My company is bidding on a federal time-and-materials contract for IT services, NAICS 541519, that is a small business set-aside. The solicitation number is out and the deadline is in three weeks. I am working on the price volume and trying to calculate a competitive wrap rate for our labor categories. I know the wrap rate needs to cover direct labor, indirect costs like overhead and general and administrative expenses, and profit. I have looked at some public data for similar contracts, but it is hard to tell if those rates truly reflect all costs or if they are just direct labor. How do I calculate a competitive wrap rate for a time-and-materials (T&M) contract? What are the key components I should be factoring in to ensure we are competitive while still covering our bases?
How do I calculate a competitive wrap rate for a time-and-materials contract?
Ask a question1 answer
To calculate a competitive wrap rate for a time-and-materials (T&M) contract, you must factor in direct labor, indirect costs, and profit. A T&M contract pays direct labor hours at fixed hourly rates that include wages, overhead, G&A, and profit, plus actual cost for materials (FAR 16.601(b) and (c)).
Begin by identifying your direct labor costs for each labor category based on the wages you pay. Then, determine your indirect cost rates for overhead and general and administrative (G&A) expenses. These rates distribute shared costs, like rent, utilities, and administrative salaries, across your direct labor. Finally, add a reasonable profit margin. Your profit should reflect the risk you are taking and the value you are providing. When analyzing public data, be aware that it might not always show the full picture of a competitor's indirect rates or profit margins. Focus on understanding your own cost structure first, then compare your fully burdened rates to available market data to ensure competitiveness.