Gain Strategic Pricing Insights from ICAT Budgets
ICAT's Budget Development Module Gives Contractors Key Insights to Support Pricing for Cost Proposals
What will indirect rates be during the proposed contract's period of performance?
Government Contractors must be able to recover indirect costs by properly pricing their work. Using ICAT's Budget Module, you can build-up a competitive plan of not just your direct costs, but also expected indirect costs for future periods.
Just as ICAT calculates indirect rates from your actual QuickBooks general ledger data, ICAT Budget reports calculate future indirect rates based on budgeted costs for the budget period.
Without a reasonable estimate of indirect rates for the period of performance of the contract, you run the risk of pricing work at a level that is insufficient for the full recovery of indirect costs. With budgeted rates, you have the insights to propose indirect rates that will be adequate for the recovery of future indirect costs.
How will winning a new contract impact indirect rates?
When a Government Contractor wins new work, indirect costs are allocated across a larger business base, which pushes indirect rates lower.
The ICAT Budget Module allows you to segregate cost proposal data from cost data for the existing backlog of work. By toggling your proposal data in and out of the budgeted indirect rate calculations, you can quantify the impact of that additional work on your indirect rates.
This budget analysis offers insights to inform pricing decisions. Let's say you win two new opportunities. Having those contracts in your portfolio will drive down your overhead and G&A rates. Knowing this you can consider using those lower indirect rates to price your proposal more competitively.
What will labor rates be in the new year?
Contractors may propose multiple positions in any particular labor category. The positions in a particular labor category may be staffed with employees of varying levels of experience and salary.
ICAT's Budget Module includes a report showing the weighted average base labor rate and the cost build-up to the fully loaded labor rate for each labor category specified in the budget.
How can you develop more accurate cost estimates?
A well-planned, detailed budget enables contractors to validate costs, analyze trends, and support proposed indirect rates.
By carefully considering both direct and indirect costs, you'll have a blueprint of how you anticipate future periods to unfold. With budget tools designed for government contractors, you can not only identify direct costs by job, but understand the indirect cost burden on each contract and proposal.
You also have a detailed position by position view of labor and benefits by employee, identifying how resources will be utilized on contracts.
With a clear view of total contract costs, you can have confidence in both recovering costs and making a profit. Export any report to Excel for deeper analysis of budget data, and include supporting budget data in the Cost Volume of a proposal.
What makes a pricing proposal reliable?
DCAA provides guidance for small businesses on its website, www.dcaa.mil, in a presentation entitled Elements of an Adequate Proposal.
In this presentation, DCAA emphasizes that straight-lining indirect rates for future periods with no supporting data or historical trends is not adequate to support a cost proposal. Inadequate data can draw more audit attention and delay contract negotiations.
A strong proposal includes detailed budgetary data and explains trend data and why rates will/will not change in future periods. Your budget process provides an opportunity to analyze each area of cost, and validate where you expect costs to remain fixed or where changes are anticipated.
How ICAT can help
ICAT’s Budget Development tool gives you key data to support your strategic planning and proposal pricing throughout the year. Don't rely on guess work and flat lined indirect rates. Build out proposal budgets, and toggle proposed work in/out of your overall budget to gain real insights. Contact us to learn more, or get started today with a free trial.