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Wrap Rate Government Contracting

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Even if you are in a less competitive field or have a unique offering for a customer with a ton of funding, government contractors must monitor and maintain their wrap rates.

Companies can sometimes view this exercise as an annual corporate budget where you occasionally look at how you are doing and often look back and ponder, “What were we thinking?” This is not enough by a long shot.

The best practice is to review your financials each month and include an analysis of how you are performing. You should learn how to complete reviews monthly, make adjustments quarterly and consider a complete overhaul semi-annually to achieve your goals.

What Is a Wrap Rate?

Want an efficient way to determine the competitive cost of labor units before profit margins are added on? You can calculate the pricing of your services and products with wrap rate government contracting.

A wrap rate gives businesses insight into the pricing suited to buyers’ needs. The calculations can help companies decide if their proposal terms will be feasible or too high for the government to accept.

Additionally, the information can assist with forecasting and budgeting. As a result, businesses can plan how much to bid and predict where they stand compared to their competitors.

Calculating Wrap Rates

Calculating wrap rates for government contracting is essential for estimates. The calculation allows contractors to reflect their job costs on project bids accurately.

Generally, you multiply unit costs by the base pay of an employee. The result provides a unit of labor’s base dollar cost. Fringe, overhead and general and administrative (G&A) expenses are applied.

After determining the indirect costs, they’re added to the base dollar for hourly labor costs. Calculating the rates makes you better prepared to measure the actual costs of labor for future projects.

Benefits of a Wrap Rate Formula

An effective formula provides many advantages, including the following:

Effective Calculations

Save time and effort when you simplify the cost calculations for the prices in your proposals. The formula adds all indirect costs to get a single rate, so you don’t have to calculate each indirect expense separately.

Cost Visibility

Gain more transparency about indirect costs when determining the pricing for your proposals. The comprehensive view offers more clarity and accuracy so you can cover all necessary expenses when bidding on a government contract.

Easy Pricing Analysis

Analyze the impact of potential pricing changes so you can make informed decisions. The insight lets you determine the most cost-effective and competitive pricing strategy for your government proposals.

Compliance

Ensure compliance with cost accounting and pricing regulations with the calculations. The rates enhance the credibility of your proposals and minimize the risk of contract disputes or audits.

Flexibility in Developing Proposals

You can make adjustments to your direct costs and profit margins according to each contract’s requirements. The flexibility allows you to customize your pricing proposals to meet government agency needs while maintaining a beneficial pricing structure.

Ways to Lower Your Company Expenses

When evaluating your company’s performance and goals, consider the following:

  • Space: Do you really use it, do you need it and what is your company culture? Larger System Integrators are shedding their bloated infrastructure. Don’t build one unless you’ve got 5-year POP’s with all contractor site rates. And even then, keep it lean.
  • Wellness: When was the last time you competitively shopped your benefits? Or even your broker? Don’t get tied up in the same old “we only have a 2-5% increase, so that’s great” mentality. Depending upon your size, self-funding in some capacity may be of interest. Does anyone use the vision policy? What about dental? Have you considered reducing your contribution?
  • Training: With all of the online options these days, does your team really need individualized training or would an online package work? You could offer this benefit to more employees at a lower overall cost.
  • Education: Consider reducing the tuition reimbursement if very few people are using it. It’s nice to tout to potential new hires, but in reality, it’s not a deal-breaker. If it is, bonus the employee out to cover the costs.
  • Business development: Is the team on track to meet their goals this year, or has performance been underwhelming? It’s time to take stock of what’s working and address what isn’t working so you can make smart business choices and save money in the long run.

Achieve Your Goals With BOOST

Want to learn how to win and maintain more contracts in the GovCon industry? BOOST is ready to help! To learn about our consulting services, contact our team today!

Lucky or Good?

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Editor’s Note: This Article Has Been Updated December 5, 2022

As we head into the second half of the government fiscal year, do you find yourself looking at contractors who are on a winning streak and asking, “why do they keep winning?”  What is the secret sauce?  They don’t (at least from an outsider’s perspective) seem to be doing anything differently to gain GovCon success.  Their service offerings aren’t different than others.  They are winning with new clients, so it can’t be incumbent insider intel.  They aren’t the cheapest on the block, so they aren’t low-balling their bids to buy their way in.  Are they just lucky?  Or is it well deserved?

For those of us who work in GovCon all day, every day, we start to pick up on who will be successful and who will die on the vine.  Those that are winning have some of the following qualities:

  • Some differentiator in their service offering.  It doesn’t matter how loosely held that differentiator is.  I can go on for hours about lack of differentiation within GovCon and how “your people are the best athletes on the field” is NOT a differentiator. Those that win have glommed onto something they can promote as different, with this value being directly responsible for their GovCon success.
  • Proposal machines.  These folks know the extra work required for going after some of these bids.  They successfully shift or delegate their work to others to allow them to ramp up on proposal work.  This is not necessarily the same as having a proposal shop.  It just means they know how to prioritize and delegate and have put in the mechanisms to do so, gaining more opportunities for GovCon success.
  • Competitive rates.  Not necessarily low-ball rates, but something that is in line with their customers budgets, their main competition and the infrastructure that allows them to profit.  If you are winning often, you do NOT have to “buy your way in” on a new customer.
  • Recruiting machines.  They’ve got great candidates that they can flip to employees quickly.  Their resumes sing.  They have been working these candidates since they first smelled the pre-solicitation, as having the right people tends to lead to GovCon success.
  • Competitive Intel.  Someone there has been working the opportunity and the customer for months, if not years.  From the outside, this win may look like a total bluebird, but someone has been working it hard, quietly.
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With a few wins, the leadership strives for more, recruiters have an easier sell to candidates, employee referrals go up, teaming partners start to line up.  There is something about being a winner in this town that makes folks want to work for or with the company. Your GovCon’s success hinges on this continued growth. Throw in a little luck and timing, and that’s how you get the GovCon Swagger.  At least until the re-compete.
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While you may need to define some of these pieces for yourself, BOOST can assist with the prioritization and delegation of your most important tasks. We specialize in GovCon accounting, contracts, HR and/or recruiting, key pillars of GovCon success and growth. Pick one, two or a combination of all four to free up your work time to become a proposal machine. Send an email to [email protected] and let’s discuss how you can get started.