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  • Question

    What is the proper way for G&A Cost Of Money (COM) factors to be applied to a cost element in a contract proposal - in other words, against what cost elements should the factor be applied, and what FAR and other legal directives cover that requirement, as well as what organization within the DOD is the definitive authority on the answer?


    Answer

    For reference - Cost of Money (FCCOM) is in FAR 31.205-10. Cost of Money is computed on a DD Form 1861 and applied to investments the contractor has made in equipment. This amount (COM) is added to the total cost of the contract after profit has been computed and added. G&A is computed and added to the sub-total of the contract without FCCOM. The contractor is not allowed profit on FCCOM.

    G&A, is added to the total cost input of the contract. In the total cost input method, the totals for the applicable materials, subcontracts, direct labor, indirect expenses, and other direct costs are added together and the appropriate G&A amount/percentage is applied.

    The easiest way to see this relationship is to review the elements of the DD Form 1547 - Weighted Guidelines form.

    Sections 13-17 show you what is tabulated together to reach the sub-total (line 18) to which the G&A is applied in line 19 to give you your Total Costs in line 20.

    A G&A expense is any management, financial, and other expense which is incurred by or allocated to a business unit and which is for the general management and administration of the business unit as a whole. It does not include management expenses whose beneficial or causal relationship to cost objectives can be more directly measured by a base other than a cost input base representing a total activity of a business unit during a cost accounting period.

    • General Information/Narrative

      General and Administrative (G&A) expenses are grouped together into an overall G&A pool. In allocating the G&A indirect cost pool across contracts or product lines, businesses create a G&A “base” which is divided into the total amount of the G&A pool to derive a rate. For example, a company may have a total cost input (TCI) consisting of direct and indirect manufacturing costs, direct and indirect engineering costs and direct and indirect material costs which form the base. The total G&A expense would be divided by this base to derive a rate. This rate is then applied back to the total input costs to the each product or contract to equitable allocate the G&A cost pool.

       

      The CPRG, Volume 3, Chapter 9 and Volume 4, Chapter 2 describe how to allocate indirect cost pools across contracts or product lines, where businesses create “allocation bases” which are divided into the total amount of each pool to derive a rate. This applies to both overhead and G&A. However G&A has a couple of different approaches in how contractors may allocate. In some cases, rather than a total cost input (TCI) forming the base, a contractor may use a value added (VA) approach. This approach is the same as the TCI approach except the direct material costs are taken out of the base for purposes of calculating the base. The end result does not directly benefit nor hurt the contractor, but simply allocates the G&A in a way the contractor believes is most equitable to their contracts. Whichever way the contractor choses to use, they must be consistent across all their contracts. In other words they cannot use TCI on one contract and VA on another.

    • The CPRG or DoDD 7000.14 R are other resources you might use.

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