8 Steps to Easier Indirect Cost Rate Management for Government Contractors

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For most government contractors, a time comes when you realize fulfilling federal or state contracts requires a ton of manual work just to follow regulations and make a reasonable profit. This is especially true when working on Cost Plus contracts or Time & Material contracts that are a hybrid of Fixed Fee and cost.

Indirect rate management with Microsoft Dynamics SL

How Cost Plus Contracts Work

On these contracts, the government affirms that it costs money to run your organization above and beyond the costs of providing direct services. These administrative overhead or “indirect” costs are the things that keep your organization operating efficiently, but are not tied to a particular project. They can include such things as:

  • Administrative staff
  • Office space and utilities used by those staff
  • Equipment and services used by everyone
  • Employee benefits


Determining Your Indirect Costs Across Contracts or Projects

For Cost Reimbursement contracts, the government uses a standard and fairly complex method to determine your indirect costs, which results in negotiated Indirect Cost Rates—provisional rates you submit every year in an Incurred Cost Proposal. It’s imperative that these not only be correct, but be to your best advantage to maximize your profit.

Generally, indirect rates, in such categories as Fringe, Overhead and G&A, are used to “allocate” or apply indirect costs to each project or contract. Furthermore, they may be used to bill the government under each Cost-Plus contract. Mischarging the government could actually result in criminal penalties. At the end of the year, you must figure the actual indirect rates and allocate to each project the difference between the provisional rates applied throughout the year and the actual rates. Then you can run final invoices for additional billings to the government or to credit them.

Get a Much Easier System

One way of making your workload lighter for doing all this is to have a powerful ERP/project accounting/financial management system that handles Indirect Rate Management without all the usual headaches.

Microsoft Dynamics SL has a huge reputation for being a flexible, automated government compliance solution. Here are the eight steps to effective and efficient Indirect Rate Management with Dynamics SL.

1 – Develop Provisional Rates in a Rate Table
Dynamics SL allows you to easily calculate and set your provisional rates at the beginning of the year.

See All 8 Steps to Easier Indirect Rates Management

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