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Indirect rates are unique for each organization, but consistently accumulate organization-wide costs in a pool divided by base with a causal or beneficial basis. Mahnke Consulting helps in evaluating various Indirect Rates, including provisional rates, actual incurred cost (AIC) rates, Indirect Cost Rates (ICR), and historical submission of the Incurred Cost Electronically (ICE) model.
One indirect cost rate (ICR) is typically used by educational (FAR 31.3), state and local government (FAR 31.6), and nonprofit (FAR 31.7) organizations under requirements of an OMB Circular. An ICR consultant guides the contractor or, more typically, the grantee to accumulation of one pool of costs incurred for the organization as a whole and allocation among jobs, grants, or contracts.
The relationship of direct labor benefitting one particular job determines allocation of Overhead costs to that job. If the employer cost of payroll taxes and employee benefits relates to time invested directly on a job, the Overhead, typically not the General and Administrative (G&A) pool, captures those related costs. If employer costs relate to G&A labor, those allocated costs are also G&A.
The relationship of a consistently applied base benefitting one particular job determines allocation of G&A to the job. G&A includes expenses that benefit the company as a whole and/or are a normal cost of doing business. An often-used base for the G&A pool of expenses, is all costs except G&A; this is typically all direct costs plus Overhead.
The Incurred Cost Electronically (ICE) submitted model from the Defense Contract Audit Agency (DCAA) attempts to unify component accounts of typical indirect cost rates. Calculating G&A for federal government contracts varies from company to company. For example, a company with some jobs conducted on a Government-owned site and some on a company-owned site might allocate Facilities costs to only those jobs conducted on the company-owned site, and separately from other G&A. DCAA ICE consulting guides the use of that spreadsheet- workbook model, formatted in preparation of audit.
Guidance considers the ICE model structure. Proposals for individual contracts and for Provisional Rates use the same accounts for pools (expenses/nominators) and for bases (divisors/denominators) to calculate projected rates as for submission of actual information, after year-end. At the discretion of the U.S. Government customer, indirect rates might be negotiated early/before subject year - for consistent use on all proposals and billings of cost reimbursements - throughout the year. Submission of proposed indirect rate preparation starts with separation of indirect versus direct costs, segregation of unallowable costs (per the applicable OMB Circular or FAR and FAR Supplements), and assessment of pool-to-base matching. Separate pools of indirect costs might include:
After the fiscal year end, ICE spreadsheets are supported by the general ledger; the general ledger is supported by source documents (such as vendor bills and timesheets). If actual ICE rates are lower than provisional/projected rates, cost reimbursements are adjusted; if actual ICE rates are higher, negotiations with the Contracting Officer might recoup under-invoiced cost reimbursements.
For organizations that hold U.S. Government contracts of very large dollar values, the Defense Contract Management Agency (DCMA) or other government administrator typically negotiates Provisional Rates, often called forward pricing rates. After year-end, DCAA evaluates negotiated indirect rates contrasted against the submitted ICE model actual information. Provisional rates are consistently used in proposals and invoices. For cost-type contracts, AIC are audited after the end of each fiscal year for the contractor; cost-type contracts remain open until differences between provisional and actual indirect rates can be calculated and payment/re-payment settled. The government administrator, not the contractor, determines whether negotiation of projected rates is cost-effective for the government.