Indirect Rates

DCAA audits the incurred cost submission. DCMA negotiates the final indirect rate agreement. This guide covers Form 1 response, quick-closeout thresholds under FAR 42.708 and DFARS 242.708, penalty waiver mechanics, and the dispute escalation path to ASBCA for GovCon contractors reaching post-audit settlement.

A 5-point reduction in your overhead rate on a $3M direct labor base saves $150,000 per year. Most small contractors carry 10-30 points of excess rate from bookkeeping problems, not business problems. Seven DCAA-compliant strategies to lower your rates and win more contracts.

A forward pricing rate proposal establishes the indirect rates a contractor uses to price future government contracts. DCAA audits every FPRP before it becomes a negotiated rate. Errors in the proposal delay contract awards and inflate questioned costs.

Provisional billing rates let government contractors bill indirect costs on cost-reimbursable contracts before final rates are established. First-time contractors must build rate proposals from budgeted costs, submit to DCAA or the ACO before the fiscal year begins, and monitor rates against actuals throughout the year.

Government contractors bill the federal government through three indirect rate pools: fringe, overhead, and G&A. Each pool captures different cost types, uses a different allocation base, and carries different DCAA audit risk. Getting the pools wrong inflates your rates, misallocates costs, and draws audit findings.

Indirect rate calculation is one of the most misunderstood areas of government contract accounting. Here is how fringe, overhead, and G&A rates actually work, with step-by-step instructions.