GovCon Wednesdays

Estimated Read Time: 5 minutes

If your business has flexibly priced contracts, cost-reimbursable or certain T&M agreements, you are required to submit an Incurred Cost Submission (ICS) each year under FAR 52.216-7. An ICS ensures that every cost billed to the government is reasonable, allowable, and allocable, and that final contract costs reflect what your business actually incurred during the fiscal year.

This first installment of the ICS Essentials Series breaks down what an ICS is and why it matters for your GovCon operations.

 

Core Concept: What Is an ICS?

An Incurred Cost Submission sometimes called an Incurred Cost Proposal (ICP) or an Indirect Cost Rate Proposal (ICRP) is a structured package of schedules that reconciles:

• What the government paid you
  vs.
• Your actual incurred direct and indirect costs for the fiscal year

The ICS also includes a signed certification (commonly Schedule N) verifying that all submitted costs follow FAR allowability rules.

The purpose is transparency: ensuring contractors only bill what is allowable and ensuring the government reimburses costs accurately.

 

Business Impact: Why ICS Matters

A properly prepared ICS impacts multiple areas of GovCon financial compliance:

1. Ensures FAR Compliance

Costs must meet FAR definitions of reasonable, allowable, and allocable and the ICS is how you demonstrate compliance.

2. Finalizes Your Indirect Rates

Provisional Billing Rates (PBRs) are based on estimates.
The ICS finalizes your actual indirect rates and settles any over- or under-billing.

3. Reduces Audit Risk

Your ICS becomes the basis for DCAA or agency audits.
Accurate schedules reduce questioned costs and prevent repayment demands.

4. Enables Contract Closeout

No ICS = no contract closeout for flexibly priced contracts.
A complete ICS keeps your financial pipeline moving.

 

What Contractors Should Do

To stay compliant and prepare a strong ICS package, contractors should:

• Track all direct and indirect costs with supporting documentation
• Maintain clear timesheets, subcontractor invoices, travel receipts, and material support
• Understand the terms of each flexibly priced contract, including FAR clauses tied to allowable costs
• Ensure access to accurate indirect cost pools and bases
• Prepare early to avoid delays or unilateral rate determinations

ICS compliance starts with clear financial records — not when the submission is due.

 

Key Takeaways

• ICS is required annually for contractors with flexibly priced contracts.
• It reconciles actual costs against government payments.
• Costs must follow FAR rules for allowability and allocability.
• The ICS includes direct/indirect cost detail and a signed certification.
• It supports final indirect rates, contract closeout, and audit readiness.
• Preparing early prevents questioned costs and compliance issues.

 

Coming Up in the GovCon ICS Essentials Series

✅ ICS Essentials #1: What Is an Incurred Cost Submission (ICS)?

2️⃣ ICS Essentials #2: Who Must Submit an ICS?

3️⃣ ICS Essentials #3: Thresholds & Deadlines for ICS (Including Post–July 1, 2018 Awards)

4️⃣ ICS Essentials #4: ICS Requirements for Time & Materials (T&M) and Mixed Contracts

5️⃣ ICS Essentials #5: What’s Included in an ICS? Breakdown of Required Schedules

6️⃣ ICS Essentials #6: Who Reviews ICS? DCAA, Agency Auditors & GAO Oversight

7️⃣ ICS Essentials #7: Key FAR Clauses You Must Know for ICS Compliance

8️⃣ ICS Essentials #8: How to Prepare a Compliant ICS (Documentation & Best Practices)