Provisional rates are fringe, overhead and general and administrative cost rates projected for the coming year. These rates are submitted to and approved by DCAA
and then used on interim billings during the year. The process for computing your provisional rates is similar to computing your incurred cost submission at the end of the year.
Make a list of the contracts and work that you see occurring over the coming year. The revenue number is not as important as being able to compute the direct labor and materials costs associated with this revenue. Compute the number of direct labor employees, salaries, materials and products to be sold and other components of the projected revenue. Document these computations so you can answer questions from DCAA later if needed.
Using the fringe expenses you incurred last year compute what they will most likely be this year. If you are planning on adding a number of new employees it may be easiest to figure fringe expenses based on each employee rather than for all employees. This lets you multiply the per employee fringe expenses by the number of employees to get a projected fringe expense.
Last year’s results for overhead and general and administrative (G&A) expenses are a good starting point. Keep the same level as detail as you used last year to make comparisons easier. Look at each expense and determine if more or less expense is expected for the coming year. For example, check with your business insurance agent to see if the cost for your insurance policies will increase or decrease next year. Adjust the expense based on the agent’s information. I recommend you create a spreadsheet with a column for last year’s expense, columns for adjustments and a total column which will be the projected expense for the coming year. There should be a column for each adjustment made and a footnote explaining the adjustment and source documents.
Compute Initial Provisional Rates
Compute the provisional rates in the same manner used in your incurred cost filings. For the fringe rate divide total fringe expenses for the coming year by the total projected payroll (direct labor and administrative labor). To compute the G&A rate divide the total G&A expenses including administrative labor and fringes on administrative labor by direct labor plus fringes on direct labor.
Check Your Work
Compare the initial computed rates to actual incurred cost rates from prior years to make sure they look reasonable. You should be able to explain any significant changes to DCAA. If there are differences that can not be explained review your expense adjustments.
Submission To DCAA
Prepare a package to submit your proposed provisional rates to DCAA. The package is similar to the incurred cost submission and includes spreadsheets detailing fringe expenses and G&A expenses. There should also be a page showing how you computed direct labor for the coming year. A final spreadsheet will show your calculations of the provisional rates. Add a cover letter explaining what is being submitted along with your contact information.