Contractor Overhead Rate

Annual indirect cost pool — facilities, admin, equipment

indirectCostMonthly × workingMonths

$3,000 × 12 mo

= $36,000

Indirect costs cannot be traced to a single contract — they benefit all billable work and are pooled annually before rate computation.

FAR 31.203(a) — indirect cost accumulation

Annual G&A cost pool — accounting, legal, BD, software

gaMonthly × workingMonths

$1,500 × 12 mo

= $18,000

G&A costs support the overall enterprise, not specific projects. Tracked as a separate pool from overhead to allow different allocation bases.

FAR 31.203(d) — G&A expense pool

Annual fringe benefits cost — IRC §132 / FAR 31.205-6(b)

annualDirectLabor × fringeBenefitsRate

$120,000 × 25.0%

= $30,000

Fringe benefits (health, 401k match, payroll taxes) are allowable costs when consistently applied and documented — IRC §132 governs excludability for employees.

FAR 31.205-6(b) — compensation for personal services

Overhead rate — FAR 31.203 indirect cost allocation

annualIndirectCosts / annualDirectLabor × 100

$36,000 / $120,000 × 100

= 30.0%

The overhead rate is applied to every direct labor dollar on each contract. A 65% overhead rate means $0.65 of indirect cost is absorbed per $1.00 of direct labor.

FAR 31.203 — allocation of indirect costs

G&A rate — enterprise-level cost allocation

annualGA / annualDirectLabor × 100

$18,000 / $120,000 × 100

= 15.0%

G&A is typically allocated on total cost input or value-added base. Using direct labor as the base simplifies calculation for smaller contractors.

FAR 31.203(d) — G&A allocation base

Total burden rate — combined cost multiplier

1 + fringeRate + overheadRate + G&A rate

1 + 25.0% + 30.0% + 15.0%

= 1.70×

The burden multiplier converts raw direct labor cost into fully loaded cost. A 2.1× multiplier means $1 of labor costs $2.10 all-in before profit.

Fully burdened labor cost — FAR 31.001 total cost

annualDirectLabor × burdenMultiplier

$120,000 × 1.70×

= $204,000

Burdened cost is the floor for pricing — billing below this guarantees a loss on the contract.

FAR 31.001 — definition of cost; FAR 31.201 — allowable cost criteria

Billing rate — cost-plus pricing to target profit margin

burdenedCost / (1 − targetProfitMargin%)

$204,000 / (1 − 15.0%)

= $240,000 (2.00× of direct labor)

Profit is expressed as % of billing rate (revenue), not cost — the standard government contracting convention. A 10% profit on revenue ≈ 11.1% markup on cost.