Its a new year and, if you haven't already done so, its time for contractors to update their provisional billing rates (PBRs) - before billings are submitted for costs incurred in January. PBRs should be based on some sort of annual budget, submitted at least annually, but more often as circumstances dictate.
Vouchers and progress payment requests can be returned if submitted without properly established billing rates. Many contractors, especially small businesses without the luxury of having in-house staff to develop and monitor indirect billing rates, know all to well the punishment meted out by the contract auditor or the contracting officer when rates are out of date - rejected payment requests disrupt the cash flow process which dominoes into other problems (like the inability to meet payroll and pay vendors).
When submitting a PBR proposal to either the auditor or the contracting officer, contractors should include a comparative analysis showing last year's actuals, current year to day actuals, and current year budget. Significant differences withing this comparative analysis should be explained in sufficient detail to provide a reviewer some insight into changes.
Contractors need to ensure that their PBRs do not include unallowable costs. Of course, if the rates are based on budgeted information, there will most likely not be sufficient detail to identify potentially unallowable costs. Some contractors take small decrements off the G&A rate to provide for the potential that it will incur unallowable costs. Usually this is an acceptable practice but there are no guarantees the auditors will like it. There are 4,000 contract auditors scattered across 120 offices and while they try to achieve uniformity, it does not always happen.
Monitoring is also a key element to PBR development. Someone in the company must monitor approved billing rates against actual experience to ensure their continued viability. Indirect rates are impacted when business volume changes and contractors have the duty to revise PBRs whenever there are significant changes. Rates can swing up or down. If rates increase, the contractor is hurting itself by not adjusting PBRs upward. When rates fall, the Government is harmed if the PBRs are not adjusted. If the latter happens, you've just signed up for some increased audit oversight.