Last verified: August 16, 2026. This guide covers the annual incurred cost submission required under FAR 52.216-7 for contractors holding cost-reimbursement, time-and-materials, or labor-hour federal contracts, and the DCAA audit that follows it. It is not legal advice — check your own contract’s clauses and your cognizant audit agency’s current guidance before relying on any deadline below.
Incurred Cost Submission at a Glance
| Question | Answer |
|---|---|
| What is it | An annual proposal reconciling the provisional (billing) indirect rates a contractor used during the year against its actual, final indirect costs, to establish final indirect cost rates for that contractor fiscal year. |
| Governing clause | FAR Part 31 cost principles plus the “Allowable Cost and Payment” clause, FAR 52.216-7, incorporated into the contract itself. |
| Who must file | Contractors holding cost-reimbursement contracts, and time-and-materials (T&M) / labor-hour contracts where FAR 52.216-7 is incorporated. Firm-fixed-price contracts generally do not require one. |
| Deadline | Six months after the close of the contractor’s fiscal year (FAR 52.216-7(d)(2)(iii)). |
| Format | Typically prepared using DCAA’s ICE (Incurred Cost Electronically) model, a standardized schedule set, then checked against DCAA’s adequacy checklist before submission. |
| Who reviews it | DCAA (Defense Contract Audit Agency) for DoD contracts and, under interagency agreement, for many civilian-agency cost-reimbursement contracts. |
| Outcome | A final indirect cost rate agreement for that fiscal year, which is what actually closes out the contract’s cost accounting. |
What Is an Incurred Cost Submission?
During the year, a contractor bills the government using provisional (billing) indirect rates — estimates set at the start of the year. Those rates are never final. The incurred cost submission (also called an incurred cost proposal, or ICS) is the document a contractor files after year-end showing what its indirect costs actually were, so the contracting officer and auditor can negotiate final indirect cost rates and true up billings against them.
The requirement comes from FAR 52.216-7, “Allowable Cost and Payment,” a clause incorporated into cost-reimbursement contracts (and into T&M/labor-hour contracts that reference it). It is a contract requirement, not a grant-compliance requirement — it applies to organizations performing federal contracts under the FAR, which for a research institution typically means sponsored work structured as a procurement rather than a grant or cooperative agreement.
Who Has to File One
- Cost-reimbursement contracts (cost-plus-fixed-fee, cost-plus-incentive-fee, cost-sharing) — always required if FAR 52.216-7 is in the contract.
- Time-and-materials and labor-hour contracts — required where the contract incorporates FAR 52.216-7 for indirect-rate reconciliation.
- Firm-fixed-price contracts — generally excluded; the price is set regardless of actual indirect costs, so there is nothing to true up.
For universities and nonprofit research institutions specifically, this is a different mechanism from the indirect cost rate proposal that establishes an institution’s federally negotiated F&A rate for grants under 2 CFR 200 Appendix III — see the comparison section below. An institution can owe both: a FAR incurred cost submission for any cost-reimbursement contracts it holds, and a separate Uniform Guidance indirect cost rate proposal for its grants.
The Six-Month Deadline
FAR 52.216-7(d)(2)(iii) states it directly: “The Contractor shall submit an adequate 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.” For a contractor on a calendar fiscal year, that means a submission due by June 30 covering the prior calendar year.
The clause allows reasonable extensions for exceptional circumstances, but they must be requested by the contractor in writing and granted by the contracting officer in writing — an extension is not automatic and should never be assumed.
Two words in the clause do real work: the proposal must be “adequate,” not merely timely. A submission filed on time but missing required schedules or supporting detail does not stop the clock the way a complete one does — see the adequacy checklist below.
What Goes Into the Submission: the ICE Model
Most contractors build their incurred cost submission using DCAA’s ICE (Incurred Cost Electronically) model, a standardized Excel workbook DCAA provides so submissions arrive in a consistent, auditable format. The model is organized into a lettered set of schedules covering, among other things:
- A summary of claimed indirect expense rates for the fiscal year
- The indirect cost pools and the bases used to allocate them
- A reconciliation of claimed direct and indirect costs to the contractor’s general ledger/books of account
- Contract briefs identifying each flexibly-priced contract and its billed vs. claimed costs
- Subcontract and consultant cost information
- A certificate of final indirect costs, signed by an authorized official, certifying the submission to the best of that official’s knowledge and belief
Because DCAA’s own model and adequacy-checklist pages returned an access error to automated verification during this review, treat the exact current schedule lettering/numbering above as a general description rather than a verbatim quote of DCAA’s current template — confirm the live workbook and checklist directly from DCAA (dcaa.mil) or your cognizant contracting officer before building a submission from this page alone.
The DCAA Adequacy Checklist
Before DCAA will start substantive audit work, it screens every incoming submission against an adequacy checklist — essentially confirming every required schedule is present, internally consistent, and reconciles to the contractor’s books. Contractors typically run the same checklist against their own draft before filing, since an inadequate submission triggers a formal rejection rather than a request for minor clarification.
Practical adequacy points worth confirming before filing:
- Every flexibly-priced contract open during the fiscal year is listed in the contract brief schedule, including ones that closed mid-year
- Claimed indirect rates and pools tie back to the contractor’s general ledger, not to internal management figures that haven’t been reconciled
- The submission is signed and dated by an individual with authority to certify it
- Prior-year corrective actions from any earlier DCAA findings have actually been applied, not just acknowledged
What Happens After You Submit: the DCAA Audit
Once DCAA accepts a submission as adequate, it does not necessarily launch a full-scope audit of every year, every contractor. Since the early 2010s, following sustained scrutiny of DCAA’s incurred cost audit backlog from federal oversight bodies, DCAA has used a risk-based approach: lower-risk contractors (based on dollar value, contract mix, and audit history) may be closed out on a streamlined or multi-year basis, while higher-risk or higher-dollar-value contractors receive a full incurred cost audit testing claimed direct and indirect costs against FAR Part 31 allowability, allocability, and reasonableness standards.
For institutions whose cognizant agency for indirect costs is DoD rather than HHS — a distinct, separate process from FAR contract audits — DCAA also performs the technical audit behind the ONR/DCAA indirect cost rate process for university F&A rates. That process and the FAR incurred cost submission process both route through DCAA and can be easy to conflate, but they close out different things: one settles a grant F&A rate, the other settles a contract’s actual indirect costs against what was billed.
Consequences of Missing the Deadline or Filing Inadequately
FAR 52.216-7 gives the contracting officer real leverage when a contractor doesn’t hold up its end of the reconciliation. A late or persistently inadequate submission leaves provisional billing rates unresolved, which can delay contract closeout indefinitely, complicate final invoicing, and put the contractor at risk of the contracting officer unilaterally establishing indirect cost rates rather than negotiating them — a determination the contractor did not get to shape. Because closeout of every flexibly-priced contract for that fiscal year depends on the final rate being settled, a single missed or inadequate incurred cost submission can stall closeout across a contractor’s entire cost-reimbursement portfolio for that year, not just one contract.
Incurred Cost Submission vs. Indirect Cost Rate Proposal (2 CFR 200) — Not the Same Thing
Research institutions in particular tend to conflate these two, because both involve negotiating an indirect cost rate and both can involve DCAA as the auditor. They are governed by different regulations and cover different funding instruments:
| Incurred Cost Submission | Indirect Cost Rate Proposal | |
|---|---|---|
| Governs | FAR cost-reimbursement / T&M contracts | Federal grants and cooperative agreements |
| Regulation | FAR 52.216-7 / FAR Part 31 | 2 CFR 200 Appendix III (Uniform Guidance) |
| Establishes | Final (actual) indirect rates for a closed fiscal year, trued up against billings | A negotiated F&A rate agreement (NICRA) applied prospectively to future grant awards |
| Filed with | Contracting officer and cognizant auditor (often DCAA) | Cognizant federal agency for indirect costs (HHS or, for DoD-cognizant institutions, ONR using DCAA as auditor) |
An institution that holds both federal grants and federal cost-reimbursement contracts may owe both filings in the same year, on different clocks, to different offices — treat them as two separate compliance obligations, not one.
Frequently Asked Questions
Is an incurred cost submission the same as an incurred cost proposal?
Yes — “incurred cost submission,” “incurred cost proposal,” and “final indirect cost rate proposal” all refer to the same FAR 52.216-7 filing. “ICE model submission” refers specifically to one prepared using DCAA’s standard ICE workbook, which is how most contractors prepare it.
What is the incurred cost submission deadline?
Six months after the close of the contractor’s fiscal year, per FAR 52.216-7(d)(2)(iii). Extensions require a written request and written approval from the contracting officer — they are not automatic.
Does every federal contract require an incurred cost submission?
No. It applies to cost-reimbursement contracts and to time-and-materials/labor-hour contracts that incorporate FAR 52.216-7. Firm-fixed-price contracts generally do not require one, since the price does not depend on actual indirect costs.
What happens if DCAA finds the submission inadequate?
DCAA screens submissions against an adequacy checklist before beginning substantive audit work. An inadequate submission is returned rather than accepted, and the six-month clock is not considered satisfied until an adequate submission is on file — so an on-time but incomplete filing can still leave a contractor functionally late.
Does DCAA audit every incurred cost submission in full?
Not necessarily. DCAA uses a risk-based approach to decide which submissions receive a full-scope audit versus a streamlined or multi-year close-out, based on factors like dollar value, contract mix, and audit history.
Is this the same process as a university’s DoD indirect cost rate negotiation?
No, though both can involve DCAA. The incurred cost submission settles a contract’s actual indirect costs under the FAR. A university’s DoD/ONR indirect cost rate process negotiates a prospective F&A rate for grants under 2 CFR 200 Appendix III. See the comparison table above.
Related CASRAI Pages
- Indirect Cost Rate Proposal — the 2 CFR 200 grant-side counterpart to this FAR contract process.
- DoD Indirect Cost Rate: ONR/DCAA Process — how DCAA audits university F&A rate proposals when DoD is the cognizant agency.
- FAR Part 31 Contract Cost Principles — the allowability rules an incurred cost audit tests claimed costs against.
- FAR Part 31 vs. 2 CFR 200 — how the two federal cost-allowability regimes differ.
- Cost Accounting Standards (CAS) — the related disclosure regime for larger contractors.
- Closeout Costs (2 CFR 200.344) — the grant-side closeout process this guide’s contract-side process parallels.
- Single Audit vs. Regular Financial Statement Audit — a related, but distinct, federal audit obligation.
- How to Calculate Indirect Costs (F&A)
