Cost-reimbursement contracts provide for payment of allowable incurred costs, to the extent prescribed in the contract 1, so the government has to be able to trust your books. One of the conditions for using a cost-reimbursement contract is that the contractor's accounting system is adequate for determining costs applicable to the contract or order 2.
The question comes up before award. Before agreeing on a contract type other than firm-fixed-price, the contracting officer shall ensure that the contractor's accounting system will permit timely development of all necessary cost data in the form required by the proposed contract type 3. Responsibility standards ask for it too: a prospective contractor must have the necessary organization, experience, accounting and operational controls and technical skills, or the ability to obtain them 4.
What adequate looks like
The DFARS accounting system clause, 252.242-7006, lists system criteria that include proper segregation of direct costs from indirect costs 5 and identification and accumulation of direct costs by contract 6.
The pre-award survey
A preaward survey is normally required only when the information on hand or readily available to the contracting officer, including information from commercial sources, is not sufficient to make a determination regarding responsibility 7.
Worked example. Contractor N is bidding its first cost-plus task order. It prepares a short binder: written accounting policies, its chart of accounts, a sample timesheet showing hours charged by contract, and a trial job-cost report. When the survey team asks how indirect costs are kept separate, it opens the pools in its general ledger.
After award
The work does not stop at award. Under the allowable cost and payment clause, the contractor submits a final indirect cost rate proposal to the contracting officer (or cognizant federal agency official) and auditor within the 6-month period following the expiration of each of its fiscal years 8.
Indented paragraphs are invented worked examples. Tool links open Bids2Bank and need a free account.
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