This video and article discuss the importance of provisional billing rates for government contractors. If you have cost-reimbursable vouchers or progress payments based on costs, you want to make sure you have established provisional billing rates.
Today we are going to talk to you about the importance of provisional billing rates.
What are Provisional Billing Rates?
Provisional billing rates are indirect rates established to approximate the contractor's final year-end rates adjusted for unallowables. The purpose of provisional billing rates is to allow contractors to bill for an estimated amount of indirect cost incurred until settlement of final indirect rates. These include indirect rates such as fringe benefits, overhead, and G&A.
When are Provisional Billing Rates Applicable?
Provisional billing rates are applicable when billing indirect costs on public vouchers for cost-reimbursable contracts, progress payments based on costs for fixed-price contracts, and the material portion of T&M contracts. Vouchers and or progress payments can be rejected if submitted without properly established billing rates.
When Should Provisional Billing Rates be Submitted?
Provisional billing rates should be submitted prior to the beginning of the fiscal year to the administrative contracting officer or auditor. The rates can be resubmitted during the fiscal year if there are significant variances. Provisional billing rates for the current year can be based on budgeted rates. Smaller companies that do not submit a forward-pricing rate package may use the prior final year-end rates adjusted for unallowable costs. Support should be provided with the rate package, such as budgeted and historical pool and base amounts, including the exclusion of unallowable costs. Companies should explain significant variances in the historical data.
Who Establishes Provisional Billing Rates?
Well, it depends. It is either the contracting officer or the cognizant government auditor, generally DCAA.
How do I Know Who Establishes Provisional Billing Rates for my Company?
FAR 42.704 provides that the contracting officer or cognizant federal agency official or auditor responsible for establishing the final indirect cost rates is also responsible for determining the billing rates. The auditor generally reviews the provisional billing rates. Once the rates are reviewed, a letter from either the contracting officer or the auditor will be issued to the company based on who established the provisional billing rates.
What is the Process for Applying Provisional Billing Rates?
Once established by the contracting officer or auditor, the provisional billing rates are used to bill the indirect cost on interim vouchers, cost-reimbursable contracts, and progress payments.
What Happens if I Need to Modify My Provisional Billing Rates?
Provisional billing rates should be monitored throughout the year to determine if they need to be revised. The billing rates may be adjusted by either party if there is a change or significant variance. Companies should notify the contracting officer or auditor if the need arises to modify the rates. The contracting officer or auditor should provide a revised submission for review and approval.
If provisional billing rates are changed during the current year, the year-to-date billed indirect cost on vouchers and progress payments should be adjusted to reflect the new rates. Provisional billing rates should be updated after year-end or after the final indirect rate submission. Vouchers and progress payments submitted with prior year cost should be adjusted with the year-end or adjusted billing rates. This is called an adjustment voucher.
Suppose the company does not submit provisional billing rates. In that case, the contracting officer or auditor can establish the rates by adjusting the indirect cost of the prior year and adjusting for unallowables or other anomalies. Companies are better off submitting the rates to the contracting officer or auditor in advance of the new year, as you have a better understanding of the indirect rate data, and prior year data may not be indicative of the following year. Monitoring is important as you don't want to get into a significant over or under-bill situation. It is important that you use the approved billing rates. DCAA reviews a sample of vouchers prior to payment and will reject your voucher if the rates do not match the approved rates.
If you need assistance with provisional billing rates, please contact Redstone Government Consulting. We offer a variety of services for large and small government contractors, including evaluation, education and training, monitoring, and DCAA audit preparation. Redstone Government Consultants are a team of the most senior industry veterans and the brightest new talent in the industry. Many of our staff members are former DCAA and industry executives.
Our senior staff members work alongside our staff and managers, bringing significant accounting and software experience, fresh perspectives, inspiration, and energy to our team. Through our leadership and combined experience, we provide a unique perspective, bringing both government and contractor proficiencies to ensure government compliance for our clients.
Lynne is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to Commercial Item Determinations and support, Cost Accounting Standards, DFARS Business System Audits, Proposals, and Incurred Cost. Prior to joining Redstone Government Consulting, Lynne served in several capacities with DCAA and DCMA for over 35 years. Professional Experience Lynne began her career working with DCAA in the Honeywell Resident Office, Clearwater, FL in 1984. Lynne’s experience included various positions which involved conducting or reviewing forward proposals or rate audits, financial capability audits, progress payments, accounting and estimating systems, cost accounting standards, claims and disclosure statement reviews. She is an expert in FAR, DFARS, CAS and testified as an expert witness. Lynne assisted in drafting the commercial item guidance for DCAA Headquarters. Lynne was assigned as a Regional Technical Specialist where she provided guidance to 20 field offices on highly complex or technical issues relative to forward pricing, financial capability or progress payment issues. As an Assistant for Quality, she was involved in reviewing and ensuring audit reports were in compliance with policy and GAGAS as well as made NASBA certified presentations to the staff including but not limited to billing reviews, CAS, unallowable cost and progress payments. To enhance her experience in government contracting, Lynne accepted a position with DCMA in 2015 as part of the newly organized DCMA Cadre of Experts in the Commercial Item Group. This included performing reviews of prime contractor’s assertions and/or commercial item determinations as well as performing price analyses. Lynne was a project lead and later became a lead analyst where she engaged with the buying commands on requests and reviewed price analysis reviews performed by a team of 5 analysts. She also assisted the DCMA CPSR team relative to commercial items and co-instructed the Commercial Item Training presented to DCMA. Education Lynne earned a Bachelor of Science Degree in Accounting from the University of Central Florida. Certifications State of Florida Certified Public Accountant State of Alabama Certified Public Accountant Defense Acquisition Workforce Improvement Act (DAWIA) Level III- Auditing DAWIA Level III – Contracting