FAR Timing and Submission Requirements
Under FAR 52.216-7 and FAR Subpart 42.7, a contractor generally must submit an adequate final indirect cost rate proposal within 6 months after the end of each fiscal year. A reasonable extension may be requested in writing and granted in writing for exceptional circumstances.
- The proposal must be based on the contractor's actual cost experience for the applicable period.
- The contractor must submit the proposal to the contracting officer or cognizant Federal agency official and the auditor.
- The proposal must contain adequate supporting data for the claimed indirect rates.
- The cognizant auditor reviews the proposal for adequacy for audit and identifies any inadequacies requiring resolution.
These requirements make fiscal-year close activities an important part of maintaining submission readiness rather than treating the proposal as a standalone year-end document.
Financial Data Required Under FAR
FAR 52.216-7 identifies core information expected in an adequate proposal. This includes summaries of claimed indirect expense rates, general and administrative expenses, overhead pools, occupancy expenses where applicable, allocation bases, facilities capital cost of money factors, and reconciliation of the general ledger to claimed direct costs.
The core rate calculation can be expressed as:
Indirect Cost Rate = Indirect Cost Pool ÷ Allocation Base × 100
For example, if a contractor reports an indirect cost pool of $1,500,000 and an allocation base of $7,500,000, the resulting indirect rate is $1,500,000 ÷ $7,500,000 × 100 = 20%. The underlying pool and base should reconcile with the accounting records supporting the proposal.
Contract-level schedules, subcontract information, payroll reconciliation, cumulative costs and billings, and other supporting schedules may also be required based on the contractor's circumstances and accounting practices.
Allowable Costs and Certification
FAR requirements place particular importance on the allowability of costs included in the final indirect cost rate proposal. The contractor's certification represents that the costs included in the proposal are allowable under the applicable FAR cost principles and that expressly unallowable costs are not included.
FAR 52.242-4 requires the certification to be signed by an individual at least at the level of vice president or chief financial officer of the business segment submitting the proposal. FAR 42.703-2 generally requires certification before final indirect cost rates can be established, subject to specified waiver provisions.
Before certification, teams should reconcile supporting records and investigate differences rather than relying solely on summarized balances. Submission Validation can be treated as a structured control step for confirming completeness, consistency, and support across the submission.
Procurement, Expenses, and Supporting Records
Source documentation should provide a traceable connection between recorded costs and the transactions that generated them. Business Expense Incurred records can help explain business transactions accumulated in the accounting system, while Employee Expense Incurred records can support applicable employee-related expenditures.
Procurement records are particularly important when direct materials, purchased services, or subcontracts form part of reported contract costs. A controlled procurement process can connect requisitions, sourcing, approvals, and procure-to-pay records with accounting entries.
A purchase order can provide supporting evidence for an approved purchase, while a Purchase Order Inventory Management System can connect purchase orders with vendor, inventory, compliance, and cost-control information where relevant to the underlying transactions.
A Duplicaton Check can support transaction quality by checking for duplicate purchase requests using current inventory and existing PR data across cost centers.
Payment and Reconciliation Controls
Supplier payment information can provide another source for reconciling recorded costs. Reviewing vendor payment activity can help finance teams verify payment approvals, methods, timing, discounts, and cash outflows against invoices and accounting records.
AR Automation Software can automate manual collection followups and matching of payments with invoices, supporting reconciled financial information used in broader financial reporting workflows.
Early Payments Recommendations can review early payment discounts, vendor terms, and cost of capital to recommend payment timing while supporting payment approvals and processing. Maintaining accurate payment records helps preserve a clear transaction trail for financial reconciliation.
Final Rates and Contract Closeout
Once final indirect cost rates are established, FAR 52.216-7 requires applicable contract billings to be updated to reflect the final settled rates. The contractor must also update the schedule of cumulative direct and indirect costs claimed and billed within the prescribed period after settlement.
The established final rates can therefore affect the final financial position of cost-reimbursement contracts and support contract closeout. Finance teams benefit from maintaining a consistent relationship between indirect pools, allocation bases, contract costs, billings, and final rates throughout the submission process.
Teams coordinating these activities across finance, contracts, and accounting functions can use Unlimited Access to provide users with automated onboarding, role-based configurations, and continuous availability for applicable finance workflows.
Summary
Incurred Cost Submission FAR encompasses the FAR rules governing final indirect cost rate proposals, including submission timing, supporting schedules, actual-cost data, allowability, certification, audit review, and final rate settlement. FAR 52.216-7 and Subpart 42.7 provide the central framework, while FAR 42.703-2 and 52.242-4 address certification. Accurate accounting records, procurement documentation, payment support, reconciliations, and validation controls help contractors prepare a complete and supportable submission.