Originally posted on http://www.graniteleadershipstrategies.com/
Organizations struggle to defend General & Administrative costs (G&A) as real costs. General & administrative costs, better known to some as G&A costs, are truly a cost of doing business. G&A costs are neither profit nor extra profit. It is real money spent by the organization.
In the Government contracting world, there is much pressure to limit, eliminate or reduce G&A. While this pressure is well-founded in being competitive, it’s important to recognize that it is a bona-fide cost of doing business and cannot be eliminated. When we survey contractors, 24% claim that they have considerable pressure to cut indirect rates. As much as 37% say they are often pressured to lower G&A or NOT charge full G&A on costs such as travel, materials, or subcontractors. Dangerously, 11% say they are pressured to take them down based upon what someone told them to get to. Yikes…..how can any company do that and not know the impact to recovering their costs?
We have been told repeatedly by some contractors, that the Government REFUSES to pay G&A on other direct costs such as travel even though the contractor bid it that way AND the proposal was incorporated by reference into the contract. This practice not only forces the contractor to be CAS 401 non-compliant but also forces the contractor to LOSE money because they are being forced to not recoup their legitimate G&A costs. A CAS 401 non-compliance says they contractor is not consistent in the way they estimate, accumulate and report costs (and also bill costs). The allocable G&A for that contract must be booked against that contract, and when unbillable, hits the bottom line.
When the Government does this in a solicitation, they are drawing a line in the sand about their negotiating position. Contractors who do apply G&A to these costs would have to decide to bid or not bid the project. Most who do decide to bid it, would have to make the costs non-billable but project allocable. These costs are not considered unallowable, which is different. In another post, we will cover what you do when the Contracting Officer refuses to do that.