Government contractors are always looking for ways to maximize their indirect rates. Indirect costs, otherwise known as overhead, are expenses incurred for common or joint objectives in running a business. Knowing how to properly allocate these costs and maximize the indirect rate can be a complicated process, but it doesn’t have to be. Here are some tips and tricks to help government contractors maximize their indirect rates.
Understand Your Cost Pool
One of the most important steps in maximizing your indirect rate is understanding your cost pool. A cost pool is a grouping of similar direct costs and indirect costs that are associated with a particular project or contract. It is important to track each of your cost pools separately and accurately so that you can properly allocate them when filing for reimbursement. Knowing which costs should be included in each cost pool will help you better determine what types of overhead expenses should be included in your indirect rate.
The Federal Acquisition Regulation (FAR) provides guidance on what types of expenses should be included in your cost pool. Some examples include administrative costs, insurance premiums, rent, utilities, legal fees, taxes, and any other related expenses. Understanding what types of expenses should be included in each cost pool can help you make sure that you maximize the amount of reimbursements you receive from the government.
Know Your Allowable Costs
In addition to understanding your cost pools, it is important to understand what types of costs are considered allowable under the FAR. Allowable costs are those that are reasonable, allocable, and necessary for performance of the contract. These include direct costs such as materials and labor as well as indirect costs such as administrative costs, utilities, depreciation, and insurance premiums.
It is important to know which types of costs are considered allowable so that you can ensure that all of your expenses are properly documented and accounted for when filing for reimbursement. This will help you get the maximum amount of reimbursement from the government for your contract.
Maximize Your Indirect Rate
Once you understand your cost pools and allowable expenses, it’s time to maximize your indirect rate. To do this, you need to know how much of your total overhead fees should be allocated towards each contract or project. Generally speaking, the more overhead fees allocated towards a particular project or contract, the higher the indirect rate will be.
To ensure that you’re maximizing your indirect rate for each contract or project, it’s important to review all overhead expenses and make sure that they are accurately allocated across all contracts or projects. This will help you get maximum reimbursement from the government while still making sure that all overhead expenses are accounted for.
Keep Accurate Records
Finally, it is important to keep accurate records when filing for reimbursement from the government. Be sure to keep detailed records of all expenses related to each contract or project so that you can properly allocate them when filing for reimbursement.
- Keep detailed records for every expense related to each contract or project.
- Make sure all overhead fees are accurately allocated across all contracts or projects.
- Review all overhead fees regularly to ensure they are correctly allocated.
- File accurate reports with the government in a timely manner.
GovContractTax, an online resource designed specifically for government contractors offers helpful tools such as an expense tracker and reporting software which can help make managing these tasks easier.
Conclusion
Maximizing your indirect rate is an essential part of being a successful government contractor. Knowing how to properly allocate overhead fees among different contracts or projects can help ensure that you get maximum reimbursement from the government while also making sure that all overhead expenses are accounted for accurately.
By following these tips and tricks , government contractors can maximize their indirect rates and improve their bottom line!