When hiring a financial resource contractors must understand the difference between accountants and certified public accountants (CPAs). Comparatively, a CPA for independent contractors has a larger scope of work than an accountant, producing advanced accounting reports from business operations and being able to report tax filings.
A CPA can help small businesses minimize taxes and increase profitability by recommending cost-efficient plans.
What Are Provisional Billing Rates?
PBR, or provisional billing rates, conduct near-accurate calculations of your final year-end rates. These rates apply until the settlement agrees on specific indirect rates for your fiscal year, ensuring the necessary adjustments are made for any unallowable costs.
Government organizations such as the NSF and NIH may refer to provisional billing rates as indirect cost rates (ICR), while other organizations including the DOE will ask for your indirect rates. With the use of multiple names for PBR, government contractors can find it difficult to understand the specific contract requirements and other issues. Hiring a certified public accountant ensures your business comprehends and complies with government contract requirements.
How CPAs Can Help Government Contractors With Their Provisional Rates
Government contractors should fully understand FAR 42.704 and 52.216-7 which includes the process outline for the PBR proposal. Often government contractors have difficulty understanding the guidelines or policies, which can cause them to overlook essential details within the contract. Government contracts are sophisticated and require that every element is addressed by the business.
Bringing in a CPA for independent contractors will help you understand the process and establish a billing rate for the contractor’s fiscal period. PBR includes all indirect rates for reimbursement on the following:
- Time and material-type contracts
- Cost type contracts
With a qualified CPA, you can set the annual indirect billing rates that will benefit you and the government entity. A CPA will help you monitor the actual rate and stay on the estimated actual rate. Moreover, they also help your business adhere to the agreed-established billing rates. If you attempt to adjust the rates yourself, you will need to calculate the indirect rates each month and adjust YTD bills concerning these rates.
A CPA Will Keep The ICE/ICP Cost Separated From PBR
Working with rates on the accounting side of the audits alone can be confusing. Contractors often cross estimated cost (ICE) and incurred cost proposals (ICP) with PBR. These terms are used in annual reports allowing auditors to measure the variance between billed and actual costs in the previous fiscal year.
The reports also consist of indirect rates that are a requirement from FAR 52.216-7. However, the reports also have PBR rates and should be separated from the other rates.
Avoid Rejection From DCAA
Contracts that are cost-plus types have a high rejection rate. One of the main reasons the DCAA rejects invoices is that contractors failed to obtain approval for the PBR rates prior to invoicing. It would be best to negotiate the indirect rates for acquiring the contract on the first attempt.
Maintaining records of provisional and indirect rates is imperative for a healthy contract and CPAs are the ideal solution for this task. Your business must send the same proposed indirect rate to DCAA that was sent to the procuring or other officers. Prepare the PBRs allowing the DCAA to review and approve the rate quickly to reduce or eliminate issues with billing.
What Benefits Can Contractors Have With Specialized Accounting Professionals
As accounting experts, CPAs will save your business considerable time and effort, ensuring that your accounting methods and rates align with the government requirements. The following are the benefits of having a specialized CPA for independent contractors:
- You can have industry-specific accounting practices that are fit for your industry. For example, if you are a construction contractor, CPAs can help you record your expenses and revenue and understand your cash flow. Moreover, they can help you to implement new accounting methods or optimize the existing ones.
- New contractors can find it challenging to get a secure line of credit as they are not reputable entities yet. However, with robust accounting methods and a high level of transparency, you have improved chances to get recognition.
- A contractor’s taxation is complex, but tax planning can become considerably easy with a CPA.
Get The Best Accounting Services With Diener & Associates
This article has presented only one part of many of the Government regulations and requirements for contractors. Provisional billing rates can be challenging for contractors who have just entered the market without experience with the DCAA.
Diener & Associates have extensive experience with government contracts and regulations, and can also assist with your overall accounting, risk, and financial issues. Schedule your consultation with Diener & Associates today, or call us at 703.386.7864 to learn more.