FAR 42.701—Definition.
Plain-English Summary
FAR 42.701 defines the term "billing rate" for use in Subpart 42.7, which deals with indirect cost rates and related reimbursement practices. The definition explains that a billing rate is not a final or permanent rate; it is a temporary indirect cost rate used to reimburse a contractor for incurred indirect costs while the government and contractor are still working toward final indirect cost rates. The section also makes clear that billing rates must be adjusted as needed once more accurate cost information becomes available and until final indirect cost rates are established. In practice, this definition matters because it governs how contractors are paid during the year, how provisional reimbursement is handled, and how later adjustments are made to reconcile interim payments with final settled rates. It is a foundational term for understanding interim billing, rate negotiation, and year-end true-ups in cost-reimbursement and other flexibly priced contracts that use indirect cost recovery.
Key Rules
Temporary reimbursement rate
A billing rate is an indirect cost rate established only for interim reimbursement of incurred indirect costs. It is meant to support ongoing billing before final indirect cost rates are determined.
Subject to later adjustment
Billing rates are not fixed for the life of the contract or fiscal year. They must be adjusted as necessary when actual cost experience or other information shows the interim rate no longer reflects expected indirect costs.
Pending final rates
The billing rate remains in effect only until final indirect cost rates are established. Once final rates are negotiated or otherwise determined, the interim billing amounts are reconciled to those final rates.
Used in this subpart
The definition applies specifically within Subpart 42.7, so it should be read in the context of indirect cost rate administration, provisional billing, and final settlement procedures.
Responsibilities
Contractor
Use the billing rate only as an interim basis for invoicing indirect costs, monitor actual indirect cost experience, and request or support adjustments when the provisional rate no longer appears accurate. The contractor must also reconcile interim billings to final indirect cost rates when those rates are established.
Contracting Officer / Administrative Contracting Officer
Oversee the establishment and adjustment of billing rates for interim reimbursement, ensure the rates are reasonable for billing purposes, and coordinate the transition from interim billing rates to final indirect cost rates. The contracting officer must also ensure that overpayments or underpayments are resolved through final rate settlement.
Government audit or pricing personnel
Review supporting cost data and assist in evaluating whether the billing rate is appropriate for interim reimbursement. They may also help determine whether adjustments are needed before final indirect cost rates are established.
Practical Implications
Billing rates are cash-flow tools, not final entitlements, so contractors should avoid treating them as settled rates.
If the billing rate is set too high, the contractor may face repayment or offsets after final rates are established; if too low, the contractor may be under-reimbursed during performance.
Contractors should track indirect cost trends closely and update provisional billing assumptions promptly to reduce large year-end adjustments.
Contracting officers should ensure billing rates are reviewed periodically so interim reimbursements stay aligned with expected actual costs.
This definition is narrow but important: it signals that all billing-rate activity is temporary and must ultimately be reconciled to final indirect cost rates.
Official Regulatory Text
Billing rate , as used in this subpart, means an indirect cost rate- (1) Established temporarily for interim reimbursement of incurred indirect costs; and (2) Adjusted as necessary pending establishment of final indirect cost rates.