Q.  Amongst the lessons learned in 2006, I see that our need for a Subcontractor/material handling rate is not truly representative of our business mix.  I intend to switch from a Value Added G&A to a Total-Cost-Input method, moving to the base of G&A all subcontractor and consultant costs. May I, under this new scenario, cap the G&A that I would eventually charge to the few subcontractors doing business with our company at a rate lower than our G&A Rate?  The rationale of a lower G&A would be to (a) remain competitive with contracts that cannot afford a full G&A applied to subcontractors’ costs and (b) lower indirect costs incurred to support the work done by Subs.

A.  There is nothing that prevents you from capping your G&A rate (or any other for that matter) applied to subcontractor costs even though you are entitled to a higher rate.  In fact, it is not unusual for specific customers to insist on that.  However, that is a matter affecting specific contracts and should not be a company-wide cap.  You may want to consider using a subcontract handling fee which would apply only to subcontracts which would result in you not including subcontracts in the G&A base?

{TAG_FORM_TITLE}