Billing rates
FAR 42.704 requires that billing rates for indirect costs be set as close as possible to anticipated final rates, with adjustments for unallowable costs, and allows for revisions to prevent significant payment discrepancies.
Overview
FAR 42.704 outlines the procedures and responsibilities for establishing and revising billing rates for indirect costs on government contracts. Billing rates are provisional rates used for interim reimbursement of indirect costs until final rates are established. The section details how contracting officers or cognizant Federal agency officials (or auditors) determine these rates based on recent reviews, audits, or reliable data, aiming to closely approximate the anticipated final indirect cost rates for the contractor’s fiscal period. The regulation allows for adjustments to billing rates, either prospectively or retroactively, by mutual agreement or, if necessary, unilaterally by the government. It also clarifies that the elements and bases used for billing rates do not dictate the final indirect cost settlement. When a contractor submits a certified final indirect cost rate proposal, billing rates may be revised to reflect proposed rates, adjusted for historically disallowed costs, until the proposal is audited and settled.
Key Rules
- Responsibility for Billing Rates
- The contracting officer, cognizant Federal agency official, or auditor who establishes final indirect cost rates is also responsible for determining billing rates.
- Basis for Establishing Billing Rates
- Billing rates are set using recent reviews, prior audits, or reliable data, and should closely match anticipated final rates, adjusted for unallowable costs.
- Adjustments and Revisions
- Billing rates can be revised by mutual agreement or unilaterally to prevent significant overpayment or underpayment.
- Non-Determinative Nature
- The elements and bases used for billing rates do not determine the final indirect cost allocation or settlement.
- Revisions Upon Submission of Certified Proposal
- Upon submission of a certified final indirect cost rate proposal, billing rates may be revised to reflect proposed rates, adjusted for historically disallowed costs, until audit and settlement.
Responsibilities
- Contracting Officers: Establish, adjust, and, if necessary, unilaterally determine billing rates; ensure rates reflect anticipated final indirect costs; adjust for unallowable costs; revise rates as needed.
- Contractors: Provide accurate data for rate determination; submit certified final indirect cost rate proposals; agree to revisions as appropriate; maintain documentation.
- Agencies: Oversee compliance, ensure proper rate establishment, and audit proposals as required.
Practical Implications
- This section ensures that interim payments for indirect costs are as accurate as possible, minimizing the risk of overpayment or underpayment during contract performance. Contractors must be prepared to provide reliable data and adjust to rate changes. Common pitfalls include failing to exclude unallowable costs, not updating rates when conditions change, or not maintaining adequate documentation for rate proposals and adjustments.