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Whynot

Definition of Incurred

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I have an effort whereby pre-award costs incurred prior to the period of performance are unallowable.

What exactly does “incurred” mean. My accounting system incurs costs when I receive an invoice from a supplier, not when the actual work is performed by the supplier. Likewise, for employees, at the end of a two week pay period not every day of work. Does “incurred” in the cost accounting world mean “performed”?

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It is my opinion, incurred does not necessarily "performed", but incurred costs are a liability that requires payment.

Ordering supplies, mob/demob, travel in connection to the contract work, etc.  

Maybe nothing has been accomplished as far as the Government is concerned but it's still a liability/cost that has been incurred.  Utilities are a good example.

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Whynot, the definition of an incurred cost may depend on the context in which the term is used.  However, in general, an incurred cost is one that the contractor has actually paid or has a legal obligation to pay.  For example, see FAR 52.216-7(b)(1).  In addition, certain imputed costs, such as cost of money, may be considered as an incurred cost for purposes of cost allowability.  See, FAR 31.205-10.  Finally, certain accrued costs, such as taxes, may be considered incurred for cost allowability purposes.  See, FAR 31.205-46.

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3 hours ago, Whynot said:

I have an effort whereby pre-award costs incurred prior to the period of performance are unallowable.

Does “incurred” in the cost accounting world mean “performed”?

No. "Incurred" does not mean "performed". As Retreadfed has correctly posted, the definition of "incurred" may very well depend on context. But I generally equate "incurred" with "recorded". For example, a contractor can record the cost of material at different points in time. Some record the cost upon receipt of an invoice; others record the cost upon receipt of the goods; others record the cost upon payment of an invoice. In fact, CAS permits at least 5 different timing choices (see Disclosure Statement at 2.3.0). When costs are recorded to a government contract (cost objective) they are deemed to have been incurred with respect to that contract. Normally they are not deemed to have been incurred until they have been recorded on the contractor's books and records.

Hope this helps

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Thanks.

If there is not additonal context besides the statement:  pre-award costs incurred prior to the period of performance are unallowable , can work begin prior to award and its cost be allowable so long as its cost is not incurred prior to award?

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Can you provide a little more context concerning the reason for the question? Does the question concern a settlement under a termination for convenience default? Payments under a cost reimbursement,  fixed-price incentive or similar arrangement?  Payment in settlement of minimum guarantee or something similar? 

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As you may know, some "precontract costs" may be allowable under the cost principles at FAR 31.205-32 (which may or may not apply to this grant)..  But you indicate that there is specific language in your contract or grant stating that "pre-award costs incurred prior to the period of performance are unallowable".

I think the answer to your question might logically revolve around whether or not you will become obligated to pay for work that has been performed by a supplier or your employees during the period prior to award of the grant/and or the stated period of performance, regardless of when the supplier invoices for that effort or regardless of when you actually pay the employee or enter the timesheet in your accounting system

Would you be obligated to pay the employee(s) for those days worked or some costs or cancellation fees from a supplier if the grant is never awarded?  Seems like it would behoove you to seek clarification from the employer or grant organization before you "incur" any such obligations. Just my opinion. 

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1 hour ago, Whynot said:

If there is not additonal context besides the statement:  pre-award costs incurred prior to the period of performance are unallowable , can work begin prior to award and its cost be allowable so long as its cost is not incurred prior to award?

If you begin work then presumably you are having personnel charge time for performing work. Where do you propose they charge their time?

Time has to be charged somewhere....

Unless you are proposing that company personnel perform work and just not record the associated labor hours? Or perhaps you are proposing that company personnel perform work and then -- after contract award -- record those pre-award hours as if they were post-award hours? Because if that's where you're at, I really, strongly, recommend you reconsider your plans.

 

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In looking through some OMB circulars regarding grants, they use some similar language to FAR 31.205-32.

 

Example OMB Circular A-122,  "Cost Principles for Non-Profit Organizations":

ATTACHMENT B  Selected Items of Cost: 

"36. Pre-agreement costs. Pre-award costs are those incurred prior to the effective date of the award directly pursuant to the negotiation and in anticipation of the award where such costs are necessary to comply with the proposed delivery schedule or period of performance. Such costs are allowable only to the extent that they would have been allowable if incurred after the date of the award and only with the written approval of the awarding agency."

But again - you indicated an additional condition, which seems to override the general condition above: " [P]re-award costs incurred prior to the period of performance are unallowable "

I still recommend that you seek clarification from the employer or grant organization before you "incur" any such obligations.

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Whynot, H2H is spot on with his comments.  To be plain, if your idea is to charge hours worked before award as if they were worked after award, that is an open invitation to an IG investigation and possibly worse. 

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