GovCon Wednesday’s
Breaking Down the Key Components for DCAA Compliance
Estimated Read Time: 8 minutes
For government contractors operating under cost-type or Time & Materials (T&M) contracts, submitting a Provisional Billing Rate (PBR) is a key step in billing the federal government for indirect costs.
But submitting a PBR isn’t just about meeting a deadline it’s about submitting a complete, accurate, and supportable proposal that aligns with expectations set by the Defense Contract Audit Agency (DCAA) and the Federal Acquisition Regulation (FAR).
This article Part 3 of VSINGH CPA’s 10-part series on indirect rate strategy walks through exactly what goes into a PBR, why each element matters, and how to prepare your documentation so your rate is accepted the first time.
What Is a PBR Made Of?
At its core, a Provisional Billing Rate is a temporary, estimated rate that helps you recover indirect costs as you incur them before your final audited rates are determined through the Incurred Cost Submission (ICS) process.
According to FAR 42.704, a PBR may be established by either the contractor (via proposal) or by the auditor/contracting officer using historical cost data and audit findings. In both cases, it must be built on a defensible structure.
A well-prepared PBR includes:
- Indirect cost pools – typically fringe, overhead, and general & administrative (G&A)
- Cost allocation bases – such as direct labor dollars, direct labor hours, or total cost input
- Forecasted financials – reasonable estimates based on prior year actuals and current-year projections
- Supporting documentation – detailed schedules that explain how you arrived at the proposed rates
These rates are used for interim reimbursement of indirect costs on flexibly priced contracts and must be submitted at the start of each fiscal year (or as required by the contract).
Understanding Cost Pools and Bases
Your indirect cost pools should reflect the major categories of indirect expenses incurred in your business operations. While terminology may vary slightly by contractor, they generally fall into these three categories:
- Fringe – employee-related costs like health insurance, payroll taxes, and paid leave
- Overhead – contract-specific support costs such as IT, supplies, and facility expenses
- G&A – organization-wide expenses such as executive salaries, accounting, HR, and business insurance
Each pool must be applied to a consistent base. For example:
- Fringe may be applied to total direct labor
- Overhead may be applied to direct labor or direct labor + fringe
- G&A is often applied to total cost input (TCI), encompassing both direct and indirect costs
Choosing the correct base is critical. It must be consistent with how you’ve reported indirect rates in the past and how your accounting system is configured.
Why Getting This Right Matters
Submitting a PBR with unsupported or misaligned cost categories is one of the fastest ways to have your rate denied, delayed, or questioned during a DCAA audit.
Incorrectly classifying a cost pool, applying inconsistent bases, or submitting projections that don’t align with your accounting system puts your cash flow and contract performance at risk.
For example, if your proposed overhead pool includes costs that should be in G&A or if you apply it to the wrong base your rate may be considered unreliable. That could trigger a DCAA request for more documentation, slow down billing approvals, or delay your first invoice.
In short: the quality of your PBR determines how smoothly and consistently you can bill indirect costs throughout the year.
Tips for Structuring Your PBR
If you’re building or reviewing your indirect rate structure, keep the following in mind:
- Start with your prior year ICS data as a baseline for projections
- Confirm your cost pool definitions and bases align with historical audit approvals
- Avoid mixing indirect cost types across pools (e.g., don’t put executive salaries in overhead)
- Prepare a summary schedule showing pool totals, base totals, and calculated rates
- Ensure your accounting system can track and apply the rates consistently across contracts
Don’t guess—document everything.
If you’re unsure how to structure your PBR or what level of documentation is required, reach out to your DCAA auditor or GovCon advisor early. A quick review before submission can save months of back-and-forth later.
What’s Next in the Series?
✅ Part 1: Intro to PBR
✅ Part 2: Do I Need a PBR? And How Do I Get One Approved?
✅ Part 3: What Goes Into a PBR? Breaking Down the Numbers
4️⃣Part 4: How Do I Calculate My Provisional Billing Rate?
5️⃣Part 5: What Happens After I Submit My PBR?
6️⃣Part 6: Common PBR Mistakes – And How to Avoid Them
7️⃣Part 7: How PBRs Impact My Invoicing and Cash Flow
8️⃣Part 8: Year End ICS
9️⃣Part 9: Can I Update My PBR During the Year?
🔟Part 10: Are You Audit-Ready? Supporting Your PBR with Documentation
If you’re growing fast, your billing strategy needs to keep up.
VSINGH CPA partners with scaling GovCons to build indirect rate systems that support long-term growth and DCAA compliance.
Get the structure you need now before growth creates risk. Let’s talk.
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