A cost-reimbursable federal contract requires a DCAA-approved accounting system. The pre-award survey uses SF 1408 as its checklist. Pass it, and you can bid cost-type work. Fail it, and you're locked into firm-fixed-price only — leaving entire categories of federal opportunity on the table.
The SF 1408 criteria, in plain English
- Proper segregation of direct costs from indirect costs
- Identification and accumulation of direct costs by contract
- A logical, consistent method of allocating indirect costs to cost objectives
- Accumulation of costs under general ledger control
- A timekeeping system that identifies labor by intermediate or final cost objective
- A labor distribution system that charges labor to the proper cost objectives
- Interim (at least monthly) determination of costs charged through routine posting to books
- Exclusion of unallowable costs per FAR Part 31
- Identification of costs by contract line item and units
- Segregation of preproduction costs from production costs
Build the indirect rate structure before you need it
Most small contractors use a three-tier pool: Fringe, Overhead, and G&A. Some add a Material Handling pool. The structure must be logical, consistent, and documented in a written cost accounting disclosure or policy. Provisional rates are submitted at the start of the year; final incurred cost submissions (the ICE model) are due within six months of fiscal year-end.
Timekeeping is the single most-failed area
Every employee — including the CEO — must record time daily, by charge code, in a system with audit trails for changes. Floor checks are real. Implement an electronic timekeeping system from day one; spreadsheets do not pass.
FAR Part 31 unallowables
Set up dedicated GL accounts for unallowable costs: entertainment, alcohol, lobbying, bad debt, certain advertising, federal income tax, and interest. Screening at the source is faster and cheaper than scrubbing at year-end.
What we set up for new federal contractors
- Job-cost-enabled GL (QuickBooks with Unanet or Deltek Costpoint, depending on scale)
- Compliant timekeeping (Unanet, Replicon, or equivalent)
- Written accounting policies and procedures aligned to SF 1408
- Indirect rate model and provisional rate submission
- Monthly close calendar with WIP and incurred-cost roll-forward
Bidding cost-type work for the first time? We'll run an SF 1408 pre-assessment before DCAA does.
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