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Successful Budgeting for Government Contractors

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As any government contractor knows, successful budgeting is really important. Watch our SlideShare for tips on how to budget for success and then contact KDuncan & Company at www.kduncan.com for additional information!

Published in: Government & Nonprofit
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Successful Budgeting for Government Contractors

  1. 1. Budgeting for Success
  2. 2. Budgets are important for any government contractor. A contractor must know the purpose and use of a budget, because budgeting has a significant impact on its financial health.
  3. 3. What is a budget? • Projection of future costs incurred • Defined for a period of time • Basis for cash flow projections • Done annually (at least) • Consistent structure to: 1.  Chart of accounts 2.  Indirect cost pools 3.  Cost proposal
  4. 4. •  Basis for indirect rates in cost proposals •  Benchmark to measure financial performance •  Basis for billings on cost plus contracts •  Valuable tool for planning expenditures What is the purpose of a budget?
  5. 5. Direct Costs Costs that can be attributed to a specific contract. Indirect Costs Costs that are not directly accountable to a cost object, such as a particular project, facility, function or product. Some terminology
  6. 6. More Terminology Indirect Cost Pools The accumulated costs that jointly benefit two or more programs or other cost objectives. Multiplier / Loading / Wrap Rate A fully burdened labor rate – the rate at which an organization must bill out its direct labor units to cover its direct and indirect costs before any profit is made.
  7. 7. Rules and Regulations •  Generally Accepted Accounting Principles (GAAP) •  Truth in Negotiations •  Cost Accounting Standards (CAS) •  Federal Acquisition Regulation (FAR) •  Defense Contract Audit Agency (DCAA)
  8. 8. Acceptable Indirect Rate Structures Single Tier: All indirect costs contained in a single overhead pool where the base is direct labor. Two Tier: Overhead and G&A pools (fringe benefits costs related to direct labor are included in the Overhead pool). Three Tier: Separate Fringe Benefits, Overhead and G& A pools.
  9. 9. Categories of indirect costs •  Fringe benefits •  Overhead •  General and admin
  10. 10. •  FICA/Medicare •  FUTA (Federal Unemployment Insurance) •  SUTA (State Unemployment Insurance) •  Worker’s Compensation Insurance •  Health and Welfare (typically includes health insurance) •  Holiday’s, Vacation, and Sick Leave •  Pension Costs Fringe benefits include:
  11. 11. Overhead Includes: •  Project management •  Recruiting and training •  Government site and contractor site overhead
  12. 12. General and Administrative (G&A) includes: •  Salaries and related fringe benefit costs of the executive and administrative staff. •  Costs of legal, accounting, and financial services. •  Facilities costs of corporate office. •  Selling and marketing expenses.
  13. 13. Budget Cycle Plan (Budget) Price (Proposal) Analyze (Incur) Price (Proposal)
  14. 14. Basis of Estimates 1.  Historical 2.  Projected 3.  Detail, detail, detail 4.  For every cost account
  15. 15. Pricing •  Indirect budgets in support of cost proposals will have the direct and indirect costs associated with this proposal added to the annual budget. •  May choose to add the costs of other contracts not awarded as yet. The risk is that if the award never comes, the G&A rate may have been lowered to an unsustainable lever.
  16. 16. •  Fixed Price – Set amount for goods or services. •  Time & Material – Set rate for labor per labor category, number of units (hours) are variable. •  Cost Plus – Direct & Indirect Costs (dollars) incurred are variable, must be reconciled before contract close-out through audit, quality of records is vital Types of Contracts
  17. 17. Questions? Contact KDuncan & Company www.kduncan.com info@kduncan.com 301-608-3200

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