DCAA Revises Its Incurred Cost Proposal Adequacy Checklist

Contractors with flexibly priced contracts are well aware that FAR 52.215-7(d)(iii), Allowable Cost and Payment, requires an annual submission of costs incurred under those contracts. The clause specifies 15 items/schedules that contractors must include in these annual submissions. DCAA (Defense Contract Audit Agency) has a few resources that are intended to assist contractors in preparing these proposals.

First, there is the Information for Contractors pamphlet. The latest version is dated June 26, 2012. Specifically, Enclosure 6 to that pamphlet contains some instruction and also, sample schedules that if followed, would satisfy the requirements.

Second, DCAA has developed an Excel-based model that it calls ICE (Incurred Cost Electronically). This is intended to be a "fill-in-the-blanks and out pops an adequate incurred cost proposal" tool. Unfortunately, this model is cumbersome, not user-friendly and hasn't been significantly updated in 15 years. Most contractors find it too onerous to implement and end up developing their own incurred cost model tailored to their own business environment.

Third, DCAA published a PowerPoint presentation that covers the essential requirements of an incurred cost submission as well as provides insight into the audit process of reviewing the submission.

Finally, DCAA publishes a checklist for its auditors to help them determine whether a contractor's incurred cost proposal is adequate. Although intended for auditors' use, it is also a very useful tool for contractors to assess the adequacy of their proposals prior to submission to contracting officers.

The most recent Adequacy Checklist was issued last month (August 2015) and represents a significant revision to the previous version of April 2012. The Agency revised it ensure that the effort expended to judge adequacy more closely aligned to the specific requirements of FAR 52.216-7(b)(iii). Previous versions were requiring auditors, in order to determine whether a submission was adequate, to request additional data and information from contractors that was not required by FAR. In some instances, auditors practically performed the entire audit just to determine whether a submission was adequate to begin an audit. Many contractors complained about these extra-regulatory requests and it seems that DCAA has acknowledged, in part, that its auditors were over-reaching.