The FAR overhaul just shortened your incurred cost proposal

One term first. An incurred cost proposal is a yearly submission. A contractor with cost-reimbursement or time-and-materials work files it to propose final indirect cost rates for a fiscal year that has closed. FAR 52.216-7 requires it, and paragraph (d)(2)(iii) lists what it must contain. DCAA calls those items schedules and names them by the clause's own letters, so this piece does too.

01What leaves the list

Why cut the list at all? The FAR Council's answer is less work on both sides: less to prepare, and less time spent on information that adds little to the adequacy check. It expects contractors to save about 10 percent of their preparation time, a figure it takes from industry's own statements rather than from measurement. Here it is in the rule's words.

The proposed changes are expected to decrease the overall burden related to the preparation and submission of incurred costs proposals and streamline the initial determination adequacy. Contractors will spend less time preparing the submission and estimate 10 percent based on the statements from Industry in their response to OIRA's Request for Information (RFI) for burden reduction suggestion. In addition, contractors and Government will spend less time reviewing and discussing information that provide little value to the initial adequacy determination. These changes will promote efficiency in the setting of final indirect cost rates.

Today the clause lists 15 items, (A) through (O). DCAA's adequacy checklist is organized by the same letters and asks 47 questions across them, so counting questions shows how much of the adequacy review each change touches.

Three items stop being required. They are not equal losses.

One caution on the payroll reconciliation. The rule changes what makes a submission adequate, the check DCAA runs before an audit starts. It does not say what an auditor may request once the audit is under way. The clause already keeps the two apart: paragraph (d)(2)(iv) lists information that is not required for adequacy but may be required during the audit. If the reconciliation catches your own errors today, the rule is no reason to stop preparing it.

02Two schedules stay but change: (H) and (J)

Schedule (H), direct costs by contract and subcontract, absorbs what survives from the two relocated schedules. The proposed text adds a summary of total labor and nonlabor billed on time-and-materials and labor-hour contracts, and then this for closeout:

For contracts physically completed during the fiscal year, the schedule must include the contract number, level-of-effort information, the contract ceiling amount, and confirmation of whether the contract is ready to close.

What you would stop preparing is the detail: the labor categories, rates and hours behind each time-and-materials contract, and fee computations at closeout. The reconciliation of your books to claimed costs in schedule (G) is untouched.

Schedule (J) changes more. Today it lists every subcontract you awarded as a prime or upper-tier contractor, with no dollar floor.

Paragraph (j), Subcontract Information, would be limited to only those subcontracts with a value exceeding the threshold for requiring certified cost or pricing data as prescribed in FAR 15.403-3.

That threshold is $2,500,000 today, raised from $2,000,000 effective Oct 1, 2025. A company with dozens of small subcontracts lists every one now, with names, addresses and points of contact. Under the proposed text only those above the threshold would appear. One note for anyone checking the citation: the rule cites FAR 15.403-3, the overhaul's new home for the threshold. In today's FAR it sits at FAR 15.403-4.

03Who newly files one

Everything above narrows an existing obligation. This part widens who has it. A fixed-price incentive contract settles at a price that depends on your actual cost, indirect cost included. Yet the two incentive price revision clauses, FAR 52.216-16 and FAR 52.216-17, never mention the allowable cost and payment clause today.

The proposed text adds the same sentence to both clauses.

If the Contractor does not have another Federal contract which requires the establishment of final indirect cost rates for the relevant fiscal year, the contractor must submit the data required by, and the parties must follow the procedures identified in, paragraph (d) of 52.216-7, Allowable Cost and Payment, to establish final indirect cost rates.

The condition matters. If you already hold cost-reimbursement work, you file an incurred cost proposal anyway and nothing changes. If a fixed-price incentive contract is the only one you hold that needs final rates, you would follow paragraph (d) of the allowable cost and payment clause. That means an adequate proposal within six months of your fiscal year end, closing with the certificate of final indirect costs at FAR 52.242-4.

Two details. First, the proposed clauses leave one exit: rates need not be settled first if the quick-closeout procedure is used (FAR 42.708 in today's FAR). Second, the clause's prescription, today at FAR 16.307, would be rewritten to name cost-type incentive contracts. If that burden is not what the rule assumes for a company like yours, the comment period is the place to say so.

04What happens next

This is a proposed rule. The clause in your contract governs until a final rule is adopted, and the rates for a closed fiscal year are set under the clause that contract carries.

The rule also sizes the work involved: 6,265 respondents and 1,353,807 burden hours a year across the five clauses in its information collection, about 216 hours each.

Comments close October 19, 2026. The rule asks for them through the Federal eRulemaking portal, citing FAR Case 2026-006.

05Preparing an adequate proposal in GovConDash

Each item on that list is a schedule someone on your team has to build every year. The Incurred Cost Proposal tab in GovConDash builds them from your accounting data, and its user manual shows how, step by step.

The dashboard already works the way this rule is heading. Three of the schedules the rule changes, (J), (K) and (L), already appear in it only when they apply to your company, based on your setup. The Form 941 step can be skipped too, under the waiver DCAA typically grants when a labor reconciliation is not meaningful for a contractor's cost structure. The rule would, in effect, extend that waiver to everyone.

Already keep DCAA's ICE Model in Excel? You do not start over. The dashboard imports an existing ICE Model workbook and exports a multi-sheet Excel workbook with number formatting and cross-sheet formulas. Prepare needs a paid plan.

Reading the regulation does not. The eCFR Research Agent is the one AI surface a free account includes. Ask it what FAR 52.216-7 requires of an adequate proposal. It answers from the regulation and names the section it read, so you can check it against the eCFR yourself.

Documents and data used in this piece

Both versions of the clause list were read from their sources rather than typed: today's from the eCFR, the proposed one from the Federal Register. Every quotation and figure above was checked against a stored copy of its source before this page was written, 58 checks in all. Each link opens the publisher's own site or document.

This piece is commentary on a published proposed rule and on regulations as the eCFR carries them. It is not legal advice, and it is not a determination about any contractor, any contract, any submission or any audit. A proposed rule is not law, and the FAR Council may adopt, change or drop any part of it.

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