A visitor to our website posted an interesting question this morning on one of our "Ask A Question" / "Can't Find What You're Looking For?" forms (found throughout our website), and we wanted to share it (and the response from our own Dave Donley), with everyone:
Website Visitor's Question:
Since DCAA takes years before they audit your final ICS/ICE, when can you, should you, bill the client for the revised final actual rates each year. Is there a FAR clause that supports this?
Excellent Question! To answer: a contractor has a number of remedies to this conundrum.
The general expectation of the government is that contractors will manage their indirect rates within a narrow bandwidth of what’s been negotiated as provisional billing rates. This expectation has been historically difficult to achieve for small contractors who are new to the government market. Government funding and program interruptions in recent years makes managing rates even more troublesome.
While it’s not specifically mentioned in FAR, it has been the custom of DCAA to request (within the general realm of FAR 42.704(b) & (c)) that contractors make a billing adjustment once an Incurred Cost Estimate (ICE) is submitted for prior year costs. This technique ensures there are no wild swings in rates once an ICE is audited. So there is an opportunity to get paid for any overrun due to indirect rates, provided contract cost limits will not also be overrun. On the other side of that coin, the government would also expect a “rebate” should actual indirect rates come in lower than billed.
After the annual billing adjustment, there should only be a small variance, if any, in indirect rates once they’re audited. Also, don’t forget any ICE having less than $1M of cost-plus type costs will not be audited, and those over $1M are placed in a low risk pool. Depending on your circumstance, you could get a final indirect rate letter from the DCAA without an audit.
Another approach is using the Quick-Closeout method provided for in FAR 42.708. This assumes the contractor already has some history with approved final rates.
-Dave Donley, ReliAscent
Should your company need help addressing issues with your ICE Submission, DCAA Audits, Indirect Rates, or if you have any questions about DCAA compliant accounting in general, please do not hesitate to contact ReliAscent directly, or submit your questions on our site. We are always happy to help small businesses and the Government Contracting Community in general!
-Tyler Link, ReliAscent LLC