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    Negotiations objectives have been established on an A&E IDIQ contract with an overhead rate of 178%. Are material (paper, prints, CD's, and binding) acceptable as a seperate cost element to the Overhead rate?


    Answer

    First, in order to answer this question we must define overhead rate (which is an indirect cost).  FAR Part 2.101 defines an indirect (overhead) cost as, "any cost not directly identified with a single final cost objective, but identified with two or more final cost objectives or with at least one intermediate cost objective."  Note:  You can substitute the phrase "cost objective" with the words "contract" or "CLIN". 

    Second,
    FAR Part 15.408, Table 15-2 II (Cost Elements) defines typical cost elements.  Subparts A. and C. list material (direct cost) and indirect cost as cost elements.  FAR 15.408, Table 15-2 II, A., in part, defines material as raw material, parts, components, assemblies, and services to be produced by others.  So by definition paper, prints, etc. would be considered material.  A material overhead rate is calculated by dividing the material base into the material pool.  A pool is always in dollars and the base can be in dollars, number of hours, number of units, etc.  How do we determine the pool and the base will depend on a lot of different things including the FAR part definitions for direct and indirect costs,  contractor's compliance with FAR Part 31 (specifically 31.203 -- Indirect Costs), GAAP, and CAS (if applicable), and contractor's consistency, specifically in following its standard business practices and/or disclosure statement (if applicable). 

    Going back to the original question and taking into consideration the above information, if paper, prints, and CDs are being used to support two or more final cost objectives (contracts or CLINs) or with at least one intermediate cost objective (contract or CLIN) then they should be considered an indirect cost and included in the material overhead rate calculation.  If paper, prints, and CDs are being used to support (identified specifically with) a particular final cost objective (contract or CLIN) then they should be considered a direct cost.  Since we do not have all of the facts particular to your contract, program, and situation, we highly recommend  that you consult with your Contracting Officer and Legal Office for further guidance.

     

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