All government contractors start with the basic cost pools of Fringe, Overhead, and G&A. As businesses grow, they often identify the need for more granular indirect rates to better align costs with their drivers. Government contractors must develop indirect rates generally following a prescribed format and regulations provide most clear guidance on the allowability of costs. The timing and complexity of advanced indirect rate structures is at the contractor's discretion, but most begin making changes as competition increases. This course addresses the composition of each cost pool and the allocation methods allowable for distributing those costs to customer jobs or projects. We'll describe the reasons for advanced indirect rate structures and the pitfalls of making changes. Learning Objectives 1. List the common cost pools utilized by government contractors 2. Identify the need for complex indirect rate structures 3. Describe the intermediate and advanced cost pools List the allowable allocation methods for indirect rates

1. Building GovCon
Indirect Rates

2. Robert E. Jones
Government Contracts & Accounting Expert
CPA, CPCM, NCMA Fellow
Meet your presenter:
• Robert has over 15 years of Department of
Defense contract and accounting experience.
• He has successfully managed over $400 million
in federal contracts and has a 100% success
rate for all audits he has helped support.
rjones330

3. Today we’ll learn:
The composition of different types of cost pools and the
allocation methods allowable for distributing those costs to
customer jobs or projects.

4. “We can complain because rose
bushes have thorns, or rejoice
because thorns have roses.”
~ Alphonse Karr
French critic, journalist, and novelist

5. Learning
Objectives
1. Know the common cost pools
utilized by government
contractors
2. Identify the need for complex
indirect rate structures
3. Learn more about
intermediate and advanced
cost pools
4. Know the allowable allocation
methods for indirect rates

6. Room Poll
How much of your business is related to government
contracts?
• 0%
• 1% - 25%
• 26% - 50%
• 51% - 75%
• 76% to 100%

7. List Common Cost Pools
• Fringe
• Overhead
• G&A

8. Fringe
The costs of maintaining employees
• Employer taxes
• Health insurance
• Retirement
• Other benefits

9. Overhead
The costs of supporting customers or products
(Costs not attributable to a single customer or product)
• General support, bug fixes
• Training
• Idle time
• Facilities

10. General & Administrative (G&A)
The costs of operating a business
(Costs you would incur regardless of customers)
• Accounting
• Business development
• HR
• IT
• Legal

11. Room Poll
Is your general ledger (G/L) currently organized into cost
pools?
• Yes
• No - not needed
• Not yet - we need help!
• Unsure

12. Identify Need for
Complex Rates
• Reduced profitability
• Loss of competitiveness in rates
• Growing or expanding business
 Add divisions or product lines
 Better fidelity in rates
 Varying cost drivers

13. Describe Advanced Cost
Pools
• Multiple fringe
• Multiple overhead
• Intermediate cost pools
• Materials & subcontract handling
(M&SH)

14. Multiple Fringe
• SCA vs non-SCA
• Commercial vs government
• Different plans for different classes of employees

15. Multiple Overhead
• By location
 Multiple offices
• By division (manufacturing vs engineering)
• Contractor vs government/customer site

16. Intermediate Cost Pools
• Facilities
 Rent
 Depreciation
 Utilities
 Taxes
 Insurance
 Maintenance
 Telecom/Internet
• Allocated over square footage

17. Intermediate Cost Pools
• IT
 Salaries
 Equipment
 Enterprise software
 Depreciation
 Maintenance
 Telecom/Internet
• Allocated over # of devices or # of network connections

18. Room Poll
Do you utilize any of these advanced cost pools?
• Multiple fringe
• Multiple overhead
• Intermediate cost pools (IT, facilities, other)
• Material & Subcontract Handling (M&SH)

19. Allowable Allocation
Methods
Fringe
(Allocated over all W-2 labor)
• Labor dollars – most common and reduces
variances
• Labor hours

20. Allowable Allocation
Methods
Overhead
• Units of production
• Direct labor dollars
• Direct labor hours
• Direct material costs
• Prime costs
• Machine hours

21. Room Poll
How do you allocate overhead?
• Units of production
• Direct labor dollars
• Direct labor hours
• Direct material costs
• Prime costs
• Machine hours

22. Allowable Allocation
Methods
G&A
• Total cost input (TCI) – most common
• Value added
 = TCI minus material and subcontract costs
 Required when utilizing M&SH

23. Room Poll
Do you need help with government contract indirect rates?
• Yes, please hurry!
• Maybe
• No, I'm an expert
• No, we don't have a need

24. www.LeftBrainPro.com/encoursa-rates-19
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us
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Professionals Inc.
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25. Discussion
and Q & A

26. Melissa R. Metzger
MAFM
melissa@leftbrainpro.com
Robert E. Jones
CPA, CPCM, NCMA Fellow
robert@leftbrainpro.com