It’s Incurred Cost Proposal Season!

As soon as the April tax deadline passes, many government contractors begin preparing their incurred cost
submission. Any contractor with a government contract containing FAR Clause 52.216-7, Allowable Cost
and Payment, is required to submit an Incurred Cost Proposal (ICP) within six months of the contractor’s
fiscal year end. The proposal is used to determine how much the contractor can bill the government under
any cost type contract. It also determines annual final indirect rates – an essential step for many in
Government contracting.

ICP preparation can be time consuming and varies depending on the size of the contractor and the
complexity of their rate structure. The Defense Contract Audit Agency (DCAA) website offers a
downloadable Excel template for the submission, called the Incurred Cost Electronic (ICE) model. While it is
not mandatory to use the template, it does help to ensure that all required information is submitted in the
preferred format. The template includes a summary of indirect costs by pool as well as direct and indirect
cost application by contract.

In addition to final indirect rates and contracts costs, the ICP submission also includes details on
intermediate pools, subcontracts, payroll, prior year comparatives, executive compensation, and more.
Once submitted, auditors perform an adequacy check, also available on the DCAA website, to confirm
that all schedules reconcile and that sufficient information has been supplied to begin the audit.
Submissions found to be inadequate, often for minor infractions, are sent back to the contractor for
revision. Adequate submissions move forward in the review process.

The audit process often moves slowly. Once a submission is deemed adequate, it can sit for several years
while DCAA catches up on its backlog. Submissions deemed low risk can be passed without a visit from
DCAA, but not always. Other contractors may find that multiple years are reviewed at one time. Typical
audits do include a site visit from DCAA and, generally speaking, the more organized the contractor, the
easier the audit will be. Completed audits result in final indirect rates for the year(s) audited and enable the
contractor to issue final bills for contracts completed in those years.

What Does CohnReznick Think?
Affected government contractors with a December 31, 2016 fiscal year end should submit their 2016 ICPs
no later than June 30, 2017. Preparation of the submission can be challenging, especially if the submission is
found to be inadequate.

Learn More
With significant experience in preparation and review services, CohnReznick can assist you in completing
and submitting your ICP. For more information, contact Cindy Fischer, Manager, or 703.286.1719, or Kristen Soles, Partner, or
703.847.4411. You can also visit our website at or
review our summary of ICP submission services here.

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