Billing Requirements in Federal Contracts: Are You Compliant?

Are you compliant with your billing requirements under your U.S. government cost-reimbursable contracts? Federal Acquisition Regulations (FARs) provide for inclusion of the contract clause in FAR 52.216-7, entitled Allowable Cost and Payment, in cost-reimbursement contracts. This clause provides for the government to make payments to you when requested as the work progresses.

How Often Can You Bill?

If your company is not considered a small business, then you can bill no more frequently than every two weeks. If you are a small business concern, then you may receive more frequent payments.

Your billed costs must be allowable in accordance with FAR Subpart 31.2 cost principles and procedures. You must also submit an acceptable invoice or voucher in the form and include the detail required by the government. In most cases, this is done electronically using the U.S. government’s Wide Area Work Flow software solution, which allows government contractors to submit and track invoices.

Your billable costs can include items and services purchased directly for the contract that you have actually paid for at the time of your request for reimbursement. You can also include:

  • Costs that you have incurred, but not necessarily paid yet, for supplies and services purchased directly for the contract.
  • Associated financing payments to subcontractors, as long as you are not delinquent in paying costs of contract performance in the ordinary course of business.

These costs are billable, provided that their payments will be made in accordance with the terms and conditions of a subcontract or invoice and ordinarily will be paid within 30 days of the submission of your payment request to the government.

Billable costs can also include materials issued from your inventory and placed in the production process for use on the contract, direct labor, direct travel, and other direct in-house costs.

When billing the amount of financing payments that you have paid to subcontractors, the terms of the payments should not be more favorable than the U.S. government would allow you under similar circumstances and conditions.

You can also bill properly allocable and allowable indirect costs using provisional (estimated) indirect rates. These billing rates are supposed to represent the anticipated final rates for your entire fiscal year, established with your Administrative Contracting Officer in accordance with FAR Subpart 42.7, entitled Indirect Cost Rates.

Prior to establishing final rates, these provisional rates will be prospectively and retroactively adjusted whenever necessary, in order to prevent or recover substantial overpayment or underpayment of previously billed or billable amounts.

The contract clause at either FAR 52.232-20, entitled Limitation of Cost, or FAR 52.232-22, entitled Limitation of Funds will also be included in your cost reimbursable contracts. Both of these clauses indicate that the costs of performing the contract, exclusive of any fee, won’t cost the government any more than the estimated cost in the contract.

Costs that Exceed Estimates

You are required to provide notification when it is expected that your cumulative incurred costs will exceed 75 percent of the estimated cost limitation or funding limitation within the next sixty days. The government is not obligated to reimburse you for any costs incurred in excess of the estimated cost or funding unless there is some other contract provision that provides for a specific exception.

The contract clause in FAR 52.216-8, entitled Fixed Fee, is included in your cost-plus fixed-fee contracts. This clause provides for the government to pay 85 percent of the fixed fee. After payment of this amount, the contracting officer may withhold further payment of fee until a reserve is set aside in an amount considered necessary to protect the government’s interest. This reserve is not to exceed 15 percent of the total fixed fee, or $100,000, whichever is less.

If you have questions about billing requirements, contact your government contracting adviser for more information.


  • Follow contractual and regulatory instructions for preparation of an acceptable invoice or voucher. Use the form and include the detail required by the federal government.
  • Establish appropriate software or other controls to ensure that amounts included in your billing are normally paid within 30 days of the submission of your invoice.
  • Monitor your aging of accounts receivable to ensure that billed amounts that have not been paid within 30 days of your invoice submittal are the result of an unusual non-recurring condition.
  • Prepare budgetary data or other such forecast for indirect rates, monitor actual indirect rates, and revise annual indirect rate projections at least quarterly to ascertain the need for requesting increases or decreases in provisional billing rates.
  • Monitor booked costs and financial encumbrance activity so you can report when your cumulative incurred costs exceed 75 percent of the estimated cost limitation or funding limitation within the next sixty days.
  • Don’t bill more than 85 percent of your fixed fee.

Only include your subcontract payments under cost reimbursable subcontracts or other subcontract types when the terms of the payments aren’t any more favorable than the government would allow you under similar circumstances and conditions.

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