Monday, May 17, 2010

Improving Your Cash Flow through Direct Billing

DoD and NASA have a program that allows contractors with adequate billing systems (and related internal controls) to submit interim public vouchers directly to Government paying offices (often called the "direct billing" program). Contractors on the direct billing program can shave a week or more off the time it takes to get paid. The contract auditor (usually DCAA) makes the call as to whether a contractor has an adequate billing system and can qualifiy for the program. As a matter of policy, DCAA encourages the maximum contractor participation in this program (see CAM 6-1007).

DCAA has a two-pronged review process; one for contractors with more than $90 million in annual reimbursements under cost-type contracts (referred to as a "major" contractor) and the other for contractors with less than $90 million (non-major contractor). Most Government contractors fall under the $90 million threshold so that is the focus of this post.

DCAA has established seven criteria that a non-major contractor must meet in order to have its billing system deemed adequate and thereby qualify for the direct bill program.
  1. Contractors must maintain an adequate accounting system (to learn about adequate accounting systems, sign up for our 2-day course on Business Systems for Government Contractors to be held on June 22-23, 2010 in Seattle). At a minimum, billed costs must be reconcilable to the cost accounting records.
  2. Contractors must establish provisional billing rates. FAR 42.704(b) requires the contracting officer or auditor to establish billing rates based on information resulting from recent audits, previous audits or experience, or similar reliable data or experience of other contracting activities.
  3. Maintain cumulative allowable costs by contract to support the preparation of interim and final vouchers. Cumulative costs are necessary to assure that the cumulative amount billed does not exceed the total estimated ceiling costs on the contract and/or the current contract maximum frunding levels.
  4. Adjust billing rates to reflect acutal year-end allowable costs.
  5. Brief contracts to assure that billings accurately reflect special cost limitations contained in contracts. (see Schedule S in DCAA's ICE (electronic version of the Incurred Cost Model) for a pro-forma contract brief).
  6. Submit final year-end indirect incurred cost proposals within six months after year-end.
  7. Submit final vouchers for physically completef cost-type contracts with 120 days after settlement of final indirect cost rates.
These criteria are not difficult to meet. Contractors with cost-reimbursable contracts should already be doing them anyway and indeed, most contractors are. If you are ready, write a letter to your cognizant contract auditor requesting approval for direct bill authority. If you need some help bringing your billing system into compliance, give us a call.

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