Alternatives

We generated five alternative indirect rate structures that we believed were worthy of consideration. Though there were variations within each here is a simplified version of the alternatives:

A. Current method.

B. Increase handling rate. This alternative kept the current structure but reassigned dollars to different pools. (At this stage, we did not attempt to determine whether the reallocation of costs could be justified but only reassigned costs to see whether there might be a better result for pricing purposes.) We deducted an amount from the G&A cost pool and added these costs to the M&S pool so the result would be to double the M&S rate.

Alternatively, costs could be taken from the overhead rather than G&A pools or a portion from each.

C. Eliminate handling rate. Both the G&A pool and base are increased to absorb the costs that were included in the M&S pool and base. A modification might include increasing the overhead pool for the costs included in the M&S pool and increasing the G&A base for the subcontract and material direct costs.

D. Reduce the G&A rate to a more palatable 10%. Under all three alternatives above, the result was a G&A rate far in excess of the 10 percent level the government would accept as an add-on to subcontract costs. In order to achieve the desired 10 percent rate, approximately $700,000 of costs included in the G&A pool would have to be reallocated to overhead which would lower the G&A rate by both (1) decreasing costs in the pool and (2) increasing the costs in the G&A base.

E. Charge fringe benefits direct as a percentage of direct labor and change the overhead base to direct labor plus fringe. This change provides the appearance of lowering the overhead rate (both direct costs and fringe costs rather than only direct costs are in the overhead base) and making changes identified in D above would yield the 10% G&A rate.

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