Everything You Need to Know About Incurred Cost Proposals

Many government contractors will need to submit an Incurred Cost Proposal. It is up to your business to make sure you do one and you do it right.

Here are some common questions businesses have when it comes to preparing a proposal.

Do I need to submit an Incurred Cost Proposal?
You will need to submit an Incurred Cost Proposal (also called an Incurred Cost Electronic Submission, Incurred Cost Electronically Model, Indirect Cost Rate Submission, or Final Indirect Rate Proposal) if your government contract mentions either:

1. The Federal Acquisition Regulations Allowable Cost & Payment Clause (FAR 52.216-7)

2. The T&M Payment Clause (FAR 52.232-7)

What is it?

The Incurred Cost Proposal is a detailed report of your indirect expenses that you must file with the government.

Why do I need it?

The government is looking for you to confirm your original billing estimates. When it’s time to close your fiscal year, you must account for your actual costs. The Incurred Cost Proposal is the reconciliation of your billed costs to your actual costs. If you billed the government too much, you’ll owe them the amount of the overbilling, plus interest. If you underbilled the government you are owed funds and hopefully there is money left on the program to pay you. When is it due?
Incurred Cost Proposals are due 6 Months after the end of your fiscal year. If your fiscal year end was Dec 31st, your proposal is due by June 30th.
Exceptions may apply if your fiscal year end changed or a merger or acquisition occurred. If that is the case, you will have to check with your contracting officer to confirm your proposal’s due date. Are there templates I can use?
Yes, you can use the DCAA template found here. We – through our clients – have experienced many issues with the macros in the DCAA template. Remember to manually calculate all formulas and to verify the right information makes it to the right place, prior to submitting your proposal. Alternately, if you’re not excited about doing double work with the DCAA template, we have built a similar template – without macros – that is available for purchase, along with support services. What information do I need to provide?

The following items will be needed to complete your proposal:

Financial Statements

  • Trial Balance in CSV or Excel format (include details by division or department if captured and reported at that level –required- if you have multiple overheads)
  • Balance Sheet
  • Income Statement
  • Statement of Indirects

Contract Information

  • Contracts with activity in the covered fiscal period
  • Contract briefs with activity in the covered fiscal period
  • Contract closeout documents

Labor Information

  • 941s for each quarter
  • List of all accounts included in your labor distribution (direct labor, overhead labor, G&A labor, PTO, Vacation, Sick, Jury Duty, etc.)
  • Adjusted journal entries for all G/L labor accounts listed above

Job/Project Information

  • List of all jobs aligned with contracts from above
  • Summary of all invoices by job/project and contract
  • Summary of all hours by labor category for T&M/LH and cost-type contracts
  • Separate reports for IRAD and B&P


  • Job status reports, project income statements, or other reports with details on direct costs (labor, materials, travel, ODC, and subcontractors) by job/project (commercial contracts can be combined into a single line with subtotal for labor material, travel, ODC, and subcontractors)

Corporate Information

  • List of any organization changes (ownership, senior leadership, mergers, acquisitions)
  • List of any accounting changes (policies, procedures, software, apps)

Best Practices?

Embedding copies of your contracts and your final/audited financial statements in the proposal will both aid the auditor in reviewing your submission and keep you on track while completing the workbook. Just keep in mind that file size may be a problem when submitting your final proposal. Pitfalls?
Auditors have up to 2 years to review the adequacy of your proposal before the audit. DCAA’s official clock starts upon receipt of an adequate proposal. And, despite all of their claims in the press to Congress, they seem to be about 3 to 5 years behind on audits – that means 3 to 5 years of penalties and interest on any issues they find. It is important to double-check your submission or request help from experts if you’re unsure of any grey areas to avoid additional penalties and interest. Can I have someone else help me with this?

If you’re still not sure where to start and would like expert help and support from a professional, Left Brain Professionals is happy to help sort out any questions, walk you through your Incurred Cost Proposal, or help compile your proposal. Feel free to call or email us at: (614) 556-4415 | |

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