The SF 1408 pre-award survey is the federal government’s accounting system test for contractors bidding on cost-reimbursable contracts. Amerifusion Bookkeeping prepares contractors for this evaluation daily. Pass it, and you qualify for the contract award. Fail it, and the contracting officer moves to the next bidder.
A 25-person IT services firm in Maryland wins a $4.2M cost-plus-fixed-fee contract with the Department of Defense. The company has operated on firm-fixed-price work for six years. QuickBooks runs fine. Invoices go out on time. Then the contracting officer sends a request: complete the SF 1408 and prepare for a DCAA accounting system review.
The owner opens the form and finds 14 evaluation criteria covering indirect cost allocation, labor distribution, and unallowable cost exclusion. None of these systems exist in their current QuickBooks setup. The contract start date is 60 days out.
What the SF 1408 Pre-Award Survey Is (and When It Triggers)
Standard Form 1408, titled “Pre-Award Survey of Prospective Contractor Accounting System,” is the government’s checklist for evaluating whether a contractor’s accounting system meets minimum adequacy standards before awarding a cost-type contract. The contracting officer requests this survey under FAR 42.202 whenever the proposed contract requires cost-based billing.
The survey triggers in three situations. First: you bid on a cost-reimbursable contract (cost-plus-fixed-fee, cost-plus-incentive-fee, or cost-plus-award-fee). Second: you bid on a time-and-materials contract where the government needs to verify your labor rate structure. Third: a contracting officer has reason to question your accounting system’s capability on any flexibly-priced award.
Firm-fixed-price contracts rarely trigger an SF 1408 review. The logic is straightforward. On a fixed-price deal, you bear the cost risk. On a cost-reimbursable deal, the government pays your actual costs plus a fee. The government needs assurance that your system accurately tracks those costs before writing checks against them.
Who Conducts the DCAA Accounting System Review
The Defense Contract Audit Agency (DCAA) conducts most SF 1408 evaluations for Department of Defense contracts. The contracting officer initiates the request, and a DCAA auditor schedules the review. For civilian agency contracts, the cognizant contract administration office (typically DCMA or the agency’s own audit team) handles the evaluation.
The auditor reviews two things. Section I of the SF 1408 requires you to describe your accounting system: the software you use, who manages the books, your chart of accounts structure, and your cost accounting policies. Section II is the evaluation checklist where the auditor marks each criterion as acceptable or deficient.
One detail contractors miss: DCAA does not require a fully operational system at the time of the survey. Your system must be designed and ready to implement before you incur costs on the new contract. The design, policies, and structure must exist before the auditor arrives.
The 14 SF 1408 Evaluation Criteria
The SF 1408 checklist evaluates your accounting system against 14 specific criteria. Each criterion receives a pass or fail determination. A single failure on a critical criterion results in an overall “inadequate” finding. The table below lists every criterion with what the auditor looks for in practice.
| # | SF 1408 Criterion | What the Auditor Looks For |
|---|---|---|
| 1 | GAAP Compliance | Accounting system follows Generally Accepted Accounting Principles. Accrual basis or modified accrual. Consistent application across periods. |
| 2 | Direct/Indirect Cost Segregation | Chart of accounts separates direct costs from indirect costs at the point of entry. No commingling in the same accounts. |
| 3 | Direct Cost Identification by Contract | Every direct cost traces to a specific contract number. Job cost reports tie to the general ledger. |
| 4 | Indirect Cost Allocation Method | Logical, consistent method for allocating indirect costs (fringe, overhead, G&A) to intermediate and final cost objectives. Allocation bases documented. |
| 5 | General Ledger Control | All costs accumulate under general ledger control. Subsidiary ledgers reconcile to the GL. Trial balance ties out monthly. |
| 6 | Timekeeping System | Employees record their own time daily. Time entries identify labor by contract or indirect cost objective. Audit trail preserves original entries. |
| 7 | Labor Distribution System | Direct labor charges to specific contracts. Indirect labor charges to overhead, G&A, or other indirect pools. B&P and IR&D labor tracked separately [FAR 31.205-18]. |
| 8 | Interim Cost Determination | Costs post to contracts at least monthly through routine bookkeeping. No quarterly or annual-only cost posting. |
| 9 | Unallowable Cost Exclusion | Costs prohibited under FAR Part 31 (entertainment, alcohol, lobbying, fines) are flagged and excluded from billings and indirect rate calculations at the point of entry. |
| 10 | Cost Identification by CLIN | When required by the contract, costs trace to individual Contract Line Item Numbers and units. Applicable to contracts with deliverable-based CLINs. |
| 11 | Preproduction vs. Production Cost Segregation | Nonrecurring startup and preproduction costs separate from recurring production costs. Relevant for manufacturing and production contracts. |
| 12 | Limitation of Cost/Funds Compliance | System tracks costs against contract funding ceilings [FAR 52.232-20, FAR 52.232-22]. Financial reports flag when costs approach 75% and 100% of funded amounts. |
| 13 | Progress Payment Support | Records support requests for progress payments on fixed-price contracts, when applicable. Cost data ties to payment requests. |
| 14 | Reliable Data for Follow-On Pricing | The system produces cost data accurate enough to price follow-on contract acquisitions. Historical cost reports serve as the basis for future proposals. |
Criteria 1 through 9 apply to virtually every pre-award accounting system survey. Criteria 10 through 14 depend on contract type and specific clause requirements. The auditor marks each as “acceptable” or “not acceptable” and provides a narrative explanation for any deficiency.
5 Failure Points That Kill SF 1408 Pre-Award Surveys
After preparing dozens of contractors for their first DCAA accounting system review, Amerifusion Bookkeeping sees the same failures repeatedly. Every one of them is preventable with 30 to 60 days of preparation.
1. No indirect cost pool structure. This is the most common failure for contractors transitioning from fixed-price work. Your chart of accounts must separate fringe benefits, overhead, and G&A into distinct cost pools with defined allocation bases before the auditor arrives. A single “overhead” account where you dump all indirect costs fails criterion 4. Our indirect rate calculator shows how these pools interact.
2. Timekeeping that does not meet the daily recording standard. Weekly timesheets filled out from memory on Friday afternoon fail criterion 6. Supervisors completing timesheets on behalf of employees fail criterion 6. Spreadsheets with no audit trail fail criterion 6. Daily employee time entry, supervisor approval, and an unalterable record of corrections are non-negotiable.
3. Unallowable costs sitting in indirect pools. Entertainment expenses [FAR 31.205-14], alcoholic beverages [FAR 31.205-51], and lobbying costs [FAR 31.205-22] must be flagged at the point of entry. Contractors who wait until year-end to clean up unallowable costs from their overhead pool fail criterion 9 and inflate every interim billing they submit.
4. No written accounting policies. The auditor asks for documented policies covering compensation, travel, timekeeping, purchasing, and cost allocation. “We handle it the same way every time” is not a policy. Written policies signed by management, with effective dates and version control, are what the auditor reviews.
5. The system exists on paper but is not operational. The SF 1408 includes a critical question: “Is the accounting system currently in full operation?” Contractors who design a compliant system but have not implemented it face a gray area. DCAA accepts systems that are designed and set up, but if you have no transaction history demonstrating the system works, expect follow-up conditions attached to the contract award.
Your SF 1408 Preparation Checklist
A contractor with 60 days of lead time and the right guidance passes the SF 1408 pre-award survey on the first attempt. The preparation sequence below follows the order DCAA auditors typically evaluate the criteria.
- Build a GovCon chart of accounts. Separate direct cost accounts by cost element (labor, materials, travel, subcontracts, ODCs). Create indirect cost pools for fringe, overhead, and G&A. Add unallowable cost accounts that mirror your allowable accounts. Our QuickBooks setup guide covers the exact account structure.
- Document your indirect rate allocation methodology. Write down which costs go into each pool and what allocation base you use. Fringe over direct labor dollars. Overhead over direct labor dollars or total direct cost. G&A over total cost input or value-added. The auditor will ask for this document.
- Implement compliant timekeeping. Select a timekeeping tool (or configure your existing system) for daily employee time entry, project-level charging, supervisor approval, and an audit trail for corrections. Test it with actual employee data for at least two pay periods before the audit.
- Write your accounting policies. At minimum: compensation policy, travel policy, timekeeping policy, purchasing/procurement policy, and unallowable cost policy. Each policy needs a purpose statement, applicability, procedures, approval authority, and effective date.
- Set up job cost tracking by contract. Every direct cost must trace to a contract number in your accounting system. Run a job cost report and confirm it reconciles to the general ledger. If the totals differ, fix the discrepancy before the auditor finds it.
- Flag unallowable costs in the chart of accounts. Create specific accounts for common unallowable expenses: entertainment, alcohol, contributions, interest, fines. Train your bookkeeper to code these at the point of entry, not during audit prep.
- Run a self-assessment using the SF 1408 checklist. Download the actual SF 1408 form from GSA and answer every question honestly. Any criterion you score “not acceptable” is a gap to close before the auditor arrives.
- Prepare Section I narratives. The auditor reads your system description before testing it. Describe your software, your accounting personnel, your chart of accounts structure, your cost accounting practices, and your internal controls. Specificity matters. Generic answers invite deeper scrutiny.
What Happens If You Fail the SF 1408
A failed SF 1408 pre-award survey does not permanently disqualify you from government contracting. The consequences are contract-specific, but they carry real financial cost. The contracting officer receives a report identifying each deficient criterion with a narrative explanation of the finding.
Three outcomes follow a failed survey. The contracting officer may reject your proposal outright and award the contract to the next qualified bidder. The contracting officer may issue the award conditionally, requiring you to correct specific deficiencies within a defined timeline (typically 30 to 90 days). In rare cases, the contracting officer requests a follow-up survey after you report corrections.
The practical cost extends beyond the single contract. DCAA findings appear in your contractor audit file. Future contracting officers reviewing your past performance see the inadequacy determination, and a pattern of deficiencies signals risk on every future proposal.
SF 1408 vs. DFARS 252.242-7006: Know the Difference
Contractors confuse these two standards regularly. The SF 1408 checklist is the pre-award evaluation tool with 14 criteria. DFARS 252.242-7006, “Accounting System Administration,” is the post-award contract clause with 18 system criteria. Both evaluate your accounting system, but they apply at different stages and carry different consequences.
| Feature | SF 1408 | DFARS 252.242-7006 |
|---|---|---|
| When it applies | Before contract award (pre-award) | After contract award (ongoing compliance) |
| Number of criteria | 14 evaluation items | 18 system attributes |
| Who evaluates | DCAA auditor or cognizant audit office | DCAA auditor + Administrative Contracting Officer (ACO) |
| Consequence of failure | Contract award denied or conditional | “Significant deficiency” finding with 5-10% payment withholding |
| Additional criteria | Focused on system design and capability | Adds internal controls, management reviews, adjusting entry documentation, and subsidiary ledger reconciliation |
Build your accounting system to the DFARS 252.242-7006 standard from day one. The SF 1408 pre-award survey becomes a formality when your system already meets the more rigorous post-award requirements. Retrofitting later costs three to five times more than building it correctly at the start.
Frequently Asked Questions
What is the SF 1408 pre-award survey?
The SF 1408 is a federal government evaluation form titled “Pre-Award Survey of Prospective Contractor Accounting System.” DCAA uses it to assess whether a contractor’s accounting system meets adequacy standards before awarding cost-reimbursable, time-and-materials, or other flexibly-priced contracts. The form evaluates 14 criteria covering cost segregation, timekeeping, indirect allocation, and financial controls.
When is the SF 1408 required?
The contracting officer requests an SF 1408 survey whenever a proposed contract requires the government to reimburse a contractor’s actual costs. Cost-plus-fixed-fee, cost-plus-incentive-fee, cost-plus-award-fee, and time-and-materials contracts all trigger the survey. Firm-fixed-price contracts typically do not require an SF 1408 evaluation unless the contracting officer has specific concerns.
How long does the SF 1408 review take?
The DCAA accounting system review typically takes 30 to 90 days from the initial request to the final determination. DCAA staffing levels and audit backlog affect timing. Contractors who submit a complete SF 1408 with organized supporting documentation (policies, chart of accounts, sample reports) reduce the review timeline by eliminating follow-up requests for information.
Does my accounting system need to be operational before the SF 1408 survey?
DCAA requires a designed and operable accounting system, but it does not need to be processing live contract transactions at the time of the survey. The system must be set up, configured, and ready to implement before you incur costs on the new contract. Contractors with transaction history demonstrating the system works receive faster approvals than those presenting untested designs.
What is the difference between the SF 1408 and DFARS 252.242-7006?
The SF 1408 is a pre-award evaluation with 14 criteria focused on accounting system design and capability. DFARS 252.242-7006 is a post-award contract clause with 18 system attributes covering ongoing compliance, internal controls, and management oversight. Building your system to the DFARS standard from day one means the SF 1408 pre-award survey becomes a straightforward review.
What happens if my accounting system fails the SF 1408 review?
A failed SF 1408 results in an “inadequate” determination sent to the contracting officer. The officer may deny the contract award, issue a conditional award with a corrective action timeline, or request a follow-up survey after you fix the deficiencies. The failure appears in your contractor audit file and affects how future contracting officers assess your proposals.
Key Takeaways
- Start preparing 60 days before the expected survey date. Building a GovCon chart of accounts, writing policies, and implementing compliant timekeeping takes more time than contractors expect. A 30-day scramble produces gaps the auditor finds.
- Criteria 2, 4, 6, and 9 are where most first-time contractors fail. Direct/indirect cost segregation, indirect allocation methodology, timekeeping systems, and unallowable cost exclusion. Nail these four, and the remaining criteria follow.
- Build to the DFARS 252.242-7006 standard, not the SF 1408 minimum. The post-award requirements are stricter. Contractors who build to the higher standard pass the pre-award survey without rework.
- Run a self-assessment before the auditor arrives. Download the SF 1408 from GSA and evaluate your own system against every criterion. Discovering a gap yourself costs hours to fix. Discovering it during the audit costs contracts.
- Take the Compliance Readiness Check to see where your accounting system stands today.
Your First Pre-Award Survey Is a Milestone, Not a Mystery
Every cost-reimbursable government contractor faces the SF 1408 eventually. The form is not a trick test. It is a structured evaluation of whether your accounting system does what the government needs it to do: track costs accurately, allocate them consistently, and exclude what the FAR prohibits.
Amerifusion Bookkeeping is a CPA-managed firm built for contractors going through this process for the first time. We configure your accounting system to meet both the SF 1408 pre-award criteria and the DFARS 252.242-7006 post-award standard, so you pass the survey and stay compliant through the life of the contract. Start with our Compliance Readiness Check, or review our GovCon accounting services to see how the CPA-managed model works.
