Spring is Here - Prepare for ICE

PNWC would like to remind all Government contractors of an important deadline - annual incurred cost submissions are due on June 30th (or six months after fiscal year end for contractors whose fiscal years do not coincide with calendar years). Preparation for this annual ritual, commonly referred to as "ICE" meaning "Incurred Cost Electronically" after DCAA's Excel-based interpretation of the requirements of FAR 52.216-(d)(2)(iii), should begin now.

DCAA's (Defense Contract Audit Agency) ICE model is ponderous to comprehend and complete because DCAA has built it to accommodate many different situations and accounting systems, and indirect rate structures. That is why many contractors and their consultants, including PNWC, have developed streamlined versions specific to individual contractors.

Contractors need to ensure that their ICE submissions are adequate. DCAA will perform an "adequacy review" of each submission. Failing an adequacy review will certainly slow the process for settling indirect rates and if the deficiencies are egregious, could result in a higher risk category, meaning an increase in the probability that the submission will be audited. DCAA has developed and published an Incurred Cost Proposal Adequacy Checklist to assist contractors in preparing adequate proposals.

PNWC's professionals have been assisting contractors in preparing annual Incurred Cost Proposals for more than 10 years. We can help reduce the stress associated with Incurred Cost Submissions. Give us a call to reserve your slot.

DCAA Requests for Extra-Regulatory Data

Every Government contractor with cost-type contracts is familiar with the requirement at FAR 52.216-7(d)(2)(iii) that requires them to submit an indirect cost rate proposal within six months after their fiscal year ends. This requirement continues for the duration of the contract. That same FAR clause even specifies the elements that comprise an "adequate" indirect cost rate proposal. There are 15 items listed, delineated as (a) through (o). There are also a listing of 15 optional items - also delineated as (a) through (o) - most of which will be N/A (not applicable) to small Government contractors.

Most Government contractors with cost-type contracts are also familiar with DCAA's (Defense Contract Audit Agency) "ICE Model" for preparing the required indirect cost rate proposal. DCAA's ICE (Incurred Cost Electronically) Model is an Excel-based workbook with tabs that correspond to the required and optional components of FAR 52.216-7(d)(2)(iii) and (iv). The ICE Model is not mandatory for contractors - Government contractors can format their own indirect cost rate proposal so long as it adheres to the FAR requirements. For practical purposes however, most contractors utilize or modify the DCAA model.

DCAA periodically updates its ICE model. The current version is 2.0.1f dated October 2016. On its website, DCAA states that "Contractors should ensure they use the most current version of the ICE model when preparing their incurred cost proposals". That might make sense in some cases, especially where a calculation error or a "link" is corrected. However, DCAA also makes modifications to solicit information that is not specifically required by FAR.

For example, FAR 52.216-7(d)(2)(iii)(j) (corresponding to DCAA ICE Model Sechedule J) requires a listing of subcontracts awarded to companies for which the contract is the prime or upper-tier contractor. The listing should include

• prime and subcontract numbers
• subcontract value and award type
• amount claimed during the fiscal year
• subcontractor name, address, and point of contract information

In December 2015, DCAA published ICE Version 2.0.1e which modified Schedule J to "require" additional data elements that are not required by the FAR. These elements include the following:

• subcontractor point of contact
• subcontractor point of contact telephone number
• subcontractor DUNS number
• subcontract period of performance

Even though DCAA refers to the foregoing as "required" data elements, they are definitely not required by FAR and DCAA does not have the regulatory authority to make them so. Although there in nothing particularly objectionable to furnishing this information, it does create more work for the contractor that hasn't been vetted through the regulatory process.

Many contractors have had their annual indirect cost submissions declared inadequate by DCAA and returned for correction. We have found in many cases, the rejections related to optional schedules rather than mandatory schedules or schedules were not in a format that DCAA expected. Our advise to contractors receiving such rejections is to compare the reason(s) for the rejection to the specific delineated requirements of FAR 52.216.7(d)(2)(iii) and go from there.

Annual Incurred Cost Submissions are Due in a Three Days

Government contractors with cost-type contracts and whose accounting period is the calendar year, have just a couple of more days to submit their final incurred cost submissions for 2013. According to FAR 52.216-7(d)(2) contractors are required to submit their annual submissions within six months after year end. If you are uncertain as to whether the requirement applies to you, check your contract(s) to see if the aforementioned clause is included.

Many contractors are now in the position of needing an extension for submitting their final incurred cost rate proposals. Some have and will mistakenly make a request for an extension to DCAA (Defense Contract Audit Agency). That would be wrong. FAR 42.302 and FAR 42.705-1(b)(1)(ii) give that responsibility to the Administrative Contracting Officer (ACO). ACOs for DoD are typically part of DCMA (Defense Contract Management Agency). If you are uncertain who your ACO is, contact DCMA.

Any request for extension should include the rationale for requiring additional time. There is no guarantee that the ACO will accept the rationale or grant an extension. Based on our experience however, ACOs have routinely granted reasonable extensions of 30 or 60 days.

Even though the Government may not get around to auditing your incurred cost proposal for several years, the submission is still important from the Government's perspective to adjust provisional billing rates to the final rates. Differences should be reflected in the next billing cycle.

Incurred Cost Proposal Adequacy Checklist

We wouldn't want to let a week go by without telling you about another Government checklist. As we approach the due date for submitting incurred cost proposals (June 30th for calendar year contractors) it is important to remember that incurred cost proposal submissions passing DCAA Incurred Cost Adequacy Checklist, have reduced likelihoods of being audited. For proposals under $15 million, and assuming no history of "significant" questioned costs, that likelihood is only five percent. See our previous coverage on this topic. Now, that's incentive for getting it right the first time.

The latest version of the incurred cost adequacy checklist, Version 2.2 from April 2012 can be downloaded here.

The checklist steps through each of the required schedules, 'A through 'O and asks a series of questions for each schedule. These schedules correlate to the final incurred cost proposal requirements of FAR 52.216-7(d)(1)(iii). Many of the questions deal with internal consistencies within the proposal itself. For example,one of the questions pertaining to Schedule A is whether amounts shown on that Schedule can be traced to the corresponding amounts on Schedules B, C, D, F, and H.

We believe that this checklist should be part of each contractor's proposal preparation process. It has the potential for saving a lot of time in the long run.

If you're frustrated with the complexities of DCAA's ICE package (Incurred Cost Electronically), you might want to look into our significantly improved and fully compliant version of the model. We call it SPICE and its available for $250 which includes one hour of technical support. Call David Koeltzow ('Kelso') 866-849-4887 Ext. 5 for more information.