What is an Incurred Cost Submission and Who Needs to Submit One?

The Federal Acquisition Regulations (FAR) clause FAR 52.216-7 requires government contractors to submit final annual indirect cost rates six months after the fiscal year end; known as the Incurred Cost Submission (ICS).

What is the Purpose of an ICS?

Cost reimbursement and time & materials (T&M) contracts use provisional billing rates to determine the indirect cost rates a contractor can charge to the government throughout the year. The contractor uses estimated budget amounts to calculate provisional billing rates.  The actual rates are often different.  For this reason FAR 16.307 requires cost reimbursement and T&M contracts to include the clause FAR 52.216-7 into the contract.  FAR 52.216-7 Allowable Cost and Payment requires submissions of an annual final cost rate, known as the ICS.

An incurred cost submission determines the final actual indirect cost rates that the contractor incurred during the year. The contractor then uses these actual indirect rates to settle the contract.  The government may owe the contractor money or the contractor may owe the government money.  Then, any adjustments found in the ICS can be accounted for on the final invoice.  The Contracting Officer should close contracts after the ICS has been submitted, the rates approved and a final invoice submitted.  Per FAR 52.216-7(d)(2)(v) the final or actual rates for contracts which are still in progress need to be implemented on invoices within sixty days of finalizing the rates.

Who Needs to Submit an ICS?

As mentioned earlier, FAR 16.307 requires cost reimbursement and T&M contracts to include the FAR clause FAR 52.216-7. The FAR clause FAR 52.216-7 requires an incurred cost submission to be submitted six months after the fiscal year end. If your company has a cost reimbursement or a T&M contract, your company will need to submit an ICS.

The confusion often comes with a subcontract. Per FAR 9.104-4, prime contractors are responsible for ensuring subcontractors are in compliance with DCAA. This means if the subcontract is a cost reimbursement or T&M contract, FAR 52.216-7 may be included in the contract.  This depends upon the time of the subcontract and whether there are any direct pass-through to the government.  If in doubt talk to an accountant who specializes in government contract accounting.


Talk to your accountant as soon as possible if you are unsure as to whether your government contract requires an incurred cost submission. If possible talk to your accountant before signing a contract. This will allow you and your accountant to be proactive and ready for preparing an ICS.

Contributed by Jamie M. Shryock, CPA