Annual Incurred Cost - Consequences for Late Submission

Yesterday we discussed the importance of submitting timely annual incurred cost submissions and why it is in everyone's interest to submit them by the due date. The due date is six months following the close of the contractor's fiscal year (usually the calendar year).

Contractors who do not submit timely proposals may have their billing rates unilaterally "set" (that means 'reduced') by the contracting officer. FAR 42.703-2(c)(2) gives the contracting officer the authority to unilaterally reduce rates when contractors fail to certify their final incurred cost rates. That provision states that rates established unilaterally should be based on audited historical data or other available data as long as unallowable costs are excluded and set low enough to ensure that unallowable costs will not be reimbursed.

DCAA, acting on behalf of the contracting officer is the organization tasked with keeping track of due dates and submissions. This is an administrative task that DCAA seems to excel at. DCAA sends out alerts 90 days prior to the submission due dates and contractors who fail to submit rates by the due date will receive a letter, generally within two weeks, advising them of the potential for unilateral rate reduction.

DCAA also make recommendations to the contracting officer on the unilateral rate reductions. Tomorrow we will discuss how these unilateral rate determinations are determined. The reductions could be significant and could place great strains on contractor cash flows.