If a General Engineering Contractor uses projected overhead rates, and later audited rates turn out to be significantly less, is the contractor required to make an adjustment for billing purposes?
A. The answer to this question depends on the terms of your contract with the A&E firm. If you are using a cost-type contract (e.g., cost-plus-fixed-fee), then you should have a clause in the contract describing how final indirect costs will be determined through an audit and the clause should reference Part 31 of the FAR “Contract Cost Principles and Procedures” as the basis for determining allowable costs. The clause used in Federal cost-type contracts may be found at FAR 52.216-7 “Allowable Cost and Payment,” and paragraph (d) “Final indirect cost rates” describes the process of determining final indirect rates. With respect to the definition of “allowable costs,” assuming there is to be an audit, you will need to reference Part 31 of the FAR or some State or local regulations setting forth contract cost principles for determining allowable costs under cost reimbursement contracts. If, however, you use a Time and Materials type of contract or a fixed price type of contract, there no
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