Congratulations! You Submitted Your Incurred Cost Proposal. But is it Adequate?
If your company has flexibly priced or time-and-materials federal contracts that contain the Allowable Cost & Payment clause (FAR 52.216‐7), you are required to file an Incurred Cost Proposal (also known as an Incurred Cost Submission) within six months of the end of your fiscal year. For calendar year companies, the June 30th deadline just passed.
If you submitted your ICP on time, congratulations! It is imperative to submit your ICP promptly unless you obtain a waiver.
If you missed the deadline, time is of the essence! The Defense Contract Audit Agency will provide a single late notification letter when an Incurred Cost Proposal is 30 days late. If your ICP is still outstanding six months after the deadline, the DCAA will refer your contract to the Defense Contract Management Agency for audit.
Keep in mind that timeliness alone will not protect you from increased scrutiny. If the DCAA deems your proposal inadequate, it also may refer your contract to the DCMA for audit.
Many contractors prepare their ICPs in house. This may be a good option if your staff includes an experienced cost accountant and contracts compliance expert who stays on top of the complex and changing regulations that apply to ICP submissions. These may include annual changes to FAR regulations, the proposal adequacy checklist, the ICP format and the expectations of government auditors.
In most cases, however, small and medium-sized businesses can’t justify the expense of keeping a contracts specialist on staff. Just as they hire experts to prepare their tax returns, they bring in an experienced contracts compliance accountant to prepare their ICPs. Here are just a few of the reasons to consult an ICP expert:
- An expert stays current with the latest Federal Acquisitions Regulations and all of the requirements for preparing adequate Incurred Cost Proposals.
- Hiring an expert may cost less than you would pay an inexperienced accountant to navigate the intricate requirements for developing and submitting an ICP.
- An expert knows which expenses are allowable and which are not, protecting your submission from rejection.
- An expert knows how to classify expenses, making it easier to prepare Incurred Cost Reports, saving time at the end of the year
- An expert knows how to classify labor costs in a way that the government recognizes, which can save staff time and protect against findings when your contract is audited.
If you missed the deadline or have any doubts about the adequacy of your Incurred Cost Proposal, start working on a solution as soon as possible. You’ll find more detailed information about the ICP preparation process in our January blog post.
Questions about the ICP and your federal contract? We’re here to help! Reach out to Robert@LeftBrainPro.com or call (614) 556-4415. With more than 14 years of Department of Defense contract and accounting experience for both Fortune 500 and small to mid-sized businesses, he has extensive experience classifying costs, creating reports, working with clients to prepare ICPs and navigating audits.