Indirect Costs – Overhead or G&A?

In any company, it is important to differentiate between your direct and indirect costs.  The government contracting industry is no exception.  While direct costs are more straightforward, it can be difficult to decide how to classify your indirect costs. 

Unlike direct costs, indirect costs are all costs that are unable to be attributed to a specific business unit (examples being utilities, rent, administrative costs, etc.).  Overhead and General & Administrative costs (G&A) are two types of classifications of indirect costs.  While the two are similar, there are differences between the two which are important to know. 

Overhead is ordinarily used for costs incurred that are not direct costs, but that can be attributed to a specific revenue-generating project or job.   Any indirect labor or expenses that can be attributed to a certain project can then be distributed across those projects based on the projects’ direct labor hours, direct labor costs, or direct material costs, to name a few methods.  General & Administrative costs are any indirect expenses that are incurred in the general operation and management of the business as a whole.   The indirect costs of paying company-wide project coordinators or administrative staff, as well as the electric and phone expenses that the company as a whole incurs, would be classified as G&A.

More information concerning indirect costs can be found on the DCAA website in Chapter 6 of their Contract Audit Manual under Incurred Cost Audit Procedures.

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