Contract Cost Data To Keep An Eye On As We Approach Year End
Updated October 2021. Originally published September 2018.
It's a new Government fiscal year, which means the calendar year end is rapidly approaching. For small business Government Contractors, it's a good time to review year-to-date numbers, and plan for the year ahead.
In the run up to year-end, some of the reports you’ll want to monitor include:
- Contract Status
- Indirect Rate Variances
- Budgets – YTD and Future
Don’t wait to run these numbers in December when it’s too late to act. ICAT's reporting capabilities make it easy for Government Contractors using QuickBooks to instantly know where you stand to make informed decisions.
Job Cost Reports
To maintain a compliant accounting system, Contractors must post contract costs to their books of account no less often than monthly. Contractors must also generate job cost reports for each accounting cycle that can be reconciled to their job cost and general ledgers.
With a monthly review of costs charged to contracts, you’ll also gain an understanding of how indirect costs are absorbed by each project.
Interim contract cost reports help management ensure jobs are running according to plan. Project managers will monitor inception to date actual costs against budgets, and track spending versus funding limitations. The contract status report is available in T&M, Cost Type, and Labor formats in ICAT.
Indirect Rate Variance
How do your actual indirect rates compare to your provisional billing rates?
Monitoring your indirect rate variance informs year-end spending decisions. If you don’t spend in your indirect cost pools to the level that you’ve billed in your provisional rates, you’ll be in the position of owing funds back. The indirect rate variance quantifies how much spending you can do within the indirect cost pools.
Let’s say you budgeted for IT upgrades, but put off that expenditure. Or perhaps you need to bring in temporary help to finish out a job. Your variance will also tell you how much money will be available for bonuses and incentive compensation.
Money billed in excess of actual costs incurred must be returned to the Government. On the flip side, if you spent more than you billed on a provisional basis, you need to consider whether you can claim that money by requesting an adjustment to your provisional rates, or if you need to cut back on spending in your indirect cost pools.
You definitely want to keep an eye on your indirect rate variance through year end.
Your Budget year-to-date vs. Actual report will help you evaluate performance against what you anticipated the year would look like. It not only provides a burn schedule, but also alerts management to unexpected circumstances.
In the coming months, you’ll want to build a detailed budget as the basis for establishing your provisional billing rates for 2022 and planning for future growth. Did you just win a new contract? Will you be expanding facilities and staff during the year? Are the costs of rent and health care benefits rising?
In budgeting, management must make reasonable assumptions regarding the business to be performed. ICAT Advanced Edition gives Government Contractors a detailed budget capability with which to test "what if" scenarios for the new year and support a Provisional Indirect Rate Proposal. Management can toggle cost proposal data in/out of provisional indirect rate calculations, to show the impact that winning new work will have on the indirect rates.
When budgeting, you’ll also want to evaluate the total costs associated with each position. ICAT shows the distribution of labor costs, as well as the cost of benefits and payroll taxes associated with each position. ICAT’s budget development tool enables management to consider all costs associated with adding new positions and other growth decisions.
Pulling insights from actual job costs, and factoring in new and proposed work, a well-developed budget gives management a powerful tool to quantify the indirect costs that must be recovered with contract revenues during the budget period, and insights for more competitive pricing.
Get the data you need using ICAT with QuickBooks® for Government Contract Cost Accounting: