More Related Content Similar to Managing Indirect Rates for Government Contractors (20) Managing Indirect Rates for Government Contractors3. 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.
7. Poll
Copyright © 2014-2022 Left Brain Professionals Inc.
Do you have a defined process for managing indirect rates?
A. Yes.
B. No.
8. Copyright © 2014-2022 Left Brain Professionals Inc.
Managing Indirect Rates
Two Goals
1. Maximize profitability
2. Limit over-/under-billing the
government
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
10. Copyright © 2014-2022 Left Brain Professionals Inc.
Causes of Rate Variances
Fluctuation in Direct Work
Budget Overruns
Labor Efficiency
Unallowable Costs
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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
19. Poll
Copyright © 2014-2022 Left Brain Professionals Inc.
How often do you monitor indirect rates?
A. Rarely.
B. Monthly.
C. Quarterly.
D. Annually.
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
25. Copyright © 2014-2022 Left Brain Professionals Inc.
Correcting Variances
Update billing rates
Semi-annually
Winning/losing a major contract
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
27. Poll
Copyright © 2014-2022 Left Brain Professionals Inc.
How much help do you need managing rates?
A. A lot.
B. Just a little.
C. None, we’ve got this.
29. Connect
with us
Download the presentation
Left Brain
Professionals Inc.
@LeftBrainPro
Email us
Support@LeftBrainPro.com
@LeftBrainPro
Left Brain Pro
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www.LeftBrainPro.com/presentations
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