(Editor’s Note. There are several acceptable ways to account for contract labor for costing and pricing purposes and each should be considered in the light of your pricing objectives. Purchase labor has been a “hot topic” of late and our article, though based on no particular source, is a result of numerous articles and our own working knowledge.)

The use of contract labor has definitely increased over the last few years. Several factors have contributed to its proliferation. First, significant downsizing and early retirements in recent years have contributed to a significant staff shortage requiring use of former employees as consultants. Second, a tendency to use more specialized subcontractors and teaming arrangements have expanded the integration of subcontractors into the prime contractor’s workplace. Thirdly, the price competitiveness of many firmschasing fewer dollars have resulted in the use of temporary staff to cut down on overhead and fringe benefits. Whatever the reason, the use of such purchased labor has proliferated at both the prime and upper tier subcontractors’ own facilities and field offices.

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