Q. We record labor by actual direct cost of employees and bid labor rates by labor categories (engineers, technical specialists, etc.) using average rates of individuals in that category.  We are bidding on a fixed price contract where we intend to use highly skilled engineers and find if we use the average rate we would be underbidding the people expected to do the work.  Can we create other categories? Would we violate CAS 401 which requires consistency in estimating and costing?

A. It is not uncommon to create either more categories (e.g. Senior Engineer, Principle Engineer) or subcategories (Engineer 1, Engineer ll) based on some discriminator such as years of experience, education, etc.  The only requirement is these categories need to be “homogeneous”.  You may not keep changing your categories so care should be take to determine whether your limited categories work to your advantage in the future (e.g. usage of lower paid engineers on certain contracts).   As for violation of CAS 401, I do not see a CAS noncompliance since CAS 401 allows estimates to be in less detail (labor by category) than for cost reporting (costs by individual labor rates).

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