What are Indirect rates? The short answer is “Indirect rates” are costs that are indirectly related to costs in a contract. Is that too short? Well, one could also say that indirect rates are essentially cost of doing business; but let us take this further and identify indirect rates and then how they are used. Indirect rates include Fringe, Overhead (OH), General & Administrative (G&A) and Materials & Subcontract handling (M&S).
Application of the correct indirect rates is pricing’s responsibility on all cost/pricing activities however, pricing should confirm with the Accounting and Finance Department that pricing is using the most current indirect rates. If a competitive proposal requires creating new indirect pools and rates, modeling of the new indirect pools and rates is the responsibility of the Accounting and Finance Department. The Accounting and Finance Department will work with the capture manager to model the new indirect rate pool directly.
The following sections provide a more in-depth explanation of indirect pools.
Fringe Benefits
Represents a comprehensive and competitive benefits program to meet employees’ short- and long-term needs as well as their families. This benefits program is available to all employees, regardless of position or skill level. The company’s compensation plan reflects all the available fringe benefits offered to employees such as disability insurance, life insurance, health benefits, vision plan, dental insurance, 401(k) matching, education, and professional development assistance, and time off with pay (TOWP) pool of days annually used for such purposes as holidays, sick leave, or vacation.
For purposes of building fringe costs in labor rates, the fringe rate is generally applied to unburdened (direct labor/salary) labor costs. Some companies might have one or multiple fringe packages: full, benefit declined, and minimum benefit are examples.
Contractor Site Overhead
Includes indirect labor, cellular telephones, outside printing services, and other necessary office supplies not provided by the customer. The pool also includes office rent, PC, network-related expenses, equipment depreciation, and other office-related expenses like shipping and postage, office equipment repairs, and office supplies that the employer will provide. For estimating contractor site overhead labor rate costs, overhead rate is applied only to unburdened direct labor costs.
Customer Site Overhead
Includes indirect labor, cellular telephones, outside printing services, and other necessary office supplies not provided by the customer. The pool excludes office rent, PC, network-related expenses, equipment depreciation, and other office-related expenses like shipping and postage, office equipment repairs, and office supplies that the customer will provide. For estimating customer site overhead labor rate costs, the customer site overhead rate is applied only to unburdened direct labor costs.
General and Administrative (G&A)
Related to the management and administration of the company. G&A pools include the usual non-direct labor costs and expenses attributable to G&A-type activities such as indirect labor for bid and proposal costs, marketing and associated fringe benefits, accounting, legal, travel, human resources, and other expenses, as well as an allocation of facilities expenses. G&A pool costs are allocated on a value-added base of total cost input. This pool includes other direct costs, travel, and M&S handling costs but excludes and is not applicable to direct M&S base costs.
Materials and Subcontract (M&S) Handling
M&S costs are related to the management and administration of subcontract and material acquisition. The allocation base for M&S handling costs is the Total Cost of subcontractors, independent contractors, and materials. Contact us to learn more!
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