INDIRECT COSTS and RATES/DCAA and FAR 31.2

I am often asked about indirect costs and how to calculate indirect cost rates that are DCAA compliant or compliant with FAR 31.2. Indirect costs is a highly complex and often heavily debated subject with auditors. It is probably the most contentious subject under accounting for government contracts.

I hope to answer those questions on this page.

For starters, please fine below tables of indirect cost rate calculations for a typical business using the three rate system, Fringe, Overhead and G&A. Keep in mind the number and structure of indirect rates can vary from contractor to contractor depending on specific circumstances. The tables below are not reflective of any contractor or client. They are simplified illustrations to show the concept of compliant indirect rate calculations. Actual indirect rate computations will vary and will include many more accounts and may be a bit more complex. The tables below are illustrations only, the figures are ficticious. The rate calculations are both DCAA and FAR compliant.

Table 1 – Fringe Rate Calculation Example (Illustrative Purposes Only)

Fringe Pool:	Amount	Allocation

Payroll Taxes	$20,000
Compensated Absences	15,000
Employee Benefits	25,000
Other

Total Fringe Pool	$60,000

Allocation Base:

Direct Labor	$80,000	$33,103
OH Labor	15,000	6,207
G&A Labor	30,000	12,414
IR&D/B&P Labor	15,000	6,207
Other Labor	5,000	2,069

Total Allocation Base	$145,000	$60,000

Rate	41.38%

Table 2 – Overhead Rate (Illustrative Purposes Only)

Overhead Pool	Amount	Allocation

Overhead Labor	$15,000
Rent	30,000
Depreciation	25,000
Supplies	10,000
Other	5,000
Less: Unallowable Costs	(207)
Fringe Allocated to OH Labor (Fringe Rate * OH Labor)	6,207

Total Overhead Pool	$91,000

Allocation Base:

Direct Labor	$80,000	$54,202
B&P/IR&D	15,000	10,163
Fringe Applicable to Direct Labor	33,103	22,429
Fringe Applicable to IR&D/B&P Labor	6,207	4,205
Total Allocation Base	$134,310	$91,000

Rate	67.75%

Table 3 – General And Administrative (G&A) (Illustrative Purposes Only)

G&A Pool	Amount	Allocation

G&A Labor	$30,000
Rent	10,000
Professional Services	25,000
Business Development	15,000
Travel	25,000
Other	5,000
Less: Unallowable Costs	(5,000)
Fringe Allocated to G&A Labor (Fringe Rate * G&A Labor)	12,414
IR&D/B&P Labor	15,000
Fringe Allocated to IR&D/B&P Labor	6,207
Overhead Allocated to IR&D/B&P Labor	10,163

Total G&A	$148,784

Allocation Base:

Direct Labor	$ 80,000	$17,251
Direct Materials	400,000	86,259
ODC	100,000	21,565
Fringe Applicable to Direct Labor	33,103	7,139
OH Applicable to Direct Labor	54,202	11,689
OH Applicable to Fringe	22,428	4,837
Unallowable OH Costs	207	45

Total Allocation Base	$689,940	$148,784

Rate	21.56%