What goes into calculating a wrap rate for direct labor on a federal services contract?

A wrap rate for direct labor on a federal services contract generally includes direct labor costs, fringe benefits, overhead, and general and administrative (G&A) expenses. The FAR does not define "wrap rate," but it outlines cost principles in FAR Part 31. These principles define what costs are allowable and allocable for federal contracts. Fringe benefits include items like health insurance, paid time off, and employer-paid taxes. Overhead costs are indirect expenses related to operating the business that are not directly tied to a specific contract, such as facility costs, utilities, and indirect labor. G&A expenses are the costs of managing the overall business, like executive salaries, accounting, and legal fees. Profit is typically added as a separate line item to the total price after all costs are calculated, not as part of the wrap rate itself. On a firm fixed price (FFP) contract, the contractor assumes maximum risk for all costs.