FAR Council Proposes Revised Incurred Cost Submission Requirements

The FAR Council’s proposed revisions to FAR 52.216-7 would change several requirements used to determine whether an incurred cost submission is adequate. The changes would reorganize or remove certain schedules and add requirements for some fixed-price incentive contracts, creating important considerations for submission preparation, audit support, and contract closeout.

Highlights

• Proposed FAR Changes. FAR Case 2026-006 would revise FAR 52.216-7 and change several requirements used in preparing an adequate incurred cost submission.
• Schedule Changes. The proposal would eliminate Schedule L and move information currently reported on Schedules K and O into Schedule H.
• Subcontract Reporting. Schedule J reporting would be limited to subcontracts exceeding the applicable certified cost or pricing data threshold.
• Fixed-Price Incentive Contracts. The proposal would add final indirect cost rate requirements for certain fixed-price incentive contracts, increasing the information reported on Schedule H.
• Comments Due. The changes are not yet final. Comments on the proposed rule are due October 19, 2026.

As part of the Federal Acquisition Regulation (FAR) Overhaul, the FAR Council on September 18, 2026, issued a proposed rule (FAR Case 2026-006) which would remove several detailed cost-submission requirements from FAR 52.216-7, Allowable Cost and Payment contract clause and thus would be changing the requirements for an adequate incurred cost submission.

An incurred cost submission is an annual submission or claim filed by government contractors to settle their actual costs under cost-reimbursement and/or time and material contracts in accordance with contract clause FAR 52.216-7 and its requirements. The claim is that the removal of certain items required for the incurred cost submission would reduce the information required from government contractors during audit, as well as the time required for contract closeout and impact settlement agreements.

The proposed changes to streamline FAR 52.216-7 clause and impact the schedules and information required for an adequate indirect cost submission such as used in the Model Incurred Cost Submission and used by Defense Contract Audit Agency (DCAA) auditors in their incurred cost adequacy determinations. This article will provide a summary of the proposed changes and the potential impact to the incurred cost proposal.

Subcontract Information (Schedule J)

The proposed rule would eliminate the subcontract information to only subcontracts with a value exceeding the threshold for requiring certified cost or pricing data per FAR 15.403-4 and is currently $2.5 million for prime contracts awarded after July 1, 2018. This would impact Schedule J and the information provided for subcontracts.

Time and Material and Labor Hour Contracts (Schedule K)

The proposed rule would eliminate this schedule. The summary level information would be moved to Schedule H (Direct Costs by Contracts/Subcontracts) with the proposed changes. For example, the labor category and bill rate build up for these type contracts would be provided as a lump sum amount instead of the detail that was originally provided on Schedule K (Summary of Hours and Amounts on T&M/Labor Contracts). The non-labor portion with the General & Administrative (G&A) burden would be included on Schedule H as a summary amount. An auditor would still have to verify this information during audit, however, for presentation purposes in the incurred cost submission the information presented would be less detailed with the proposed changes.

Reconciliation of Total Payroll per IRS Form 941 to Total Labor Distribution (Schedule L)

The proposed rule would eliminate this schedule. The additional information of providing the IRS Form 941, Employer's Quarterly Federal Tax Return for this schedule would be eliminated.

Ready to Close Information (Schedule O)

The proposed rule would eliminate this schedule. However, the information such as whether contracts are physically complete, contract ceiling amount, and indication if contracts are ready to close would move to Schedule H. The fee amount in the original Schedule O would be eliminated. Contract ceiling in total would be the amount provided on Schedule H instead of O with the proposed change.

Fixed-Price Cost Incentive Contracts

The proposed rule would require these contract types to prepare a Final Indirect Cost Rates (FICR) to calculate cost in fixed-price cost incentive contracts. Instead of these fixed-price contracts being provided at a summary level, the costs incurred would be provided at actual costs similar to a cost type contract on Schedule H.

Potential Impact on Incurred Cost Submissions

Although the proposed rule states that the number of schedules would decrease from 15 to 12, much of the information would be reorganized rather than eliminated. Schedule L would be removed, while information currently reported on Schedules K and O would move to Schedule H. The proposed requirement for certain fixed-price incentive contracts could also increase the amount of information reported on Schedule H and expand the number of contractors required to prepare an incurred cost submission.

Comments for these changes are due October 19, 2026. Currently nothing changes yet. These are still proposed changes, and you have the opportunity to have your voice heard by providing your comments by the due date.

Preparing for Potential Changes to Incurred Cost Submissions

Redstone GCI assists government contractors with preparing and reviewing incurred cost submissions, evaluating adequacy under FAR 52.216-7, reconciling schedules and supporting documentation, and responding to DCAA questions during audit. As incurred cost requirements evolve, our subject matter experts can also help contractors assess how changes to reporting, schedule structure, and contract types may affect their submission processes, procedures, and training.

Frequently Asked Questions

• What is an incurred cost submission? An incurred cost submission is an annual submission used to establish final indirect cost rates for applicable government contracts. It generally applies to cost-reimbursement and certain time-and-material and labor-hour contracts subject to FAR 52.216-7.
• What would the proposed FAR rule change? The proposal would revise several incurred cost submission requirements under FAR 52.216-7, including how certain subcontract, time-and-material, payroll reconciliation, and contract closeout information is reported.
• Would the proposed rule eliminate Schedules K, L, and O? Schedule L would be eliminated. Information currently reported on Schedules K and O would generally be moved into Schedule H rather than removed entirely.
• How would Schedule J change? The proposed rule would limit certain subcontract information to subcontracts exceeding the applicable threshold for certified cost or pricing data.
• Would the proposal affect fixed-price incentive contracts? Yes. The proposed changes would require final indirect cost rate information for certain fixed-price incentive contracts, which could increase the information contractors report as part of the incurred cost submission process.
• Do government contractors need to change their incurred cost submissions now? No. FAR Case 2026-006 is still a proposed rule, so the current requirements remain in effect. Comments on the proposal are due October 19, 2026.