Challenges Contractors Face

Incurred Cost Proposals

The most dangerous action most government contractors take is submitting their annual incurred cost proposal to the ACO and DCAA. The proposal places at risk all of the work the contractor did the previous year. The subsequent audit often demands the repayment of money billed and are even subject to civil and criminal penalities.

The regulations refers to it as a "final indirect cost rate proposal" in FAR 52.217.7(d). Contractors call it the "Incurred Cost Proposal" or the "Incurred Cost Submission". DCAA attempts to get contractors to call it the "Incurred Cost Electronically" or "ICE", even though they cannot even require contractors to submit the form electronically or even use DCAA's unapproved forms (See Information for Contractors sections 1.7.a, 3.3.f, 6.12.g).

Incurred Cost Submissions are the annual reports to the government on your indirect rates to include both your indirect and direct costs. These reports are due to the Contracting Officer and the Cognizant Auditor within six months of the contractor's fiscal year-end. Contractors are required to certify the reports. The government should audit these reports within two years but often waits several years before beginning an audit.

As you can see in FAR 52.217.7(d), the reporting requirements are extensive and DCAA attempts to add even more reporting upfront. For example, paragraph "I" requires contractors to report cumulative costs on the contract level but DCAA Did I mention Criminal Penalitiesdemands contractors report the information on a delivery level order level (See DCAA's "Guide for Determining Adequacy of a Contractor Incurred Cost Proposal" section I). This demand can increase the form's size several times. There are numerous other examples to include breaking down G&A by departments (President's Office, Marketing, Accounting, etc.), how you report Time and Material contracts, and so on.

The end result reminds one of Robert Heinlein's joke:

Question: What is an elephant?

Answer: A mouse built to government specifications.

And do not even get me started about when they show up to audit the proposal....

Okay, one word on the audit. According to DCAA's own records, (page 13) they lose about half of their fights with contractors. Add to this the unfortunate fact that too many contractors decide not to even argue or question DCAA about proposed findings.

As one might imagine we spend a lot of time:

  • Answering questions about incurred cost submissions
  • Evaluating contractor's incurred cost proposals before submission
  • Preparing contractor's incurred cost submissions
  • Supporting contractor's during the audit of their incurred cost submission
  • Conducting "vigorous" discussions with auditors about our differences over a contractor's incurred cost submission
  • Drop us a line and we will be happy to discuss your concerns, problems, or crisis.

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