Thursday, July 8, 2010

Payments under Cost-Type Contracts

The contract clause at FAR 52.216-7 provides for reimbursement of costs under cost-type contracts (e.g. CPFF, CPIF, CPAF, etc). However, contractors must be careful to include only those costs that are permitted by the clause. When auditors perform voucher reviews, they are looking to ensure that requests for reimbursement are made in accordance with the terms of this contract clause. Historically, the most significant finding in these audits are contractors that claim reimbursement for costs that they themselves haven't paid for. In some cases, contractors must pay for the item before they seek reimbursement. In other cases, contractors must be timely in paying expenses as a condition of reimbursement. Here is how the different costs break down. Contractors may claim:
  • recorded costs of items or services purchased directly for the contract for which the contractor has paid by cash, check, or other form of actual payment (however, small businesses can claim these kinds of costs before they pay for them).
  • when not delinquent in paying, contractors may claim cost incurred, but not necessarily paid, for
    • subcontracts
      • provided payment is made to subcontractors in accordance with the terms and conditions of the subcontract and
      • ordinarily within 30 days from the date of the payment request to the Government
    • materials issued from inventory
    • direct labor
    • direct travel
    • other direct in-house costs
    • properly allocable and allowable indirect costs.
Contractors should develop policies and procedures to preclude billing for costs that do not meet the requirements of this clause.

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