Wednesday, March 12, 2014

Annual Incurred Cost Submissions and Time and Material Contracts

This is a followup to our discussion in Monday's post describing the need for contractors to include T&M (Time and Material) contracts in their incurred cost claims. If you missed it, you can read it here. There is some good news for contractors that have T&M contracts but no flexibly-priced contracts (e.g. CPFF, CPAF, CPIF, etc). The annual incurred cost submission becomes very simple.

FAR 52.216-7, Allowable Cost and Payment, contains requirements in section (d)(2)(iii) and (iv) for contractors to submit adequate indirect cost rate proposal withing six months following the end of the fiscal year. Most contractors are familiar with the requirement - it contains required schedules 'A through 'O as well as optional schedules 'A through 'O (not too many contractors submit the optional schedules).

Required schedules 'A through 'H, 'L, 'M, 'N, do not apply to T&M contracts. Those are the schedules where contractors identify their indirect cost pools and corresponding allocation bases, calculate indirect rates, reconcile those costs to the General Ledger and accumulate claimed costs at the calculated indirect rates, among other things that do not apply to T&M contracts. That leaves only Schedules 'I, 'J, 'K, and 'O as applicable or potentially applicable.

Schedule 'K, Summary of each time-and-materials and labor-hour contract information, including labor categories, labor rates, hours, and amounts is the primary schedule for detailing hours and costs charged to T&M contracts. This information is rolled up into Schedule I, Schedule of cumulative direct and indirect costs claimed and billed by contract and subcontract. Its largely redundant and doesn't serve a useful purpose but if a contractor fails to provide it, the auditor will most certainly reject the submission on that technicality.

Schedule 'J lists subcontractors and subcontracts. This may or may not be applicable depending upon whether there are subcontractors under a contractors' T&M contracts.

Schedule 'O simply indicates whether particular contracts are ready to close.

So there you have it. Contractors with T&M (and labor-hour) contracts but no flexibly-priced contracts, don't have much to do when it comes to completing their annual incurred cost submissions.

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