Transcript COMPONENTS OF THE COST OF A CONTRACTOR OR “Why I …

COMPONENTS OF THE COST
OF A SERVICE CONTRACTOR
-or“Why the Government pays $126,087
for a Contractor’s $70,000-a-Year
Employee”
Prepared by
The Tidewater Government / Industry Council
AGENDA
• PURPOSE
• DESIRED END STATE OF BRIEFING
• COMPONENTS OF PRICE OF CONTRACTOR
- Fringe Benefits
- Overhead
- General and Administration
- Profit
• COMPARISON BETWEEN PRIVATE SECTOR
AND GOVERNMENT EMPLOYEES
PURPOSE
To provide an executive overview of the
components involved in computing the
costs of a contractor employee providing
services on a level of effort contract; I.E.,
Cost Plus Fixed Fee, Time and Material,
or Cost Plus Award Fee Contract.
DESIRED END STATE
OF BRIEFING
• Ensure senior executives have understanding
of price structure for contractors providing
level of effort services.
• Provide comparison between corporate and
government personnel to call attention to
similarities in costs.
Direct Labor Rates
vs
Fully Burdened Rates
Direct Labor Rate
Fully Burdened Rate
Covers the basic labor
cost of the employee
Proposed by offeror to
cover direct labor,
indirect costs, and profit
under a service contract.
Components Of The Cost Of A Service Contractor:
FRINGE BENEFITS
DEFINITION: The costs associated with
benefits provided to employees working for
the corporation.
Components Of The Cost Of A Service Contractor:
FRINGE BENEFITS EXAMPLES:
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Paid Leave
Paid Holidays
Medical and Dental
Short and Long Term Disability
Life Insurance
Retirement Programs
Bonuses
Severance Pay
Social Security, Federal , and State Taxes
Employee Morale and Welfare
Tuition Assistance
Workman’s Compensation
Components Of The Cost Of A Service Contractor:
OVERHEAD (OH)
DEFINITION: Overhead is traditionally defined as
costs to operate local corporate operations providing
indirect support to clients and direct support to
contractor employees working for the client.
Overhead costs are usually broken down into two
separate rates:
Components Of The Cost Of A Service Contractor:
OVERHEAD (OH)
- CLIENT SITE: This is a rate normally applied to the cost of a
contractor who is working at a government or client site.
- CORPORATE SITE: This is a rate normally applied to the
cost of a contractor who is working in support of a client, but
working at an off-site location. This rate is normally higher
for the client because the corporation must pay for additional
facilities and equipment to provide the required support.
Components Of The Cost Of A Service Contractor:
OVERHEAD EXAMPLES :
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Supervisory Labor and Benefits
Recruiting and Hiring
Human Resource Support to Employees
Security Clearance Processing
Regional Office Staff Labor
Operating Supplies/Materials
Leases, Rent, and Utilities
Repairs and Maintenance
Licenses/Taxes
Depreciation
Travel
Professional Development
Components Of The Cost Of A Service Contractor:
GENERAL AND ADMINISTRATIVE
EXPENSES (G&A)
• DEFINITION: Costs associated with the overall
management and operation of a business
(corporate headquarter costs).
Components Of The Cost Of A Service Contractor:
G&A EXPENSE EXAMPLES:
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Corporate Staff Labor & Benefits
Operating Supplies/Materials
Leases, Rent, and Utilities
Repairs and Maintenance
Licenses/Taxes/Insurance
Accounting/Banking Fees
Depreciation
Travel/Conferences
Business and Development
Professional Development
Components Of The Cost Of A Service Contractor:
PROFIT
• DEFINITION: The dollar amount over and above
allowable costs that is paid to the firm for contract
performance.
• Remember that companies are in business to make a
profit, and that in addition to covering the costs of
running their businesses, they must also make a
profit for growth (investment) and their shareholders
(increase shareholder equity).
EXAMPLE OF COMPUTING THE COST OF A
CONTRACTOR
(Cost Plus Fixed Fee)
COST ITEM
RATE
Salary
Fringe
Overhead
G&A
Profit (Fee)
N/A
33%
10%
14%
8%
COST
$70,000.00
$23,100.00
$ 9,310.00
$14,337.40
$ 9,339.79
CUMULATIVE
COST
$ 70,000.00
$ 93,100.00
$102,410.00
$116,747.40
$126,087.19
(Base Labor Rate: $33.65
versus
Burdened Labor Rate: $60.62)
COMPARISON TO GOVERNMENT
EMPLOYEE
COST FACTOR
CONTRACTOR
GOVERNMENT
Salary
Fringe Benefits
Overhead
G&A
Profit (Fee)
YES
YES
YES
YES
YES
YES
YES
YES
YES
MAYBE
NOTE: All activities have the same costs. The major
difference is that the contractor must account for all their
costs in one package. Other agencies may not capture the
costs at the user level, distorting the actual costs of
providing a work place, equipping, and paying an
employee.
ASSUMPTIONS
(Government Employee)
 GS 12, Step 5 (Engineering Tech)
 10 x 10 sqft office space ($15 per sqft)
 GS 13, Step 5 (1st Line Supvr. over 8 people)
 12 x 12 sqft office space
 GS 14, Step 5 (2nd Line Supvr. over 40 people)
 14 x 14 sqft office space
 32.85% Fringe Rate (OMB Circular A-76 Std.)
COMPARATIVE COSTS OF A
GOVERNMENT EMPLOYEE
COST FACTOR
RATE
COST
CUMULATIVE
COST
Salary
$29.47
$61,511
$61,511
Fringe Benefits
32.85%
20,206
$81,717
18,094
$99,811
Overhead
G&A
Profit
Burdened Rate
$47.83
Govt’s Overhead Expenses
not Included in Calculations
• All Supervision and Management Support above 2nd level
– Department Head, Deputy
– Department Level Staff (Admin Asst., Budget Asst, Secretary)
– Front Office (CO, XO, ED, Secretary)
• Support Staff at Command Level
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Human Resources Office
Comptroller/Budget
Security
IT Services
Admin/Mail
• Local Facilities, Utilities, Equipment and Maintenance
Govt’s G&A Expenses not Included
in Calculations
• Headquarters Management
– Functional Departments, Deputy Commanders
– Commander, Vice Commander, ED
• Headquarters Support
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–
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Human Resources
Comptroller/Budget
Security
IT Services
Admin/Mail
• Headquarters Facilities, Utilities, Equipment, and
Maintenance
Cost and Price Analysis
Determining whether the proposed labor and
indirect rates are fair and reasonable may require
using various evaluation techniques with input
from Government sources, such as:
Defense Contract Audit Agency (DCAA)
Administrative Contracting Officers (ACO)
Procuring Contracting Officer (PCO)
Professional Services
Electrician
Computer Technician
Auto Mechanic
Plumber
HVAC Technician
Accountant
Lawyer
$45
$60
$60
$65
$70
$40 to $200
$200 to $500
SUMMARY
• Companies in the service-provider business must cover
costs and make a profit. Those costs are reflected in the
burdened hourly rates charged.
• Businesses and the government incur the same types of
costs for their employees, with the possible exception of
profit for the government and non-profit organizations.
However, cost centers and accounting practices may not
allow these activities to fully realize the costs of providing
a work place, equipping, and paying for their employees’
services.