A Delinquent Incurred Cost Submission Can Cost You Big

A late Incurred Cost Submission (ICS) could result in significant financial penalties for a Government contractor. In fact, the Federal Acquisition Regulation (FAR) gives the Contracting Officer (CO) authority to establish rates unilaterally for delinquent ICSs and proportionately decrement the value of the associated contract.

Per FAR 52.216-7(d)(2)(i), Allowable Cost and Payment, the contractor must submit an adequate final indirect cost rate proposal to the respective Contracting Office or cognizant Federal agency and its cognizant auditor within six months of the end of the contractor’s fiscal year. In 2014, the Defense Contract Audit Agency (DCAA) changed its policy relative to contractors whose ICS was not received within the established deadline. In prior years, DCAA would send several notifications to the contractor as a reminder of the approaching due date, as well as overdue submission reminders. This changed in 2014 when DCAA stopped this practice. Instead, DCAA now sends contractors a single notification when an ICS is 30 days overdue (see DCAA Memorandum for Regional Directors 14-PPD-002(R) at http://www.dcaa.mil/mmr/14-PPD-002.pdf).

What Does This Mean to You?  
After DCAA has closed a contractor’s case for a delinquent ICS, the CO has the authority under FAR 42.703-2(c)(2), Certificate of Indirect Costs, to establish the rates unilaterally based on relevant historical data. Typically, these rates are set low enough to ensure that unallowable costs are not reimbursed. In the case where there is no such relevant history, the CO can apply a cost decrement of up to 16.4% of the total contract cost.

If your ICS due date is approaching, make sure your ICS preparation is well under way. Ideally, within 30 days or so of your submission date, your ICS should be complete and adequate. That way, you can avoid the possibility of not being reimbursed for services you provided under your contract. If you require an extension of your ICS due date, contact your CO to obtain the extension well ahead of time.

What Does CohnReznick Think?
It is not common practice for COs to unilaterally establish rates with a decrement for small timeliness infractions. However, decrementing is being used as a tool to penalize contractors who are chronically late with, or lack, ICS submissions in general. This being said, we caution against methodology founded in practice-over-principle. While it may be the case that a CO infrequently invokes his/her authority under FAR 42.703-2(c)(2), this does not mean that they can’t – or won’t. We strongly advise our government contractor clients to submit their ICS on time, or get CO approval for an extension.

CohnReznick has the experience and expertise to help help you prepare adequate ICS submissions. We also have a number of resources to help you with ICS and other topics. These include:

  • CohnReznick GovCon360 (www.govcon360.com): Keeps you up-to-date on the everchanging regulatory environment that is Government contracting. From reference materials to educational presentations and thought leadership pieces on industry matters, GovCon360 is a valuable resource for the Government contracting professional.
  • CohnReznick Insights (www.cohnreznick.com/insights): Provides CohnReznick’s latest insights on business trends, regulatory developments, and economic issues. You can subscribe to receive Insights e-newsletters by email.
  • CohnReznick Website (www.cohnreznick.com): In addition to Insights, our website provides extensive information about all aspects of Accounting and Assurance, Tax, and Advisory services.

Please contact Jayson Collado, Senior Associate (jayson.collado@cohnreznick.com or 703.744.7427) or Kristen Soles, Partner (kristen.soles@cohnreznick.com or 703.847.4411).

Comments are closed.