Overhead Rates, Provisional Rates, Loaded Rates, Burn Rates… oh my…

As a Government contractor, you’ll notice that there are many people that have interest in your rates. Your customers will ask about your indirect rates, potential clients about your forward pricing rates, business partners may ask what your loaded rates are, and you may be billing on provisional rates, while managing your burn rates.

So, what’s the fuss about all these rates? And, are they even important?

The short answer is yes, and the fuss is about making sure your indirect expenses are charged to each customer in a “fair and reasonable” manner.

Every business has those costs that are not directly tied to a customer’s job. For example, the cost of office rent, utilities, equipment, and executive salaries, etc. I do agree that every customer should pay for a portion of these expenses. But then how much is fair to charge?

The purpose of having indirect rates is to allocate your indirect expenses to each job (customer) in a fair and reasonable manner. Depending on the user’s need, different rates can be calculated as well. The short is as follows;

  • Overhead Rates:              An allocation method of indirect costs according to proportionate amounts of direct costs that may have caused or benefited from those indirect costs.

  • Provisional Rates:            Estimated indirect rates that are used for billing your clients until actual rates can be calculated at year end.

  • Loaded Rates:                    Commonly describes the hourly cost of labor when the relevant indirect rate is added to the direct labor rate.

  • Burn Rates:                         Commonly used by grant and fixed type contract awardees, represents the actual spending rate in comparison to the award amount. Used to identify profitability and sustainability.

That was indeed a short introduction to rates! More details will be discussed during our free webinar series. I will be offering the first “test” session on March 22, 2019 at 12pm EST. It’s really the first time I will be hosting a webinar, so make sure you come and witness whether I crash or succeed.

Thanks much!