Getting Ready for Incurred Cost Submissions: What Government Contractors Need to Know

For government contractors with cost-reimbursable contracts, submitting an accurate and timely Incurred Cost Submission (ICS) isn’t just a best practice — it’s a contractual obligation. Failure to meet the six-month deadline after fiscal year-end, as required by the Allowable Cost and Payment clause, can result in payment delays, increased audit scrutiny, or even contract disputes.

What Is the Incurred Cost Submission?

The Incurred Cost Submission (formerly known as the Incurred Cost Proposal or ICP) is a detailed report that government contractors must submit annually to the Defense Contract Audit Agency (DCAA). This report provides the government with the actual costs a contractor incurred during the fiscal year and helps determine the final allowable indirect cost rates for billing purposes.

Why Timeliness and Accuracy Matter

Submitting the ICS late or with errors can significantly delay audit closeouts and final billing. It can also trigger deeper audits or compromise a contractor’s reputation with key agencies like the DCAA or DCMA. Contractors must ensure their ICS is compliant, complete, and well-documented to avoid unnecessary red flags.

Key Elements of the ICS

The ICS is made up of multiple schedules and disclosures, including:

• Schedule of Direct Costs by Contract
  
• Schedule of Indirect Costs
  
• General and Administrative (G&A) Base
  
• Fringe Benefit and Overhead Pools
  
• Contractor Information
  
• Certificate of Final Indirect Costs
  

Each schedule requires meticulous reconciliation to your general ledger, timekeeping records, and labor distribution reports. Inconsistencies can slow down the DCAA review process or lead to questioned costs.

A Timeline for Success

Here’s a basic roadmap to help you stay on track:

• Immediately after year-end: Begin collecting actual cost data, finalizing labor rates, and reviewing indirect cost pools.
  
  
• Within 3 months: Reconcile the trial balance and begin drafting ICS schedules.
  
  
• At 4–5 months: Conduct internal reviews and quality checks; identify any anomalies.
  
  
• By 6 months: Finalize and submit the ICS to the DCAA.
  

Starting early gives your team more flexibility to address issues and reduces the risk of rushed errors.

Best Practices for Streamlined Preparation

• Invest in purpose-built accounting systems: Tools designed for government contracting can simplify indirect rate calculations and schedule generation.
  
  
• Maintain audit-ready documentation: Keep all supporting records (e.g., labor distributions, invoices, expense reports) organized and accessible.
  
  
• Use checklists: DCAA provides a standard ICS adequacy checklist — make sure your submission covers every point.
  
  
• Conduct internal audits: Pre-submission reviews can catch issues early and improve your confidence heading into the audit process.

Preparing the ICS isn’t just about compliance — it’s an opportunity to demonstrate sound financial controls and build trust with government agencies. By understanding the requirements, planning ahead, and leveraging best practices, contractors can reduce risk, avoid delays, and improve their competitiveness for future awards.

Download our free Incurred Cost Submission Preparation Checklist to stay organized and ensure nothing falls through the cracks.