RCGI- Clarifying Costs-Bid & Proposal and Independent Research & Development

Quite often, in practice, we see contractors classifying too much cost as IR&D or more commonly, B&P expense.  In a proposal setting, experts from across your company support the development of a compliant proposal.  The question we see frequently is: “Who should be charging to B&P Projects?”  While a business may want to capture the total cost of a proposal effort, including administrative support from G&A staff, it is not wise to have these personnel charge to a B&P project where their labor will absorb overhead. 

This practice is not only non-compliant, but it also results in an unnecessary inflation of your G&A rate.  For this reason, we recommend establishing “sister projects” for the capture of total proposal cost.  The first project is the traditional B&P project, meaning that the labor charged to this project will be burdened in the same manner as your direct charge personnel up to the point where the loaded cost is transferred to the G&A pool for recovery.  The second project is strictly for your G&A personnel, who should not absorb overhead, and simply resides as an indirect project of your G&A pool.  By combining these projects through reporting, you see the total proposal cost, but don’t wind up over burdening your G&A labor.

CAS Project Cost Requirements

Specifically, those requirements are:

  • CAS 9904.420-40(b) – “The IR&D and B&P project costs shall consist of all allocable costs, except business unit general and administrative expenses.”
  • CAS 9904.420-50(a) – “The IR&D and B&P project costs shall include
  1. costs, which if incurred in like circumstances for a final cost objective, would be treated as direct costs of that final cost objective, and
  2. the overhead costs of productive activities and other indirect costs related to the project based on the contractor’s cost accounting practice or applicable Cost Accounting Standards for allocation of indirect costs.”

What does this mean to you?

This means that labor costs ordinarily identified as direct to a project (since those costs benefit only one contract) must also be handled in the same manner as direct cost for B&P projects when those charges benefit only a B&P project. But does this mean that typical administrative labor costs should always be charged as a direct B&P charge? 

CAS Preambles Provides Answers

The Cost Accounting Preambles and Regulations provide some insight to this dilemma.   The CAS Board debated whether to include the following language during the promulgation of the standard: “B&P administrative costs, when separately identified and classified as B&P costs in accordance with the contractor’s normal accounting practice, are not considered B&P costs for the purpose of this Standard.” 

Even though this verbiage did not make it into the CAS, it appears that CAS 420 did not contemplate non-technical administrative personnel charging as direct labor to a B&P project, unless those personnel consistently charged as direct labor in like circumstance to other final cost objectives.  Said simply, if your staff supporting proposals are not typically direct charge, they should not be charging to a B&P project. 

When looking at the typical proposal team, you have (generally) two groups: 

  • Technical and Support. Technical personnel include program/project managers, engineers and other typically direct personnel.  These personnel should be charging to the B&P project. 
  • Support Personnel. The second group of support personnel includes finance/accounting, pricing, business development, technical writers, graphics and other functions that are not ordinarily direct charge to contracts.  These personnel should either continue to charge to their home cost pool (typically G&A) or charge to an indirect project within their home cost pool.

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Written by Courtney Edmonson

Courtney Edmonson Courtney has extensive experience with Federal Acquisition Regulation (FAR) and Cost Accounting Standards (CAS) compliance, evaluation and preparation of Cost Presentations, cost accounting systems setup and reviews, and policy and procedure preparation. Prior to joining Redstone Government Consulting, Courtney served as a financial statement auditor for large and mid-tier government contractors. Courtney works with small and large contractors in pro-actively preparing contractors for government contracts challenges as well as resolving complex DCAA and government procurement issues. Courtney’s expertise includes establishing and/or evaluating job cost accounting structures; management and preparation of complex incurred cost and forward pricing rate proposals; evaluation of internal controls most often evaluated by DCAA to include billing and estimating systems; preparation/evaluation of policies and procedures; development of cost allowability evaluation programs, and; preparation of corrective action plans for overcoming DCAA audit findings. Courtney is a lead instructor for the Federal Publication Seminars course, “Government Contractor Accounting System Compliance”, and provides class instruction for other compliance courses and webinars such as “Preparation of Incurred Cost Submissions”, “Cost Accounting Standards”, and “Cost and Price Analysis”. Education Ms. Edmonson earned a Bachelor of Science Degree from Jacksonville State University and obtained her Master of Accountancy Degree from the University of Alabama in Huntsville, Alabama.

About Redstone GCI

Redstone Government Consultants are a team of the most senior industry veterans and the brightest new talent in the industry. Many have held senior government positions including leadership roles in the DCAA. Our new talents bring significant accounting and software experience along with fresh perspectives, inspiration and energy to our team. Through our leadership and combined experience, we provide a unique perspective, bringing both government and contractor proficiencies to bear and ensuring rock-solid government compliance for our clients.

Topics: Compliant Accounting Infrastructure, Small Business Compliance, Contracts Administration, Human Resources