Indirect Rate Strategy & Cost Pool Management
Optimize Your Cost Structure, Strengthen Your Competitive Edge
Your Indirect Rates Define More Than Overhead—They Define Profitability
Indirect rates are the financial backbone of every government contractor’s business model. They determine how your labor, overhead, fringe, and general expenses flow into your pricing—and how much of those costs the government will reimburse.
At Peter Witts CPA PC, we design and maintain indirect rate structures and cost pools that meet FAR Part 31, CAS, and DCAA requirements—while giving you strategic insight into your margins and pricing flexibility.
We help you build rate models that are not just compliant but competitive, supporting both near-term cash flow and long-term growth.
Why Indirect Rate Strategy Matters
For cost-reimbursable, T&M, and even fixed-price contracts, your indirect rate design drives:
- Pricing competitiveness: Win or lose awards based on rate strength and justification.
- Cash flow stability: Avoid underbillings and overbillings tied to provisional rate variance.
- Audit readiness: Pass DCAA reviews and NICRA negotiations with defensible calculations.
- Strategic forecasting: See how rate shifts affect future proposals and profitability.
- Without a well-defined structure, contractors risk disallowed costs, strained margins, and audit findings—even when work is performed perfectly.
Compliant Cost Pool Design
Every compliant rate begins with properly defined cost pools and allocation bases. We help you:
- Structure Fringe, Overhead, G&A, and Service Center pools that align with your contract mix.
- Ensure each pool includes only allowable and allocable costs under FAR 31.205.
- Select consistent allocation bases (labor dollars, total cost input, or value-added base).
- Define clear criteria for direct vs. indirect cost classification.
- Document your logic for pool composition and allocation methodology in written policy.
Whether you manage a single overhead pool or a multi-segment cost structure across business units, we ensure every dollar flows logically, defensibly, and consistently.
Indirect Rate Calculation & Maintenance
A strong rate structure only works if it’s actively managed. We provide:
- Provisional rate setup for billing during the fiscal year.
- Actual rate tracking and variance analysis on a monthly or quarterly basis.
- Indirect rate true-up at year-end to reconcile billed vs. actual costs.
- Support for Incurred Cost Submission (ICE) schedules and rate reconciliation.
- Forward pricing rate proposals (FPRP) for negotiating FPRAs or PBRAs.
By monitoring rates throughout the year—not just at year-end—you maintain control over billing accuracy and protect working capital.
Provisional Billing Rate Agreements (PBRAs)
To bill indirect costs during contract performance, you need an approved
Provisional Billing Rate Agreement (PBRA) from your contracting officer or cognizant DCAA office.
We handle the full process:
- Develop rate projections with detailed pool and base documentation.
- Assemble PBRA submissions aligned with DCAA templates.
- Respond to audit inquiries and requests for supporting detail.
- Adjust and resubmit rates as your cost structure evolves.
Our team ensures your provisional rates are both realistic and fully supported, preventing billing delays and retroactive adjustments later.
Forward Pricing & Budget Integration
Indirect rate strategy must align with your forward pricing, budgeting, and cash flow planning. We help you model:
- Multi-year rate forecasts based on revenue growth and resource scaling.
- Sensitivity analyses showing how overhead and fringe changes affect total cost input (TCI).
- Impact of new hires, facility expansions, or subcontracting shifts on indirect pools.
- Rate negotiations that balance compliance with competitive bid pricing.
Our approach transforms indirect rates from a compliance burden into a strategic pricing tool that drives informed decision-making across contracts and proposals.
We empower our clients to grow with confidence by delivering high-quality, customized financial services that meet the exacting standards of the DCAA, NIH, DOE, and other federal agencies.
Frequently Asked Questions
What is “government contract accounting,” and how is it different from regular accounting?
Government contract accounting involves following specific federal rules, standards, and compliance requirements (e.g. cost allowability, audit readiness, indirect rates, DCAA standards). Unlike general accounting, your financial systems need to withstand audits, cost proposals, and strict oversight. We structure your accounting and reporting so you stay compliant and reduce risk.Do I need to worry about DCAA audit compliance?
If you hold or are bidding on U.S. federal contracts (especially cost-reimbursable, time & materials, or fixed price with cost elements), the Defense Contract Audit Agency (DCAA) may audit your accounting systems. We can help you build or review systems so you pass audits when they arrive.Can you help with indirect cost rates, cost proposals, and incurred cost submissions?
Yes — we support designing indirect cost rate structures, preparing cost proposals, and submitting incurred cost reports. These are critical tasks in government contracting, and we ensure your supporting records align with regulatory expectations.How much experience do you have in the federal contracting space?
Peter Witts CPA PC has over 36 years of experience in government contract accounting, including first-hand DCAA knowledge. We’ve worked with clients across DoD, NIH, DOE, and other agencies, helping them navigate the compliance landscape.What kind of businesses or projects do you work with?
We work primarily with companies engaged in federal contracts or grants (especially research, development, support services). If your business isn’t in that space, we’ll help you determine whether our services are the right fit or recommend alternatives.How do I get started with you?
You can schedule a free consultation via our website. During that call we’ll explore your current standing, challenges, and needs, and map out how we might support you. (Then we’ll formalize scope, pricing, and next steps.)What should I provide for an initial assessment?
Financial statements, accounting policies, prior audits (if any), contracts and grant agreements, cost accounting structure, payroll records, indirect cost allocations, and any compliance documents. We’ll review what you have, identify gaps, and propose next steps.How often will we interact / how do you deliver services?
That depends on the scope. For outsourced accounting, we could work on a monthly or quarterly basis. For compliance or audits, we may engage more intensively. We'll agree up front on communication frequency, deliverables, and review cycles.What are your fees or how is billing handled?
Our fees are fixed monthly fees and depend on the complexity and scope of your work — number of contracts, volume of accounting entries, compliance risk, etc. We’ll provide a proposal after our initial assessment. We only work on an hourly basis for audit support services for audits relating to government contracts or grants conducted by government agencies or outside CPA firms.What if my business is outside of your specialization—can you still help?
At Peter Witts CPA PC, we focus exclusively on our core strength: federal contract and grant compliance. We serve businesses operating within the government contracts and grants space, offering specialized outsourced accounting and tax services tailored to the unique requirements of this industry. This is our sole focus — we don’t try to be everything to everyone. Our expertise is deep, not broad, and it’s dedicated to helping government contractors navigate complex compliance and maximize their opportunities.What happens if there's a federal audit or examination?
We support audit responses, documentation requests, and work with your team to ensure you respond properly. Because we build systems with compliance in mind, we aim to minimize surprises and help you maintain defensible records.How do you keep up with changing federal regulations and compliance standards?
We continuously monitor federal regulatory updates (DCAA rules, OMB circulars, FAR/DFARS, audit guidelines) so our clients’ accounting systems remain in alignment with best practices and compliance requirements.
