Insight
What an SF 1408 preaward survey actually checks
Before a cost-type award, the government checks whether your accounting system can handle it. Here is what the form covers.
If you are moving from firm-fixed-price work toward cost-reimbursable contracts, at some point a contracting officer will want to know whether your accounting system is adequate. The instrument used is Standard Form 1408, under FAR 9.106-4.
It is less mysterious than its reputation suggests. It is a checklist, and you can work through it yourself before anyone works through it with you.
What the form looks for
- Segregation of direct costs from indirect costs
- Identification and accumulation of direct costs by contract
- A logical and consistent method for allocating indirect costs to cost objectives
- Accumulation of costs under general ledger control
- A timekeeping system that identifies employee labour by cost objective
- A labour distribution system charging direct and indirect labour appropriately
- Interim determination of costs, at least monthly
- Exclusion of costs unallowable under FAR Part 31
- Identification of costs by contract line item where required
- Segregation of preproduction costs from production costs
Where contractors actually fail
Timekeeping, more than anything else, not the software: the discipline. Time recorded daily, by the employee, against the correct cost objective, with a documented correction process. Retrospective timesheets completed monthly do not survive review.
Unallowable costs. FAR Part 31 makes certain costs unallowable: some entertainment, some advertising, interest, certain legal costs. They must be identified and segregated as incurred, not stripped out at year end.
Inconsistent allocation. Whatever your indirect method is, it must be applied consistently. Changing it because it produces a better answer on a particular contract is the thing the rules exist to prevent.
The most expensive misunderstanding
There is no such thing as DCAA-approved accounting software. DCAA evaluates a *contractor's system*, and makes a determination about that specific contractor.
Plenty of compliant systems run on QuickBooks. Plenty of non-compliant ones run on expensive specialist platforms. Configuration, written policies and daily discipline are what get assessed.