What is an Incurred Cost Proposal?

If you have a US Government contract containing the Allowable Cost and Payment clause (FAR 52.216-7) you are required to submit an annual Incurred Cost Proposal. This clause applies mostly to cost-reimbursable contracts, such as Cost Plus Fixed Fee (CPFF) and Time and Material (T&M). An Incurred Cost Proposal, also known as an Incurred Cost Submission (ICS), or Indirect Cost Rate Proposal (ICRP), takes all the cost accounting data from a contractor’s expense accounts to calculate the actual indirect rates for the cost accounting period (the fiscal year).

Under cost-type contracts, contractors utilize a provisional billing rate throughout the year.  The intention of the Incurred Cost Proposal is to true-up a contractor’s provisional billing rate to actual under its cost-type contracts. The actual rate is compared to what was billed and the calculated over/underbill is either credited back to the government or invoiced, respectively.

As required by the Federal Acquisition Regulation (FAR), Incurred Cost Submissions must be submitted within 6-months of the contractor’s fiscal year end. For example, a contractor who’s fiscal year is the calendar year, must submit its Incurred Cost Proposal by June 30th of the following year. While it is not recommended, contractors may request an extension for submission of their rates, which may or may not be honored by DCAA.

The proposal includes a series of Schedules from Schedule A through O, including Supplemental Schedules.  Some of the more impactful Schedules Include Schedule A Summary of Indirect Rates, Schedule H Summary of Direct Contract Costs, and Schedule I Cumulative Costs Claimed & Billed. Please read How to Prepare and Submit an Incurred Cost Proposal for more details on the preparation and submission process.

Upon completion, the Incurred Cost Proposal is submitted to DCAA and your Administrative Contracting Officer (ACO) for audit.  DCAA uses an Incurred Cost Submission Adequacy Checklist (DCAA > Customers > Checklists & Tools > Incurred Cost Submission Adequacy Checklist) to determine if the submission is adequate for audit.  Upon acceptance, DCAA may audit the submission for compliance including accuracy of rate calculations and applications.  This is the most frequent audit performed by DCAA year over year.  Their findings routinely center on unallowable costs pursuant to FAR 31 and exceptions to exceptions to cost accounting practices used by contractors. It is therefore crucial to spend extra time reviewing accounting for FAR allowability, FAR 31 expressly unallowable costs, and other common DCAA questioned costs.

Upon resolution of any findings, DCAA will issue a formal letter establishing the final rates for that year. Based on the results of the Incurred Cost Proposal, final bills or vouchers to the government may be prepared to close out physically complete contracts listed in the Incurred Cost Proposal.

Understanding, preparing, and submitting Incurred Cost Proposals can be challenging. Please contact us here if you have any questions, or need help on your indirect rates, and we will be happy to assist you.

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