Updated Checklist for Determining Adequacy of Incurred Cost Proposal

DCAA (Defense Contract Audit Agency) recently updated its checklist for determining the adequacy of contractors' annual incurred cost proposals. This represents a major and more comprehensive update to the previous checklist and the first revision since FAR 52.216-7 was revised last June. That particular FAR revision was the first time that "adequacy" was defined in Regulations.

It will be interesting to see how auditors use this checklist to determine adequacy. Although the checklist cautions auditors to use "professional judgment in determining whether any specific missing/inadequate data or combination of missing/inadequate data is sufficient enough to warrant the submission as inadequate", there are many elements of the checklist that are not required by regulation. For example, checklist item E concerning indirect cost allocation bases (first bullet) states "Ensure an explanation of each base is included." The Regulation does not require "explanations" of bases and pools in order for an incurred cost proposal to be considered adequate. Or item M concerning decisions, agreements, approvals, and descriptions of accounting/organizational changes, the checklist states that contractors are required to provide a negative response if not applicable. The Regulations however, make no such requirement.

All things considered however, contractors preparing annual incurred cost proposals would do well to use this revised checklist to perform its own self-assessment prior to submission. It should help reduce the number of instances proposals are returned as inadequate.