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Adding Indirect Costs and Profit/Fee to Direct Travel - Allowable?
publication date: Jan 13, 2011
Can a subcontractor add Overhead and Profit to Per Diem costs?
Indirect Cost - Typically a firm (prime or subcontractor) can add Overhead or G&A to its' Direct Travel cost because allowable cost include both Direct and Indirect. The caveat is that this method must be the subcontractors normal policy AND the direct travel cost must be part of the BASE used to calculate their Indirect Rate.
They should be able to support this assertion by showing their Documented Policy OR describing the details of how they develop and apply their indirect rate(s). FAR 31.203 on Indirect Cost discusses consistency which is important in determining if indirect cost can be applied to direct travel.
Profit/Fee - Profit/Fee is looked at separately. Generally profit/fee is not added to Direct Travel cost. It is important to know what the Solicitation/Contract says and what type of contract it is.
If the contract indicates only Cost will be reimbursed for Direct Travel, then that generally excludes profit/fee. However, indirect costs, such as G&A (or Overhead if that is what it is called) can be added.
T&M (Time and Material) type contracts generally do not allow for profit/fee on Other Direct Cost such as direct travel, unless they are commercial items.
With Cost Reimbursement type contracts, typically all costs are proposed and then a profit/fee is proposed on Total Cost. This Fee is negotiated based on various factors. The details of the contract will dictate if one must exclude an item, such as direct travel from the base that profit/fee is applied.
Answers are rarely as simple or straight-forward as they appear! FAR Part 16 goes into greater details on types of contracts.
Don't forget to Document any decision/agreement with a subcontractor to minimize misunderstanding.
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