantamount to changing how indirect cost is allocated to a direct cost base and/or changing the direct cost allocation base. If the only components of cost in the OH pools/bases were the professionals' indirect and direct labor costs, I think that a change would not necessarily exist. However, other costs in the OH pools - such as Facilities, Service Center Allocations, etc. - might not switch OH pools with the labor - and, thus, end up with a different allocation basis.

Also - as an aside - I know that this all likely depends upon the materiality - in terms of the number of people moving between pools - and the frequency of the movement. If the firm has 50,000 professionals and a couple hundred professionals a year move between pools, there is likely no material affect to any of the allocations. My personal opinion is that the frequency of movement can be managed with a rule set such as - in order to move business units/departments from high to low OH pools, a professional must have utilization above or below the threshold above for the last twelve months (for instance).

Any thoughts on (1) whether CAS violations and/or cost accounting practice changes exist in this structure, and (2) whether there are common rule sets used by industry to for stability of the rate bases in utilization based structures, would be greatly appreciated.