Jenny Clark [email protected]
Indirect Rates for Cost Plus ContractingJenny W Clark
Jenny W Clark
The Oprah of Federal Contracting
Solvability, Inc.
www.solvability.com
Phone 256-882-6276
E-mail [email protected]
Linkedin Solvabilityjwc
Twitter Solvabilityjwc
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SUMMIT
Cost Plus Contracting
1. What is Different About Cost Plus Contracting?
2. What additional pricing and reporting may be required?
3. What are typical Billing Formats?
4. How do we settle our Provisional and Actual Indirect Rates?
5. How are Indirect Rates Calculated (simplified version)?
Cost Plus Contracting
▪ More Advanced Contracting Method
▪ Shared Risk – scope broadly defined
▪ Program or Personnel Oriented, R&D
▪ Longer Term • > 3 Years
• Base plus Option Years
▪ Service Contract Act
▪ Incurred Cost Submission
▪ Flow-downs to Subcontractors
More Complex Pricing/Systems
▪ Required to show your Indirect Rate Calculation• Based on your Income Statement• Indirect Costs expresses as % of Direct Labor and
Other Costs• History and Projections• Frequently must show several years of projections in
proposal• Do not share with your PRIME Contractors or
TEAMMATES
▪ DCAA SF1408 PreAward Survey requested by Contracting Officer
Cost Plus Contracting
Positives▪ USUALLY Longer Term
▪ Reimbursed for all ALLOWABLE Costs
▪ Fee usually 6% to 8%
▪ Generally can count on the profit, unless OVERRUN
▪ PRIME Cost Plus mark of Maturity
Negatives▪ More complex billing
▪ More complex cost tracking
▪ Indirect rate management CRITICAL
▪ Must complete Incurred Cost Submission
Contract Value & Funding
▪ Typically Contract Line Items (CLINS)
▪ Task Orders or Delivery Orders
▪ Customer May Demand Additional Reporting
▪ Initial Contract with Ceiling Established
▪ Ceiling is POTENTIAL, not Authorized
▪ Broken down into:• Cost $100,000
• Fee 6,000
• TOTAL $106,000
Contract Value vs Contract Funding▪ Base year
• Cost $5,000,000
• Fee 300,000
• Total $5,300,000
▪ Funding Mod
• Cost $1,000,000
• Fee 60, 000
• Total $1,060,000
Limitation of FUNDs ClauseAllowable Cost & Payment Clause
Cost Plus Contracting
▪ Reimbursed for:• Direct Labor• Direct NonLabor (Travel, Materials,
Subcontracts, etc.)• Indirect Rates: Fringe, Overhead, G&A• Fee%
▪ Indirect Rates• Provisional Billing Rates (submit to
DCAA)• Actual Unaudited Rates• Audited, Approved Rates
Indirect Costs
Cost Plus requires Incurred Cost Submission
▪ 52.216-7 FAR Allowable Cost and Payment Clause
▪ Created the requirement for an Incurred Cost Submission (ICS)
▪ Also called ICE (Incurred Cost Electronically) – dcaa.mil
▪ Large, complex set of spreadsheets proving your allowable costs and indirect rates, reconciled to billing
▪ Due six months after close of fiscal year
▪ Subject to audit – about 5 years behind
▪ MINIMUM of 40 hours to complete – over 20 Worksheets!
ICE Example: Schedule I – Ties to Billings by FY*
Include Fee Amounts and WH so it ties to bills, but compare total COSTS incurred to COSTS billed
CHECKLIST FOR ICE
Schedule DescriptionA Summary of Indirect RatesB G&AC OverheadD Intermediate PoolsE Bases for PoolsF FringeG General Ledger Reconciliation to Incurred costs/Job Cost Ledger
H Summary of Claimed Costs I Cumulative Claimed and BilledJ Subcontractor CostK T&M Contract/Labor Hours DetailL Reconciliation of Labor to PayrollM Management DecisionsN Certification LetterO Contract Closeout data
SUPPLEMENTAL DATAA-1 Comparison of Overhead to Prior YearsA-2 Comparison of G&A to Prior YearsA-3 Comparison of Facilities to Prior YearsB Top 5 Highest Compensated ExecutivesC Cost Plus Contracts where Our Company is a Subcontractor
NOTE: Other information may be required – check DCAA.mil for latest
Cost Plus Formats
Cost Plus is a Contract Type/Billing Format
Direct Costs
Indirect Costs
FEECost Plus
Cost Plus Format Provisional Billing Rates
Cost Element Provisional Billing Rate %
Current Amount
Direct Labor $100,000
Overhead 50% 50,000
G&A 10% 15,000
Total Cost 165,000
Fee 7% 11,550
Total Invoiced $176,550
Cost Plus Format with Actual Billing Rates
Cost Element ACTUAL FYRate %
Current Amount
Direct Labor $100,000
Overhead 40% 40,000
G&A 10% 14,000
Total Cost 154,000
Fee 7% 10,780
Total Invoiced $164,780
You Overbilled the Gov’t – WRITE A CHECK!
Cost Element Billed Actual YOU OWE
Direct Labor $100,000 $100,000 $ 0
Overhead 50,000 40,000 10,000
G&A 15,000 14,000 1,000
Total Cost 165,000 154,000 11,000
Fee 11,500 10,780 720
Total Invoiced $176,500 $164,780 $11,720
Your Provisional Indirect Rates were HIGHER than your ACTUAL rates
How to Avoid Writing the Gov’t a Check
▪ Monitor your Indirect Rates Monthly
▪ Carefully track estimates through the end of your Fiscal Year
▪ You can adjust your provisional rates if needed
▪ Increase your spending slightly as you approach the end of the year.
GovCon Indirect Rate Math
Pool BaseIndirect
Rate
SIMPLIFIED Indirect Rate Calculation
Profit & Loss Amount G&A Pool G&A BaseG&A Rate
Revenue $ 870,000
Direct Labor 500,000 500,000
Overhead 250,000 250,000
G&A 75,000 75,000 10%
Unallowables 5,000
Net Income $ 40,000
$75K $750K 10%
GovCon Indirect Rate Calculations
▪ Fringe • Fringe Pool Costs divided by
Productive Labor Base
• Fringe accts divided by Direct Labor, Overhead Labor, G&A Labor and B&P Labor
▪ Overhead• Overhead Pool Costs divided
by Direct Labor Base
▪ G&A• G&A Pool Costs divided by
Direct Costs plus Overhead
▪ NOTE!
• There are variations depending on company, strategy and business practice
Jenny W Clark
CEOSolvability, Inc.
www.solvability.com
Phone 256-882-6276
E-mail [email protected]
Linkedin Solvabilityjwc
Twitter Solvabilityjwc
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