Government contracting
SF 1408: What a Preaward Accounting System Review Actually Checks
Somebody has mentioned a preaward survey, or an adequate accounting system, or a DCAA review. Here is the form behind all three, what its ten checks actually ask for, and how much of it you already do.
You are bidding on a cost-reimbursement contract and somebody has told you your accounting system will be reviewed first. Possibly they said “SF 1408” and left it there.
It sounds like an exam you could fail. It is closer to a description of a system, and if you have set your projects up properly you already pass most of it.
Here is the whole form in plain English, including the two items about timekeeping and the thing almost nobody points out about them.
The short version
- It happens before the award, not after. A contracting officer can only make a cost-reimbursement award once your system has been found adequate.
- Ten checks, and most are ordinary bookkeeping. Segregating direct from indirect, accumulating costs by contract, posting monthly.
- Two are about time, and they are the same two sentences you get audited on afterward. Items 2e and 2f are word for word the post-award clause.
- It reviews the design of your system, not a deep test of how well you run it day to day.
- A system that does not exist yet cannot be reviewed. There is nothing to survey, so get it running before you bid.
What SF 1408 actually is
Standard Form 1408 is titled “Preaward Survey of Prospective Contractor (Accounting System)”. It is two pages. The first is a recommendation, where the reviewer says yes, yes with a follow-up review after award, or no. The second is a checklist, and that checklist is the whole thing.
A contracting officer asks for it when they are considering giving you a contract where the government pays your actual costs. That is not curiosity. FAR 16.301-3(a)(3) only permits a cost-reimbursement contract where the contracting officer has determined your accounting system is adequate for determining costs applicable to it, and that determination has to exist before the award.
So the survey is not a hurdle bolted onto the process. It is the process by which somebody is allowed to give you the work.
What it does and does not look at
This is the part that calms people down. DCAA’s own audit manual describes the scope of a preaward survey as obtaining an understanding of the design of the prospective accounting system, enough to complete the form. It explicitly says it is not necessary to conduct an in-depth evaluation of how effectively the system operates.
In other words: they are checking that the system is built correctly, not auditing a year of your bookkeeping.
There is a catch worth knowing before you bid. The form asks whether your system is in operation, set up but not yet in operation, anticipated, or nonexistent. If it is anticipated or nonexistent there is nothing to examine, and DCAA cannot issue the form at all until the system is at least set up. A system you have thought about is not a system.
The ten things it checks
Section II item 2 asks whether your accounting system provides for the following. This is the list, in the form’s own order, translated.
| Item | What it asks for | In plain terms |
|---|---|---|
| 2a | Proper segregation of direct costs from indirect costs | Billable work and overhead are kept apart |
| 2b | Identification and accumulation of direct costs by contract | You can say what each contract cost you |
| 2c | A logical and consistent method for allocating indirect costs | Overhead is spread by a rule you can explain, and the same rule every time |
| 2d | Accumulation of costs under general ledger control | It all ties back to your books |
| 2e | A timekeeping system that identifies employees’ labor by cost objectives | Every hour lands on a named contract or code |
| 2f | A labor distribution system charging direct and indirect labor appropriately | Those hours become costs in the right places |
| 2g | Interim, at least monthly, determination of costs charged to a contract | You post to the books monthly, not annually |
| 2h | Exclusion of amounts not allowable under FAR 31 | Unallowable costs are identified and kept out |
| 2i | Identification of costs by contract line item, if the contract requires it | Only if your contract asks for it |
| 2j | Segregation of preproduction costs from production costs | Mostly relevant to manufacturers |
Item 1 asks whether the system accords with generally accepted accounting principles. Item 3 covers whether it can produce the financial information certain clauses require. Item 4 asks whether the records would support pricing a follow-on contract. Item 5 is the in-operation question above.
Read as a list, most of it is ordinary competent bookkeeping. A firm with a decent accountant and a properly set up chart of accounts already satisfies 2a through 2d and 2g. The two that trip people up are the two about labor.
The two about time, and what nobody mentions
Here they are exactly as the form words them.
SF 1408, Section II, item 2
2e “A timekeeping system that identifies employees’ labor by intermediate or final cost objectives.”
2f “A labor distribution system that charges direct and indirect labor to the appropriate cost objectives.”
Source: Standard Form 1408 (Rev. 1/2014) · Verified 14 August 2026
Now compare them to the accounting system clause that arrives with the contract itself, at criteria (c)(9) and (c)(10) of DFARS 252.242-7006.
They are the same two sentences. Word for word, not merely similar.
The bar you clear before the award is the bar you are held to for the life of the contract. Preparing for a preaward survey is not a separate exercise you do once to get through a gate. It is building the timekeeping system you were going to need anyway.
The mapping continues past labor, too. Item 2a is criterion (c)(2), item 2g is (c)(11), item 2h is (c)(12). The preaward form is essentially a subset of the clause.
What this looks like in practice
Items 2e and 2f describe a product rather than a spreadsheet, and they describe this one. TimeRewards records every hour against a named contract or indirect code, routes it for approval, and posts approved time into your accounting system with the direct and indirect split intact. That is 2e and 2f answered by the way the software works, not by anything you have to remember to do.
One-click DCAA compliance is on every plan, including the entry tier, so a firm bidding its first cost-reimbursement contract gets the same audit trail as a large one. If a reviewer asks how labor reaches your books, you can show them rather than describe it.
One thing you will read elsewhere that is wrong
Several guides on this subject attribute timekeeping requirements to item 2h. Daily entry, total time accounting and audit trail all get hung on it.
Item 2h is about excluding costs that are not allowable under FAR Part 31. It has nothing to do with timekeeping. The labor items are 2e and 2f, as quoted above.
We mention it only because it is the kind of detail this audience checks, and a citation that falls apart under checking takes the rest of the advice with it. Read the form. It is two pages and it is free.
Getting ready for one
If a preaward survey is coming, the work is mostly structural and mostly quick.
Get the system actually running
Not designed, running. A system that is merely anticipated cannot be surveyed, and that alone can stall an award.
Separate direct from indirect, visibly
Item 2a is first on the list for a reason. Your chart of accounts and your timekeeping codes should agree with each other about what is billable and what is overhead.
Make sure every hour lands somewhere named
Item 2e. A contract, a task, or an indirect code. Nothing sitting in a total.
This is the item most likely to be the reason a small contractor is not ready, and it is the fastest to fix.
Check that approved hours reach the ledger
Item 2f, and item 2d behind it. If somebody retypes timesheet totals into your accounts at month end, that is the weak joint in the chain. TimeRewards syncs approved time straight into QuickBooks on every plan and Sage Intacct on Professional and above, which removes the retyping step and keeps the trail intact from entry to ledger.
Post monthly
Item 2g asks for interim determination of contract costs at least monthly. Quarterly is not enough.
Common questions
No. It is requested when a contracting officer is considering an award where the government reimburses your costs, and in situations involving progress payments. A firm-fixed-price contract generally does not trigger one. Which rules reach you depends on the contract type, which is worth checking on your own award first.
The form asks about design rather than tooling, so nothing formally rules a spreadsheet out. In practice items 2e and 2f are hard to demonstrate with one: a spreadsheet cannot show who entered an hour, when, or what it said before somebody changed it. That evidence is exactly what the post-award audit tests, which is why most contractors move to a timekeeping system at this point rather than later. TimeRewards keeps that history automatically and carries DCAA-compliant timesheets on every plan, so the answer to 2e and 2f is the same whether you are bidding your first contract or your tenth.
The reviewer can recommend yes, no, or yes with a follow-up accounting system review after award, with any deficiencies explained in the narrative section. A no is not usually permanent. It tells you what to fix, and the gaps for small contractors are typically structural rather than expensive.
It varies by workload and by how ready you are, so nobody can promise a number. What you control is the preparation. Since the scope is the design of the system rather than a deep operational audit, a contractor whose codes, approvals and postings are already in place is answering questions rather than building anything.
It means your system was found adequate for the award in front of you. Afterward the same standard applies continuously through the accounting system clause, and DCAA tests labor through floor checks and audits rather than forms. The useful way to think about it: the survey checks the design, and everything after checks whether you are actually running it.
Free · nothing to fill in
The ten checks, as a checklist
Every line is item 2 of the form, in plain English. Tick what you can already demonstrate.
0 of 10 confirmed
Most first-time contractors find the accounting half of that list is already handled and the labor half is the gap. That is worth knowing early, because it is the half you can close in an afternoon. For what to set up the moment an award lands, see federal contract timekeeping, and for the standard you will be held to afterward there is our guide to DCAA timekeeping requirements and the wider DCAA compliance overview for government contractors. There is also a glossary if the vocabulary is new and a time card calculator for splitting weeks by hand.
Answer 2e and 2f before anyone asks
Set up your contracts, codes and approvals once, and every hour after that lands where it belongs with its author, its timestamp and its full history attached.
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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.