The purpose of a Federal Acquisition Regulation (FAR) is to provide a set of consistent, uniform policies and procedures within the federal acquisition process and to ensure these procedures are applied in a fair and unbiased manner. Architecture and engineering firms contracting with government agencies may be required to comply with FAR, but many are unclear how to get started. Here are some steps to consider.
1. Establish a Reliable Job-Cost Accounting System
With FAR, A&E firms are required to track projects costs and the time spent on specific projects including the rates being charged in their job-cost accounting system. The tracking must include costs related to material goods, labor and other expenses with an allocation to direct and indirect costs. An added nuance to labor charging is the need to track and adjust for uncompensated overtime, which can directly impact the hourly labor rates that are being applied to projects.
2. Retain Key Documents for Audit Support
A&E firms working on government projects should operate assuming an audit may occur. Accordingly, it is important to establish what documents and support need to be retained. The list of supporting audit documents can include (but is not limited to) documents such as employee timesheets, compensation agreements, expense reports, vendor invoices and receipts. The documents need to include sufficient support documenting how the expense relates to a specific project (answering the who, what, when, where, why for each expense). Following the conclusion of an audit, it is important to retain these records in accordance with FAR policy in case there is a need for additional review from a government agency.
3. Create a Control Environment
A&E firms should develop internal controls and processes to ensure compliance with FAR requirements. The established processes and policies should be documented and communicated to employees. The firm’s control environment should include adequate controls over their accounting systems, IT systems and security and should be actively monitored to ensure continued compliance with FAR.
4. Document Company Bonus Policy
Bonuses and incentive compensation packages are allowable under FAR guidelines, but they must be performance-based and comply with FAR 31.205-6(f). When writing bonus plans, it is critical to document the plan’s purpose, what performance objectives must be attained, what form of payment is expected, and when the bonus will be distributed.
5. Attend FAR Training
A&E firms have a greater opportunity to increase their projects with government agencies since the Inflation Reduction Act went into effect at the start of 2023. Firms looking to take advantage of the $500 billion in new spending and tax breaks should attend FAR training so they better understand what requirements are involved in working on government-funded projects. Trainings, such as those offered by A/E Clarity, help A&E firms understand a variety of topics in this space. Continuous training is essential for staying on top of changes as they relate to FAR compliance.
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If you need support preparing for a FAR audit, we can help. Our Architecture & Engineering team can guide you through the process and ensure your overhead rates are FAR compliant. Contact us today to get started.
