Start-up government contractors are often confused by the difference between fringe, overhead and G&A expenses. The FAR gives no substantial guidance, leaving each contractor to make their own decisions.
Understanding these concepts will help you protect profits and give you the ability to negotiate new contracts effectively and competitively. Being correct and consistent in how you categorize expenses helps you effectively monitor escalating costs or eroding profit margins.
Rules for government contractors require you to distinguish and segregate direct costs from indirect costs. Common practice is to further categorize your indirect costs into subgroups (also called “pools”) – usually Fringe Benefits, Overhead and G&A.
Fringe benefits are costs related to employing your labor force. Examples include:
Overhead and G&A have a somewhat less clear definition. Overhead costs support the efforts of the direct labor workforce, not necessarily related to a specific contract.
Common examples of Overhead Cost:
General and Administrative (G&A) expenses are the residual costs necessary to run a business, regardless of whether you have government contracts.
Common examples of G&A Costs:
As you can imagine, this is not a definitive list of all potential costs. For more guidance, access the DCAA Information for Contractors or contact Aronson’s Governemtn Contract Industry Group or consult Barbara Morgan of Aronson’s Outsourced Accounting Solutions practice at 301.231.6238
About the Author: Barbara Morgan serves as a Director in the Deltek Outsourcing practice of Aronson’s Government Contract Services Group. She is responsible for implementing and integrating new Deltek clients and managing the outsourcing staff. She has over 25 years of experience in both public and private accounting.