Cost and Pricing

Federal Contractors (And Subcontractors!) Must generally pay covered workers $11.25 per hour beginning January 1, 2022  And $15.00 on or after January 30, 2022  - Covered tipped employees rate increased also to ....  see more

Inquiry: Paul, I just reviewed part of your presentation to the audience at the American Legion.  I have a concern.  Your Indirect Costs include Fringe Benefits and Payroll Taxes.  In my experience, I assign them differently.  Is there a problem?

Response: Either way could be okay, as long as the method results in a fair and reasonable assignment of the costs to final cost objectives (contracts) AND the method is consistently used.  But let's look a bit deeper......

The H&W new rate is $4.98 per hour and is required in all government contract bids, or other service contracts awarded on or after June 27, 2023.  More details.......

QUESTION: Paul, I'm confused about how to determine what our pool(s) and base(s) should be for our proposal writing. We have both commercial and non-commercial rates for many types of services. These rates vary greatly depending on what we do, how we do it, how long we do it, and even for whom we do it. Our pricing policy is written down but there are always special agreements and our non-commercial rates are generally lower. All of our direct and indirect costs are built into our rates. How do I determine what our labor costs are? What could I possibly use as a base? What do you think? 

RESPONSE: Wow! A lot of questions on your mind - let's begin with an important concept.......

Inquiry: Hi Paul, At the present time DCAA is in the process of auditing our G&A and in directs.   If you have any examples of how we calculate fringes, it would be helpful.  They seem to think we are low on our fringes.

Response: We do have an electronic file (e-file) that should help you.  Many others have used it as a template to get a quick look at "what might be".  They replaced the sample numbers with their own and the spreadsheet calculated their rates.  It is very inexpensive!  Here is where to go.....

INQUIRY: Hi Paul,  Can you explain the difference of putting travel and client expenses into B&P versus G/A?  RESPONSE: B&P (Bid and Proposal) expenses are typically for costs incurred during the Proposal Phase while similar type costs would typically go into G&A when they are incurred for the General and Administrative activities of the company, but not for B&P purposes. Lets look closer....

Are you a Prime or Subcontract doing business or hoping to do business with the government?

Well, there are several important checklists you should have in your Tool Chest, alongside the tools we provide.  There are others, but we must start somewhere.  And they’re free!   

Really Free? Well, since your tax dollars paid for them, “technically” they aren’t free!

Inquiry: Any subcontract costs we incur will be a part of our G&A base, so my question would be is there anything in FAR 52-232-7 that precludes us from adding G&A on top of these subcontract costs?

Response: Let me answer in the Affirmative Tense: The simple answer is Generally Yes; you can add G&A to subcontract costs.   FAR 52.232-7 clearly lists Subcontracts under Materials and allows for adding Indirect costs to these.

However, your inquiry is much more in-depth than first meets the eye, and it should be.  So let’s look beyond the obvious...

Inquiry: Dear Paul, Truly enjoyed your class last Tuesday...thank you. The SBA office and I were discussing a proposal I'm working and it was suggested I email you with the problem I'm having. The problem is how to price because I'm not sure how to apply my indirect costs? I emailed the CO with my concerns and her reply basically just directs us back to the statement of work (SOW). So what would you suggest?   Response: Your concerns are valid. Things don't always seem as simple when the soup gets stirred. That is when sound judgment and experience is required to minimize risk because after all, you have to do something, right?  I would look at the results of pricing both ways as follows..

Inquiry: So Paul, are government accounting system requirements only applicable for Cost Reimbursement Type Contracts?  Response: This is a widely misunderstood concept. Many contractors feel that they do not have to worry about audits since they do not have any cost plus fixed fee (CPFF) type contracts. Others feel that since their contract(s) are small they are okay. Boy do they find out the hard way that this is not true. Let me tell you how it generally works.  Hold on to your hats' because this is High Value guidance coming, and it's free...

Paul, in setting up accounting systems, I always recommend that the company have a lag between the timesheet cutoff date and the payday, so that the employee’s hours can be collected and paid based on timesheets.  However, if a company chooses to keeps its payday, and if all their employees are salaried, are they technically forecasting time.  Example, they have to send payroll data on Friday, August 10 for hours thru August 15th.  So to me, they are forecasting Monday Aug 13 to Wednesday August 15.

We have passed the $1B threshold - Over 30 years supporting member firms, clients, and workshop attendees in winning new contracts, extending/renewing existing contracts, preventing loss of contracts, and cost savings through negotiations and audits.

What one disabled veteran wanted to say about the DVD and how it helped him and his firm.

When I was looking at my Indirect and G&A rates and looked at your notebook I did not see an example of when a company uses Direct Labor hours instead of Direct Labor dollars as the base. 

Inquiry: In contracting and coming up with the bases for estimates, and taking into consideration competitiveness. What does a company need to be aware of when contracting out 1099 vs employees.

Response: When you develop your indirect rates, you should review the level of Fringe Benefits provided 1099 employees versus regular employees. You must ensure (to the best of your knowledge and ability) that according to.............

Even if a contract is not covered by the Cost Accounting Standards (CAS), the FAR will compel any contractor subject to these FAR principals to account for unallowable costs in accordance with CAS 405.

In essence, the government is saying that when FAR tells you that a specific Cost Accounting Standard, or some part of the CAS applies, then it applies, even though you may be exempt from CAS as a small business. It is what it is!

Although there are many types of Unallowable Costs, there are certain types that are Declared Expressly Unallowable by Federal statute or regulations. These type carry with them a higher incidence of fines, penalties, and interest if they are not excluded, or if they are included but not specifically identified, from billings, claims, proposals, or other types of data submitted to the government where the date could be used in decision making of any kind by the government.

Can we propose lower indirect rates than our projected rates and how would we go about doing it?

RESPONSE: Generally YES. There are important issues and guidance you should be aware of and follow as applicable. Understanding these guidelines will minimize questions and concerns later on. 

The very first issue to consider is the financial impact on your bottom line of making such a choice.  But there is valuable guidance as follows......

Things to consider when deciding what to include in the Handling Pool and the type of Base to use.