Any contract that includes the FAR clause 52.216-7, “Allowable Costs and Payment Clause,” is required to submit an adequate cost proposal within six months of its fiscal year end. The incurred cost proposal is prepared by contractors to document its various indirect Overhead and General and Administrative (G&A) rates for its fiscal year. The Defense Contract Audit Agency (“DCAA”) will audit the Incurred Cost Proposal, if requested to by Contracting Officer (“CO”), and issue a report along with recommended rates to the requesting CO.
Failure on the part of the contractor to submit an adequate incurred cost proposal in a timely fashion can result in some unexpected and generally unfavorable results. If the incurred cost proposal is six months overdue, the DCAA will provide a unilateral recommendation on rates or total contract costs to the CO. The CO could then establish final indirect rates based on the provisions included in FAR 52.705-1. It would seem obvious that the rate recommended by the DCAA and unilaterally set by the CO would not favor the contractor.
The DCAA has developed a Model Incurred Cost Proposal which can be located in Chapter 6 of DCAA Pamphlet No. 7641.90. The Model identifies certain required schedules that must be completed for the proposal to be considered adequate. The model also identifies certain supplemental schedules that may be required to be completed prior to scheduling an audit. The DCAA has also developed an electronic version of the Model Incurred Cost Proposal (“ICE Model”) www.DCAA.mil.