General and Administrative (G&A) Costs
DAU GLOSSARY DEFINITION
Any management, financial, or other expense incurred or allocated to a business unit for the general management and administration of the business unit as a whole.
A G&A expense is any expense incurred by or allocated to a business unit that benefits that entity as a whole. Although all contractors have different cost models, some common examples of G&A costs include legal staff, human resources staff, and chief executives’ salaries. G&A does not include expenses (i.e., overhead costs) that can be more directly allocated to an activity or function (e.g., material-handling or manufacturing).
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 G&A cost 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 G&A “base.” The total G&A pool would be divided by this base to derive a rate. This rate is then applied back to the TCI for each product or contract to equitably 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” that 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 that the direct material costs are taken out of the base for purposes of calculating the base. The end result does not directly benefit or hurt the contractor, but simply allocates the G&A in a way the contractor believes is most equitable to their contracts. Whichever method the contractor chooses, it must be consistent across all of their contracts. In other words, they cannot use the TCI method on one contract and the VA method on another.