What is a wrap rate, and how do I build one for a services bid without underpricing myself?

Question

I'm working on a state task order for grounds maintenance at a public university, responding to an RFQ for a small business set-aside. We currently have 9 full-time crew members and a few part-timers, and I'm trying to figure out how to bid our hourly rates. Our payroll is straightforward, but a consultant mentioned "wrap rate" and that I need to account for fringe, overhead, and G&A to avoid underpricing. I have our profit and loss statements from last year, but I'm not sure what numbers from there go into calculating a competitive wrap rate for a services bid. How do I take our actual costs and turn them into an hourly rate that covers everything without losing money on the contract?

Marcus T. · Accepted Answer

A wrap rate is an hourly rate that combines your direct labor cost with all your indirect costs and profit, giving you a comprehensive price for services. To build one, you start with your direct labor cost, which is the hourly wage you pay an employee, and then add the costs of fringe benefits, overhead, and general and administrative (G&A) expenses, plus your desired profit.

For state and local bids, you need to understand the specific cost categories your state or county procurement portal recognizes. Your profit and loss statements have all the numbers you need, but you have to break them down correctly. Fringe benefits include things like payroll taxes, health insurance, and paid time off. Overhead covers costs directly related to performing the work, like equipment maintenance, fuel, and supplies. G&A includes costs for running your business as a whole, such as office rent, administrative salaries, and professional services. Add up these indirect costs, divide them by your total direct labor dollars, and you get your indirect rates. Then you apply those rates to your direct labor cost per hour, add your profit margin, and that gives you your fully burdened, or "wrapped," hourly rate. This ensures you cover all your costs and make money on the job.

Jo R. · Answer

A wrap rate also needs to account for the specific labor categories and their associated costs, which is especially important for federal bids that often use prevailing wage determinations. While Marcus correctly outlines the components, you need to map your crew members' roles to the labor categories requested in the [RFQ](https://govcon.forum/glossary/rfq/) and then build a specific wrap rate for each category. For federal service contracts over $2,500, the Service Contract Act (SCA) applies, and you must pay no less than the prevailing wage and fringe benefits for each labor category in the geographic area where the work is performed. This means your direct labor cost for each category might be dictated by the wage determination, not just your current payroll. For state task orders, check if your state has similar prevailing wage requirements or if the university has specific labor rate expectations.

What is a wrap rate, and how do I build one for a services bid without underpricing myself?

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What is a wrap rate, and how do I build one for a services bid without underpricing myself?

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