Structuring Indirect Rates for Government Contractors

Blog
December 9, 2010

Aronson & Company’s seminar “Structuring Indirect Rates for Government Contractors” proved to be a topic of interest.  Aronson & Company had 90 registrants for the live session on November 10th and over 300 for the webinar on November 16th.  The course objective was to provide direction to enable contractors to strategically design an indirect rates structure that:

–      Complies with Federal Regulations

–      Maximizes cost recovery

–      Aligns with the vision of your organization

–      Incorporates best practices and industry standards

Below we would like to re-cap the proper treatment of certain costs for Federal indirect rate purposes, discussed during the question & answer portion:

Unallowable and Non-billable costs

Once the appropriate base a cost pool is determined, it shall not be divided or fragmented by removing individual cost accounts or portions thereof.  FAR 31.203(c) states in part that “All items properly includable in an indirect cost base should bear a pro-rata share of indirect costs irrespective of their acceptance as Government contract costs.”  This regulatory requirement requires that unallowable costs remain in the base in which they originate and bear their pro rata share of allocated indirect expenses.

Bid & Proposal (B&P) Labor

Bid and Proposal labor charge codes are established so that direct personnel supporting proposal efforts can properly record their time.  The labor is accumulated in the General and Administrative cost pool.  B&P labor does however reside in the base of overhead; the result is that the labor and associated overhead will reside in the general and administrative pool for proper allocation to the final cost objective.

Local Travel Direct vs. Indirect

Cost Accounting Standard 402, Consistency in Allocating Costs Incurred for the Same Purpose, requires Federal Contractors are to consistently allocate costs incurred for similar purposes in the same manner.  For example; if local travel is incurred as a direct cost on one job then it must be incurred as a direct cost on all jobs, independent of the ability to bill that cost to the government as a direct expense.

The seminar reminded us once again that today’s economic environment is becoming increasingly competitive and that contractors should take all steps to gain a competitive edge.  Now is the time to design plan and implement an indirect rate structure that is compliant and aligns with your corporate vision.  Aronson & Company is here to assist contact Nicole Mitchell nmitchell@aronsoncompany.com or Philip Steigner psteigner@aronsoncompany.com .