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Provisional vs Actual Indirect Rate Calculator

Compute the year-end true-up adjustment between the provisional billing rates you used to invoice cost-reimbursable contracts and the actual rates from your Incurred Cost Submission. FAR 52.216-7(d) and FAR 42.705 math.

Inputs

Result

Provisional indirect billed
$1,275,000.00
Direct labor x provisional rate.
Actual indirect due
$1,170,000.00
Direct labor x actual rate from the ICS.
Indirect variance
$105,000.00
Provisional minus actual. Positive means overbilled.
Variance with fee applied
$113,400.00
Variance grossed up by contract fee.
Cumulative variance % of billed
3.78%
Variance with fee as a share of total billed (cost plus fee).
Direction
Overbilled (refund due)
Overbilled means a refund or downward adjustment is owed under FAR 52.216-7(d).

Educational tool. The final indirect cost rate proposal under FAR 52.216-7(d) is due within 6 months after fiscal year end (FAR 42.705). Variance figures here are arithmetic only and do not substitute for the auditable ICE / ICS schedules.

What this calculator computes

Cost-reimbursable federal contracts are billed during the year using provisional indirect rates. Those rates are negotiated with the cognizant federal agency under FAR 42.704 at the start of the contractor fiscal year, on the basis of forecasted pool and base figures. The provisional rate is a billing instrument. It is not the final rate.

At year end the contractor compiles actual incurred costs into the Incurred Cost Submission, often called the ICE schedule after the DCAA template. The submission separates direct from indirect, segregates unallowable costs under FAR 31.205, computes actual pool and base figures, and produces actual indirect rates for fringe, overhead, G&A, and any intermediate pools. Those actual rates are what the contractor was entitled to bill. The variance against provisional is what the contractor owes back, or in the underbilled case, what the contractor may request.

The arithmetic is straightforward. For each indirect pool, multiply the YTD direct-labor base (or other allocation base) by the provisional rate to get what was billed, and by the actual rate to get what was owed. The difference is the variance. Apply the contract fee to gross the variance up, since the fee was billed on the inflated cost. The grossed-up figure is what the contractor refunds, or in the underbilled case, the upward adjustment subject to contract ceilings.

This calculator collapses the multi-pool case into a single composite indirect rate for sizing purposes. Real submissions break out fringe, overhead, and G&A separately, with each pool having its own base and its own true-up direction. Use this number to estimate the magnitude of the year-end adjustment, not as a substitute for the line-by-line ICE schedule.

Direction matters. A positive variance means the contractor overbilled and owes a refund or downward adjustment under FAR 52.216-7(d). A negative variance means the contractor underbilled. The contractor may request an upward adjustment, but any amount above the contract funding ceiling becomes a contractor loss. Funding ceilings are not relaxed retroactively.

Compliance methods

FAR 52.216-7(d) (Allowable Cost and Payment) and FAR 42.705 (Final indirect cost rates) govern the true-up. The mechanical sequence:

  1. 1. Negotiate provisional rates (FAR 42.704)

    Submit a forecast of pool and base figures to the cognizant federal agency. The provisional rates approved here become the billing rates for the year. Update mid-year if conditions change materially.

  2. 2. Bill against provisional rates during the year

    Apply the provisional rates to the direct-labor or total-cost-input base on each public voucher (DCAA form SF 1034 or the contract billing format). Vouchers are subject to DCAA review.

  3. 3. Compile the Incurred Cost Submission

    Within 6 months of fiscal year end (FAR 52.216-7(d)(2)(i)), produce the ICE schedule with actual pool and base figures, segregated unallowables, and computed actual rates. Submit to the cognizant contracting officer.

  4. 4. Adjust billings to actual rates

    Compute variance by pool, gross up by fee where applicable, and submit a final voucher (Cumulative Allowable Cost Worksheet, CACWS) reconciling billed to allowable. Refunds clear at this point.

Frequently asked

What is the difference between a provisional and an actual indirect rate?
A provisional rate is the billing rate negotiated with the cognizant federal agency at the start of a fiscal year under FAR 42.704. It is an estimate used to bill cost-reimbursable contracts during the year. The actual rate is the one computed at year end from real costs in the Incurred Cost Submission. The two rarely match exactly, so a true-up is required.
When is the year-end true-up due?
The Final Indirect Cost Rate Proposal (Incurred Cost Submission, often called the ICE schedule) is due within 6 months after the contractor fiscal year end under FAR 42.705 and FAR 52.216-7(d)(2)(i). DCAA audits the submission and negotiates final rates. Variance billing adjustments follow.
What if I billed too low during the year?
You underbilled. You can request an upward adjustment to bring billed indirect costs to the actual rate, subject to contract funding ceilings and clauses. The contracting officer is not obligated to fund above the ceiling, so undercollected indirects above ceiling become a contractor loss.
What if I billed too high during the year?
You overbilled. You owe the government a refund or a downward adjustment to the next billing. This is non-negotiable under FAR 52.216-7(d). Failure to refund overbilled indirects can become a False Claims Act exposure if it persists past the certified ICS.
Why do provisional and actual rates drift apart?
Mid-year hiring or layoffs change the direct-labor base. Fringe benefit costs reset on plan-year boundaries. Indirect pool costs spike from one-off events such as mergers, office moves, or ERP implementations. Subcontract pass-throughs change the G&A base under a value-added or total-cost-input allocation.

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