Everything You Should Know About Incurred Cost Submissions

Posted by dcaa Consultant on February 22nd, 2021

An incurred cost submission verifies the final actual indirect cost rates that the contractor incurred during the year. The contractor then utilizes these actual indirect rates to settle the agreement. The contractor may owe the government money or the government may owe the contractor money.  Then, any adjustments found in the ICS (incurred cost submissions) can be accounted for on the final invoice.  The Contracting Officer should seal contracts after the ICS has been submitted, the rates approved and a final invoice submitted. 

Dcaa utilizes incurred cost submissions to help in finding the audit oversight of contractors.  They do this, in part, by computing ADV or Auditable Dollar Volume of each contractor’s incurred cost submission.  ADV is the cost of flexibly priced Government contracts a company incurs during their fiscal year. It is the flexibly priced contracts where DCAA can save the Government money after contract award.

DCAA’s mission is to make sure the Government is buying services and items at a reasonable price.  When determining what companies to audit, they wish to get as much bang for their money as they can.  If a company has several Government contracts and a history of not following the rules, DCAA will assign more audit hours there than at the company with only a small Government contract and a good history of following the rules.  

Incurred Cost Submission-a Necessity

The incurred cost submission must be thought of like the personal income tax returns necessary for all Americans.  Under T&M contracts and cost-type when costs incurred is billed, provisional or estimated indirect rates are used, which is like the withholding procedure for income tax purposes.  After the fiscal year is closed, we know what actual costs were incurred and can thus calculate final indirect rates based on those actual costs, instead of the estimated costs used to set up the temporary billing rates. 

DCAA will audit an “adequate” incurred cost submission only. Thus, to close out cost-reimbursable contracts a satisfactory submission is essential. The audit verifies the final indirect rates for the contractor’s fiscal year or years in the case of multi-year audits. With the concluding indirect rate agreement letter signed, contracts are all set for the close-out procedure and be aware that once rates are closing, any final vouchers are due within 120 days. This will agree on final payment which could include amounts of fee withdrawn along with a release of claims form. One last message, do not sign the release of claims and then have any expectations of later adjusting the final voucher to claim addition costs.

ICS requirements are noteworthy and can be taxing for small businesses as well as subcontractors. Although the Allowable Cost and Payment clause can apply to prime contractors and their subs, typically if the prime contractor is accountable, this liability will flow through to the subs in their contracts. To help subcontractors plan ahead, the contracting services team can review subcontracts to advise on whether there may be any direct pass-through costs to the government for subs to compute and report on at year-end.

It is important to remember that the contracting officer can close contracts only after the ICS has been submitted, the rates approved and a final invoice submitted. This means, the longer the ICS is under competent review, the longer contractors will wait for payment. For final, multi-year contracts, or actual rates for contracts that are still underway need to be implemented on invoices within 60 days of finalizing the rates in a specific year.