Model 7 – Overhead, Facilities and G&A

This model is just like model 2 with the addition of an allocation center for facilities. There are actually three indirect costs pools, however, there will be only two indirect rates and an additional facilities pool as an allocation center to allocate facilities costs to the other cost pools. The fringe pool is allocated to the overhead and G&A pools only. The fringe that is applied to direct labor is allocated to the overhead pool along with the fringe applied to overhead labor, rather than allocating it to the final cost objectives. The overhead and G&A pools, after absorbing their respective share of the fringe pool are allocated to the intermediate and final cost objectives as required. It also has an additional facilities pool as an allocation center to allocate facilities costs to the other cost pools.

The reason some contractors select this method is that, for purposes of simplicity in analyzing pricing, either they, or their clients, prefer to deal with only two indirect rates. For accounting simplicity, the contractor may prefer to accumulate the fringe costs into a separate cost pool, rather than trying to split these costs among the indirect costs pools when entering transactions into the books of account. The fringe pool is allocated on the basis of labor, just as it is in Model 6. The difference is that the fringe that would be allocated to final cost objectives in Model 6 is allocated to the overhead pool under this model. Consequently, all of the indirect costs reside within the overhead and G&A pools, so only indirect rates for these pools are used in developing the pricing for proposals.