My company is preparing a proposal for a federal time-and-materials (T&M) contract for IT services, NAICS 541519. It is a full and open competition with no set-aside. We are trying to figure out how to calculate a competitive wrap rate for our labor categories. The solicitation is due in three weeks. We have our direct labor costs, but I'm looking at how to factor in our indirect costs like overhead and G&A, and then profit. I know a time-and-materials contract pays direct labor hours at fixed hourly rates that include wages, overhead, G&A and profit, plus actual cost for materials. I have heard various things about what to include and what not to include, but I need a clear way to make sure our rates are competitive. What are the key components and methods to consider when calculating a wrap rate for federal T&M contracts to ensure competitiveness?
How do I calculate a competitive wrap rate for a federal time-and-materials contract?
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To calculate a competitive wrap rate for a federal time-and-materials (T&M) contract for IT services, you need to combine your direct labor costs with your indirect costs (overhead and G&A) and a reasonable profit margin. A time-and-materials (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)).
First, determine your direct labor costs for each labor category by looking at the wages you pay. Next, calculate your overhead rate by dividing your total indirect costs associated with operating your business (like rent, utilities, and administrative salaries) by your total direct labor costs. Then, calculate your General and Administrative (G&A) rate by dividing your total G&A expenses (such as executive salaries, marketing, and legal fees) by your total cost input (direct costs plus overhead). Finally, add a profit margin to your fully burdened cost. The sum of these components for each labor hour is your wrap rate. Reviewing historical award data on sites like USAspending.gov can help you understand what rates have been accepted for similar services and NAICS code to ensure your proposed rates are competitive.