Our clients routinely incur bid and proposal costs. Bid and proposal costs are the expenses incurred by the Company in preparing, submitting and supporting bids and proposals on potential contracts. Our clients have established policies and procedures for accumulating and recording labor and non-labor costs related to bid and proposal activities.
Our clients routinely enter into teaming agreements to pursue potential design/build contracts. The design/build contract procurement process typically is a two-step process. The first step starts with the issuance of a Request for Qualifications (RFQ), which is evaluated to establish a short-list of a design/build teams (DBTs). The shortlisted DBTs are then invited to submit technical and price proposals in response to the Request for Proposals (RFP). A stipend is provided to unsuccessful and responsive short-listed DBTs. The stipend helps defray the costs of proposal development.
Question: What is the proper accounting treatment of bid and proposal costs incurred to develop a proposal for a potential design/build contract that includes payment of a stipend?
Federal Acquisition Regulation (FAR) Part 31 does not specifically address the accounting treatment of bid and proposal costs incurred to develop a proposal for a potential design/build contract that includes payment of a stipend.
Based on discussions with various State Department of Transportation auditors their position is that the proper accounting should be based on the concepts of allocability and direct costs within FAR Part 31. The A/E firm should set up a project in the cost accounting system to accumulate the costs (should not be part of overhead), and any stipend received should be properly allocated between the construction firm and A/E firm.
Somerset’s recommendation is to record the labor and non-labor costs related to bid and proposal activities to overhead (including those bid and proposal costs incurred for potential design/build contracts). Stipends received by our clients should be recorded as a reduction to bid and proposal costs in overhead. In instances where a stipend exceeds the incurred bid and proposal costs for the potential design/build contract, the excess stipend should be recorded as Other Income below Income from Operations.
Feel free to contact one of our experts to for additional information.