Deltek Insight 2011: Structuring Indirect Rates
 

Deltek Insight 2011: Structuring Indirect Rates

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  • Make sure the title slide includes the Session ID and the most Current session name (found in the Topics Manager).Sub-title is not required
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Deltek Insight 2011: Structuring Indirect Rates Deltek Insight 2011: Structuring Indirect Rates Presentation Transcript

  • Session ID: ECT-100Structuring Indirect RatesInsight 2011Presented byPhilip Steigner
  • Enabling Success Project Human Financial Project Manufacturing Resources Management Management Do More Market Teaming CRM and Capture Win More Intelligence Solutions Management Know More Business Performance Management Winning More Increasing Project Improving Cash Reducing the Cost Business Visibility Flow of Compliance2 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Do More Project Human Project Financial Manufacturing Resources Management Management Do More Market Teaming CRM and Capture Win More Intelligence Solutions Management Know More Business Performance Management Project Execution Project & Corp Time, Expense, Reporting, GRC & & Management Accounting Labor, Payroll Compliance3 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Agenda  Definitions  Composition of indirect pools and bases  Workshop  Strategic plan and design of indirect rates  Common errors  Q&A4 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Key Takeaways  To provide direction to enable you to strategically design an indirect rate structure that has the following attributes:  Complies with Federal Regulations  Maximizes cost recovery  Aligns with the vision of your organization  Incorporates best practices and industry standards5 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Definitions6 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  •  Direct Cost - A cost that can be identified with a final cost objective  Indirect Cost - A cost that is not directly identified with a single, final cost objective but identified with two or more final cost objectives  Costs are arranged into logical and homogeneous pools  Amounts are allocated based on the relationship of the expense to the segment  Allocate - To assign an item of cost, or a group of items of cost, to one or more cost objectives  Service Center - Intermediate pools set up to collect costs that are attributable to multiple cost objectives.7 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  •  Indirect Cost Pool – A group of homogeneous costs that support multiple cost objectives (numerator)  Indirect Cost Base – The factor used to allocate the indirect costs (denominator)  Indirect Cost Rate - the ratio between the total allowable indirect costs and benefiting direct base Indirect Cost Pool = Indirect Cost Rate** Indirect Cost Base **An indirect cost rate percentage is calculated by dividing the pool by the base8 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Composition of indirect poolsand bases9 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  •  The allocation of costs should be accomplished on a cost benefit basis  Pools – composed of indirect costs accumulated with other like costs (homogeneous pools)  Base – allocation method10 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Sample of indirect pools  Fringe  Overhead  Statutory  Client site  Discretionary  Home site  SCA  Divisional  Union  Location specific  Divisional  General & Administrative  Subcontractor & Material  Segments Handling11 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Indirect bases  Fringe  Total Labor Dollars  Overhead  Direct labor, fringe applied to direct labor, B&P labor, fringe applied to B&P labor  Subcontractor & Material Handling  Subcontracts and Materials  General & Administrative  Direct Labor, ODC, fringe on direct labor, and overhead costs12 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • FRINGE Fringe pool is composed of statutory payroll taxes and benefits typically found in the employee handbook. Fringe is most commonly computed as a percentage of all labor both direct and indirect.  Typical costs  FICA, FUTA, SUTA, Workers’ Compensation  Employee insurance  Leave  Retirement benefits13 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • OVERHEAD Overhead pool is composed of costs that support existing contract work and direct contract personnel. The most common base of the overhead pool is direct labor, B&P labor, and related fringe.  Typical costs  Support labor (Project Control)  Training  Facilities14 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • GENERAL AND ADMINISTRATIVE G&A pool is composed of indirect expenses that cannot be attributed to any specific contract but are for the general benefit of the company as a whole. The most common base of the G&A pool is total costs input or value added.  Typical costs  Accounting & Finance  Contract Administration  General management  Facilities15 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • SERVICE CENTERS Service Centers or intermediate pools are set up to collect costs that are attributable to multiple cost objectives in order that they may be fairly and equitably allocated in a causal/benefit relationship.  Most common: Facilities and IT/Communication  Reasonable basis allocation methods: Square Footage, Labor Hours, Headcount, or Labor Dollars  Typical costs in a facility service center  Rent  Supplies  Property taxes  Depreciation16 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Workshop17 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Strategic plan and design ofindirect rates18 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Placement of costs  Bonuses  Should only be in fringe if a universal plan exists  Review plan documents  Treatment of deferred plans19 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Placement of costs  Bonuses  Direct vs. Indirect  Labor  Depreciation  Leases (office, equipment, vehicles)20 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Placement of costs  Bonuses  Direct vs. Indirect  Overhead vs. G&A  Look at the components of G&A to see if costs can be moved to Overhead  This will lower the G&A rate which is looked at with more scrutiny  HR, IT, Contracts, Security, Recruiting and Operational Accounting  Service centers  provide an easy way of allocating costs from G&A to Overhead  Can be allocated based on direct labor dollars, head count, or other methods21 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Placement of costs  Bonuses  Direct vs. Indirect  Overhead vs. G&A  Sound financial data  Helps understand the cost of getting new business  If you have the infrastructure in place you will know the risks you are taking  DCAA or other agency reps do not approve job cost accounting software packages; they approve job cost accounting practices22 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Architecture  Appearance  Not changing total costs  Understand your business and your options  Understand your customers and how they evaluate costs and the role costs play in a contract award23 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Architecture  Appearance  Fringe rate  Reduced scrutiny  Without a fringe rate overhead is inflated  Placing fringe on direct labor in the base of the overhead pool24 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Architecture  Appearance  Fringe rate  Overhead rate  Client site vs. Home site  If principal effort is to chase client site work limit overhead  Look at options of classifying client site overhead as a direct costs  Setting up divisions  Treat consultants like employees and put the consultant labor in the base of overhead  Single overhead pool with a facility adder for employees working at different offices25 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Architecture  Appearance  Fringe rate  Overhead rate  Other rates  Consider setting up a Subcontractor Material & Handling rate  This will take the subs out of the base of G&A  Does not include travel or ODC’s  Consultants can be contested if included in this pool26 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Architecture  Appearance  Fringe rate  Overhead rate  Other rates  Cost vs. benefit  Should be considered with all decisions  When allocating service centers if you use a manual base instead of direct labor the allocation can not be run automatically27 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Hedging your bets  Impact of new business  Adjust rates in bids for impact of new business  Understand the relationship between indirect costs and business volume  How will additional workforce and costs effects rates  Will you need to open a new office in a new location28 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Hedging your bets  Impact of new business  Knowing how an indirect cost will react to a change in volume is important for such pricing actions as equitable adjustments and terminations and for the projection of indirect costs29 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Total value proposition  Wrap rate  Calculation  Knowing your market space30 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Total value proposition  Wrap rate  Subcontract material & handling  When should you have one  Effect on other rates31 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Common errors32 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  •  Noncompliance with FAR 31.203(c)  Indirect costs should be accumulated by logical cost groupings so as to permit use of an allocation base that is common to all cost objectives to which the groupings is to be allocated.  Unallowable costs are to remain in the base from which they originate.  Noncompliance with CAS 402  Requires consistency in accumulating costs incurred for the same purpose33 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  •  Inaccurate rate calculations  Proof of indirect rates  Exclusion of B&P labor from the base of overhead  Exclusion of SM&H costs from the base of G&A  Submitting actual rates inconsistent with provisional rates  Noncompliance with FAR 52.232-20 and 21  Indirect rate limitations (ceilings)  Limitation on costs34 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Questions www.twitter.com/deltek www.facebook.com/deltekinc www.linkedin.com/company/163414 www.youtube.com/user/deltekinc35 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved
  • Call to Action  Philip Steigner – Senior Manager Audit & Assurance  805 King Farm Blvd, Suite 300, Rockville, MD 20850  301-222-8280  psteigner@aronsonllc.com Philip Steigner joined Aronson LLC in September 1997 and is a Senior Manager in the firm’s Government Contracting Services Group. He has 13 years of public accounting experience with a concentration over the past ten years in government contracting. His focus is on complex financial reporting including mergers & acquisitions, consolidations, foreign entity transactions, joint ventures, income taxes, and ESOP’s. Over the course of his career, Phil has managed client accounts from various areas including government contractors, construction contractors, and real estate partnerships. Philip is a featured speaker on financial and operational accounting topics. He is a graduate of Washington & Jefferson College and currently holds an active CPA license in the state of Maryland.36 5/22/2012 ©2011 Deltek, Inc. All Rights Reserved