Strategic Consulting Solutions, Inc.

Bidding on Government Contracts? …Be Prepared

Bid ProposalAre you planning to enter the world of government contracting or already submitted a proposal or two and waiting on award?  Whether you’re waiting or contemplating, there is a valuable way to spend your time…prepare your accounting system and procedures.  Doing business with the Federal Government can seem like a paradigm shift for companies used to only performing in the commercial arena.  Let’s take a look at some of the things that will need to be done differently than what you might be used to.


All employees must complete one, record all of their hours work and make sure it is recorded to the correct labor account.  This might have been previously considered ‘administrivia’   but not so any longer.  Either paper or electronic can be compliant and pass an audit.

Tracking costs by Job / Project 

This is more easily accomplished within an accounting system but spreadsheets can be used if you’re current system cannot provide this tracking easily.  Since all of the job costing must reconcile to the general ledger, an accounting system that can handle this reporting is a huge benefit and can minimize red flags.

Segregating Costs 

Your system needs to be able to segregate all types of costs, especially direct, indirect and something that might seem new – unallowable cost.  Direct costs are those that can be assigned to a specific project that will most likely be billed to the government.  Indirect costs are those that the company incurs but are not specific to any one project account. They are typically accounted for in cost pools (i.e. Fringe, Overhead, G&A) which will aid in another requirement we will discuss later on.  Unallowable costs are those that the government has deemed unrecoverable either through direct billing or by indirect cost allocation.  We have another blog on just Unallowable cost if you need a bit more information on this concept.

Indirect Rates

While commercial companies may calculate and know what their indirect rates are, probably none are used to monitoring them and staying on top of them to the extent that a government contractor will need to.  Each year a rate model should be created that will determine your provisional or budgeted rate for the upcoming fiscal year.  These will be the rates that you should be using when bidding new work.  As a result, it is imperative to monitor the actual rates to your provisional throughout the year.  Monthly is preferred, but quarterly at a minimum.  While the rates can be calculated outside of your accounting system, having a system that can produce this report for you is a huge benefit, both for a time savings and an audit perspective, not necessarily in that order.

Knowing what to expect before you jump into a government contract and find an auditor from DCAA at your door one day is good.  Proactively doing something about it so that you are ready is even better!  We help customers with this on a regular basis.  If you are looking to enter the GovCon market or think there are some things you might need to review to make sure you are prepared, please contact us.  We’ll be glad to assist.

Comments are closed.