One crucial aspect of government contracting is the preparation and submission of incurred cost proposals. Whether you’re a new, current, or potential government contractor, understanding how to complete and submit these proposals is essential. Below, we’ll address frequently asked questions about the incurred cost proposal process, equipping you to navigate it successfully.
What Is an Incurred Cost Proposal (ICP)?
An incurred cost proposal (ICP) is a comprehensive report that government contractors who have a Cost Reimbursable contract must submit annually to federal agencies. An ICP should detail actual indirect expenses that were incurred while completing the contract (or contracts) during the contract period in question.
Who Needs to Submit an ICP?
All government contractors who have a cost-reimbursable contract must submit an ICP. Cost-reimbursable contracts can include cost-type, time-and-materials, or labor-hour contracts. In general, these rules only typically apply when your annual incurred costs exceed $750,000, but it’s important to note that specific contracts may have different thresholds, so it’s crucial that you consult your contract’s terms and conditions for clarity.
When Is the ICP Submission Deadline?
Your actual incurred costs, as detailed in an ICP, must be submitted within six months of the end of the fiscal year. Many (though not all) small businesses have fiscal years that end on December 31st. If your business ends its fiscal year on December 31st, then your ICP submission deadline will be due on June 30th of the following year. If your fiscal year ends on a day other than December 31st, your ICP submission will be due six months after that day.
Remember that this deadline may vary depending on your contract’s terms, so always check the specific requirements outlined in your contract to ensure compliance.
Are There Consequences for Late or Inaccurate ICP Submissions?
Yes, there can be consequences for late or inaccurate ICP submissions. Late submissions may lead to reduced cost recovery for contractors, while inaccurate submissions could result in disputes with the government and potentially timely and costly audits. Taking ICP preparation and submission seriously is crucial to avoid any potential issues.
What Should a Completed ICP Include?
A completed ICP will include the actual incurred expenses accrued fulfilling a government contract during a fiscal year. Items your ICP will report on include the following:
- Labor costs (including wages, benefits, and payroll taxes)
- Material costs (such as the cost of raw materials, parts, and any other items used to perform or fulfill the contract)
- Overhead costs (i.e., rent, utilities, insurance)
- General and administrative expenses (this can include costs for accounting and legal services)
How Should I Prepare an ICP?
Preparing an ICP can be an intricate process, so you need to follow the provided guidelines. Accurate record-keeping is key; be sure to maintain detailed records of all costs incurred during the contract performance period, distinguishing between direct and indirect costs. Implementing proper accounting systems and procedures is also essential.
Will I Be Audited?
Yes. Once your ICP has been completed and submitted, the Defense Contract Audit Agency (DCAA) will perform a compliance audit. The purpose of this audit is to ensure that contractors are adhering to all relevant cost principles and requirements as determined by the Federal Acquisition Regulation (FAR).
Where Can I Find Resources for ICP Preparation?
The DCAA website, Contract Audit Manual (CAM), and FAR all provide valuable information about ICP requirements.
Another way to ensure compliance is to work with a company like GovCon that specializes in DCAA compliance and regulations.
An industry leader, GovCon has an experienced team that can prepare or review your annual year-end Incurred Cost Proposal to ensure that your claims are submitted correctly and comply with all codes and regulations. Other services we can provide for these proposals include the following:
- Preparation/adequacy of each schedule
- Determination of cost over/under run of each cost type contract/grant
- Review of the accuracy of your fiscal year close
- Audit/classification of allowable/unallowable costs
- Actual indirect rate calculation
- Cost management reports/job cost adjustments to actual indirect rates
- Contract briefs
- Review of the adequacy of the proposal before submitting to the DCAA
If you have any questions or concerns about incurred cost audits or DCAA compliance, we’re here to help! For over 20 years, GovCon has helped hundreds of clients navigate the complex world of DCAA compliance, streamline their operations, pass audits, and win contracts. We use our real-world experience to simplify your process, reduce the cost of compliance, and improve accuracy. Our government contracting software is built specifically to manage DCAA accounting and compliance, leaving no expense unaccounted for. We’d love to show you how GovCon can simplify DCAA compliance for you. Contact us any time.