The Incurred Cost Submission: Why is Schedule I the Most Important Schedule?

Schedule I is the most important part of the Incurred Cost Submission and is the single area of great interest for the Government and its auditors. This VLOG will briefly explain the Incurred Cost Submission, the importance of Schedule I, and how to resolve potential issues.

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 for 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 are the Incurred Cost Submission Schedules?

Within the Incurred Cost Submission, there are many worksheets or tabs in an Excel workbook that are referred to as “schedules.” Each schedule is responsible for a piece that culminates on Schedule I, which is the presentation of cumulative cost incurred, cumulative billing and calculation of over or underbilling amount. Every piece of the Incurred Cost Submission leads to Schedule I: all the contract costs presented on Schedule H and Schedule K and all the indirect rates calculated in Schedules A through E are represented in the over or under billing amount that is presented on Schedule I.

What is Schedule I of the Incurred Cost Submission?

Schedule I is important because it is the place in the Incurred Cost Submission that shows each project’s over- or under-billed amount. As a result, this is the focus area for the Government during an audit and can cause a significant headache if it is not properly completed.

When completing Schedule I and the Incurred Cost Submission as a whole, it is crucial that the projects are presented at the correct billing level and not the level that costs are tracked at internally. It is perfectly okay to track costs internally at a different level, but the accounting system needs to be able to present the costs for each project at the billing level that is stated in the contract. If a contract has multiple task orders with projects that have multiple contract types, the projects need to be segregated in the Incurred Cost Submission by their contract type. For example, if a project at its top level has a mix of Cost-Plus and Fixed-Price projects, the Cost-Plus projects need to be separately presented in the Incurred Cost Submission from the Fixed-Price projects. This is because Schedule I only presents Cost-Type contracts and Time and Material (T&M) contracts. If the project is presented at the top level and including both Cost-Plus and Fixed-Price billings, but only including the Cost-Plus cost (per Schedule H of the ICS), it can show a massive over-billing to the Government for the Cost-Plus project when that is not the case. This same process of separating the different project types applies when rolling forward prior year costs from prior Incurred Cost Submissions: if a project has prior year costs that are Cost-Plus and Fixed-Price, they need to be segregated in the current year Incurred Cost Submission.

It is also important that billings are tracked throughout the fiscal year at the project level that will be presented in the Incurred Cost Submission. Doing so will significantly increase the efficiency of finding the correct invoices for the projects at the billing level in Schedule I.

If there are significant over- or under-billings on Schedule I, it is important to understand the cause before the Government audits or reviews the Incurred Cost Submission. There are a number of reasons that could be causing over- or under-billings:

• Is it a timing delay with invoices and the end of the fiscal year?
• Is the correct project level represented for cost and billing purposes?
• Does the contract have any rate caps or contractual limits that need an adjustment?
• Is there a significant difference between the provisional billing rates and the actual rates that are calculated by the ICS?

All of these are potential causes for over- or under-billing issues, and the bottom line is that it is important to uncover the over- or under-billing issues before the Government notices.

At the end of the day, Schedule I is the most important part of the Incurred Cost Submission in the eyes of the Government and they will pay close attention to the presentation of the cumulative costs and cumulative billings for each project. 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.