Filing your incurred cost submission late or with errors can cost you more than just money—it can stall payments, trigger audits, and even jeopardize future contracts.
If you’re working under a cost-reimbursable or time-and-material government contract, submitting an accurate incurred cost proposal to the DCAA isn’t optional—it’s required. Every year, contractors must document their actual costs and prove those costs are fair, tied to the work, and properly tracked.
Getting it right means protecting your business, speeding up payments, and staying in the government’s good standing. Whether you’ve done this before or are filing for the first time, a solid submission keeps you compliant, audit-ready, and confident in your financial reporting.
Incurred Cost Submission
Incurred cost submissions are yearly reports that government contractors submit to the DCAA to show actual expenses tied to cost-type contracts. These are required to confirm costs are fair, allowed under federal rules, and properly assigned to each contract.
Here’s what you need to know to prepare, file, and pass your incurred cost submission—plus how GovCon’s compliance experts can guide you through every step.
Why the DCAA Requires Incurred Cost Submissions
The DCAA is responsible for making sure government money is spent responsibly. They require incurred cost proposals so they can:
- Validate actual project expenses reported by contractors
- Ensure compliance with FAR and specific contract terms
- Compare historical costs against future contract proposals
- Perform audits to catch issues early
- Approve provisional billing rates or determine final indirect rates
This isn’t just a formality. The government uses this data to decide whether your business is managing funds fairly and accurately. The more complete and accurate your incurred cost submission, the smoother your audit process will be.
Who Must Submit an ICS?
Any contractor or subcontractor who has cost-reimbursable, time-and-material, or labor-hour contracts with the federal government must submit an Incurred Cost Proposal.
You are required to submit an ICS if:
- Your contract includes FAR 52.216-7, Allowable Cost and Payment clause
- You billed indirect costs on any contracts
- You received interim payments based on estimated billing rates
This applies whether you’re a large prime contractor or a small subcontractor. The key trigger is the contract type — not the contract value or company size.
When Are Incurred Cost Submissions Due?
- Due Date: No later than six months after the end of your fiscal year
- Example: If your fiscal year ends December 31, your ICS must be submitted by June 30
- Late Submissions: Can trigger penalties, delayed rate approvals, or rejected claims
Contractors are expected to proactively prepare and submit their ICS, even if the DCAA has not yet requested it.
What Costs Must Be Reported?
Your incurred cost submission must include all direct and indirect costs that were charged to cost-type contracts during the year.
Typical Costs to Include:
| Cost Category | Examples of Costs |
|---|---|
| Labor Costs | – Direct wages – Overtime pay – Payroll taxes (FICA, FUTA, SUTA) – Paid leave and bonuses tied to contract work |
| Material Costs | – Raw materials – Purchased components – Tools and supplies – Freight and shipping related to contract use |
| Overhead Costs | – Indirect labor (supervisors, facility staff) – Rent and utilities – Equipment depreciation – Repairs and maintenance |
| G&A Expenses | – Executive and admin salaries – Legal and accounting services – Office supplies and postage – Business licenses and dues |
| Fringe Benefits | – Health insurance – 401(k) or retirement contributions – Paid time off – Workers’ compensation insurance |
| Subcontractor Costs | – Payments to third-party vendors performing part of the work – Independent consultant fees |
| Travel Costs | – Airfare, hotel, meals, mileage (when tied directly to contract performance) – Travel per diems following FAR guidelines |
Each of these costs must be reasonable, allocable, and allowable under FAR Subpart 31.2.
What “Reasonable and Allocable” Really Means
These two terms form the backbone of your cost submission:
- Reasonable means the cost is something a prudent business owner would pay for under the same circumstances.
- Allocable means the cost can be clearly connected to one or more government contracts.
If a cost doesn’t meet both of these standards, it will likely be disallowed in an audit. That means you don’t get reimbursed for it — and you may have to return money already paid.
Records You Need to Prepare an ICS
A successful incurred cost submission depends on how well your business keeps financial records. Every cost must be backed up with documentation that proves it’s accurate and tied to a contract.
Examples of Supporting Records:
- Payroll reports and signed timesheets
- Subcontractor invoices and contracts
- Materials purchase receipts
- Indirect cost allocations
- Trial balances and general ledger
- Contract briefs with all billing details
- Fringe benefit summaries
- Previous rate calculations and adjustments
DCAA auditors expect to see these documents in case of a desk or field audit. Missing records can lead to disallowed costs, even if those costs were legitimate.
What Happens If You Don’t Submit on Time
Failing to submit your ICS by the deadline can have serious consequences:
- Costs may be disallowed, resulting in reduced reimbursement
- Provisional billing rates might be suspended or frozen
- The DCAA may issue a Form 1 disallowance
- Your current contracts may face payment delays
- Future contracts could be at risk
If you’re late repeatedly, it can affect your past performance evaluations — making it harder to win future awards.
Will the DCAA Audit Your Submission?
Yes. After you submit your incurred cost proposal, the DCAA will:
- Review the adequacy of your ICE submission
- Perform a risk-based audit, depending on contract size and value
- Request supporting records or explanations
- Possibly conduct a field audit at your location
Smaller contracts or lower-risk contractors may only get a desk review, but larger contracts often trigger more in-depth audits. Either way, expect to answer questions and provide documents.
How to Pass the Audit and Stay Compliant
The key to passing a DCAA audit is being ready before the deadline. This means:
- Keeping detailed, real-time records
- Setting up a chart of accounts tailored for government contracts
- Using job cost accounting software
- Separating allowable vs. unallowable costs
- Reviewing your indirect rate calculations
- Reconciliating billed vs. actual costs
You don’t need to do it all alone. That’s where expert support comes in.
