Timing and Submission Requirements
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 when exceptional circumstances apply.
The proposal should be based on actual cost experience for the applicable fiscal year. After submission, the cognizant auditor reviews the proposal for adequacy for audit, and identified inadequacies may need to be resolved before the audit and negotiation process proceeds.
- Prepare the submission using the applicable fiscal-year accounting records.
- Provide adequate supporting data for claimed indirect rates.
- Reconcile reported amounts to the general ledger and other source records.
- Submit the proposal within the required period or obtain an applicable written extension.
Required Financial Schedules and Data
The submission normally includes schedules supporting claimed indirect rates, indirect expense pools, allocation bases, facilities capital cost of money, and reconciliation of accounting records. It also includes contract-level direct costs, indirect expenses applied at claimed rates, cumulative costs and billings, subcontract information, applicable time-and-materials or labor-hour contract data, payroll reconciliation, accounting changes, certification, and contract closing information.
Each schedule should agree with the underlying accounting records and with related schedules. For example, the indirect expense pool and allocation base used to calculate a rate should reconcile with the amounts reported in the accounting system.
A basic indirect rate calculation is:
Indirect Cost Rate = Indirect Cost Pool ÷ Allocation Base × 100
If a contractor has an indirect cost pool of $1,200,000 and an allocation base of $6,000,000, the resulting rate is $1,200,000 ÷ $6,000,000 × 100 = 20%.
Accounting and Transaction Support
Supporting records should allow reported costs to be traced back to the accounting system and applicable source documentation. Business Expense Incurred information can help explain how business transactions are recorded and classified, while Employee Expense Incurred information can support employee-related costs included in the submission.
Procurement records are also important where purchases, materials, and subcontracts contribute to contract costs. A controlled procurement process can connect requisitions, sourcing, approvals, purchasing records, and procure-to-pay activity with the resulting accounting entries.
A purchase order can provide transaction-level support for purchased goods or services and help establish a traceable connection between an approved purchase and the recorded cost.
Tax, Payment, and Procurement Controls
Tax treatment should be reviewed where transaction records contain jurisdiction-specific taxes, exemptions, or other amounts affecting claimed costs. Understanding use tax requirements can help finance teams validate tax treatment and identify transactions requiring additional review for jurisdiction, nexus, exemption, or audit purposes.
Payment documentation provides another useful reconciliation point. Reviewing vendor payment records, approvals, payment methods, payment timing, discounts, and cash outflows can help confirm that supplier-related transactions agree with the accounting records supporting the submission.
A Duplicaton Check can support procurement data quality by checking for duplicate purchase requests using current inventory and existing PR data across cost centers. This helps maintain consistent transaction information before costs flow into reporting schedules.
Certification and Final Review
The final indirect cost proposal generally requires certification under FAR requirements. The certification states that the costs included in the proposal are allowable under the applicable cost principles and that expressly unallowable costs are not included. The certificate must be signed by an appropriate contractor official, such as a vice president or chief financial officer of the submitting business segment.
Before certification, finance teams should reconcile the proposal's schedules, investigate material differences, verify indirect rate calculations, and confirm that supporting documentation is available. AR Automation Software can automate manual collection followups and matching of payments with invoices, supporting reconciled financial information used in broader reporting workflows.
Operational Practices for Submission Readiness
Submission preparation benefits from maintaining supporting records throughout the fiscal year instead of assembling all evidence at the end of the reporting period. Teams can establish recurring reconciliation procedures for general ledger balances, contract costs, payroll, subcontract activity, procurement transactions, and indirect expense pools.
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 organized payment records helps finance teams trace supplier transactions during financial reconciliation.
Organizations coordinating preparation across finance, contracts, accounting, and audit teams can use Unlimited Access to provide users with automated onboarding, role-based configurations, and continuous availability for applicable finance workflows.
Summary
Incurred Cost Submission Requirements cover the timing, schedules, supporting data, accounting reconciliations, contract information, indirect rate calculations, and certification needed for a final indirect cost rate proposal. Strong submission readiness depends on accurate fiscal-year accounting data, traceable supporting records, consistent cost classifications, and review of the complete proposal before certification and submission.