With 2021 in the rear-view mirror, it’s once again time for calendar year-end government contractors to start thinking about their annual Incurred Cost Submission (ICS). Incurred Cost Submissions are required for all contractors who are performing work under a cost-type or time and materials contract or subcontract subject to FAR clauses 52.216-7, Allowable Cost & Payment Clause and/or FAR 52.232-7, Payments under Time-and-Materials and Labor-Hour Contracts.
Incurred Cost Submissions allow the government to establish final indirect rates for the fiscal year and allow contractors to appropriately settle amounts due to or from the government. These submissions are due six months after the end of the contractor’s fiscal year. With June 30th rapidly approaching, calendar year-end contractors should make finalizing FY 2021 cost pools and allocation bases and preparing contract cost schedules a top priority.
- While ICS preparation always has its challenges, FY 2021 may prove to be particularly difficult. All contractors who have received CARES Act funds through PPP Loans, Employee Retention Credits, and other stimulus programs may now find themselves with significant risk exposure when preparing their 2021 submission. For FY 2021, contractors should keep in mind the following:
- To comply with the credits clause at FAR 31.201-5, contractors are required to credit the government (through reduction in cost or cash refund) for all incurred costs for which the contractor received forgiven PPP dollars.
- In the context of applying PPP forgiveness to an ICS, this means that the credits should be applied to the rate calculations in the same way the PPP Loan proceeds were applied to direct and indirect costs for purposes of determining loan forgiveness.
- All credits related to PPP forgiveness should be applied in the year that the loan is forgiven. For most contractors who received a 1st Draw PPP loan in 2020 and formal forgiveness sometime in 2021, this means that the credit for loan forgiveness is applied on the FY 2021 ICS. Similarly, contractors who received a 2nd Draw PPP loan in 2021 may end up having to credit the FY 2022 ICS if formal loan forgiveness was not received in 2021.
As always, WEC’s Advisory Team is available to assist with preparation, review, and any questions you may have regarding this year’s Incurred Cost Submission. For further assistance, please contact Karl Belka at email@example.com.