Overhead versus G&A
If the DCAA ICE model seems confusing, remember that this tool applies to every kind of organization – large, small, service provider, product deliverer, with or without an allocation from a headquarters. To use the ICE model, first find the one tab or spreadsheet that most closely aligns with the indirect rate structure for your organization; if Overhead versus G&A represents the only rates for your organization – ignore the tabs or spreadsheets with rates and (separate) pools that do not apply. The difference between Overhead and G&A accounts depend on how your unique company structures G&A expense versus Overhead.
General and Administrative, or G&A, expenses are those that benefit the organization as a whole. Overhead is caused by Direct Labor. The salary of the Human Resources Director benefits all current and future company sales, even if the company happens to only have one job at the time of rate calculation. Time that the President invests on the Mission Statement and all-hands (State of the Organization) staff meetings is G&A labor caused by the needs of running the business as a whole; time that the President spends working hands-on to complete a Statement of Work or Performance Work Statement benefits one particular award as Direct Labor.
G&A expenses typically include facilities, information technology (for employees, not for deliverables to a customer), telephony, accounting, legal, insurances (except fringe benefits), allowable taxes/licenses/fees, and professional training (not solely required for a particular contract). An important segregation is that employer-paid payroll taxes and fringe benefits related to (or caused by) G&A labor must be included in the G&A pool accounts. Only expenses caused by Direct Labor may be recorded in the Overhead pool accounts that are allocated on the base of Direct Labor. Expenses that benefit the company as a whole may be separated into more than one pool/rate with more than one (divisor) base. One pool for all such expenses simplifies explanation.
What about Independent (company-paid) Research and Development (IR&D)? What about Bid and Proposal (B&P) costs? For awards funded by the U.S. Government, each of these must be (initially) charged to one or more segregated jobs – just like a customer-funded job. Labor, materials, and other costs can be charged to an internal B&P job – just like a customer-funded job. Charging everything to one B&P account in the G&A pool is improper. The total cost of the IR&D and B&P jobs might – when indirect rates are calculated – be added to the G&A pool, but not charged there initially in a comingled account.
What about shipping? If shipping benefits the organization as a whole, the account belongs among the G&A accounts. If shipping is always charged to the job or contract for which it is incurred, the account belongs in direct Cost of Goods and Services Sold. The key is consistency. A routine practice might be charging directly to a contract for shipping of packages in excess of two pounds and charging indirectly to G&A for shipping of packages of two pounds or less. In this case, a formal policy and procedure is approved by appropriate management, disseminated to staff, and followed consistently. This procedure defines the “like circumstances” when one practice applies, as opposed to the other.
Based on the shipping example, a particular transaction might affect a direct account, an Overhead account, or a G&A account. Often, a supportable argument can be made for a particular expense being caused by or benefitting from Direct Labor (Overhead base) and, alternatively, total cost input (G&A base). The difference between Overhead and G&A depends on procedures of your unique company. Regardless whether Overhead versus G&A – so long as expenses are recorded in the same account, consistently, in like circumstances – the label or pool might not matter.