In government contracting, organizations need to adhere to guidelines, conduct assessments, and complete forms to ensure compliance, win business, and remain in good standing.
One such form is Standard Form 1408 (SF 1408), also known as the Pre-Award Survey of Prospective Contractor (Accounting System).
The Pre-Award Survey checklist is recommended for those new to government contracting with cost-reimbursement contracts, or for contractors receiving progress payments, to help them determine whether they are meeting the standards.
What is SF 1408?
SF 1408 is a form that the United States federal government uses to assess a contractor's accounting system before issuing an award.
Using SF 1408, the government can determine whether a contractor’s accounting system accurately estimates costs, manages expenses, and maintains records in compliance with federal regulations. If the system is inadequate, the contractor may be asked to make improvements if they wish to win awards.
Who Fills Out SF 1408?
When a federal contractor wants to win business from the government, they may be required to complete SF 1408 as part of the pre-award process.
Whether it's a procurement officer, project manager, or other employee who fills out the form, they are responsible for ensuring that all information provided is accurate and that they submit the appropriate supporting documentation.
After the government contractor completes SF 1408, they submit the form to the Defense Contract Audit Agency (DCAA), the organization in charge of audit and financial advisory services for the federal government.
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What is The Purpose of the Pre-Award Survey?
The purpose of the pre-award survey is to ensure that a contractor has the systems and processes in place to work with the federal government efficiently and cost-effectively.
Once the DCAA receives SF 1408, the agency is tasked with:
1. Evaluating the Form Against Established Criteria
During this process, the DCAA carefully reviews the contractor's responses to determine whether their accounting system complies with government regulations, enables accurate cost estimation, and includes appropriate internal controls. The agency also considers the completeness and accuracy of the contractor's responses and supporting documentation.
2. Verifying the Information Provided
Depending on their initial impression, the DCAA may conduct additional verification and validation procedures to ensure that the information the contractor submitted on the SF 1408 is accurate and reliable. They may decide to audit the contractor's financial statements, conduct interviews and site visits, and examine the contractor's accounting records and internal controls.
3. Identifying Potential Risks and Weaknesses
After those steps are complete, the DCAA will then identify potential risks, weaknesses, and gaps in the contractor's accounting practices. This helps them determine whether further evaluation or corrective actions are necessary before receiving a government award.
At a high level, the DCAA looks for areas where the contractor may need to make improvements to ensure compliance with government regulations while also managing government contracts cost-effectively.
4. Providing Feedback to the Agency Responsible for the Contract Award Decision
After examining the contractor's SF 1408 and conducting additional analysis, the DCAA provides recommendations to the appropriate government agency or department responsible for awarding the contract.
Ultimately, the DCAA's assessment plays an integral role in determining each contractor's eligibility for government contracts and may impact the terms and conditions of the contract or force the contractor to take corrective actions before winning government business.
What Should SF 1408 Include?
SF 1408 is a two-page document that asks contractors to include three different types of data:
- General business information
- Information about their accounting system
- Supporting documentation
1. General Business Information
When filling out SF 1408, contractors need to include the organization's legal business name, address, and point of contact. Once the form is complete, a representative from the contracting organization must sign and date it, and include their phone number.
2. Accounting System Evaluation
The crux of the SF 1408 is Section II, the accounting system evaluation checklist, which is a series of questions contractors need to answer.
First, contractors must verify that the accounting system their business relies on is in accordance with generally accepted accounting principles (GAAP).
Next, they need to determine whether their accounting system provides:
- Controls that enable them to properly segregate direct costs and indirect costs.
- Functionality that allows them to identify direct costs by contract.
- A logical, consistent way to allocate indirect costs to intermediate and final cost objectives.
- A method of accumulating direct costs under a general ledger.
- A timekeeping system that enables them to match employee labor to intermediate and final cost objectives.
- A labor distribution system that ensures direct and indirect labor is charged to the correct cost objectives.
- Recurring analysis of costs charged to a contract via the routine posting of books of account (i.e., at least monthly).
- The ability to exclude costs charged to government contracts that aren't allowable under Federal Acquisition Regulation (FAR) 31, Contract Cost Principles and Procedures, or other contract provisions.
- A way to identify costs by line item and by units, if required by the contract in question.
- The ability to separate preproduction and production costs.
Additionally, contractors need to indicate whether their accounting system provides the financial information required by contract clauses concerning a limitation of cost or a limitation on payments, as well as information required to support requests for progress payments.
After that, contractors must state whether their accounting system is built and whether records are maintained in a manner that produces reliable data for pricing follow-on acquisitions. Finally, they must also indicate whether their accounting system is fully operational, set up but not yet operational, anticipated, or nonexistent.
3. Supporting Documentation
After responding to the series of questions in SF 1408, contractors must provide supporting documentation to substantiate their responses.
While required documents will vary on a case-by-case basis depending on the contract in question, contractors will generally have to include:
- Financial statements, including balance sheets, income statements, cash flow statements, and other relevant records.
- Policies and procedures manuals that document the organization's accounting policies, practices, and internal controls.
- Org charts outlining the contractor's organizational structure and illustrating the company's accounting function and reporting lines.
- Other relevant records, which might include job cost ledgers, time and attendance records, contract files (e.g., change orders), training records, sample contracts and invoices, internal audit reports, and government audit reports, among other things.
After collecting all of this documentation, contractors should thoroughly review their application and the information they're submitting before turning it in. The last thing a contractor wants is to learn the hard way that they made an error during submission, which could cost them an award.
How to Prepare for SF 1408
To increase the chances that your contracting organization passes SF 1408 with flying colors, here are tips to prepare for SF 1408.
1. Review the Form
Get a copy of SF 1408 and carefully review each section and question to get a clear understanding of the evaluation criteria. Familiarize yourself with the specific requirements and the information the form is asking you to verify and submit.
2. Conduct a Self-Assessment
Perform an internal assessment of your accounting system to identify areas that might need some improvement. Put yourself in the auditor's shoes and try to imagine what they might see. Evaluate critical processes and procedures across areas like billing, timekeeping, and cost forecasting, and determine whether your accounting system aligns with industry best practices and government regulations.
3. Gather Documentation
Collect all the necessary documentation you'll use to inform your responses on SF 1408. As a reminder, this may include financial statements, policies and procedures manuals, organizational charts, and other relevant records (e.g., timekeeping information, job cost ledgers, and invoices).
4. Seek Expert Advice
You don't have to go through this process on your own. Consider joining forces with government contracting experts who can walk you through the process and provide insights into the specific requirements of SF 1408 and how to prepare a comprehensive submission. Such experts can also analyze your accounting system to determine whether it aligns with industry standards before the government starts poking around.
5. Address Identified Weaknesses
In the event you identify any areas of weakness during your self-assessment or third-party audit, take steps to address them before filling out SF 1408. By implementing corrective actions, strengthening internal controls, and revising policies and procedures accordingly, you can improve your accounting system and increase your compliance.
6. Complete SF 1408
Once you've done all the homework, it's time to complete SF 1408 as thoroughly as you can. Provide detailed, transparent information that demonstrates the effectiveness of your accounting system.
7. Review, Refine, and Submit
Before you submit SF 1408, review your responses and supporting documentation to ensure everything is accurate and complete. If you uncover any weaknesses or gaps, make the necessary changes to further improve your system.
By following these steps, you can proactively prepare for a successful SF 1408 and increase your chances of winning an award.
As you can see, preparing for SF 1408 involves a lot of information gathering, but it's just part of the requirements contractors need to meet to do business with the federal government.
To learn more about how your organization can ensure compliance and increase the chances you win more business, read this primer on contractor purchasing system reviews.
