Managing Indirect Rates for Government Contractors

3. Who We Are Left Brain Professionals is a boutique accounting firm that serves government contractors. We specialize in accounting systems and strategic services.

4. Copyright © 2014-2022 Left Brain Professionals Inc. Our Practice Areas ACCOUNTING SYSTEMS • Accounting System Design & Implementation • Monthly Support Packages STRATEGIC SERVICES • DCAA Audit Support • CFO & Controller Services

5. Our Team Robert E. Jones Principal GovCon Accounting Advisor CPA, CPCM, NCMA Fellow Steven Bressler GovCon Accounting Associate Steve@LeftBrainPro.com Robert@LeftBrainPro.com Copyright © 2014-2022 Left Brain Professionals Inc. Suzanne@LeftBrainPro.com Suzanne Camden Sr. GovCon Accounting Advisor

6. Learning Objectives Copyright © 2014-2022 Left Brain Professionals Inc. • Identify causes of rate variance. • Explain the impact of over- and under-billing costs. • Describe the importance of managing indirect rates.

9. Copyright © 2014-2022 Left Brain Professionals Inc. Managing Indirect Rates Maximize Profitability • Clients call because they're not making enough money • Maximize profitability by monitoring the budget and billing rates Limit Over-/Under-Billing the Government • More on this later

11. Copyright © 2014-2022 Left Brain Professionals Inc. Fluctuation in Direct Work Direct costs are the largest amounts in the bases of Fringe, OH, and G&A • Winning an unexpected contract • Losing an expected contract • Delays in award • Stop work orders

12. Copyright © 2014-2022 Left Brain Professionals Inc. Budget Overruns Direct budget overruns may result in unbillable costs (exceeding the cost ceiling) or reduced profit margins (fixed price contracts) Indirect budget overruns may result in increased indirect rates (underbilling) or reduced profit margins

13. Poll Copyright © 2014-2022 Left Brain Professionals Inc. Which of the following is not a cause of direct work fluctuation? A. Winning unexpected work. B. Too much indirect work. C. Delays in award. D. Losing an expected contract.

14. Copyright © 2014-2022 Left Brain Professionals Inc. Labor Efficiency Budgets and rates are built with an assumed labor efficiency Increased efficiency reduces rates Decreased efficiency increases rates ⇡ Direct Costs = ⇣ Indirect Rates

15. Copyright © 2014-2022 Left Brain Professionals Inc. Unallowable Costs Unallowable costs = Unbillable costs Unallowable Direct, Fringe, and Overhead costs Follow same treatment as if allowable Are in the bases of Fringe, Overhead, & G&A as appropriate Result in unrecoverable indirect costs

16. Copyright © 2014-2022 Left Brain Professionals Inc. Over- / Under-Billing Final rates determined after submission of incurred cost proposal • Requires evaluation for adequacy • Time to review and finalize rates • May result in audit

17. Copyright © 2014-2022 Left Brain Professionals Inc. Over- / Under-Billing Overbilling Significant overbilling may result in immediate cash payment Often difficult for small businesses Underbilling Underbilling may result in • Lack of additional funds • Delays in funding modification

18. Copyright © 2014-2022 Left Brain Professionals Inc. Process Monitor Reports Evaluate Variances • Identify and understand the root cause • We find people don't investigate the variances or cannot adequately explain the root cause • If you can't explain the problem, you can't fix it

24. Copyright © 2014-2022 Left Brain Professionals Inc. Correcting Variances Adjust Spending Quarterly Realign line items within a pool Realign dollars between pools Goal is to match cost/billing multiplier regardless of individual rates

26. Copyright © 2014-2022 Left Brain Professionals Inc. Adjusting Invoices Evaluate impact on a contract-by-contract basis Communicate with contracting officer or customer 1. Recalculate YTD with new rates and issue adjustment on next or separate invoice 2. Recalculate today forward and apply effective rate on remaining invoices

29. Connect with us Download the presentation Left Brain Professionals Inc. @LeftBrainPro Email us Support@LeftBrainPro.com @LeftBrainPro Left Brain Pro LeftBrainPro www.LeftBrainPro.com/presentations

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