What is SF1408?
Is growing your business with Federal Contracts one of your goals? Then you need to be familiar with Standard Form 1408 (SF1408), the pre-award survey of a prospective government contractor’s accounting system.
SF1408 is used to evaluate whether your accounting system is adequate – what is commonly referred to as "DCAA complaint" – prior to the award of certain types of government contracts.
This checklist of the compliance criteria gives those new to government contracting and flexibly priced contracts a tool to prepare the company's accounting system.
What you need to know about the Preaward Review
Certain government contracts require an accounting system that can adequately determine costs applicable to a contract. This requirement applies to cost-reimbursement type contracts and contracts billed using progress payments, as well as some subcontracts.
In order to qualify for a contract with this requirement, the prospective government contractor must demonstrate that it’s accounting system satisfies the established compliance criteria.
Though some may call it an audit, a 1408 review or survey is technically not an audit. It is an evaluation of the design effectiveness, not operational effectiveness, of your accounting system prior to contract award. (So if your system is newly implemented without much, if any, transaction data, that’s ok.)
In short, you will need to demonstrate:
- Written policies and procedures document how your accounting system is structured and used
- Your accounting system design supports the adequacy criteria on SF1408
- Reports and general ledger examples validate your accounting system design
- You maintain a general ledger based accounting system with requisite internal controls and documentation that support the reports generated by the accounting system
Remember, no accounting software is DCAA compliant out of the box. It’s how you implement and use your accounting system that drives compliance.
What are the SF1408 criteria?
Contractors must design their accounting system to satisfy the following SF1408 adequacy criteria:
- The accounting system is in accord with Generally Accepted Accounting Principles (GAAP)
- Segregation of direct costs from indirect costs
- Identification and accumulation of direct costs by contract
- Logical and consistent method for allocation of indirect costs to intermediate and final cost objectives (A contract is a final cost objective)
- Accumulation of costs under general ledger control
- A timekeeping system that charges direct and indirect labor to the appropriate cost objectives
- A labor distribution system that charges direct and indirect labor to the appropriate cost objective
- Interim (at least monthly) determination of costs charged to a contract through routine posting of books of account
- Exclusion from costs charged to government contracts of amounts which are not allowable in terms of FAR31 or other contract provisions
- Identification of costs by contract line item and by units, if required by the contract
- Segregation of preproduction costs from production costs
- The accounting system provides financial information required by contract clauses concerning limitation of cost (FAR 52.232-20 and 21) or limitation on payments (FAR 52.216-16)
- The accounting system provides financial information required to support requests for progress payments
- The accounting system is designed and records are maintained in a manner that adequate, reliable data are developed for use in pricing follow-on acquisitions
To begin an SF1408 Preaward Review, the contractor will be asked to complete this checklist including a narrative explanation of how each of the criteria is satisfied in their accounting system.
Upon a successful examination by DCAA or the cognizant government agency, government contractors can claim a "DCAA Compliant" accounting system that is acceptable for prospective contracts. Congratulations!
Keep in mind that with material changes to your accounting system configuration or policies, the prior determination of an acceptable accounting system may no longer apply. If you make a change, your accounting system may require a new review to validate the modified design.
How can I get a pre-award accounting system review?
If you are new to government contracting, or new to cost-reimbursement type contracts, you will need a formal review to claim an adequate accounting system. But getting a pre-award accounting system review is a bit of a chicken and egg conundrum.
On a solicitation, prospective contractors want to be able to check the box stating they have an approved accounting system. But you can’t just call up DCAA and ask for an audit. The Contracting Officer must request the audit from DCAA.
If you’ve never had a pre-award review, you’ll want to have your accounting system ready so you avoid a delay in contract award. Some contractors find it helpful to have a CPA firm evaluate their accounting system design independently to ensure it satisfies the adequacy criteria.
Start preparing your accounting system today
Your growing business will benefit from awareness of the criteria and early adoption of the cost accounting methods of an adequate accounting system for government contracting.
If government contracting is at the core of your business, SF1408 gives you a roadmap for moving from fixed price to cost-reimbursable contracts. By tracking indirect costs, you’ll gain an understanding of your financial operation to manage costs and price effectively. Plus, you’ll avoid unnecessary delay when it comes time for that contract award.
Thinking of adding federal contracts to your current portfolio of private sector work? The SF1408 checklist informs your back office of the requirements that come with incorporating this new revenue source, so you can design an effective strategy for expanding your business.
Have questions about how to get started? Contact us anytime.