April 28, 2026
What Is the SF-1408? A Plain-English Guide for Government Contractors
The SF-1408 is the gatekeeper for cost-type government contracts. Here's what it is, when you need it, and what your accounting system must demonstrate.
You're pursuing a government contract and the RFP mentions the requirement for an "adequate accounting system." That requirement traces to one document: Standard Form 1408.
The SF-1408 in One Paragraph
The SF-1408 is a two-page government form used to evaluate whether your accounting system can handle a cost-type contract. A DCAA auditor completes it during a pre-award survey, checking 14 specific criteria. Pass, and your system is deemed adequate for contract award. Fail, and the contract won't be awarded until the deficiencies are corrected.
When Is It Required?
Not every contract triggers an SF-1408 review. It's typically required for cost-reimbursement contracts (cost-plus-fixed-fee, cost-plus-incentive-fee), time-and-materials contracts above a threshold, and situations where the contracting officer wants to verify your cost accounting.
Firm-fixed-price contracts generally don't require the survey. However, if you're a subcontractor on a cost-type prime contract, the prime may require you to demonstrate system adequacy.
Brian Wendroff, CPA, frames the most common scenario this way:
"Winning a cost-plus contract is the moment that forces the conversation — that contract type requires a DCAA audit before award. But the contractors who handle this well got the system in place months earlier, when they decided to pursue cost-type work, not when they won it.
The same applies if you're a subcontractor on a prime that has DCAA requirements — the compliance obligation flows down. The time to have your system in place is before anyone asks, not after."
— Brian Wendroff, CPA — CFO & Co-founder, WiseCost · Founder, Wendroff & Associates, CPA
What the 14 Criteria Evaluate
The checklist covers five areas. First, GAAP compliance — accrual-basis accounting, double-entry bookkeeping, standard financial reports. Second, cost segregation — direct costs separated from indirect, direct costs tracked by contract, indirect costs in logical pools with documented allocation methods. Third, timekeeping and labor distribution — employees' labor identified by cost objective, distribution records reconcilable to payroll and G/L. Fourth, interim cost determination — costs posted at least monthly, interim indirect rates calculable. Fifth, financial data reliability — billings reconcilable to costs, data adequate for pricing future work.
Each criterion maps to a specific aspect of how you track, allocate, and report costs. None require specific software — they evaluate capabilities.
How the Evaluation Works
The auditor evaluates design effectiveness — whether your system is designed to meet the criteria. This isn't a detailed transaction audit. They use a combination of inquiry (asking you to explain processes), observation (watching you demonstrate the system), and inspection (reviewing policies and sample outputs). For the full audit methodology, see the DCAA Contract Audit Manual.
A documented walkthrough of your system is typically sufficient. The auditor traces a sample transaction through the entire cycle — from time entry through to general ledger posting — and verifies each step satisfies its criterion.
What Happens If You Pass — or Don't
If your system passes, you receive an approved SF-1408 and the contract can be awarded. The approval generally remains valid until significant changes occur in your accounting system.
If the survey identifies deficiencies, the contract isn't awarded until they're corrected. Minor issues (a missing policy document, an unclear approval workflow) can be fixed in days. Larger issues (no proper timekeeping, misclassified costs) take longer and may cost the contract entirely if the contracting officer can't wait.
Preparing Without Panicking
The most common preparation mistake is waiting. As Sarah Sun, CPA, puts it: setting up a DCAA-compliant system is foundational for growth — even before you have a cost-plus contract. "Primes will sometimes ask their subs to demonstrate the system is in place. And when a new contract opportunity opens, you don't have time to retrofit the books."
— Sarah Sun, CPA — Wendroff & Associates, CPA
If you're pursuing cost-type work, set up your accounting system to satisfy the SF-1408 now — even if your current contracts are firm-fixed-price. Structure your chart of accounts, implement compliant timekeeping, document your policies. When the survey arrives, the work is already done.
The cost of doing this proactively is a fraction of the cost of doing it under contracting-officer pressure.
Want to check where your system stands? Take our free DCAA Readiness Self-Assessment — 9 questions built around the SF-1408 criteria, with your gaps prioritized.
Reviewed by Brian Wendroff, CPA — CFO & Co-founder, WiseCost · Founder, Wendroff & Associates, CPA — and Sarah Sun, CPA — Wendroff & Associates, CPA, focused on accounting system setup for government contractors.