Government contracting
Does Your Contract Actually Require DCAA-Compliant Timekeeping?
It depends on how you get paid, not on how big the award is or which agency issued it. Here is what each contract type asks of you, and what still applies when the strictest rules do not.
Somebody has told you your timesheets need to be DCAA compliant. Before you change anything, it is worth ten minutes to find out whether that is true for the contract you actually hold.
The answer is on your award document, and it comes down to one thing: how you get paid.
The short version
- Contract type decides it. Not the size of the award, not the agency, not your headcount.
- Cost-reimbursement, incentive, T&M and labor-hour carry the clause. So do contracts paid by progress payments based on cost.
- Firm-fixed-price may not. Three things still apply, and one of them decides what you can bid for next.
- Floor checks target the same list. The contract types that carry the clause are the ones DCAA visits.
- Grants are a different regime entirely. Federal grants run on 2 CFR 200.430, not DFARS.
What actually decides it
The rules everyone means by “DCAA compliant timekeeping” live in an accounting system clause. That clause is not attached to every federal contract. It gets written in according to how the contract pays you.
Which contracts carry the clause
DFARS 242.7503 prescribes the clause at 252.242-7006 for solicitations and contracts contemplating cost-reimbursement, incentive, time-and-materials or labor-hour work, or progress payments based on costs incurred or on a percentage or stage of completion.
Source: DFARS 242.7503 · Verified 14 August 2026
Read that list once and check it against your award. If your contract type is on it, the clause applies and criteria (c)(9) and (c)(10) are what your timekeeping has to satisfy. If it is not, read the firm-fixed-price section below, because there are still three things worth doing.
What each contract type asks of you
| How you get paid | Clause applies? | What your timekeeping has to do |
|---|---|---|
| Cost-reimbursement Your allowable costs back, plus a fee | Yes | Everything. Labor identified by cost objective, direct and indirect charged correctly, and the system found adequate before award |
| Time-and-materials or labor-hour Agreed hourly rates for hours worked | Yes | Every billed hour traceable to a person, a day and a labor category. Your invoice is a claim about hours |
| Incentive Fee varies with cost or performance | Yes | Same as cost-reimbursement. Cost data drives the fee, so the cost data gets checked |
| Progress payments based on cost Paid as costs are incurred | Yes | Same. You are being paid against incurred cost, so incurred cost has to be supportable |
| Firm-fixed-price One price for the job | Often not | See below. The clause may not reach you, and three things still do |
One extra note on cost-reimbursement, because it catches people out at bid stage rather than after. FAR 16.301-3(a)(3) only permits that contract type where the contracting officer has determined your accounting system is adequate for determining costs applicable to it. That determination happens before the award, usually on Standard Form 1408. So for cost-reimbursement work the question is not whether the rules will reach you eventually. They reach you before you win anything.
The same list decides who gets a floor check
Worth knowing because it is the part contractors find most alarming, and because it maps cleanly onto everything above.
A floor check is an unannounced visit where a DCAA auditor walks around, asks employees what they are working on, and compares the answers to what those people charged. DCAA’s manual for contractors says these are performed at contractors working under cost reimbursable, time and material, and labor hour contracts.
That is the same list. If your contract type carries the clause, you are in scope for a floor check. If all your federal work is firm-fixed-price, this is not on your horizon in the same way.
If you are firm-fixed-price
The clause may not be in your contract. Three things still apply, and the third is the one people wish they had known earlier.
1. Job costing still decides whether you made money
The government bought an outcome and does not care what it cost you. You should. On a fixed-price contract your margin is entirely a function of hours spent against hours quoted, and without per-project time records you find out whether the job was profitable at the end, when it is too late to do anything about it.
2. The next award of a different type brings the clause with it
Contract mixes change. The first cost-reimbursement or T&M award you win arrives with the clause attached, and at that point you either have records or you are reconstructing history you no longer have. Building the habit while the stakes are low is considerably easier than building it under a deadline.
3. Records are what make a cost-type award reachable at all
This is the real one. A contracting officer cannot give you a cost-reimbursement contract unless your accounting system has been found adequate. No adequate system, no cost-type award, which means a whole category of work is closed to you until that changes.
So for a firm-fixed-price contractor the question is not whether you are obliged to do this. It is whether you want to be eligible for the contracts that require it.
What this looks like in practice
The useful thing about the criteria is that meeting them is a setup decision rather than an ongoing burden. In TimeRewards you create a project per contract, split your direct and indirect codes once, and set who approves what. After that every hour is recorded against a named cost objective with its author, timestamp and full correction history attached, whether the clause applies to you or not.
One-click DCAA compliance is on every plan, including the entry tier. A firm-fixed-price contractor building toward their first cost-type award does not need to buy up a tier to be ready for it.
If your money is a grant, not a contract
Different regime, and mixing them up is common enough to be worth a paragraph.
Federal grants and cooperative agreements run on the Uniform Guidance at 2 CFR 200.430(g), not on DFARS. It asks that charges for salaries rest on records that accurately reflect the work performed. Those records have to be supported by internal control, incorporated into your official records, and reflect total activity not exceeding 100 percent of what the employee is paid for.
Different words, recognizably the same idea: every hour accounted for, allocated honestly across everything the person worked on. A nonprofit running federal programs needs this every bit as much as a defense contractor, and often has more funding streams to split across.
What to do, whichever row you are on
Find your contract type on the award
It is named on the document. If you cannot find it, your contracting officer will tell you, and that is a reasonable question to ask.
Check whether 252.242-7006 is written in
Search the incorporated clauses. Its presence settles the question without you having to reason from the contract type at all.
Set up projects and indirect codes either way
This step pays off on every row of the table. It is an afternoon of work, and it is what makes the next award straightforward instead of urgent. In TimeRewards it is a project per contract and a short list of indirect codes underneath it, and once it exists your team never thinks about it again.
If the clause applies, get daily entry going now
Not next month. The gap between a record written on the day and one rebuilt on Friday is the whole thing an auditor is testing.
Our guide to DCAA timekeeping requirements covers what the system has to do once the clause is in play.
Common questions
Run one standard across everything. Two timekeeping regimes in one company is more work than running the stricter one, and it fails at the seams. The hours people spend across both kinds of contract still have to be classified consistently, or your indirect rates do not mean anything. Most mixed shops treat the T&M standard as the house standard, and TimeRewards handles both kinds of project side by side without anyone choosing a mode.
What matters is the terms of your own subcontract, which can flow requirements down from the prime contract. Read your subcontract for incorporated clauses the same way a prime would read theirs, and ask the prime if it is unclear. Being one step removed from the government does not automatically put you outside the requirements.
The prescription in DFARS 242.7503 is written around contract type rather than contract value, and it does not mention your company size at all. Some individual clauses do carry dollar thresholds, so your specific contract is the thing to read. What does not exist is a general small-business exemption from keeping supportable labor records.
You can, and it costs you three things: knowing whether a fixed-price job was profitable, the ability to bid cost-type work, and an easy transition when your contract mix changes. There is also FAR 31.201-2(d), which requires records adequate to demonstrate that claimed costs were incurred, and notes that inadequately supported costs may be disallowed. It is about costs generally rather than timekeeping specifically, and labor is a cost.
Your contracting officer, on the specific contract, and your accountant on what it means for your books. This article explains the published rules and where they come from so the conversation starts from a sensible place, but the authority on your award is the person who issued it.
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Whichever row you landed on, the setup is the same afternoon of work and it pays off on all of them. If an award has just come in, what to do after winning a federal contract is the sequence to follow. For the standard itself there is our DCAA compliance overview and the guide for government contractors, plus a glossary for the vocabulary and a time card calculator for splitting a week by hand.
Be ready for the contract you have not won yet
Set up projects, direct and indirect codes and approvals once. Every hour after that is recorded the way a cost-type award will require, long before you need it to be.
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This article explains published federal acquisition and audit guidance in plain terms, with the sources linked. It is not legal or accounting advice. What applies to your contract depends on its terms and clauses, and your contracting officer and accountant are the people to confirm it with.