The Federal Acquisition Regulation (FAR)
The Federal Acquisition Regulation (FAR)
Government contracts can be a significant source of revenue for architecture and engineering (A+E) firms. To secure these contracts, your firm may be required to comply with the requirements of the Federal Acquisition Regulation (FAR).Â
Your Aldrich Advisors will help you understand your regulatory responsibilities associated with the FAR and assist you in developing the systems, procedures, and controls to comply with it. With these tools in place, you’ll have the ability and opportunity to confidently pursue potential government contracts.
What is the FAR?
The FAR is the primary regulation federal government agencies use to acquire supplies and services with appropriated federal funds. As part of the bidding process, you’ll likely be asked to submit an overhead rate (also called an indirect cost rate or ICR) based on FAR requirements.
What is an overhead rate?
For state and local contracting using federal funds, an overhead rate is the ratio of allowable indirect costs to total direct labor costs. In other words, it is the percentage of non-project expenses a firm can bill on a government contract.
Allowable indirect costs generally include fringe benefits, such as paid time off and health insurance. General overhead expenses, such as indirect labor, facilities, and professional fees, are also allowable. Unallowable expenses include items such as:Â
- Alcohol Â
- Bad debt expense (now called provision for credit losses)Â Â
- Entertainment Â
- Federal and deferred taxes Â
- Interest expense Â
- Political and charitable contributions Â
- Promotional advertisingÂ
What is a FAR audit?
The government agency issuing your contract may require an independent audit of your firm’s overhead rate. This audit may be referred to as a FAR audit, an indirect cost rate audit, an overhead audit, or even an American Association of State Highway and Transportation Officials (AASHTO) audit. Audit or other submission requirements differ by agency.Â
The first step is ensuring your company has all processes, systems, and procedures necessary to calculate the indirect cost rate in place. Next is preparing your Schedule of Indirect Costs based on the cost principles in Part 31 of the FAR. The schedule will be audited according to the Government Auditing Standards. The (AASHTO) Audit Guide summarizes the FAR rules—a valuable tool for your firm and your auditors.Â
An audit by a CPA with experience auditing overhead rates for A+E firms can:Â
- Help streamline negotiations for government agenciesÂ
- Provide a comprehensive assessment that ultimately saves time and effort through the agency review and/or approval processÂ
- Offer clarity of unallowable costs that will be paid for by profit  Â
Having an accurate overhead rate and understanding the drivers can optimize your potential reimbursement.Â
Pursue Government Contracts Confidently with Aldrich
If you’re ready to discuss how an overhead rate audit can move your business forward, let’s talk.Â
A+E Insights
Meet Our Far Advisor
Partner
Diana Strassmaier, CPA, CCIFP®
Aldrich CPAs + Advisors LLP
Diana joined the firm in 2018 with almost two decades of experience serving members of various industries including construction, engineering and architecture, manufacturing and distribution, and government contracting. A specialist on conducting overhead audits, Diana works closely with government contracting industry clients to offer clarity on how overhead rates work and help them maximize compensation…. Read more Diana Strassmaier, CPA, CCIFP®
Diana's Specialization
- Indirect cost rate (overhead) audits and consulting
- Financial audits, reviews and compilations
- Business and personal tax planning and preparation
- Certified QuickBooks ProAdvisor
- Management consulting
- Compensation analysis
- Sage Fixed Assets Certified Consultant
Looking for support or have a question?
Contact us to speak with one of our advisors.
"*" indicates required fields
