Valuing Commercial Items: Is A New COR Designation Required?

Abstract

Article Classification: Viewpoint Purpose: The objectives of this article are: (1) Calculate the value of net cash flow of cost to be recovered in commercial item contracts, (2) Calculate the value of fuzzy cash flow of cost to be recovered in commercial item contracts, and (3) Identify potential COR designations for valuing commercial items. Design: A review of literature, FASB concept statement no. 7, and the FAR are used as vehicles to identify methodologies to value net cash flow and fuzzy cash flow as well as to identify potential COR designations for valuing commercial items. Findings: Commercial items involving an uncertain degree of risk and dynamic costs use a fuzzy net cash flow methodology to calculate cash flow in order account for risk and changing investment and other costs. Whereas commercial items not involving uncertainty use a best estimate method to calculate the actual cost to complete a contract. The COR-C designation would provide a pool of qualified CORs to valuate commercial items. Practical Implications: Calculating value of net or fuzzy cash flow allows for greater certainty in determining amount of actual cost to complete a contract. The COR-C designation allows for the development of a standard for educating CORs valuating commercial items. Originality/Value: No method currently exists to calculate value of net or fuzzy cash flows in recovery of cost of work performed in contracts terminated for convivence. Nor is there currently a designation specifically for CORs valuating commercial items.