Indirect Cost Rates Explained: What Every GovCon Should Know
Understanding indirect cost rates is essential for every GovCon (government contractor). These rates determine how you recover overhead and general business expenses associated with performing on government contracts.
Unlike direct costs—which are tied to a specific project—indirect costs include expenses like rent, utilities, HR support, and administrative salaries. Indirect cost rates help you allocate these shared expenses across multiple contracts in a fair and compliant way.
There are several types of indirect cost rates used in the GovCon world:
- Fringe Benefit Rate
- Overhead Rate
- General & Administrative (G&A) Rate
- Material Handling or Subcontract Administration Rates
Each rate must be calculated based on cost pools and allocation bases, in accordance with FAR and Cost Accounting Standards (CAS). These rates are typically submitted to your Contracting Officer or DCAA for approval.
Getting your indirect cost rates wrong can hurt profitability—or worse, lead to questioned costs during audits. That’s why proactive planning and regular updates are so important.
At N5 Specialized Accounting Services & Support, we help government contractors like you calculate, negotiate, and monitor indirect cost rates to ensure accuracy, compliance, and profitability. Whether you’re new to GovCon or preparing your incurred cost submission, we can help you avoid costly mistakes.
