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
- costs, which if incurred in like circumstances for a final cost objective, would be treated as direct costs of that final cost objective, and
- 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.
Need Help with Proposal Preparation?
With years of experience in the government consulting industry, Redstone team can provide your organization with accounting assistance, support with cost proposals, and training to ensure your team is fully versed in proposal preparation.
Courtney is the Chief Executive Officer for Redstone Government Consulting, Inc. She is responsible for guiding the direction of the organization after spending several years as a vital member of the consulting and management team. Her entrepreneurial mindset and deep knowledge of the company and the government contracting industry have enabled Courtney to provide financial and operational leadership for Redstone while implementing a strategic vision for Redstone’s team and company growth. 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. This technical experience gives her the background needed to lead a high-performing managerial team and the leadership skills necessary to establish a growth mindset within the organization. Prior to her career in consulting, Courtney served as a financial statement auditor for large and mid-tier government contractors. This experience helped her to develop a deep knowledge of the markets and industry in which Redstone operates. Courtney was both an Advisory and Assurance Consultant and a Government Contracts Consultant with the CPA firm, Beason & Nalley, Inc., where she first provided services for various industries before focusing on risk assessments in the government contracting industry. Courtney is a lead instructor for the Federal Publication Seminars courses, “Government Contractor Accounting System Compliance,” and “Accounting Compliance – Training Academy” and provides class instruction for other compliance courses and webinars such as “Preparation of Incurred Cost Submissions,” “Cost Accounting Standards,” and “FAR Part 31, Cost Principles.” She is a CPA licensed in Alabama and holds a Master of Accountancy from the University of Alabama in Huntsville and a BS in Accounting from Jacksonville State University.