The GovCon’s Guide to DCAA Incurred Cost Submissions

For government contractors operating under cost-reimbursable or time-and-material (T&M) contracts, DCAA Incurred Cost Submissions (ICS) are more than just an annual requirement—they’re a critical component of maintaining compliance and securing timely reimbursements. A well-prepared Incurred Cost Proposal (ICP) not only ensures adherence to Federal Acquisition Regulation (FAR) Part 52.216-7, but also positions your company for audit success and sustained profitability in the GovCon marketplace.

If you’re new to ICS or looking to refine your process, this guide will break down what you need to know, common pitfalls to avoid, and best practices for seamless submissions.

What is an Incurred Cost Submission (ICS)?

An Incurred Cost Submission (ICS) is an annual filing required by the Defense Contract Audit Agency (DCAA) that reconciles a contractor’s actual indirect cost rates with the provisional rates used for billing during the year. The process ensures that contractors are only reimbursed for allowable, allocable, and reasonable costs.

When contractors work under cost-type or T&M contracts with cost-type contract line items (CLINs), they bill indirect costs based on estimated rates. However, actual costs can vary, necessitating an adjustment at year-end. The ICS establishes final indirect cost rates, determines whether a contractor has overbilled or underbilled, and sets the stage for a final cost settlement with the government.

 

Why is an Incurred Cost Submission Required?

The Allowable Cost & Payment Clause (FAR 52.216-7) mandates that contractors submit an adequate Incurred Cost Proposal within six months of their fiscal year-end. If your company operates on a calendar year, your ICS would be due by June 30 of the following year.

Failure to submit on time could lead to:

• Delayed Payments – DCAA may suspend cost reimbursements.
• Unilateral Rate Determinations – The government may impose unfavorable final rates.
• Audit Scrutiny – Missing or incomplete submissions raise red flags.

A timely and accurate ICS protects your cash flow, ensures compliance, and builds credibility with contracting agencies.

 

What’s Included in an Incurred Cost Proposal?

DCAA requires specific schedules and supporting documentation as part of an Incurred Cost Submission. Here’s a breakdown of key schedules:

•  Schedule A – Summary of Indirect Cost Pools – Displays indirect cost pools and their bases.
• Schedule B – Indirect Cost Rate Computation – Calculates final indirect rates.
• Schedule C – Allocation of Indirect Costs – Shows how indirect costs are distributed across contracts.
• Schedule D – Overhead Costs – Breaks down indirect overhead expenses.
• Schedule E – General & Administrative (G&A) Expenses – Lists costs related to business operations.
• Schedule H – Direct Costs by Contract – Summarizes direct costs per contract.
• Schedule H-1: Government participation by pool
• Schedule I – Cumulative Allowable Costs – Compares total allowable costs to billed amounts.
• Schedule J: Listing of subcontracts awarded for which contractor is a prime or upper-tier contract
• Schedule K – Time & Material (T&M) Costs – Details labor hours, rates, and materials for T&M contracts.
• Schedule L: Reconciliation of total payroll per IRS Form 941 and total labor distribution costs
• Schedule M: Listing of decisions, agreements, approvals and description of accounting and organizational changes
•  Schedule N – Certification of Final Indirect Costs – A signed statement certifying submission accuracy.
• Schedule O: Contract closing information physically completed in this fiscal year

 

DCAA provides an adequacy checklist that contractors should use to ensure all necessary information is included before submission. Use the checklist to know what needs to be submitted and keep on top of where audits could occur.

 

Top 5 Audit Issues with Incurred Cost Submissions

DCAA auditors routinely flag the following issues during ICS audits:

1️⃣ Unallowable Costs

• Costs for entertainment, fines, lobbying, and unapproved bonuses are unallowable under FAR 31.205.
• Best Practice: Segregate unallowable costs in your accounting system from the start.

2️⃣ Inaccurate or Inconsistent Indirect Rates

• Discrepancies between provisional and final indirect rates can trigger audits.
• Best Practice: Monitor indirect costs throughout the year and perform interim reconciliations.

3️⃣ Labor & Compensation Issues

• DCAA often questions executive compensation, bonuses, and severance pay if not well-documented.
• Best Practice: Maintain clear policies for compensation, bonuses, and severance, and justify costs with market data.

4️⃣ Improper Cost Allocations

• Misallocating direct vs. indirect costs or failing to justify allocations can result in disallowed costs.
• Best Practice: Ensure a clear, logical basis for cost allocations and document your methodology.

5️⃣ Missing or Incomplete Supporting Documentation

• DCAA requires detailed supporting records for all costs submitted.
• Best Practice: Use an accounting system that tracks transactions in real-time and retains all necessary backup documentation.

 

Best Practices for DCAA-Compliant Incurred Cost Submissions

✔ Start Early – Don’t wait until the deadline approaches. Prepare your ICS throughout the year.
✔ Use an Adequate Accounting System – Your system should comply with DCAA requirements and properly segregate direct, indirect, and unallowable costs.
✔ Perform Internal Reviews – Conduct pre-audit self-assessments to ensure your ICS meets DCAA adequacy standards.
✔ Maintain a Compliance-First Culture – Train employees on cost allowability, timekeeping, and cost allocation rules.
✔ Seek Professional Guidance – Consider outsourcing ICS preparation or conducting external audits to catch issues before DCAA does.

 

Submitting Your Incurred Cost Proposal

DCAA has streamlined the submission process through the Contractor Submission Portal (CSP) on PIEE (Procurement Integrated Enterprise Environment). Using CSP allows contractors to upload, edit, and manage their ICS filings securely.

For detailed submission guidelines and templates, visit the DCAA Incurred Cost Submission Portal on DCAA’s website.

 

Turn ICS Compliance into a Competitive Advantage

For government contractors, a well-prepared Incurred Cost Submission is not just about compliance; it’s about improving cost efficiency, transparency, and long-term business success. Mastering ICS not only mitigates audit risks and secures timely payments, but also demonstrates financial discipline that can strengthen your reputation with contracting officers.

If you need expert assistance in preparing and submitting your Incurred Cost Proposal, contact us today. Our specialists can help you navigate the complexities of DCAA compliance and optimize your cost structures for continued success.