Before a contracting officer hands a company its first cost-reimbursement contract, someone fills out a two-page form deciding whether the firm can be trusted to track the money. That form is Standard Form 1408, Preaward Survey of Prospective Contractor (Accounting System) — revision 1/2014, prescribed by GSA-FAR (48 CFR) 53.209-1(f), carrying OMB Control Number 9000-0011 and approved for use through October 31, 2026. It is short, it is boring, and it decides whether a firm graduates into cost-reimbursement and time-and-materials work. Companies that treat it as paperwork fail it. Companies that read it as a specification pass.

Background

The SF 1408 exists because of a single sentence in FAR 9.103: "Purchases shall be made from, and contracts shall be awarded to, responsible prospective contractors only." FAR 9.104-1 then lists the general standards a responsible contractor must meet, one being "the necessary organization, experience, accounting and operational controls, and technical skills." Accounting is not a nice-to-have there; it sits beside technical capability as a precondition of award.

FAR 9.106 governs when the government stops taking a contractor's word for it. Preaward surveys are "normally required only when the information on hand or readily available" to the contracting officer "is not sufficient" to determine responsibility. That describes most new entrants. FAR Part 9 identifies the instruments: SF 1403 for the general survey, SF 1407 for financial capability, and SF 1408 for the accounting system. A firm bidding its first cost-type award, or one whose contracting officer cannot find evidence of an adequate system, gets the 1408.

The form is in active use. On May 13, 2026, OFPP, DoD, GSA and NASA published a Paperwork Reduction Act notice (91 FR 27051) proposing that OMB extend approval of the preaward survey forms three more years. The notice reports 239 respondents, 239 total annual responses, and 5,736 total burden hours, and confirms the collection is a "common form" all FAR-covered executive agencies use, each reporting its own burden. Comments closed July 13, 2026.

Key Details

Section I is the recommendation, and there are three boxes: YES; NO, with deficiencies explained in the narrative; or "YES, WITH A RECOMMENDATION THAT A FOLLOW ON ACCOUNTING SYSTEM REVIEW BE PERFORMED AFTER CONTRACT AWARD." There is no partial credit and no score; whatever went wrong goes into the narrative in prose.

Section II is the substance — a checklist marked YES, NO, or NOT APPLICABLE. Item 1 asks whether, except as stated in the narrative, the accounting system is in accord with generally accepted accounting principles applicable in the circumstances. Item 2 breaks into ten subparts, and this is the actual specification:

(a) proper segregation of direct costs from indirect costs; (b) identification and accumulation of direct costs by contract; (c) a logical and consistent method for the allocation of indirect costs to intermediate and final cost objectives — the form notes that "A contract is final cost objective"; (d) accumulation of costs under general ledger control; (e) a timekeeping system that identifies employees' labor by intermediate or final cost objectives; (f) a labor distribution system charging direct and indirect labor to the appropriate cost objectives; (g) interim, at least monthly, determination of costs charged to a contract through routine posting of books of account; (h) exclusion from costs charged to government contracts of amounts not allowable in terms of FAR Part 31 or other contract provisions; (i) identification of costs by contract line item and by units, if required by the proposed contract; and (j) segregation of preproduction costs from production costs.

Item 3 asks whether the system provides the financial information required by contract clauses concerning limitation of cost (FAR 52.232-20 and 52.232-21) or limitation on payments (FAR 52.216-16), plus what is needed to support progress payment requests. Item 4 asks whether the system is designed, and the records maintained, so that "adequate, reliable data are developed for use in pricing follow-on acquisitions."

Item 5 is where new entrants stumble: "IS THE ACCOUNTING SYSTEM CURRENTLY IN FULL OPERATION?" If not, the form directs the auditor to describe in the Section I narrative which portions are (1) in operation, (2) set up but not yet in operation, (3) anticipated, or (4) nonexistent. The form does not make a fully running system a precondition of a YES — but where one is not running, its status must be disclosed in writing by the auditor.

The form's own Paperwork Reduction Act statement estimates 24 hours for a contractor "to read the instructions, gather the facts, and answer the questions."

What It Means for Contractors

Work the form backward: every Section II line is a design requirement you can build against before an auditor calls. Segregate direct from indirect in the chart of accounts. Make job codes match contracts and CLINs. Close the books monthly, not quarterly, because item 2(g) says "at least monthly." Build unallowable-cost accounts so FAR Part 31 exclusions are structural rather than a spreadsheet exercise at year-end. Timekeeping is where small firms most often fail: item 2(e) requires labor identified by cost objective — daily employee-recorded time against job codes, not a monthly summary.

Item 5 is leverage, not a threat. A firm that has not yet won a cost-type contract cannot show a system in full operation on it. Disclose the status honestly, get the design right, and the outcome the form contemplates is the third Section I box — acceptable, with a follow-on review after award. That is a pass.

Then plan for what comes next. On the DoD side, the post-award standard is DFARS 252.242-7006, Accounting System Administration (JAN 2025), which defines an acceptable accounting system as one complying with the 18 system criteria in paragraph (c) — enough to give reasonable assurance that applicable laws and regulations are complied with, that the accounting system and cost data are reliable, that risk of misallocations and mischarges is minimized, and that "contract allocations and charges are consistent with billing procedures." Those criteria are a superset of SF 1408, adding management reviews or internal audits, reconciliation of subsidiary cost ledgers to the general ledger, approval and documentation of adjusting entries, billings reconcilable to the cost accounts, and accounting practices per the Cost Accounting Standards or, absent CAS, GAAP.

The consequence is cash. Failure to maintain an acceptable accounting system "shall result in the withholding of payments if the contract includes the clause at 252.242-7005," Contractor Business Systems, and may also result in disapproval of the system. So build to 7006 while designing for the 1408. The preaward form is the entry exam; the DFARS clause is the standard you live under afterward, and the gap between them is where the money gets held.

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