One of our client's recently brought on a new GM. They have mainly T&M contracts that include labor and other (non labor) costs (ODCs). He was asked whether they should be loading the ODCs with G&A in their invoices. His response included the following statements:
- "(Not) Unless it is stated in the contract to include G&A."
- "(There are) more contracts where expenses are reimbursable based on actual costs vice adding Material Handling (MH) or G&A"..."There are contracts that allow adding an administrative fee, but typically no greater than 10-15%".
- "The administrative cost associated with processing the (ODCs) are built in our G&A and OH in our billable rates."
I often hear statements like this from both clients and government contracting officers. The thing is...every single one is incorrect. Taking them one at a time below are the corrections:
- Unless it is specifically excluded in the contract you should include G&A. The definition of T&M contracts in FAR 16.601 specifically allows "applicable indirect costs" on non labor line items. Most all companies use either "value added" or "total" cost input as the base for their G&A. This means that ODCs are in the base and therefore G&A is an "applicable indirect cost."
- Two things:
- There is no contract defined in the FAR (T&M, CPFF, etc) that excludes reimbursement of indirect costs. If there is a cap on the rate or an exclusion of indirect costs in one of your contracts it is only there because you agreed to it in your bid or contract negotiation. It is not there because of a rule in the FAR.
- G&A and material handling are in fact actual costs you incur as part of doing business. They are not imaginary costs or profit dreamed up by accountants. They are based on money you have spent. If you do not get reimbursed for them you are selling at a loss
- The G&A applied to labor covers the admin for labor…but not ODCs. As noted in # 1 above, calculation of your G&A rate should include travel/ODCs in the base. Thus, If G&A is not included on ODCs in your invoices you are eating the cost of their admin, and consequently your P&L reports will show a loss on those line items.
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