NDDOT CONSULTING ENGINEERING FIRMS INDIRECT COST RATE AUDITS and CERTIFICATE INFORMATION

NDDOT CONSULTING ENGINEERING FIRMS – INDIRECT COST RATE AUDITS and CERTIFICATE INFORMATION

The North Dakota Department of Transportation (NDDOT) has made changes to audit requirements for overhead (indirect) cost rates for engineering and design services. Effective with any rates submitted after December 31, 2016, engineering consultants awarded contracts that cumulatively exceed $250,000 in any 12-month period will be required to obtain an audited indirect cost rate by a qualified Certified Public Accountant (CPA).

In accordance with Federal code 23 U.S.C. Section 112(b)(2)(C) contracts for engineering services are to be performed and audited in compliance with the cost principles contained in the Federal Acquisition Regulations (FAR) of part 31 of title 48, Code of Federal Regulations (CFR). NDDOT contracts funded all or in part with Federal-aid highway funds must therefore have appropriate rates established in compliance with the FAR. Indirect cost rates established in accordance with the FAR are to be audited by a Federal or State transportation agency where a consultant’s headquarters office is located, and used for a one-year period following audit. Since highway improvements may be funded in part using both State and Federal funds, all NDDOT contracts will follow similar guidelines.

Budget and cost considerations as well as a need to conduct other internal audits with current audit resources have caused the NDDOT to review its audit processes. Many states have required consulting engineers to have indirect cost rates audited by a CPA prior to submitting a rate for use with their state. NDDOT finds it prudent to adopt a similar practice. The NDDOT Indirect Cost Rate Policy is provided in more detail at its internet website page at The requirements are that:

-Consulting firms proposing to do work for the NDDOT should have a current audit rate not older than 12 months from the close of the firm’s fiscal year end.

-Consulting firms that exceed $250,000 in contracts in any 12-month period with the NDDOT will need to have an audited indirect cost rate completed by a qualified CPA. NDDOT will complete a review of the CPA work papers and report, in accordance with the American Association of State Highway and Transportation Officials (AASHTO) Uniform Audit & Accounting Guide. For this reason, NDDOT will need unrestricted access to the audit work papers to conduct the review and issue its acceptance of the audited rate.

-Once a consulting engineer meets the $250,000 threshold in contracts, an annual CPA audited indirect cost rate will be required in subsequent years.

-A cognizant audit performed by another State DOT or cognizant letter issued by another State DOT will be accepted in the absence of a CPA audit report.

-The NDDOT Audit Services Division will continue to review indirect cost rates for firms that are below the $250,000 threshold.

-In the absence of a FAR compliant rate, prime and subconsultant firms may elect to utilize a safe harbor indirect cost rate of 110% under a test period program with FHWA. This safe harbor rate is available to firms meeting specific requirements, however the firm must work toward development of a FAR compliant rate if future work is anticipated.

-NDDOT is not required to conduct audits of subconsultants, however if a subconsultant has an audited indirect cost rate, it is expected the subconsultant will use that rate on NDDOT funded projects.

It should also be noted that part 172 of title 23, Code of Federal Regulations, was revised effective June 22, 2015 requiring consultants to certify that final indirect cost rates are allowable in accordance with the Federal cost principles. NDDOT will require firms to submit a certification form when contracts are signed. An example of this certification is also included on the NDDOT internet.

It is important we receive your proposed indirect cost rate information in a timely manner. We will make every effort to complete audits or reviews of CPA audits in a timely manner in accordance with established standards and guidelines. If there are any questions, NDDOT Consulting Administrative Services and the Audit Services Division will be able to assist.