Your G&A base is probably wrong

Almost every contractor inherits a G&A base rather than choosing one. Someone set it up in the first year, it went into the accounting system, and it has been running ever since. It is worth revisiting, because that single choice quietly determines which contracts look profitable and which competitions you can win.

The three options

Under the cost accounting standards, the G&A base is expected to be total cost input unless a different base better represents the total activity of the business. In practice contractors use one of three:

• Total cost input. Every dollar of direct cost — labor, fringe, overhead, material, subcontracts, travel — goes in the base.
• Value added. Total cost input less direct material and subcontract costs. G&A lands only on the work you actually perform.
• Single element. Usually direct labor alone. Simple, and defensible only in a narrow set of circumstances.

What the choice actually does

Take a contractor with ten million dollars of total cost input. Six million is labor, fringe and overhead. Four million is direct material and subcontract pass-through. The G&A pool is one and a half million.

The pool never changed. The rate moved ten points, and the burden moved entirely. Under total cost input, six hundred thousand dollars of G&A rides on material you bought and passed through. Under value added, none of it does.

Why this decides competitions

If you bid material-heavy work with a total cost input base, you are loading fifteen percent onto pass-through hardware. A competitor on a value-added base loads nothing onto theirs. On a large equipment buy that difference is not a rounding error — it is the reason you keep coming second on procurements you are technically well positioned for.

The reverse is just as real. On labor-heavy services work, the value-added contractor carries a twenty-five percent G&A rate into the evaluation while the total cost input contractor shows fifteen. Evaluators who compare posted rates rather than total evaluated price — and there are more of them than there should be — will read that as expensive.

Neither base is correct in the abstract. The right one depends on what your business actually does. A systems integrator moving substantial hardware and a professional services firm billing labor should not be using the same structure, and if they are, one of them is mispriced.

The part people skip

Changing a G&A base is a change in cost accounting practice. It is not a spreadsheet adjustment. Depending on your contract mix and whether you are CAS-covered, it can require a disclosure statement revision, advance notification, and a cost impact proposal showing the government is not worse off. Contractors who change the base quietly and hope nobody reconciles the prior year discover the problem during an incurred cost audit, which is the worst possible time and forum.

Done properly, the sequence is: model the impact across your current contract portfolio, confirm the new base better represents total activity, quantify the cost impact, notify, and then implement at a clean period boundary.

How to tell if yours is wrong

Three signals, in rough order of how often they show up:

• Your material and subcontract volume has grown substantially since the structure was set, and nobody revisited the base when it did.
• You are consistently competitive on labor-only work and consistently uncompetitive when hardware is in scope, or the reverse.
• Program managers describe certain contracts as profitable while the ledger disagrees, and the difference roughly tracks pass-through content.

Any one of those is worth a model. All three together mean the structure is costing you work.

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