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Estimated Read Time: 5 minutes

Every Incurred Cost Submission is built on a foundation of key Federal Acquisition Regulation (FAR) clauses. These clauses define what costs are allowable, how they must be documented, and which contracts require ICS filing.

Understanding these FAR requirements is essential for preparing a compliant ICS and avoiding questioned or disallowed costs. This article outlines the clauses highlighted in your ICS slide deck.

Core Concept: The FAR Framework Behind ICS

Your ICS obligations come from specific FAR clauses that establish:

When ICS is required
What documentation is needed
What costs must follow FAR allowability rules
How T&M and cost-type contracts operate
When certified cost or pricing data is required

These clauses collectively shape your ICS compliance responsibilities.

Business Impact: Key FAR Clauses Explained

1. FAR 52.216-7 — Allowable Cost and Payment

This is the primary clause governing ICS requirements. It specifies that contractors must submit an annual proposal to establish final indirect rates for cost-reimbursement and certain T&M contracts.
It also requires:

Adherence to FAR Part 31 cost principles
Support for all incurred costs
Submission of a certified ICS package
Timely filing to avoid unilateral rate determinations

2. FAR 15.403-4 — Certified Cost or Pricing Data

Contracts awarded after July 1, 2018 exceeding $2 million require certified cost or pricing data.
This increases the level of scrutiny and documentation required for ICS submissions involving these contracts.

3. FAR 16.307 — Time-and-Materials Contracts

This clause governs T&M contracts and specifies that certain T&M arrangements include cost-reimbursable elements such as materials, travel, and subcontractor costs.
These cost elements trigger ICS requirements.

4. FAR 52.232-7 — Payments Under T&M Contracts

This clause explains how the government reimburses contractors for materials, travel, and subcontractor costs under T&M contracts.
If these costs are reimbursed based on actual incurred costs, they must be included in the ICS.

5. FAR Subpart 31.2 — Cost Principles

This section is the backbone of allowability. It defines what costs are:

Reasonable
Allowable
Allocable

It also sets documentation expectations and ties directly to Schedule N certification in the ICS.

What Contractors Should Do

To comply with these FAR clauses, contractors should:

✔ Review all contracts for FAR 52.216-7 and T&M-related clauses
✔ Understand allowability rules under FAR 31.2
✔ Document direct and indirect costs throughout the fiscal year
✔ Track reimbursable elements on T&M or mixed contracts
✔ Prepare in advance for certified cost or pricing data requirements
✔ Maintain a checklist linking each FAR clause to documentation requirements

Strong compliance requires knowledge of how these clauses work together.

Key Takeaways

FAR 52.216-7 is the central clause establishing ICS requirements.
FAR 15.403-4 sets thresholds for certified cost or pricing data.
FAR 16.307 and FAR 52.232-7 apply to T&M contract elements.
FAR Subpart 31.2 defines allowability rules for all costs.
Together, these clauses shape how contractors document and submit incurred costs.

Need Help with FAR Compliance?

VSINGH CPA assists GovCons in interpreting FAR clauses, preparing compliant cost submissions, and supporting DCAA or agency audits.

👉 Check out our YouTube Shorts for quick GovCon Essentials: https://www.youtube.com/@vsinghcpallc/shorts

Coming Up in the GovCon ICS Essentials Series

✅ ICS Essentials #1: What Is an ICS?
✅ ICS Essentials #2: Who Must Submit an ICS?
✅ ICS Essentials #3: Thresholds & Deadlines
✅ ICS Essentials #4: T&M & Mixed Contract Requirements
✅ ICS Essentials #5: Required ICS Schedules
✅ ICS Essentials #6: Who Reviews ICS?
✅ ICS Essentials #7: Key FAR Clauses
8️⃣ ICS Essentials #8: How to Prepare a Compliant ICS (Documentation & Best Practices)