Components of Cost Svc Contracts

7/28/2019 Components of Cost Svc Contracts

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COMPONENTS OF THE COST

OF A SERVICE CONTRACTOR-or-

Why the Government pays $126,087for a Contractors $70,000-a-Year

Employee

Prepared by

The Tidewater Government / I ndustry Counci l


2/23

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


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PURPOSE

To provide an executive overview of the

components involved in computing the

costs of a contractor employee providingservices on a level of effort contract; I.E.,

Cost Plus Fixed Fee, Time and Material,

or Cost Plus Award Fee Contract.


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DESIRED END STATE

OF BRIEFING

Ensure senior executives have understanding

of price structure for contractors providinglevel of effort services.

Provide comparison between corporate andgovernment personnel to call attention to

similarities in costs.


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Direct Labor Rates

vsFully Burdened Rates


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Direct Labor Rate

Covers the basic labor

cost of the employee

Fully Burdened Rate

Proposed by offeror to

cover direct labor,indirect costs, and profit

under a service contract.


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DEFINITION: The costs associated withbenefits provided to employees working for

the corporation.

Components Of The Cost Of A Service Contractor:

FRINGE BENEFITS


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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 Workmans Compensation


FRINGE BENEFITS EXAMPLES:


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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:


OVERHEAD (OH)


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- 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 additionalfacilities and equipment to provide the required support.


OVERHEAD (OH)


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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


OVERHEAD EXAMPLES :


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GENERAL AND ADMINISTRATIVE

EXPENSES (G&A)

DEFINITION: Costs associated with the overall

management and operation of a business

(corporate headquarter costs).


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G&A EXPENSE EXAMPLES:

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


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PROFIT

DEFINITION: The dollar amount over and aboveallowable 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 ofrunning their businesses, they must also make a

profit for growth (investment) and their shareholders(increase shareholder equity).


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EXAMPLE OF COMPUTING THE COST OF A

CONTRACTOR

(Cost Plus Fixed Fee)COST ITEM RATE COST CUMULATIVE

COST

Salary N/A $70,000.00 $ 70,000.00

Fringe 33% $23,100.00 $ 93,100.00Overhead 10% $ 9,310.00 $102,410.00

G & A 14% $14,337.40 $116,747.40

Profit (Fee) 8% $ 9,339.79 $126,087.19

(Base Labor Rate: $33.65versus

Burdened Labor Rate: $60.62)


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COMPARISON TO GOVERNMENT

EMPLOYEE

COST FACTOR CONTRACTOR GOVERNMENT

Salary YES YES

Fringe Benefits YES YES

Overhead YES YESG & A YES YES

Profit (Fee) YES MAYBE

NOTE:All activities have the same costs. The majordifference is that the contractor must account for all theircosts in one package. Other agencies may not capture thecosts at the user level, distorting the actual costs of

providing a work place, equipping, and paying an

employee.


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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.)


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COST FACTOR RATE COSTCUMULATIVE

COST

Salary $29.47 $61,511 $61,511

Fringe Benefits 32.85% 20,206 $81,717

Overhead 18,094 $99,811

G & A

Profit

Burdened Rate

COMPARATIVE COSTS OF A

GOVERNMENT EMPLOYEE

$47.83


19/23

Govts 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 Human Resources Office

Comptroller/Budget

Security

IT Services

Admin/Mail

Local Facilities, Utilities, Equipment and Maintenance


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Govts G&A Expenses not Included

in Calculations Headquarters Management

Functional Departments, Deputy Commanders

Commander, Vice Commander, ED

Headquarters Support Human Resources

Comptroller/Budget

Security

IT Services Admin/Mail

Headquarters Facilities, Utilities, Equipment, andMaintenance


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Cost and Price Analysis

Determining whether the proposed labor and

indirect rates are fair and reasonable may require

using various evaluation techniques with inputfrom Government sources, such as:

Defense Contract Audit Agency (DCAA)

Administrative Contracting Officers (ACO)ProcuringContracting Officer (PCO)


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Professional Services

Electrician $45

Computer Technician $60

Auto Mechanic $60

Plumber $65

HVAC Technician $70

Accountant $40 to $200

Lawyer $200 to $500


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SUMMARY

Companies in the service-provider business must covercosts and make a profit. Those costs are reflected in the

burdened hourly rates charged.

Businesses and the government incur the same types ofcosts for their employees, with the possible exception of

profit for the government and non-profit organizations.However, cost centers and accounting practices may notallow these activities to fully realize the costs of providinga work place, equipping, and paying for their employeesservices.

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Components of Cost Svc Contracts