DCAA Incurred Cost Submission: The ICE Model and Annual Filing

If your company holds a cost-type, time-and-materials, or labor-hour contract with the federal government, you are required to submit an annual incurred cost proposal. This is not a suggestion and it is not a best practice. It is a contract clause obligation under FAR 52.216-7, and failure to file it on time triggers consequences that range from withheld payments to unilaterally imposed rates to contract termination proceedings.

The incurred cost submission (sometimes called the incurred cost proposal, or ICS) is the contractor’s formal proposal of final indirect cost rates for the fiscal year. During the year, you bill the government using provisional (estimated) billing rates. After the year ends, you submit the ICS to propose what your actual rates were. DCAA audits the submission, and the contracting officer (ACO) establishes final rates. The difference between provisional and final rates results in either a payment to the contractor or a refund to the government.

What does FAR 52.216-7 actually require?

FAR 52.216-7, “Allowable Cost and Payment,” is the contract clause that governs how contractors are paid on flexibly priced contracts (cost-reimbursement, CPFF, CPIF, CPAF, T&M, and labor-hour). The clause requires the contractor to submit an “adequate final indirect cost rate proposal” to the contracting officer (or DCAA) within six months after the end of each fiscal year. “Adequate” means enough detail for the auditor to determine whether costs are allowable, allocable, and reasonable under FAR Part 31.

• A submission that is incomplete, internally inconsistent, or missing required schedules will be returned as inadequate, and the clock keeps running on late-filing consequences until an adequate submission is accepted
• The ICS numbers must tie to the general ledger, and the contractor must produce source documents (invoices, timesheets, payroll records) when DCAA requests them during audit
• For CAS-covered contractors, the submission must also be consistent with the contractor’s disclosed practices and CAS board rules

What’s the ICE model?

The ICE (Incurred Cost Electronically) model is DCAA’s standardized Excel workbook for submitting the annual incurred cost proposal. DCAA does not technically require the ICE format (the FAR clause says “adequate final indirect cost rate proposal”), but in practice it is the path of least resistance. Submissions in non-standard formats are far more likely to be returned as inadequate or to generate supplemental information requests.

• The ICE model is a multi-tab Excel workbook with approximately 20 schedules and built-in formulas that link them together. Download the current version from DCAA’s website for each year’s submission; reusing a prior year’s file risks an outdated format
• The formulas do not substitute for understanding the logic. A contractor who populates schedules mechanically without verifying the numbers reconcile to the general ledger will produce a submission that looks complete but is not defensible under audit

What are the key schedules in the ICE model?

The ICE model contains roughly 20 schedules, some required for every contractor and some applicable only to specific cost structures. The core schedules that every contractor with flexibly priced contracts will complete include:

• Schedule A (Contract Listing). Every contract, subcontract, and agreement held during the fiscal year, including FFP and commercial work that affects indirect allocation bases
• Schedule B (Direct Costs by Contract). Total direct costs by contract, broken into labor, materials, subcontracts, travel, and ODCs. Must reconcile to the general ledger
• Schedule C (Direct Labor by Contract). Labor dollars and hours charged directly to each contract; this is the denominator source for overhead rate computation when the base is direct labor
• Schedule D (Consultant and Subcontractor Costs). All consultant and subcontractor costs charged directly; identifies dollars excluded from the G&A base when the contractor excludes pass-throughs
• Schedule E (Direct Material Costs). Materials charged directly to contracts, feeding allocation base decisions
• Schedule F (Overhead Pool). Every cost in the overhead pool (indirect labor, fringe, facility costs, depreciation, supplies). The pool total is the numerator in the overhead rate computation
• Schedule G (G&A Pool). Executive compensation, accounting, legal, HR, corporate insurance, IT. Pool total divided by the G&A allocation base (typically total cost input) produces the G&A rate
• Schedule H (Indirect Rate Computation). Pool total (numerator) divided by allocation base (denominator) for each indirect pool, producing the proposed final indirect rates
• Schedule I (Claimed vs. Paid). Compares interim voucher costs at provisional rates to costs at proposed final rates. The difference is the cumulative over- or under-billing and determines the settlement amount
• Schedule J (Unallowable Costs). Every cost identified as unallowable under FAR 31.205 and excluded from the pools. DCAA scrutinizes this schedule closely; understating unallowable costs inflates rates and creates potential False Claims Act exposure
• Supporting schedules cover employee compensation reasonableness (vs. the FAR cap under FAR 31.205-6), pension costs, insurance, and facilities capital cost of money (CAS 414). Not every contractor completes every supporting schedule

How do I actually prepare the submission?

Preparing the ICS is a reconciliation exercise. The goal is to take the annual financial data from your DCAA-compliant accounting system, map it into the ICE model schedules, and verify that everything ties. The process, reduced to its core steps:

• Close the books. The general ledger must be final before populating the ICE model. Adjustments posted while filling in schedules cause reconciliation failures
• Generate direct cost detail by contract. A report showing every cost charged directly to each contract (labor, materials, subcontracts, travel, ODCs) feeds Schedules B through E
• Compile the indirect cost pools. Pull every cost charged to an indirect account and organize by cost element for Schedules F and G
• Scrub for unallowable costs. Go through pools and direct charges line by line, removing FAR 31.205 unallowable costs to Schedule J. This step is where most errors occur (holiday parties, late-payment penalties, compensation above the FAR cap)
• Calculate rates and reconcile. Compute indirect rates on Schedule H, run the claimed-vs-paid comparison on Schedule I, then reconcile total ICE model costs to the income statement
• Certify and submit. A signed certification from an authorized official (CFO or controller) stating the submission is accurate and complete

What happens if I miss the six-month deadline?

The consequences of a late incurred cost submission are real and escalating. The six-month deadline is not a soft target. If the contractor fails to submit an adequate proposal in time, the contracting officer may determine the final indirect rates unilaterally under the procedures in FAR 42.705-1, and those rates are almost always lower than actual.

• For DoD contractors, DFARS 252.242-7006 adds teeth: the ACO can place the accounting system in disapproved status, triggering 5% payment withholding on all cost-type contracts until the deficiency is corrected (the withholding can reach 10% when multiple contractor business systems carry material weaknesses simultaneously, per DFARS 252.242-7005)
• Repeated failure can be cited as a basis for a contractor responsibility determination, affecting the ability to win new awards. Default termination is theoretically available as a last resort
• The clock on final rate settlement does not start until you file. Until the ICS is submitted and audited, provisional rates remain open, contracts cannot be closed out, and open rate years complicate any sale, merger, or restructuring

How do provisional billing rates work with final rates?

During the contract performance year, the contractor does not know what its actual indirect cost rates will be. Costs are still being incurred, employees are still being hired and terminated, and new contracts are starting and ending. The contractor cannot wait until year-end to bill the government, so it bills at provisional (estimated) indirect rates.

• Provisional rates are established at the beginning of the fiscal year based on the forward pricing rate proposal or the prior year’s actuals, adjusted for known changes. The ACO approves (or negotiates) the rates, and the contractor uses them on all interim vouchers
• After year-end, the contractor submits the ICS proposing final rates. If final rates exceed provisional, the contractor is owed additional payment; if lower, the contractor owes a refund (paid directly or offset against future billings)
• Every cost-type contract has an open receivable or payable until final rates are established. With audit backlogs stretching five or more years, multiple fiscal years remain open simultaneously, and cumulative adjustments can be material

What happens during a DCAA incurred cost audit?

Not every incurred cost submission is audited. DCAA uses a risk-based approach, and the audit backlog has been significant for years. Some small contractors go years without an incurred cost audit; those with large dollar volumes, questioned-cost history, or CAS-covered contracts are audited regularly. When DCAA selects a submission, the process typically unfolds as follows.

• The auditor issues an entrance conference notification and requests access to the general ledger, trial balance, financial statements, timesheets, payroll records, vendor invoices, subcontractor agreements, and travel receipts
• The auditor tests for allowability (costs allowable under FAR 31.205?), allocability (allocated to the correct pools and contracts?), and reasonableness (would a prudent person incur these costs at these amounts?)
• High-risk areas: unallowable costs not on Schedule J, executive compensation above the FAR cap, unsupported labor charges, unvetted subcontractor costs, and allocation methodology inconsistencies
• DCAA issues an audit report with questioned costs and an adequacy opinion. The ACO uses it to negotiate final rates; the contractor can respond before final rates are set. Disagreements go to a COFD, appealable to the Board of Contract Appeals or the Court of Federal Claims
• The entire process can take years. Some contractors wait five or more years for an audit of a given fiscal year, leaving indirect rates “open” and the final settlement unresolved

What are the common ICS deficiencies?

DCAA publishes guidance on the most frequent reasons for inadequacy determinations and audit findings. The common problems fall into several categories, each capable of causing the submission to be returned or generating questioned costs.

• Incomplete schedule population. Schedules left blank, contracts omitted from Schedule A, or costs not broken into the required categories. An incomplete submission is returned as inadequate
• Inconsistent allocation bases. The base on Schedule H must match established accounting practice and the CAS disclosure statement. Switching from direct labor dollars to total direct cost between the accounting system and the ICS is an inconsistency the auditor will question
• Failure to identify unallowable costs. Schedule J must capture every FAR 31.205 category: business meals beyond the threshold, holiday parties, donations, late fees, interest, and compensation above the FAR cap. Missing even one category can produce a finding
• Mathematical errors and broken formulas. Contractors who modify the ICE workbook or add rows without updating formula ranges produce internally inconsistent submissions
• Missing certifications. The certification is a legally binding statement under penalty of perjury, creating False Claims Act exposure for material misstatements. A submission without it is returned

How long do I need to keep records?

The record retention requirement for incurred cost submissions is more demanding than most contractors realize. Under FAR 4.703, contractors retain records for three years after final payment, but for incurred cost records the three-year clock starts when the final indirect cost rates for that fiscal year are settled, not when the submission is filed or the contract ends.

• Given the DCAA audit backlog, “settled” can mean years after submission. A fiscal year 2025 ICS filed in June 2026, not audited until 2030, with rates settled in 2031, requires retention until 2034. Ten-year-plus retention obligations are common for contractors with multiple open years
• Do not destroy any financial records (general ledger data, timesheets, vendor invoices, subcontractor files, travel receipts, payroll records, bank statements) for any fiscal year with open indirect cost rates. “Not audited yet” does not mean “cleared”
• Electronic retention is acceptable and usually the only practical approach, but records must be accessible, readable, and reproducible when DCAA requests them

What’s the certification and FCA exposure?

The incurred cost submission must include a signed certification by an authorized company official (typically the CFO, controller, or president). The certification states that the proposal is current, accurate, and complete, and that the costs accord with FAR Part 31 cost principles and the contractor’s CAS disclosure statement (if applicable). This is not a formality.

• Under the False Claims Act (31 U.S.C. 3729), a false claim can result in treble damages plus per-claim penalties. The FCA does not require intent to defraud; “deliberate ignorance” or “reckless disregard” is enough
• A contractor that certifies without reviewing, without scrubbing for unallowable costs, or without verifying the numbers tie to the accounting system could be found to have acted with reckless disregard
• The practical protection: do the work. Scrub pools for unallowable costs, reconcile to the general ledger, review executive compensation against the FAR cap, verify allocation base consistency, and document the preparation process. File a voluntary correction if you find errors after submission

Can I submit the ICS myself, or do I need a CPA?

There is no regulatory requirement that a CPA prepare the incurred cost submission. The contractor is responsible, and anyone within the company or an outside consultant can prepare it. Whether you need outside help depends on cost structure complexity, contract count, pool types, and the internal team’s familiarity with FAR cost principles.

• A contractor with a single overhead pool, a straightforward G&A pool, a handful of contracts, and a controller who has done this before can prepare in-house. Multiple indirect pools, CAS coverage, FCCOM calculations, and compensation near the FAR cap point toward experienced help
• The risk is not the spreadsheet mechanics (the ICE model handles those). The risk is the judgment calls: identifying all unallowable costs, selecting allocation bases, handling unusual items (legal settlements, idle facilities, IR&D/B&P), and ensuring CAS compliance. Defending questioned costs at audit often costs more than getting the submission right

What about contractors with only fixed-price contracts?

Contractors whose entire portfolio consists of firm-fixed-price contracts generally are not required to submit an incurred cost proposal, because FFP contracts do not include the FAR 52.216-7 clause. The government pays the fixed price regardless of actual costs, so there is no indirect rate true-up.

• If even one contract in the portfolio is cost-type, T&M, or labor-hour with FAR 52.216-7, the contractor must submit the ICS for the fiscal year. The submission covers the entire cost structure (indirect rates apply across the whole business), even though the rate adjustment applies only to flexibly priced contracts
• The ICS gives DCAA visibility into FFP contract costs through Schedule A. The auditor can assess whether cost allocation between FFP and cost-type contracts is appropriate, and whether costs that should be direct-charged to FFP work are instead loaded into indirect pools

How does the ICS relate to my accounting system?

The ICS is a direct output of your DCAA-compliant accounting system. If your system properly segregates direct and indirect costs, tracks costs by contract, accumulates indirect costs into defined pools, and applies consistent allocation bases, then preparing the ICS is a reporting exercise: extract, map, reconcile, submit.

• If your system does not do those things, the ICS becomes a reconstruction: manually reclassifying costs, building pools from scratch, and attempting to reconcile to financial statements not structured for it. This is expensive, error-prone, and visible to DCAA, and can trigger an accounting system audit, a disapproval finding, and payment withholding
• The connection is why the indirect cost structure matters so much. Correct chart of accounts, pool definitions, and allocation bases from the start make the ICS a straightforward annual report. Without them, the ICS becomes the annual event that exposes every structural problem

How do ICS and contract closeout connect?

A cost-type contract cannot be closed out until the final indirect cost rates for every fiscal year of contract performance are established. If a contract ran from 2022 through 2025, all four years must be submitted, audited (or settled by agreement), and finalized before closeout.

• Open contracts consume administrative resources and, for contractors trying to sell or restructure, create contingent liabilities that affect the purchase price. The government has its own incentive: OIG and congressional oversight regularly pressure agencies to reduce closeout backlogs
• FAR 42.708 provides quick-closeout procedures when the unsettled indirect costs are not significant relative to contract value (the lesser of $1,000,000 or 10% of the total contract amount). Contractors with small cost-type contracts should ask their ACO about eligibility, because waiting years for a full audit on a $200,000 contract benefits no one

What should I do next?

If you hold cost-type, T&M, or labor-hour contracts, the incurred cost submission is an annual obligation that does not go away and does not get easier to ignore. The best time to prepare is immediately after closing the books for the fiscal year, when the data is fresh and the staff who incurred the costs are still available to answer questions.

• DCAA-compliant accounting system, the system requirements that make the ICS a reporting exercise instead of a reconstruction project
• Government contract direct vs. indirect costs, the FAR 31 cost principles that determine what goes on Schedule J
• Construction job costing, the project-level cost tracking discipline that parallels the contract-level tracking required for the ICS
• Nonprofit Form 990, another annual compliance filing with public disclosure and certification requirements
• Law firm billing and collections, rate reconciliation and true-up mechanics in a different professional services context
• Unallowable costs under FAR 31.205, the complete list of costs that must appear on Schedule J and be excluded from every indirect rate computation in the submission
• Small business government contracting, set-aside programs and the incurred cost submission obligation that applies to small businesses holding cost-type contracts
• Government contractor timekeeping, the daily recording, supervisor approval, and total time accounting requirements that generate the labor cost data reported in the incurred cost submission

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.