Working as a government contractor involves navigating a host of regulatory requirements—and learning all the acronyms that go with them. One of those acronyms is PBR, or Provisional Billing Rate. PBR is a critical step for contractors with cost-reimbursable and Time and Material type contracts. If you’re a government contractor who’s confused by PBR, you’re not alone. Hopefully this article will help you get a better understanding of how it works. You can also reach out to our government contract accounting experts for further support and guidance.

Other Names for Contracts Requiring PBR

The complexities of understanding PBR is made even more difficult by the fact that these contract types can have different names and levels of formality depending on the grantor. While organizations like the NIH and NSF may refer to it as the indirect cost rate (ICR) submission, others like the DOE will simply tell you to send your indirect rates, without concern for labeling it with an acronym. Without a consistent naming process from all government contract grantors, it can be difficult to understand when and how to utilize PBR. You must pay careful attention to the details of the contract to ensure you’re using the PBR appropriately.

A Divided Billing Process

For contractors, your PBR proposal begins a process that’s outlined in FAR 52.216-7 and 42.704. This process establishes a billing rate for a company’s fiscal period; this billing rate includes all indirect rates used for reimbursement on cost type contracts and Time and Material type contracts, where a material handling and/or material G&A rate exists.

Setting these indirect billing rates annually offers a certain level of convenience for both the government entity and the awarded contractor. Without it, the contractor would have to recalculate their indirect rates each month and adjust their YTD billing totals accordingly. But with PBRs, contractors can monitor their actual indirect rate performance and only take action if the predicted actual rate performance diverges from established billing rates significantly.

Not to Be Confused with ICP/ICE Process

Many government contractors often confuse PBR with the ICP/ICE process, so let’s take a moment to define and differentiate them. First, Incurred Cost Proposal (ICP) and Incurred Cost Estimate (ICE) are interchangeable acronyms and do mean the same thing as one another. These terms refer to an annual report that looks back on the previous fiscal year and measures the variance between billed costs and actual costs for cost type contractors. These reports do include indirect rates and are required by FAR 52.216-7, but are separate from PBRs and the PBR process.

How Often to Submit PBRs

Ideally, you should be submitting PBRs every year. This should be done prior to your first billing cycle of the new fiscal period. For most government contractors, your fiscal year will align with the calendar year, so you should submit your PBRs prior to your first billing cycle of the New Year.

PBRs should be submitted to the local Defense Contract Audit Agency (DCAA) office. You should also send a copy to the Defense Contract Management Agency (DCMA), where your Administrative Contracting Officer (ACO) lives.

It is worth noting here that FAR clauses do allow contractors to continue billing into the new fiscal year using previously approved billing rates.

When Your First Invoice Gets Rejected

Let’s look at a technically hypothetical, but realistically very common situation on cost-plus type contracts. If you landed this type of contract for the first time, that means you negotiated your indirect rates with the government procuring office. You begin the contract work, and eventually, you send in your first invoice—only to have it rejected by the DCAA. The reason for the rejection? They say you have to have your PBRs approved by them before you do any invoicing.

But you calculated your indirect rates already, and the government approved them during the negotiations, right? While that may be true, there a certain amount of required redundancy in these contracts. You will need to submit the exact same indirect rate proposal to the DCAA that you submitted to the procuring office for their approval. When these invoice rejections occur, the DCAA will typically review and approve your PBRs quickly, so you can get your billing back on track.

Let Us Help You with Your PBRs

Perhaps the information above provided you with a little clarity on PBRs—or maybe it left you with more questions than you started with. We get it. PBRs can be complex and confusing, but that’s why we specialize in helping government contractors like you navigate government billing, and all the acronyms that come with it. Contact Peter Witts CPA today to get the help you need with your government contract accounting.