What is a normal wrap rate?

There is no normal, and quoting somebody else's is how firms lose money. A lean shop with low facilities cost and mostly billable staff is much lower than a firm carrying laboratories, clearances and a compliance function. What matters is that yours is calculated from your own accounts and that you know which base your general and administrative rate sits on.

Should I price to the median of what the office has paid?

Use the band as context, never as a target. The median tells you the size of buy and whether your number is in the right universe. It cannot tell you whether this particular requirement is larger or smaller than the ones behind the median, which is why you read the individual awards nearest your scope rather than the summary statistic.

The published rate for my role is well below my wrap. What now?

Three honest options. Bid a different labour category that genuinely matches what the person does. Change the staffing mix so the hours sit where your rates are competitive. Or do not bid, and find work where your cost structure is an advantage rather than a handicap. Bidding below your cost to win a labour-heavy contract is the most reliable way to deliver it badly.

Do I have to show my indirect rates in a proposal?

On a fixed-price commercial buy with competition, usually not. On cost-type work and on larger negotiated buys, yes, in the format section L specifies, and they must be consistent with the rates you actually use. Proposing rates you do not use is exactly the inconsistency an auditor is looking for.

How do I price option years?

Deliberately, with escalation, because you may have to honour them years later. Look at what has actually happened to your labour and material costs over the last three years rather than assuming a round number, and remember that an option is the government's choice and not a renewal you can renegotiate.

Course, module 11 of 16

Pricing and cost

This is where most small firms lose, and usually not because they were too expensive. They were unable to show how they got to the number, or they priced commercial work and forgot what federal compliance costs them.

each pool sits on the total under it, which is why the order is not a style choice

By the end of this module you will be able to

Build a price from the bottom, in the order the indirect pools actually apply
Calculate and use your own wrap rate, which is the most useful single number in federal pricing
Read a price band from the award record and know what the spread is telling you
Say what you may be asked to prove at each size of buy, and what certifying cost data means
Keep unallowable costs out of a proposal rather than out of an argument later

Build it from the bottom

Whatever the contract type, the structure is the same.

Direct costs. The labour hours and materials that exist because of this contract. For services this is hours by labour category multiplied by a rate. For products it is material, machine time and labour.

Indirect costs. Everything real that is not attributable to one contract: rent, insurance, accounting, non-billable staff, equipment. These are collected into pools and applied to direct costs as rates.

Profit or fee. On top.

The combined effect of the indirect rates is your wrap rate: the multiplier from a direct labour dollar to a billed dollar. Knowing yours is the single most useful number in federal pricing, because it tells you instantly whether a published rate or a competitor's price is one you can live with.

Keep reading

The rest of this module opens with your name and email

All sixteen modules open on this device for about six months. No card and no password.

Still to come in this module

The order the pools stack, which is the thing most spreadsheets get wrong
Provisional rates, actual rates, and the true-up nobody plans for
What the record can tell you before you quote
What you may be asked to prove
Unallowable costs
A worked shape, so the arithmetic is visible
The words in this module, defined
Questions at this stage