Below are definitions and explanations of term and links to other resources.
What are indirect rates?
Indirect rates are tools used to assess markup of costs to customers. They are used in pricing, budgeting, and financial statement analysis. Indirect rates are calculated by dividing the total of indirect pool costs by indirect base costs. For more information on indirect cost and indirect rates see FAR part 31.
How are indirect rates defined and classified?
Accounts are defined and classified as follows.
General and Administrative (G & A) include management, financial, and other costs related to the administration of the business as a whole. Examples include salaries (including fringe benefits) and other costs of the company headquarters' executive staff, staff services (including legal, accounting, and public relations), and selling and marketing expenses.
Bid & Proposal (B & P) - type of G & A cost that is tracked to identify costs incurred on bid and proposal efforts.
Research & Development (R & D) - type of G & A cost that is tracked to identify costs incurred on R&D efforts related to expanding services and/or products supplied to the Government.
Overhead (OH) - include costs related to the support of operations that are closely associated with contract activity. These costs can also include the supervision of direct charge employees and related support costs for direct charge and overhead employees. Examples include engineering, material, and company and client site overhead.
Fringe Benefits (F/B) - include costs to capture all paid time off, employee benefits, mandated insurance and payroll taxes. Examples include such things as holiday and vacation pay, worker's compensation insurance and FICA, FUTA, and SUTA.
Unallowable (U/A) - include any costs under the provisions of any contract, regulation or pertinent law which cannot be included in prices, settlements, or cost reimbursements under a Government contract to which it is allocable. (FAR 31.001)
Why are indirect rates so important?
Indirect rates are important because they determine whether you are operating your contracts profitably or bidding contracts to be profitable. By analyzing your indirect rates periodically, managers can determine whether the contract is operating as profitably as bid and why. In addition, indirect rates are used by the Government to assess your cost proposals and cost performance.
What is the FAR?
The FAR or Federal Acquisition Regulation is the body of regulations that serves as the primary source or authority governing the federal government's procurement process.
What does the FAR and the U.S. Government say about indirect rates?
Who is DCAA and what does it do?
The sections of the FAR that include references and appendices regarding indirect rates include FAR 15 Contracting by Negotiation, FAR 42 Indirect Cost Rates, and FAR 31 Cost Principles. For more information, go to http://www.arnet.gov/far.
The Defense Contract Audit Agency, under the authority, direction, and control of the Under Secretary of Defense (Comptroller), is responsible for performing all contract audits for the Department of Defense, and providing accounting and financial advisory services regarding contracts and subcontracts to all DOD Components responsible for procurement and contract administration. These services are provided in connection with negotiation, administration, and settlement of contracts and subcontracts. DCAA also provides contract audit services to some other government agencies. For more information, go to www.dcaa.mil.