Predetermined Indirect Cost Rates
FAR 52.216-15 requires contractors and the government to agree in advance on indirect cost rates, which are then used to determine allowable indirect costs for the contract period.
Overview
FAR 52.216-15, Predetermined Indirect Cost Rates, establishes the procedures and requirements for applying predetermined indirect cost rates to allowable costs under certain government contracts. Instead of using provisional or final rates, this clause requires that indirect costs be reimbursed using rates agreed upon in advance by the contractor and the government, as specified in the contract schedule. The clause outlines the process for submitting and supporting final indirect cost rate proposals, negotiating and documenting rate agreements, and handling situations where agreement cannot be reached. It also clarifies that cost allowability and allocation methods are governed by FAR subpart 31.3, and that predetermined rate agreements are incorporated into the contract upon execution. Pending new rates, prior rates or acceptable billing rates may be used, subject to adjustment. Disagreements over rates do not constitute disputes under the contract's Disputes clause.
Key Rules
- Use of Predetermined Indirect Cost Rates
- Indirect costs are reimbursed using predetermined rates agreed upon by both parties and specified in the contract schedule.
- Submission of Final Indirect Cost Rate Proposal
- Contractors must submit a final indirect cost rate proposal with supporting data within six months after the end of each fiscal year, unless an extension is granted.
- Negotiation and Documentation of Rates
- The government and contractor must negotiate and execute a written agreement specifying the rates, bases, period of applicability, and treatment of direct costs.
- Cost Allowability and Allocation
- Determined in accordance with FAR subpart 31.3 as of the contract date.
- Interim Reimbursement
- Pending new rates, reimbursement is at prior year rates or billing rates acceptable to the government, subject to later adjustment.
- Dispute Resolution
- Failure to agree on rates is not a dispute under the Disputes clause; if no agreement, final rates per the Allowable Cost and Payment clause apply.
Responsibilities
- Contracting Officers: Negotiate, document, and incorporate predetermined indirect cost rate agreements; approve extensions; ensure compliance with FAR 31.3.
- Contractors: Submit timely, adequate proposals with supporting data; negotiate in good faith; comply with agreed rates and bases; maintain proper records.
- Agencies: Oversee negotiation and execution of rate agreements; audit proposals as needed.
Practical Implications
- This clause provides predictability for both parties by fixing indirect cost rates in advance, reducing administrative burden and uncertainty.
- Contractors must be diligent in preparing and supporting their rate proposals and in understanding which costs are treated as direct or indirect.
- Failure to submit timely proposals or reach agreement can result in application of final rates under other contract clauses, potentially impacting reimbursement.