Schedule K is one of the most important parts of the Incurred Cost Submission and is an area of great interest for the Government and its auditors. This VLOG will briefly explain the Incurred Cost Submission, how to complete Schedule K, and the importance of Schedule K.
What is the Incurred Cost Submission (ICS)?
The incurred cost submission goes by many names/acronyms, including final indirect rate proposal, incurred cost electronic submission, indirect cost rate submission, incurred cost proposal, ICES, ICS or ICP. Regardless of name, it is simply the mechanism for the true up of your actual indirect cost to the indirect costs provisionally billed in a single contractor fiscal year. An ICS must be submitted for each business unit of a contractor that holds applicable contracts subject to the Allowable Cost and Payment clause (FAR 52.216-7) and is required to be submitted 6-months after fiscal year end.
What is Schedule K in the ICS?
Within the Incurred Cost Submission, there are many worksheets or tabs in an Excel workbook that are referred to as “schedules.” Previously, we discussed the importance of Schedule I. Each schedule in the Incurred Cost Submission is responsible for a piece that culminates on schedule I, which is the presentation of cumulative cost incurred, cumulative billings and calculation of over or underbilling amount. One of those schedules that leads to Schedule I is Schedule K, which is the summary of hours, bill rates, and non-labor costs for time-and-material and labor-hour contracts.
Why does Schedule K matter?
Schedule K is important because it is the place in the Incurred Cost Submission that shows the project cost detail for time-and-material contracts. The total costs from Schedule K get pulled over to Schedule I to be compared to the billings, so if Schedule K is not properly completed, Schedule I can inaccurately state the over or under billing for the project.
Similar to completing Schedule I and the rest of the Incurred Cost Submission, it is critical that the projects are presented at the correct billing level and not at the level that costs are tracked at internally. The goal of Schedule K is to show the billed cost buildup for T&M contracts that is ultimately compared to what is invoiced over on Schedule I. In a perfect scenario, it will tie to the invoice with only a minor variance due to the G&A rate used for the invoice versus the actual G&A rate calculated by the ICS.
When completing Schedule K, the first area to pay attention to is that the contract labor categories are used and not the company labor categories or employee names. Along with that, it’s critical that the labor rate that is entered is the bill rate for the labor category and not the employee’s hourly salary rate. Remember that Schedule K is to show the total billed cost for the project and not the total raw cost of the project, which is why it’s important to use the bill rate instead of the hourly salary rate. If a bill rate changed for a labor category during the year, don’t simply average the rates. The correct way to handle the bill rate change is to have separate lines for the number of hours associated with the original rate and the new rate.
After the contract labor category, number of hours for the year, and bill rates are entered in for the time and material project, it’s important to enter the non-labor direct costs associated with the project. These costs should be linked from Schedule H into the section beneath the labor section on Schedule K. It’s critical that this section is tailored for each individual project or contract due to the varying nature of contract terms. For example, a contract might not allow for travel to be billed for the T&M project, so while the company incurred a travel cost over on Schedule H it will not be linked over to Schedule K. This is because again, Schedule K is the representation of the billed costs and not the raw costs incurred. This section is also where G&A is applied to the non-labor direct costs, but if the contract terms don’t allow for G&A to be billed then it’s important to have it removed.
The last key item on Schedule K is the ceiling amount for each project and ensuring the total project costs do not exceed the ceiling. If the cost exceeds the ceiling, it’s important to analyze if the project costs truly are in excess or if there is an error in the calculation. If it truly is in excess then the amount in excess needs to be adjusted on Schedule I.
At the end of the day, Schedule K is one of the more important schedules in the incurred cost submission because it is the build up of the T&M billed costs that are represented on Schedule I. Redstone GCI is available to assist contractor’s in assessing their incurred cost as adequate or inadequate as well as assist in the development of the proposal. Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations in applying FAR Part 31, Cost Principles and completing incurred cost proposal requirements.
Adam is a Senior Consultant with Redstone Government Consulting, Inc. based in our firm’s Huntsville office. Adam supports our government compliance group and his role includes production of pricing models for cost volume proposals, the preparation of complex incurred cost submissions, data modeling and analysis related to indirect rates, and unallowable cost testing. Adam works closely with our directors and managers in performing testing and assessments of DFARS Business Systems, specializing in the accounting system. He also works with other team members to assist clients with compliance requirements of the U.S. Government. Education Adam holds a B.S. degree in Economics from The University of Alabama with minors in Computing Technology & Applications and Management Communication.