Incurred Cost Proposal
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Incurred Cost Proposal 
government contractor and technology  audits, reviews and compilations 

 

By: Keith Romanowski
Abstract:

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.

 

What’s included in the ICE Model?

• Schedule A – Summary of Claimed Indirect Expense Rates
• Schedule B – General and Administrative (G&A) Expenses (Final Indirect Cost Pool)
• Schedule C – Overhead Expenses (Final Indirect Cost Pool)
• Schedule D – Occupancy Expenses (Intermediate Indirect Cost Pool)
• Schedule E – Claimed Allocation Bases
• Schedule F – Facilities Capital Cost of Money Factors Computation
• Schedule G – Reconciliation of Books of Account and Claimed Direct Costs
• Schedule H – Schedule of Direct Costs by Contract/Subcontract and Indirect Expense Applied at Claimed Rates
• Schedule H-1 – Government Participation Percentages
• Schedule I – Schedule of Cumulative Direct and Indirect Costs Claimed and Billed
• Schedule J – Subcontract information
• Schedule K – Summary of Hours and Amounts on T&M/Labor Hour Contracts
• Schedule L – Reconciliation of Total Payroll to Total Labor Distribution
• Schedule M – Listing of Decisions/Agreements/Approvals and Description of Accounting/Organizational Changes
• Schedule N – Certificate of Final Indirect Costs
• Schedule O – Contract Closing Information for Contracts Completed in this Fiscal Year

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.

 

 

What can you do to make preparation and subsequent DCAA audit of the Incurred Cost Proposal as painless as possible?
• Verify schedules tie to accounting system
   -Direct and indirect costs claimed tie to income statement
   -Claimed costs and billed costs
• Setup contracts in accounting system correctly
   -Contract type (CPFF, T&M, FFP)
   -Commercial/government contract?
   -Contract ceilings
• Unallowable costs properly identified and accounted for
• Keep contract briefs up to date
• Establish and maintain current written policies and procedures
• Don’t assume that because you downloaded the ICE model from the DCAA website, it is without errors
• Consider completing an interim or “Draft” of Incurred Cost Proposal
• Sign submission