FAR Council Proposes Streamlined Indirect Cost Reporting to Reduce Contractor Burden and Enhance Efficiency

The Federal Acquisition Regulatory Council, comprising the Office of Federal Procurement Policy (OFPP), Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA), has initiated a public comment period regarding significant changes to federal contracting information collection. This action, detailed in a recent Federal Register notice, focuses on proposed revisions to the Federal Acquisition Regulation (FAR) under FAR Case 2026-006, specifically targeting Parts 16, 17, and 35. The primary objective is to reduce the administrative burden on contractors related to indirect cost rate proposals while improving the efficiency of the federal acquisition process.

Background of the FAR Overhaul

FAR Case 2026-006, termed the "Revolutionary Federal Acquisition Regulation Overhaul," represents a concerted effort to modernize and streamline federal contracting requirements. This particular notice highlights the Paperwork Reduction Act (PRA) implications of these overarching changes, concentrating on OMB Control No. 9000-0069, which governs information collections for Indirect Cost Rate Proposals, Payments to Small Business Subcontractors, and Bankruptcy Notifications. The Council's invitation for public comments underscores its commitment to transparency and stakeholder engagement in refining these critical regulations.

Key Revisions to FAR Clause 52.216-7

The proposed rule introduces several key modifications to FAR clause 52.216-7, "Allowable Cost and Payment," which directly impact how contractors prepare and submit indirect cost rate proposals. These changes are designed to reduce the volume and granularity of data required without compromising the government's ability to assess proposal adequacy. Specifically:

• Reduced Data Submission: The requirement for supporting data in an adequate indirect cost rate proposal has been edited to decrease its scope.
• Subcontract Information: Paragraph (j), which addresses subcontract information, will now be limited to only those subcontracts exceeding the threshold for requiring certified cost or pricing data as outlined in FAR 15.403-3. This narrows the reporting scope for many subcontracts.
• Time-and-Materials and Labor-Hour Contracts: Detailed information previously mandated by paragraph (k) for time-and-materials and labor-hour contracts, such as labor rates, hours, and other cost elements, has been removed and relocated to paragraph (h) in a summary format. This shifts the focus from granular details to higher-level summaries.
• Payroll Reconciliation Removal: Paragraph (l), which required the submission of a reconciliation of total payroll per IRS Form 941 to total labor costs distribution, has been entirely removed, eliminating a time-consuming reporting step.
• Physically Completed Contracts: Information previously required by paragraph (o) for contracts physically completed in a fiscal year has been relocated to paragraph (h) and is now limited to level-of-effort data, contract ceiling amount, and an indication of whether the contract is ready to close. The requirement for contract fee computations has also been removed.

Impact on Contractors and Government

These revisions are expected to yield tangible benefits for both federal contractors and the government. The FAR Council anticipates a decrease in the overall public reporting burden associated with the preparation and submission of incurred cost proposals. Industry statements, particularly in response to OIRA's Request for Information for burden reduction suggestions, informed an estimated 10 percent reduction in contractor time spent on these submissions. This not only eases the compliance load on businesses but also allows both contractors and government personnel to allocate less time to reviewing and discussing information that has historically provided limited value to the initial adequacy determination process. The overarching goal is to promote greater efficiency in the establishment of final indirect cost rates, leading to faster contract closeouts and more agile acquisition processes.

While FAR clause 52.216-15, "Predetermined Indirect Cost Rates," reiterates the requirement for contractors to submit an adequate final indirect cost rate proposal, the notice clarifies that it does not impose any additional reporting requirements beyond those in 52.216-7. The updated annual public burden is estimated at 1,353,807 total burden hours for 6,265 respondents, reflecting the anticipated reductions.

Public Comment Period and Next Steps

Interested parties are invited to submit comments on these proposed changes, specifically addressing the necessity, accuracy of burden estimates, ways to enhance quality and clarity, and methods to minimize burden through automated collection techniques or other forms of information technology. The FAR Council will consider all comments received by November 23, 2026. This public engagement is a crucial step in ensuring that the final rule effectively balances robust oversight with practical, efficient administration of federal contracts. The outcome of this process will shape the landscape of federal contractor compliance for years to come, potentially setting a precedent for further streamlining efforts across the FAR.