The New Excessive Pass-Through Cost Principle

Due to a new FAR provision effective January 2011, and new audit guidance from DCAA, indirect costs and fees or profit associated with subcontracts may be unallowable when the total subcontracted content of a contract or individual delivery order exceeds 70 percent of the total cost.  Contractors should be able to demonstrate their “added-value” efforts, if not, the indirect costs (and profit) added by the contractor to the subcontracted work could be questioned.

Will you be able to successfully defend your “added value” efforts several years after these costs have been incurred during an incurred cost audit?  What can you do to mitigate your Company’s exposure?  Be sure to read our latest thought piece.

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