It’s that time of year, books are closed, tax data has (maybe) been sent to the CPAs and you are ready to start a new year. However, as a government contractor with cost-reimbursable contracts, for the next 180 days a cloud called the incurred cost submission (due on June 30, 2015) is looming over head. Will this cloud looming become a thunder storm or beautiful clear skies? Well, my friend, that is up to you. Here are the top 5 things to know about the incurred cost submission that will make this year a success in submitting a timely and adequate incurred cost submission.
1. The incurred cost submission has many names.
Of course in the government realm there is an acronym for everything and the incurred cost submission is no exception. DCAA uses the ICE Model which is short for Incurred Cost Electronically Model. Or ICEs which is Incurred Cost Electronic Submission. Even Incurred Cost Claims have been used by DCAA when referring to the incurred cost submission. Some in the government contract industry will refer to it as the ICS meaning the Incurred Cost Submission or Incurred Cost Proposal simply as ICP. It’s all the same. The ICE, ICEs, ICS, ICP is an excel spreadsheet that provides contractors with a standard electronic package to assist in preparing timely and adequate incurred cost submissions and ultimately in assisting auditors follow your (and every other contractor) submission.
2. Incurred Cost Submission requirements and due date.
A myth government contractors have on occasion fallen victim to is that DCAA will notify a government contractor if and when the incurred cost submission is required or due. FALSE! In times past DCAA did issue a reminder letter; however, with or without this letter, an incurred cost submission is required per the Allowable Cost and Payment Clause FAR 52.216-7(d)(2) which is typically included in cost-reimbursement type contracts (FAR 16.307). It is important to note that as a subcontractor you are subject to flow-down provisions from the prime which may include this clause prompting need to complete an Incurred Cost Submission. Be sure to carefully read the contract or subcontract requirements to determine your contractual obligations. Incurred Cost Submissions are due six months (180 days) after completion of the contractor’s fiscal year end. If submissions are six months delinquent, DCAA will recommend a decrement factor and for the Contracting Officer (CO) to make a unilateral determination based on FAR 42.703-2(c)(2). It doesn’t matter that DCAA won’t actually start the audit for years, the due date for submission of the ICS is a contractual requirement regardless of DCAA’s untimely audits.
3. Schedules required for adequate approval by DCAA upon submission.
In 2011, the regulatory definition of what constitutes an “adequate” incurred cost submission was modified in FAR. The “one size fits all” spreadsheet provided by DCAA has many schedules included in it that are not listed in this new section of FAR. Although counter-intuitive, an unadjusted application of DCAA’s “standard” ICE Model may result in the rejection of a contractor’s incurred cost submission which may not be consistent with the actual regulatory requirements. Depending on such factors as business type, size, and accounting system capabilities each incurred cost submission will be unique except for the core 15 schedules provided in FAR 52-216-7(d)(2)(iii). According to DCAA, any missing or unreconcilable schedule could cause DCAA to report the submission as inadequate and arguing adequacy with DCAA is basically a one-sided experience equivalent to playing a game with someone (DCAA) who wrote and freely interprets the rules.
4. Incurred Cost Submissions are audited!
Once the incurred cost submission has been deemed “adequate” upon submission to DCAA, then it will be subject to audit. The audit is to determine that costs claimed are allowable per FAR 52.216-7 (which invokes FAR 31.205) and agreement on final indirect rates that are primarily used for closing out cost-reimbursable contracts. FAR 31.205-2(d) requires contractors to maintain records and supporting documentation to demonstrate allowability and allocability of costs. Some of the subparagraphs in FAR 31.205 also require specific documentation to demonstrate the allowability of certain costs (e.g. Professional and Consulting under 31.205-33).
5. An adequate incurred cost submission may expedite contract closings.
DCAA will only audit an “adequate” incurred cost submission. Therefore, to close out cost-reimbursable contracts an adequate submission is necessary. The audit determines the final indirect rates for the contractor’s fiscal year or years in the case of multi-year audits. With the final indirect rate agreement letter signed, contracts are ready for the close-out process and be aware that once rates are final, any final (close-out) vouchers are due within 120 days. This will determine final payment which could include amounts of fee withheld along with a release of claims form. One last lesson, don’t sign the release of claims and then have any expectations of later adjusting the final voucher to claim addition costs.