An unfortunate occurrence we've seen too often over the years is when government contractors elect to prepare their Cost Plus (e.g., CPFF) invoices off-line. This is sometimes true even when they are using a compliant system like SYMPAQ to generate the numbers, but due to formatting requirements or just to maintain the status quo from years past, they turn to their spreadsheets to manually input the numbers in the preparation of the actual invoice. Worse than that scenario is when a contractor is utilizing a commercial accounting package that is not inherently designed for accounting for costs on flexibly priced government contracts and has few alternatives than to take the invoicing of their government customers entirely off-line.
Time and time again, we have found this process to be error prone. This is especially attributable to faulty assumptions and when erroneous calculations are embedded in the source billing spreadsheet(s); money gets "left on the table". This can occur even when invoices are not rejected for obvious omissions and inaccuracies, thereby resulting in a "what you don't know can hurt you" outcome. For instance, our clients will often run parallel as part of our onboarding process and in doing so will compare the numbers from their incumbent billing system against the numbers produced by the SYMPAQ's Billing & Revenue module. What they invariably will find are errors in their calculations including misapplication of indirect burdens and fee. This situation might have been going on for years and no staff member detected the underbilling. It is particularly painful when it is too late to do anything about it after a contract has been closed-out and the final payment was received.
This brings us to the topic of the required, minimal feature set when it comes billing systems for government contractors. Here is our list of must-haves:
Multiple Revenue Types – Government contract types include Cost Reimbursable, Fixed Price, Time & Materials, Labor Hour and Indefinite Delivery/Indefinite Quantity (IDIQ). Your billing system must provide support for all of these types and, in some cases, a combination of revenue types for a single contract award. This is particularly true of IDIQ contracts.
Allocation of Burdens and Fee - Especially when it comes to cost reimbursable (CPFF, CPAF, CPIF) contract awards, your billing system must be able to accurately apply indirect burdens for Fringe Benefits, Overhead and General & Administrative expenses to eligible direct costs. Similarly, the capability of applying a negotiated fee or profit to selected costs is required functionality.
Application of Burdens and Fee by Element of Cost - With each contract award comes negotiations. Often times, those negotiations can lead to concessions by the contractor that complicate matters of invoicing. For example, your invoice must reflect a different fee on different elements of cost (e.g., Direct Labor vs. Travel). You may have to forgo application of indirect burdens to certain cost elements (e.g., subcontractors) as result of a Contracting Officer pushing back with what is referred to as "excessive pass-through". Your billing system must be equipped with the user-definable business rules to apply burdens and fee to specific costs.
Funding by Contract Line Item Number (CLIN) - Multi-year government contract awards are seldom funded beyond the first year, and are at times funded incrementally at the CLIN level. Therefore, your billing system must allow you to define available funding at lower levels than the overall contract value. This enables the capping of dollar amounts invoiced by a funding ceiling, thus preventing overbilling that will ultimately get your invoices rejected.
Billing by Task Order - While some contracts require invoices to be billed at the overall project level where billable amounts for discrete tasks are "rolled up", others require that invoices be rendered at the task order level. For example, IDIQ contracts are always invoiced by task order.
Retroactive Rate Adjustments - Flexibly priced contracts are proposed with provisional billing rates that are based upon your best estimate of what your actual indirect rates are projected to be at the end of next year. Even with your best estimate based on a variety of forecasting techniques, there is uncertainty involved (e.g., unexpected loss of a contract) and it is not unusual to find that you will have overspent on your provisional indirect rates, thereby not fully recovering these costs. Therefore, you must pursue an equitable adjustment to retroactively renegotiate your previously proposed provisional overhead rate. The capability is required for your billing system to retroactively recalculate your previously submitted invoice amounts, and then to recast them on an adjustment invoice reflecting your revised provisional rates.
Project Labor Categories with Annualized Billing Rates - Time & Materials and Labor Hour contracts are billed by Labor Category at hourly rates. The billing rates for these types of contracts are ideally comprised of your weighted average direct labor costs plus applicable fringe benefits and with overhead and G&A indirect costs factored in that results in a wrap rate. Your wrap rate is your baseline for adding a fee to yield a "loaded" hourly rate that is both competitive and profitable. Much like the aforementioned provisional billing rates, your billing rates can change from one year to the next. Therefore, the requirement exists for a billing system to not only store your current bill rates by labor category, but to define option year billing rates that are automatically calculated by starting and ending dates.
Recurring Fixed Price Billing -For fixed price contracts, your billing system should have the capability to define a scheduled billing cycle (e.g., monthly) for the automatic generation of lump sum invoices.
Public Vouchers (SF 1034/SF1035) - Public Vouchers are primarily used for invoicing cost reimbursable contracts. The SF1035 is a continuation sheet that provides cost detail in support of the total amount displayed on the SF1034. These forms have been in use since the 1970's, and are often required as source billing documents even when submitting your invoices online instead of by regular mail. Your complaint billing system should be able to draw these forms and auto-fill the calculated dollar amounts for a given billing cycle.
Billing Templates - While billing formats such as the Public Vouchers are part of doing business with the government, your billing system should also be able to render invoices in a variety of layouts and formats and with options to display the data that are required for a particular contract or subcontract. Your billing system should offer a variety of available templates to meet this need and thereby obviate the need to create your invoices off-line or "outside" of your cost accounting software.
To conclude, invoicing your federal government customers can be a sophisticated undertaking. The onus is on the contractor to get it right. This means having a system that will keep track of funding, calculate accurate numbers and adhere to specific invoicing formats and contract terms, among other requirements. And with the potential for issuing invoices that do not capture and reflect all eligible costs, you are operating at a disadvantage when you are not utilizing a fully-integrated government contract billing system that is designed around the complexities of the industry in which you operate. It does not cost to implement such a billing system, rather it pays and your improved cash flow will be the proof.
Check out our new Cash Flow Invoice Gallery for sample invoice templates