Rose Report: Issue 17

The 13th Invoice

issue17-pic-story2As we near the end of the year, government contractors with cost-type contracts have an important task in front of them: the “13th invoice.” As soon as a government contractor has finalized its fiscal year rates, it should compute the reconciliation for each-cost type contract it holds. If there is a difference between the provisional rates billed throughout the year and the actual year-end rates, a final invoice should be submitted to account for the discrepancy.

The purpose of this final voucher is to prevent substantial under or overpayment of rates. If there is a significant difference between billing and actual rates, billings should be adjusted to reflect either: (1) the additional amount due the contractor if the billing rates were lower than actuals, or (2) credit due to the government if the actual rates were lower than the billed rates.

Rose Financial Services partner Jeanne McMillen says it’s common for there to be a difference. “Nobody is going to be 100 percent accurate,” she says. “It’s important to settle up and get everybody on the same page at the end of the year.” She recommends submitting this invoice as soon as a contractor is comfortable and able, which in most cases should be 90 days or less. Given the government shutdown this year, it’s particularly important to compute the reconciliation—many companies had to stop work on contracts, which could have a material impact on their indirect rates.

Even if a contract is several years long, experts recommend that variances be computed annually. If the variance is immaterial—say, less than five percent—the contractor may choose to not submit an invoice. Even so, running the calculation is a smart business practice as it ensures that billing is on track throughout the life of a contract.

This final invoice is also a good reminder of the importance of monitoring provisional rates throughout the year—a responsibility that rests on the contractor’s shoulders. Furthermore, a significant difference can be an indication that a contractor should adjust its provisional rates going forward.

The take-away: It’s critical to stay in communication with the government throughout a contract. Contractors that carefully monitor their indirect rates and costs each month—as well as at the end of each year—are well-positioned for a smooth contract close-out.