Calculating Indirect Rates for Government Contracts
As a government contractor, you must track direct and indirect costs and allocate them to your contracts. Direct costs are fairly straightforward. They support a specific business objective or contract. Many contractors struggle with tracking indirect costs, which benefit multiple contracts, business objectives or the company as a whole.
Contractors typically group indirect costs into pools of related expenses. The two broadest categories are:
- Overhead costs such as indirect labor, supplies, rents, utilities, training, etc. needed to run an office or location involved in fulfilling a contract.
- General and administrative costs incurred in running the overall business.
Depending on the size of your company and the number of government contracts, you might need to set up multiple pools for various subcategories. According to FAR 31.201-4, contractors must allocate indirect costs to contracts in reasonable proportion to the benefits received.
How we can help
If you struggle with tracking indirect costs, you’re not alone. It’s one of the most frequent topics our experienced GovCon accountants cover with clients. We can:
- Answer your questions about indirect costs and your federal contracts.
- Assure that your accounting system is set up to allocate direct and indirect costs correctly.
- Help you and your team set up indirect cost pools.
- Assist you with calculating indirect cost rates.
- Provide you with an online tool that calculates indirect rates.
- Prepare for and defend against DCAA and DCMA audits that include your allocation of indirect costs.
- LBP Website Resources:
- Federal Government Resources: DCAA: FAR Cost Principles Guide
Ready to get more information?
Contact us now or schedule one-on-one time to learn more about indirect rates in government contracts – and how we can help you manage cost reporting for maximum profitability.