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New DCAA Guidance on Revised Policies Related to Low-Risk Incurred Cost Submissions

As the Defense Contract Audit Agency (“DCAA”) slowly pushes to eliminate Incurred Cost Submission (“ICS”) audit backlog, DCAA has recently published a new memorandum (“MRD”) revising guidance for selecting low-risk Incurred Cost Submission proposals less than $250 million in “auditable dollar volume” (“ADV”). Published on May 27, 2016, the memorandum revises the MRD 12-PPD-023(R), dated September 6, 2012, and MRD 13-PPD-021(R), dated October 29, 2013.

While not specifically defined in the Federal Acquisition Regulation (“FAR”), Contract Audit Manual (“CAM”) or elsewhere, ADV is typically considered by DCAA to be the total contract cost for flexibly priced government contracts and subcontracts incurred by a contractor during the current fiscal year. Flexibly priced contracts do not include contracts that are firm-fixed-price, and also do not include the “time” or labor portion of time and material contracts. This amount can be found on Sch. H and/or Sch. I of an ICS proposal.

Per the MRD, Field Audit Officers (“FAOs”) are now guided to reassess all ICS proposals if they meet the following criteria:

  • Were previously determined as high risk
  • Considered an adequate ICS proposal
  • ADV less than $5 million in total ADV
  • Fieldwork has not commenced

If the FAO believes an audit is warranted, FAOs must receive Regional Audit Manager approval prior to performing an audit based on the contractor’s ICS risk level.

The MRD also states to FAOs going forward that all adequate ICS proposals’ risk should be assessed if the ADV is less than $250 million using the appropriate Low-Risk Determination tools.

Overall, this is good news for government contractors. As DCAA tries to catch up on multiple years of ICS backlog, contractors should be aware if they meet the criteria above and the ability to close out fiscal years if the ICS is considered low risk.

Taking the information in the MRD one step further, if a contract is physically complete, the ICS year has been considered “low risk” and the ADV is well below $1 million or 10 percent of total contract costs, a contract could be eligible for “Quick-Closeout Procedures” per FAR 42.708.

If you have any questions regarding these changes, please contact your local Cherry Bekaert GovCon professional.

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