Friday, April 6, 2012

Obtaining Indirect Cost Proposals - Part 2

Yesterday, we discussed the Government's process for obtaining annual incurred cost proposals. It starts with a reminder before the due date and progresses to a recommendation to the contracting officer to make a unilateral determination of rates.

The contract auditor does not have the authority to make unilateral determination of rates. The auditor's role in this process is to make recommendations to the contracting officer that will preclude reimbursement of potentially unallowable costs.

Sometimes its very difficult for the auditor to conjure up rates. The auditor has to look to  a variety of sources of information and data and make a best guess.

When recent relevant historical data exists, the auditor can develop recommended rates based on that history. Recent relevant data exists when all the following criteria are met:

  • The prior fiscal year has been audited
  • All contractor submissions received have been audited and settled.
  • The indirect cost pool and base data for the subject fiscal year is readily available in the contractor books and records
  • There have been no significant changes in the contractor's business base between last year and this year.
  • There has been no significant reorganization of the contractor between last year and this year
  • There have been no changes in the indirect cost rate structure between last year and this year.

When recent relevant historical data does not exists, things get brutal. The auditor will recommend a 20 percent decrement to total contract costs (both direct and indirect).

Keep in mind that these are only auditor recommendations and the contracting officer is free to accept, modify, or reject the recommendations. There is usually significant reluctance on the part of the contracting officer to invoke unilateral rates due mostly to the fact that it significantly increases everyone's workload with little, if any, benefit. Once the contractor submits its incurred cost proposal, the Government will have to pay it all back anyway.

There is one other downside for contractors who do not submit their incurred cost submissions in a timely manner. They could have their authority to "direct bill" removed, thereby increasing the length of time for getting paid.

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