By: Asa J. Gilliland, VP and Senior Manager, Redstone Government Consulting, Inc.
The incurred cost submission is required for all federal contractors holding cost-type or time and materials (T&M) contracts and is a universal requirement regardless of agency customer. All contracts requiring the incurred cost submission will include the Federal Acquisition Regulations “Allowable Cost & Payment Clause” (FAR 52.216-7) and/or the “T&M Payment Clause” (FAR 52.232-7). Following are answers to frequently asked questions and pointers to resources to help you.
What is Incurred Cost Submission?
The incurred cost submission goes by many names/acronyms including: final indirect rate proposal, incurred cost electronic submission, indirect cost rate submission, incurred cost proposal, ICES, ICS or ICP. Regardless of name, it is simply the mechanism for the true up of your actual indirect cost to the indirect costs provisionally billed for in a single contractor fiscal year.
The incurred cost submission (ICS) covers 6 broad areas:
- Schedules A through E: Presentation of indirect cost pool and base components
- Schedule H/H-1/Summary H: Presentation of direct cost by contract at the funding or billing level
- Schedule I: Presentation of cumulative cost incurred, cumulative billing and calculation of over or underbilling amount
- Schedule K: Presentation of T&M contract costs
- Schedule N: Certification of Final Indirect Costs
- Schedules F, J, L, O, Supplemental Schedules: Presentation of various supplementary information including cost of money, subcontractor information, reconciliation to payroll information, contract close out data, executive compensation and other supporting information necessary for audit of the incurred cost submission
When must the Incurred Cost Submission be Filed?
The incurred cost submission is required to be submitted 6-months after fiscal year end, so if your fiscal year end is 12/31 your submission would be due not later than the following June 30 for each fiscal year in which cost is incurred under an applicable contract type. Special considerations must be made when there are circumstances like mergers, acquisitions or changes in fiscal year, which may necessitate a partial fiscal year incurred cost submission. In these circumstances, an advanced agreement should be sought with your Administrative Contracting Officer.
When is an Incurred Cost Submission Required?
An incurred cost submission must be submitted for each business unit of a contractor that holds applicable contracts subject to the Allowable Cost and Payment clause (FAR 52.216-7). Like Cost Accounting Standards (CAS) disclosure statements, an incurred cost submission is also required for Home Office entities or Shared Service Business Units where costs originate and ultimately flow into business units holding applicable contract types requiring an Incurred Cost Proposal (ICP).
Why is Incurred Cost Submission a Requirement?
Quite simply the incurred cost submission should be thought of like the personal income tax returns required for all Americans. Under cost-type and T&M contracts when we bill costs incurred, we are using provisional or estimated indirect rates, which is like the withholding process for income tax purposes. Once the fiscal year is closed, we know what actual costs were incurred and can therefore calculate final indirect rates based on those actual costs, rather than the estimated costs used to establish the provisional billing rates. The incurred cost submission is like the IRS Form 1040 for indirect rates; through it we can calculate if our business is due a refund of indirect costs because we billed less than actual indirect cost, or if we owe money to the government because our provisionally billed indirect costs were higher than our actual indirect costs.
What are the Top 5 Issues in an ICS Audit?
- Contractor Compensation – FAR 31.205-6 establishes benchmarking for compensation reasonableness to industry peers as well as a statutory maximum compensation amount.
- Contractor Labor Categories – DCAA will frequently review T-rates under T&M contracts to ensure personnel charging to labor rates meet requirements for years of experience, education and other labor category requirements.
- Allocability – The catch-all in the DCAA audit toolbox that quite simply means a cost is assigned (allocated) to a final cost objective on the basis of a causal or beneficial relationship. The subjective nature of this determination frequently leads to audit issues.
- Bonus/Severance Costs – Also linked to FAR 31.205-6 but the catch here is that DCAA consistently questions costs of contractors who pay these costs but do not have an established policy or procedure governing the payments based on employee performance.
- Adequacy – Not really an audit requirement as much as a gate to clear before the audit can begin. DCAA offers an incurred cost adequacy checklist available at dcaa.mil which provides information and checks that every contractor should perform before submitting their ICS.
What Resources are Available to Help Me?
Redstone GCI assists clients with preparation, review and DCAA audit defense of incurred cost submissions and has almost three decades of experience assisting clients all over the world with the ICS process. We frequently assist with first-time preparation for both traditional and non-traditional contractors utilizing proprietary processes for review designed to insulate from audit risks. We maintain a staff of Costpoint experts and experts in preparation and defense of incurred cost issues, which provides comprehensive expertise to our client base in the incurred cost submission area. For more information please visit www.redstonegci.com
Deltek Costpoint assists with the preparation of the incurred cost submission in a variety of ways. As the industry leading accounting system for government contractors, Deltek Costpoint has been providing information that contractors need to prepare incurred cost submissions for almost 40-years. Utilizing out of the box reports or customized reporting solutions, Deltek Costpoint makes the import and generation of data needed to prepare the incurred cost submissions and to reconcile it to your financial and project records easier and more efficient than any other solution available. In terms of time savings, clients utilizing Deltek Costpoint can turn an onerous and difficult process that can span several months into a process of weeks or even days, depending on the complexity of a company’s incurred cost submission. Learn more about Deltek Costpoint.
About the Author
Asa J. Gilliland is a Vice-President and Senior Managing Consultant with Redstone GCI where he leads their special projects group assisting non-traditional and international contractors with meeting U.S. Government Compliance expectations. Asa has assisted contractors all over the U.S., as well as worked with clients in Europe, Australia and the Middle East and specializes in DCAA audit compliance and accounting information systems. He frequently serves as a compliance resource to 8(a), HUBZone, SDVOSB, tribally-owned and other small business designation clients and has served as the technical lead in proposal cost-volume preparation, responses to DCAA audit issues and crafting of corrective action plans in response to government issues, and development of complex cost accounting structures.
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