Incurred Cost Proposal Overview & FAQ for Contractors
With Incurred Cost Proposals due to the DCAA by the end of June (for most government contractors that had a cost type contract in 2022), now is a great time to provide a general overview and FAQ for small businesses or employees at those companies that may be new to the ICE. This blog will take readers through FAQ about the ICE, a description of each Schedule (along with helpful tips), and then cover the basics about Incurred Cost Proposals for other Federal Agencies outside of the Defense Department.
What is an Incurred Cost Proposal?
The Incurred Cost Proposal is the final step for the government to determine the true costs of your contracts. The government is focused on fair and reasonable pricing, and you will see that terminology throughout the FAR. Indirect rates are at the basis of the ICE, and are designed to support the concepts of fair and reasonable by distributing all the company’s allowable indirect costs proportionately across all contracts. Here is how the whole process works (note the Definitions section at the bottom of this post, if any of these terms are unfamiliar):
You start out with a budget. Generally, that budget is the basis for your first proposal to the government. This initial budget should have a depiction of what indirect costs you believe you will incur during the execution of that contract. Those indirect costs are divided into the appropriate base and rates are established. These become your Provisional Billing Rates.
Provisional Billing Rates are used for the purposed of invoicing the government through the beginning of your contract award until the end of your accounting period. At the end of your accounting period, you calculate your actual rates and invoice the government for the difference between your provisional rate and your actual rate.
In the case where you owe the government money, you create a payable and a plan to zero that payable out before contract close. This calculated (actual) rate for the previous year, now becomes your provisional billing rate for the upcoming year. You then prepare an Incurred Cost Proposal based on the previous year’s data and send them to the cognizant agency that you are contracted with for their approval. The approved Incurred Cost Proposal will be used by the government as a basis for all calculations necessary to close out the contract.
When are you required to do an Incurred Cost Proposal?
Incurred Cost Proposals are required by all government agencies when you are engaged in a Cost Type contract. The specific FAR clause dictating an ICP is FAR 52.216-7 (d). Incurred Cost Proposals are due 180 days after your fiscal year end (i.e. June 30th for most contractors).
Who prepares the Incurred Cost Proposal?
The preparation of an Incurred Cost Proposal is the responsibility of the company who is under contract with the government. Preparing ICPs is a service ReliAscent® offers to our clients.
Where is an Incurred Cost Proposal Submitted?
Each agency has specific instructions on where your Incurred Cost Proposal will be sent once completed. Please follow the guidance located later in this post and on the DCAA's website.
Why am I required to do an Incurred Cost Proposal?
If you are under a Cost Type Contract with any government agency, an Incurred Cost Proposal is required to provide the government with the proper documentation to reconcile your account during the contract closing process.
How do I do an Incurred Cost Proposal?
The following sections provide guidance to prepare and submit an Incurred Cost Proposal. Each Agency is a little different, so please be sure that you are following the instructions for the Cognizant Agency that governs your Indirect Rates. Additionally, ReliAscent offers ICE prep and submission, and audit support services to all government contractors and grantees (contact us to learn more).
Getting Started on The DCAA's Incurred Cost Electronic (ICE) Submission
The DCAA is the cognizant agency for all Department of Defense contracts. The DCAA also assists other agencies, such as Department of Homeland Security (DHS) and Department of Energy (DOE) when their workload permits. For non-DoD agencies, please check your contract to determine if the DCAA is the cognizant agency for the purpose of your Incurred Cost Proposal Submission. The Incurred Cost Proposal submission for the DCAA is called ICE (incurred Cost Electronic). These are required for all contractors who have direct cost type contracts with an agency under authority of the DCAA. For ICE instructions, go to:
Link - https://www.dcaa.mil/Checklists-Tools/ICE-Model/
From this link you can download the ICE Model and follow the instructions on how to complete an ICE to be DCAA compliant. The download includes the ICE Model and Instruction Manual.
DCAA Incurred Cost Submission Adequacy Checklist
The following link provides the latest DCAA Incurred Cost Submission Adequacy Checklist. Use this to be sure that your ICP is completed correctly.
DCAA ICE Model – Tab by Tab overview
The Workbook’s Table of Contents (TOC) is linked to all Schedules. Schedules A through O are generally the required schedules for the incurred cost proposal however, depending on your accounting practices you may not need all schedules (i.e., if your company does not have any intermediate pools then you will not be completing Schedule D since this schedule is used to provide details of intermediate pool costs). Here are the required schedules:
- Schedule A – Summary of all Claimed Indirect Rates
- This schedule requires no input. It is the result of all the data you enter into your ICE
- Schedule B – General and Administrative (G&A) Expenses (Final Indirect Cost Pool)
- You will enter your G&A data from your accounting data into this schedule. You will also enter your unallowable expense. The adjustment column is to reverse out the unallowable amounts.
- The bottom portion of this schedule is information pulled from other schedules and formulas – no entry required.
- Schedule C – Overhead Expenses (Final Indirect Cost Pool)
- You will enter your Overhead Expense data from your accounting data into this schedule. The adjustment column is to reverse out the unallowable amounts (unusual).
- Fringe – Fringe Pool
- You will enter your Fringe Expenses from your accounting date into this schedule.
- Schedule E – Claimed Allocation Bases by element of cost used to distribute indirect costs
- This schedule should require no entry
- Schedule G – Reconciliation of Books of Account and Claimed Direct Costs
- This schedule should require no entry
- Summary Sched H – Summary Schedule H of Direct Contract/Subcontract/IR&D/B&P
- This schedule should require no entry
- Schedule H – Schedule of Direct Costs by Contract/Subcontract and Indirect Expense Applied at Claimed Rates
- On this schedule you will list all of your contracts by contract type. Here you enter all of your contract costs by Labor, Travel, Materials, ODC and Subcontracts.
- Schedule H-1 – Subsidiary Schedule of Government Participation Percentages
- Schedule I – Schedule of Cumulative Direct and Indirect Costs Claimed and Billed by Contract and Subcontract
- This is the reconciliation schedule the DCAA uses when they are closing your contracts. It is vital that prior year data be carried forward correctly and all costs are tracked on this schedule correctly.
- This schedule must tie out to Schedule H.
- Schedule J – Subcontract Information
- Enter all of the subcontracts you used that were by category under any of your Cost Type contracts.
- Schedule K – Summary of Hours and Amounts on Time and Material/Labor Hour Contracts
- This schedule is only required if you have contracts that were T&M or Labor Hour
- Schedule L – Reconciliation of Total Payroll per IRS Form 941 to Total Labor Costs Distribution
- Enter all of your quarterly 941 data here.
- This schedule should tie out to your 941 labor numbers
- Schedule M – Listing of Decision/Agreements, or Approvals Affecting Direct/Indirect Costs and Description of Accounting or Organization Changes
- Required, even if the result is –none-
- Schedule N – Certification of Final Indirect Costs
- Please have the person responsible for the ICE sign this page once you have completed and checked your ICE.
- If your ICE is modified this page must be resubmitted with the modification with a current signature.
- Schedule O – Schedule of Contract Closing Information for those Contract which Work Effort was Completed
- List all contracts that closed during the reporting year here.
- If you have a contract listed here, then schedule I should have ‘Yes’ in column O.
- Optional schedules are also included, which provide the following:
- Schedule D – Provides details on intermediate pool costs. Is not optional if you have intermediate pools.
- Schedule F-1 - Convenient format for contractors to calculate the average net book value (NBV) of assets for the subsequent calculation of cost of money (COM) on Schedule F.
- Schedule G-1 - Additional reconciliation between the books of account/general ledger and the job cost-ledger.
- Schedule P - Computation of Allowable IR&D/B&P Costs formerly included as Schedule H in the July 1996 version. This version included for contractors who have costs applicable to the prior FAR 31.205-18 limitation.
- Schedules Q-1 to Q-4 - Comparative analysis of indirect cost pools and direct costs from the prior period to the claimed submission.
- Schedule R - Reconciliation of the claim to the Corporate Income Tax Return
- Schedule S - Briefing contracts
- Schedule T - Executive Compensation Information
Incurred Cost Proposals for Agencies Outside of the Defense Department
National Institute of Health (NIH)
NIH has a division that manages Incurred Cost Proposals internally. If you have cost type contracts or grants with the NIH, you will submit your Incurred Cost Proposal directly to this division. For ICP instructions, go to:
Link - https://oamp.od.nih.gov/dfas/indirect-cost-branch/indirect-cost-submission
This link gives you information on how to submit an incurred cost proposal. The first paragraph defers to the DCAA’s ICE if you are doing that for any program that requires it. If you are not governed by the DCAA ICE, then follow the steps in the sections below. Remember, the NIH has a larger set of unallowable costs, such as IR&D and Sales and Marketing.
National Science Foundation (NSF)
NSF has a division that manages Incurred Cost Proposals internally. If you have cost type contracts or grants with the NSF, you will submit your Incurred Cost Proposal directly to this division. For ICP instructions, go to:
Link - https://www.nsf.gov/bfa/dias/caar/docs/idcsubmissions.pdf
Pay close attention to the type of business (Non-Profit vs. Profit) because the worksheets are different. Remember that the NSF has a cap on its overall rate, so use the Modified Total Direct Cost (MTDC) method to maximize the ability to recoup your indirect costs. Like the NIH, NSF has a larger number of unallowable cost categories, so be sure you are aware of what is allowable and what is not.
United States Department of Agriculture (USDA)
USDA has a division that manages Incurred Cost Proposals internally. If you have cost type contracts or grants with the USDA, you will submit your Incurred Cost Proposal directly to this division. For ICP instructions, go to:
Link - https://nifa.usda.gov/indirect-costs
The guidance is different for Non-Profit and For-Profit companies. However, the Accounting Questionnaire is the same, so regardless of which link you hit, it takes you to the same place and says Non-Profit.
United States Department of Energy (DOE)
DOE does not have a division that manages Incurred Cost Proposals internally. If you have cost type contracts or grants with the DOE, you will submit your Incurred Cost Proposal directly to your Cognizant Contracting Officer (CCO). For ICP instructions, go to:
Link - https://www.energy.gov/sites/prod/files/42.1_Indirect_Cost_Rate_Administration.pdf
The DOE guidance is nearly non-existent. My advice, fill out an incurred cost proposal using one of the other agencies instructions and sent it to your CCO with a good executive summary. Make your summary clear enough so that your CCO doesn’t have to figure anything out. They will generally respond favorably to your attempt at making their life easier.
We hope you found this blog helpful, and if your small business needs support completing your 2022 ICE (or would like to discuss training services for your internal accounting staff to be better prepared for the ICE), contact ReliAscent today! We are always happy to help and our experts have completed thousands of ICE submissions for government contractors.
Definitions:
Adjustment to Actuals – An adjustment of the difference between your Provisional Billing Rate and your Actual Rate
Allowable Costs – Fair and reasonable costs. For costs that are specifically unallowable, see FAR 31.201, 31.202, 31.203, and 31.205
Base – The divisor in a rate structure that has a causal relationship to the cost pool being divided
Bid and Proposal – This is specific work towards winning an open solicitation or request for quotation/proposal. It may include Research and Development (R&D) if the R&D is necessary to support the proposal.
Causal Relationship – Also called Beneficial Relationship. Example is Fringe to Labor…Labor benefits from Fringe or Fringe is caused by Labor.
Consultant – An outside person or organization that provides specific skills or talents where a specific task or milestone is not readily identifiable.
Direct Costs – Any cost that is identified specifically with a particular final cost objective.
Fixed Fee – A predetermined amount, based on a percentage of project costs provided in the contract or grant.
Final cost objective – any cost that can be identified with a particular contract, job or project.
Finance and Administration – F&A is a subcategory of G&A in the Department of Defense model. In this model F&A is expenses related to accounting and finance and general administration of the business. In many other agencies, F&A is a term meaning all indirect costs except Fringe.
Forward Pricing Rate Agreement – A rate established based on budget projections. In the immediate year it is the Provisional Billing Rate, for future (out-years) it is called the Forward Pricing Rate (agreement).
Fringe – Benefits and/or Costs to the company as a result of having employees.
General and Administrative – Expenses which are for the purpose of the management of the business. These expenses would incur if the company had no direct projects. These expenses do not include expenses that can be more directly related or have a beneficial or causal relationship to a cost objective.
Incurred Costs – Costs that have already happened and are entered into your accounting data.
Independent Research and Development (IR&D) – Tasks that are for creating a technology, product or idea that has no specific customer.
Indirect Costs – Any cost that is not specifically identified to a particular final cost objective. These costs include categories such as Fringe, Facilities, Support Overhead, Finance and Admin, General and Admin, Bid & Proposal, Marketing and Sales, and Independent Research and Development.
Marketing & Sales – Costs associated with business promotion, not directed toward a specific solicitation or request for quotation.
Overhead – The culmination of allocated Fringe, Facilities and all Support Overhead attributed to all cost objectives.
Provisional Billing Rate – A rate established for the purpose of billing during the year, generally based on a prior year data, or a budget proposed for the year the rate is being established.
Rate Structure – This is the indirect rate structure that you select for your business. The FAR allows each business to select a structure that is best suited for their business model.
Subcontractor – An outside person or organization that is hired to perform specific tasks specified in a statement of work with specific milestones in order to receive funds from the issuer.
Support Overhead – Indirect costs that are associated with supporting projects or programs.
Unallowable Costs – Costs that cannot be billed to the government because they are prohibited by law, tradition or custom. Costs deemed not fair and reasonable, even if the category of cost is allowable can be determined unallowable.