Join Unanet and Aronson LLC for an educational webinar as we look at the complex world of cost type government contracts. Many government service contractors successfully enter the government market with relatively straightforward T&M (Labor Hour) contracts. Eventually, an opportunity to bid and perform larger and more complex cost reimbursement contracts will present itself. The skills required to manage T&M contracts differ markedly from the skills required to manage a cost type contract. While the statements of work may be very similar, the administrative requirements associated with managing a cost type contract greatly exceed those required for T&M work. Managing cost type contracts is a sophisticated undertaking. The contractor must understand what a “cost” is, have an adequate accounting system, establish both direct and indirect budgets (and actively manage them), and with actual (not billing) rates. Failure to comply with these requirements can have serious ramifications, including incurring a loss, a poor cash flow, inaccurate cost reporting and an inadequate accounting system, An understanding of your obligations is essential to mitigating your risks, maximizing your cost recovery and maintaining your bottom line — essentially the difference between recovering your costs making a profit or losing your shirt. Learning Objectives: • What an "adequate" accounting system must include • Which costs can — and can't — be reimbursed • How direct costs are reimbursed • How indirect costs are reimbursed • How to handle invoicing on cost-type contracts • The "Paid-to Cost" rule • The limitation of Cost-and-Funds clauses • How to facilitate a cost type contract in an accounting system In this webinar you will learn to improve your outcomes on cost type contracts. Learn more at: https://www.unanet.com/news/demand-webinars

1. Improve Your Outcomes on Cost Type Contracts
La-Tasha Patel & Aisha Mian, Aronson | Donna Kilbourn, Unanet

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Our Speakers Today
Donna Kilbourn
Executive Vice President, Revenue,
and Customer and Partner Success
Unanet
Aisha Mian
Managing Consultant, Aronson, LLC
La-Tasha Patel, CPA
Managing Consultant, Aronson, LLC

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About Unanet
Unanet is a leading provider of Cloud and On-Premise software for
project-based organizations.
Unanet delivers a purpose-built Project ERP solution with skills
management, resource planning, pipeline management, budgeting &
forecasting, time & expense reporting, billing & revenue recognition,
project management, analytics and dashboards, and financials with AR,
AP, GL and cost pool and indirect rate calculations.
Over 1,000 organizations trust Unanet to maximize staff utilization,
reduce administrative costs by 90%, improve invoicing by 10X, and
support forward decision-making for improved operations.

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Tracking
CRM,
Budgeting,
Planning,
Forecasting
Billing &
Revenue
Recognition
Real-Time
Analytics
KPIs
Dashboards
• Timesheets
• Mobile Time
• Expense Reports
• Approvals
• Project Notes
• Contract Mgmt
• Utilization
• Project Status
• % Complete and EVM
• Gross & Net Margin
• Backlog
• Customer Relations
• GAAP Compliance
• Invoicing
• % Complete
• Rev Rec Schedules
• T&M, FP & CP
• GL
• AP
• AR
• Cost Pools
• Indirect Rates
Financials
• Pipeline Management
• Resource Scheduling &
Skills Management
• Scenario Planning
• Revenue/Cost/Margin
Forecasting
• Pricing
Unanet - One Software for
Projects, People, and Financials

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About Aronson LLC
Aronson LLC provides a comprehensive platform of assurance, tax,
and consulting solutions to today’s most active industry sectors and
successful individuals.
For more than 50 years, we have purposefully expanded our service
offerings and deepened our industry specialties to better serve the
needs of our clients, people, and community.
From startup to exit, we help our clients maximize opportunity, minimize
risk, and unlock their full potential.

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Introduction
Truism No. 1
• Cost type contracts are substantially more challenging to manage
than their Fixed Price or T&M counterparts

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Introduction
Truism No. 1
• Cost type contracts are substantially more challenging to manage
than their Fixed Price or T&M counterparts
Truism No. 2
• Many Government contractors are unaware of Truism No. 1

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Poll # 1
Do you currently have cost type contracts?
• Yes
• No

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Poll # 2
What accounting system is your company currently using?
• GCS or Costpoint
• Jamis
• QuickBooks
• Unanet
• Other

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Agenda
• Cost Reimbursement Contracts
• What are costs?
• How are costs invoiced?
– Direct costs
– Indirect
• Practical Tips for Managing Direct and Indirect Costs
• Job Costing in Accounting System
• Conclusion

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Cost Type Contracts
• Cost Sharing
• Cost
• Cost Plus Incentive Fee (CPIF)
• Cost Plus Award Fee (CPAF)
• Cost Plus Fixed Fee (CPFF)

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Cost Type Contracts
Application (FAR 16.301-2)
Cost reimbursement contracts are suitable when
• Requirements cannot be defined sufficiently to support fixed price
work
• Performance uncertainties do not permit the development of an
accurate estimate
Definition:
• Cost reimbursement contracts provide for payment of allowable
incurred costs, to the extent prescribed in the contract (FAR
16.301-1)

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What are Costs?
• Allowable Cost and Payment Clause (52.216-7): The Government
will make payments to the contractor in amounts determined to be
allowable by the Contracting Officer in accordance with FAR
Subpart 31.2 and the terms of the contract.
• FAR Subpart 31.2, Contracts with Commercial Organizations:
Total Costs are the sum of allowable direct and indirect costs
properly allocated to the contract.

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What are Costs?
IndirectDirect
Allocable
Costs are allocable as:
• Direct costs if incurred specifically for a contract.
• Indirect costs if they benefit numerous contracts or are
necessary for the overall operation of the business.

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What are Costs?
If allocable is the cost:
• Reasonable in nature & amount?
• Compliant with terms of contract?
• Compliant with FAR 31.2 cost principles?
• Compliant with CAS or modified CAS?
Allocable costs are Allowable if they are:
• Reasonable in nature and are in compliance with the
contract terms.

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What are Costs?
Allowable/Billable or Unallowable/Non-Billable?
Direct non-billable Project Cost
Indirect Unallowable Fringe, OH, G&A, etc..
No Yes
No Yes
Direct
Indirect

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What are Costs?
Allocable
Allowable/Billable or Unallowable/Non-Billable?
If allocable is the cost:
• Reasonable in nature & amount?
• Compliant with terms of contract?
• Compliant with FAR 31.2 cost principles?
• Compliant with CAS or modified CAS?
Direct IndirectDirect
Direct non-billable Project Cost Indirect Unallowable Fringe, OH, G&A, etc.
No Yes No Yes
Allocable

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How are Costs Invoiced?
Allowable Cost and Payment Clause (52.216-7)
• Contractors may submit to the Government, no more than once
every two weeks, an invoice in such form and detail as may be
required by the Contracting Officer supported by a statement of the
claimed allowable costs

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How are Direct Costs Reimbursed?
Allowable Cost and Payment Clause (52.216-7)
• Costs are defined as those recorded costs that, as of the invoice submission the contractor
has paid i.e. incurred costs (Paid to Cost Rule)
Incurred A Cost  Paid for Product/Service  Reasonable, Allowable & Allocable 
Invoice for Reimbursement
• “Contractor Paid” meaning by cash, check, or other form of actual payment for items or
services purchased directly for the contract
Invoicing Tip: Always best to generate an invoice from the system rather than externally
creating an invoice and recording it into the system.

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How are Direct Costs Reimbursed?
Exceptions to the paid to cost rule are
• Payroll
• Travel
• Indirect Rates
• Costs incurred but not yet paid for supplies and services purchased
directly for the contract provided that the payments will be made per
the payment terms of the subcontract and ordinarily within 30 days
of submission of the prime contract invoice.

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How are Indirect Costs Reimbursed?
Allowable Cost and Payment Clause (52.216-7)
Contractor indirect costs shall be reimbursed at “billing rates”
established by the Contracting Officer subject to adjustment when the
final rates are established. The billing rates shall be;
• The anticipated final rates
– Update indirect rates annually
• May be revised by mutual agreement, at either parties request to
prevent substantial over or under payment

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How are Indirect Costs Reimbursed?
Contractor Actions
Prepare
Annual
Indirect Rate
Budget
Establish
Provisional
Indirect
Rates
Submit to
Contracting
Officer or
Cognizant
Auditor
Audits/
Negotiations/
Formal
Approvals?
Begin
Billing at
Provisionals

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How are Indirect Costs Reimbursed?
How are Indirect Rates “Trued Up”
• Contractor must submit a final indirect cost rate proposal (i.e.
Incurred Cost Submission) to the Contracting Officer and audit
agency within 6 months of the end of each fiscal year.
• The ICS is audited
• Final Indirect Rates are established
• “True Up” invoice submitted (or refund as required)

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Managing a Cost Reimbursement Contract
Accounting System
• Requirement: The contractor’s accounting system is adequate for
determining costs applicable to the contract
• You can’t manage what you can’t measure, (& forecast!)

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Managing a Cost Reimbursement Contract
• SF 1408 Review
̶ GAAP Compliant
̶ Segregation of direct costs from indirect costs
̶ Allocation of indirect costs to intermediate and final cost
objectives
̶ A time keeping and labor distribution system
̶ Exclusion of unallowable costs from contract billings
̶ Written policies and procedures

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Managing a Cost Reimbursement Contract
Direct Costs
• Responsibility: Manage what you can control
̶ Project Team manages direct costs
̶ Establish budget by cost element by time period (proposal?)
̶ Establish a management reserve
̶ Track costs on an accrual basis
̶ Establish Program Control position
̶ Take action and communicate

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Managing a Cost Reimbursement Contract
Indirect Costs
• Responsibility: Back office function but who?
̶ Monitor actual rates compared to billing rates monthly
̶ Manage the indirect expenses
̶ Under runs = added investment in infrastructure or more profit
on FP/LH or more work on Cost Reimbursement
̶ Overruns = decrease indirect costs or less profit on FP/LH or
less work on Cost Reimbursement
̶ Request adjustment if actuals materially deviate from the billing
rates
̶ Cash flow / False Claims Act

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Managing a Cost Reimbursement Contract
Indirect Costs
• Project Managers react to indirect costs
• Manage contract to actual indirect rates not provisional billing rates
(even if CO will not change provisional billing rate)

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Managing a Cost Reimbursement Contract
How to Protect Yourself!
• Limitation of Funds (52.232-22)
• Limitation of Costs (52.232-20)
• Contractor agrees to perform up to the point at which the total
amount due to the contractor approximates but does not exceed the
contract funding.
• Contractor will notify the CO in writing whenever the costs it expects
to incur within the next 60 days, when added to the costs already
incurred will exceed 75% of the funded amount.

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Conclusion
Managing Cost type contracts is a sophisticated undertaking
• Must understand what a “cost” is
• Must have an adequate accounting system
• Must establish both direct and indirect budgets and actively manage
them
• Must manage on an accrual basis
• Must manage with actual not billing rates
• Must communicate internally and with customers

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Unanet Key Features to Support CP Contracts
• DCAA Support; SF 1408 audits
• Chart of Accounts to record of direct and indirect costs appropriately
• Direct and indirect budgets
• Timesheets and expense reports to collect direct and indirect costs
• Billing at Provisionals, revenue at actuals with real-time variance
reporting; fee methods; funding caps adjustments;
• Flexible and unlimited CP invoice formats
• Real-time project reporting on direct and indirect costs, revenue and
margin by period vs. budget
• Automatic alerts on funded value consumption at customer-defined
thresholds (e.g., 75%)
• Actual and provisional indirect rate calculations; Stmt of Indirects
• ICS process

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Managing a CP Project in Unanet
Project Manager dashboard report of all costs, original budget and forecast

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Managing a CP Project in Unanet
Project Revenue and Funding Summary

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Project Alerts, Caps on Funding Value, Fee Methods

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Billing and Revenue
Sample CP Invoice CP Revenue Options

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Billing and Revenue Summary Report

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Cost Pools and Indirect Rates
Statement of Indirect Rates

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Incurred Cost Submission Process – ICE Model
Unanet Knowledge Center

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Contact Us
Donna Kilbourn
Executive Vice President, Revenue, and Customer & Partner Success, Unanet
dkilbourn@unanet.com
703-689-9752
www.Unanet.com
Aisha Mian
Managing Consultant, Aronson, LLC
amian@aronsonllc.com
240-364-2614
http://www.aronsonllc.com/
La-Tasha Patel, CPA
Managing Consultant, Aronson, LLC
lpatel@aronsonllc.com
301-231-6260
http://www.aronsonllc.com/