A Look at How to Provide Rates for Government Contracts
Your COA, or Chart of accounts, is your company’s financial blueprint– containing all your financial transactions in a given year, broken down into meaningful categories. It helps you organize finances and can also give investors, and the like, a crystal view of your company’s financial well-being. For Government Contractors, the COA is the foundation of every Federal Contract.
If a fellow government contractor wants to establish a connection with you and asks you for your wrap rate, the COA is your go-to tool.
Through your chart of accounts you can:
- Compare past periods of your company
- See developing trends, both ups, and downs
- Have ready pricing data, so you can bill accordingly with proposals
- Avoid getting into rates that do not reflect your costs, that’s a loss, for many years.
- Get to manage your wrap rate.
In your COA, the categorization of costs is very important. There are several buckets that you should always have:
- Direct costs
Costs that are directly connected to the creation or production of goods or services. This includes labor, materials, sub-cons, travel, and expenditures.
- Indirect costs
These are the opposite of direct costs– costs that cannot be readily and singularly identified with your product or services. There are several indirect costs, and putting your costs under these brackets is imperative.
- Unallowable costs
Outlined in FAR 31.2, these costs are not reimbursed by your government contract. There are Expressly Unallowable Costs and Circumstantial Unallowable Costs.
Once your COA is sorted, time to present your wrap rate. This is your profit, usually at the 10-15% rate. When you have a clear understanding of how to recover costs, have fringe benefits for your employees, and account for G&A and overhead, you can develop a fluid wrap rate for any specific situation in your government contract.
Contact Peter Witts CPA today to get the help you need with your government contract accounting.