FAR 52.216-15—Predetermined Indirect Cost Rates.
Plain-English Summary
FAR 52.216-15, Predetermined Indirect Cost Rates, tells the parties how to handle indirect costs when the contract uses predetermined rates instead of later-established final indirect rates. It covers the relationship to the Allowable Cost and Payment clause, the contractor’s duty to submit an adequate final indirect cost rate proposal within six months after each fiscal year ends, the possibility of written extensions for exceptional circumstances, the need for supporting data, and the requirement that proposed rates be based on actual cost experience. It also addresses how allowability and cost allocation methods are judged under FAR subpart 31.3, how existing rate agreements are incorporated into the contract schedule, how the parties must negotiate and execute written indirect cost rate agreements for later periods, and what those agreements must include. The clause explains interim billing while new rates are pending, how unresolved rate-setting is handled without treating it as a formal dispute under the Disputes clause, and what happens if the parties cannot agree on predetermined rates. In practice, this clause gives both sides a predictable way to price and reimburse indirect costs, but it also requires disciplined annual rate submissions, timely negotiation, and careful contract administration to avoid billing errors, delayed closeout, or unintended changes to contract ceilings or cost allowability.
Key Rules
Predetermined rates control
Allowable indirect costs are determined by applying the predetermined indirect cost rates to the agreed bases, even though the contract also contains the Allowable Cost and Payment clause. This means the parties use the negotiated predetermined rates for reimbursement rather than waiting for final indirect rates, except where the clause later directs otherwise.
Annual rate proposal required
The contractor must submit an adequate final indirect cost rate proposal to the Contracting Officer or cognizant Federal agency official and auditor within six months after each fiscal year ends. The contractor may request a written extension only for exceptional circumstances, and the proposal must include adequate supporting data.
Rates must reflect actual experience
The proposed rates must be based on the contractor’s actual cost experience for the relevant period. The Government representative and the contractor are expected to establish the final indirect cost rates as promptly as practical after the proposal is received.
Cost principles still apply
Allowability of costs and acceptability of cost allocation methods are determined under FAR subpart 31.3 as it existed on the contract date. Predetermined rates do not override the underlying cost principle rules governing what costs may be charged and how they may be allocated.
Existing agreements are incorporated
Any predetermined rate agreements already in effect on the contract date must be incorporated into the contract Schedule. For later periods, the Contracting Officer or cognizant Federal agency official and the contractor must negotiate rates and execute a written indirect cost rate agreement.
Required contents of rate agreement
The written indirect cost rate agreement must identify the agreed predetermined rates, the bases to which they apply, the period covered, and any specific items treated as direct costs or changes to items previously treated as direct costs. The agreement becomes part of the contract when executed, but it cannot change monetary ceilings, contract obligations, or specific cost allowability/disallowability already set by the contract.
Interim billing while rates are pending
If new predetermined rates have not yet been established for a fiscal year or other agreed period, the contractor is reimbursed at the prior period’s rates or at billing rates acceptable to the Contracting Officer or cognizant Federal agency official, subject to later adjustment when final rates are set.
No dispute clause route for rate failure
A failure to agree on predetermined indirect cost rates is not treated as a dispute under the Disputes clause. If the parties cannot agree for a fiscal year or other specified period, allowable indirect costs are determined using final indirect cost rates established under the Allowable Cost and Payment clause instead.
Schedule governs the covered period
For the period from the start of performance through the end of the contractor’s fiscal year, or other period specified in the Schedule, allowable indirect costs are calculated using the predetermined rates and bases shown in the Schedule. The Schedule therefore controls the operative rate structure for the covered period.
Responsibilities
Contractor
Submit an adequate final indirect cost rate proposal within six months after each fiscal year ends, unless a written extension is granted for exceptional circumstances. Support the proposal with adequate data, base proposed rates on actual cost experience, negotiate rate agreements for later periods, and bill using the applicable predetermined or acceptable interim billing rates while new rates are pending.
Contracting Officer
Receive and review the contractor’s indirect cost rate proposal, grant written extensions only for exceptional circumstances, negotiate predetermined indirect cost rates for subsequent periods, execute written indirect cost rate agreements, and ensure interim billing rates are acceptable when predetermined rates have not yet been established.
Cognizant Federal Agency Official
Where applicable, act in place of or alongside the Contracting Officer to receive the proposal, negotiate indirect cost rates, establish rates promptly, and approve acceptable billing rates pending final agreement.
Auditor
Review the contractor’s final indirect cost rate proposal and supporting data as part of the rate-setting process, helping support establishment of final or predetermined rates consistent with applicable audit procedures.
Government representative
Work with the contractor to establish final indirect cost rates as promptly as practical after the proposal is received and ensure the rates and allocation bases used are consistent with the contract and applicable cost principles.
Agency/Contract administration function
Incorporate existing predetermined rate agreements into the contract Schedule, maintain the written rate agreement as part of the contract file, and administer reimbursement and later adjustments consistent with the agreed rates and the clause’s limitations.
Practical Implications
This clause is designed to reduce year-end uncertainty by using negotiated indirect rates during performance, but it only works if the contractor submits timely, well-supported rate proposals. Late or incomplete submissions can delay rate establishment and create billing and closeout problems.
Contractors should not assume predetermined rates override cost allowability rules; unallowable costs remain unallowable, and allocation methods still must comply with FAR subpart 31.3. A rate agreement does not make a cost allowable if the cost principle rules say otherwise.
The written indirect cost rate agreement matters a great deal because it defines the rates, bases, period, and any direct-cost treatment changes. If those details are not clear, billing disputes and adjustment issues are likely later.
If the parties cannot agree on predetermined rates, the contract does not go into a formal disputes process for that issue; instead, the contract falls back to final indirect rates under the Allowable Cost and Payment clause. Contractors should plan for that fallback and avoid assuming predetermined rates will always be available.
Interim billing rates are only temporary and are subject to later adjustment. Contractors should monitor provisional billings carefully to avoid overbilling or underbilling once the final or agreed predetermined rates are established.
Official Regulatory Text
As prescribed in 16.307 (g) , insert the following clause: Predetermined Indirect Cost Rates (Apr 1998) (a) Notwithstanding the Allowable Cost and Payment clause of this contract, the allowable indirect costs under this contract shall be obtained by applying predetermined indirect cost rates to bases agreed upon by the parties, as specified below. (b) (1) The Contractor shall submit an adequate final indirect cost rate proposal to the Contracting Officer (or cognizant Federal agency official) and auditor within the 6-month period following the expiration of each of its fiscal years. Reasonable extensions, for exceptional circumstances only, may be requested in writing by the Contractor and granted in writing by the Contracting Officer. The Contractor shall support its proposal with adequate supporting data. (2) The proposed rates shall be based on the Contractor’s actual cost experience for that period. The appropriate Government representative and the Contractor shall establish the final indirect cost rates as promptly as practical after receipt of the Contractor’s proposal. (c) Allowability of costs and acceptability of cost allocation methods shall be determined in accordance with FAR subpart 31.3 in effect on the date of this contract. (d) Predetermined rate agreements in effect on the date of this contract shall be incorporated into the contract Schedule. The Contracting Officer (or cognizant Federal agency official) and Contractor shall negotiate rates for subsequent periods and execute a written indirect cost rate agreement setting forth the results. The agreement shall specify (1) the agreed-upon predetermined indirect cost rates, (2) the bases to which the rates apply, (3) the period for which the rates apply, and (4) the specific items treated as direct costs or any changes in the items previously agreed to be direct costs. The indirect cost rate agreement shall not change any monetary ceiling, contract obligation, or specific cost allowance or disallowance provided for in this contract. The agreement is incorporated into this contract upon execution. (e) Pending establishment of predetermined indirect cost rates for any fiscal year (or other period agreed to by the parties), the Contractor shall be reimbursed either at the rates fixed for the previous fiscal year (or other period) or at billing rates acceptable to the Contracting Officer (or cognizant Federal agency official), subject to appropriate adjustment when the final rates for that period are established. (f) Any failure by the parties to agree on any predetermined indirect cost rates under this clause shall not be considered a dispute within the meaning of the Disputes clause. If for any fiscal year (or other period specified in the Schedule) the parties fail to agree to predetermined indirect cost rates, the allowable indirect costs shall be obtained by applying final indirect cost rates established in accordance with the Allowable Cost and Payment clause. (g) Allowable indirect costs for the period from the beginning of performance until the end of the Contractor’s fiscal year (or other period specified in the Schedule) shall be obtained using the predetermined indirect cost rates and the bases shown in the Schedule. (End of clause)