G&A vs. Overhead: How Indirect Costs Build a Price
What each pool covers, how each is allocated, and where each lands in a cost buildup
Overhead is an indirect cost pool that supports a specific function, such as engineering or manufacturing, and is allocated to the work that function performs. General and administrative (G&A) expense supports managing and administering the business as a whole, is allocated across all of the company's work, and is usually the last indirect rate applied in a cost buildup.
At a Glance
Overhead
- Supports: A specific function or cost objective
- Common contents: Supervision, facilities, and equipment used by that function
- Typical allocation base: Direct labor dollars or hours of the function
- Place in the buildup: Applied earlier, to the direct costs it supports
G&A
- Supports: The business as a whole
- Common contents: Executive management, accounting, human resources, contracts; often bid and proposal costs
- Typical allocation base: Commonly total cost input; value-added and single-element bases are also used
- Place in the buildup: Typically applied last, before fee
What Is Overhead?
Overhead costs benefit a specific part of the business without tracing to a single contract. An engineering department's supervision, facilities, and equipment support every contract its engineers work on, so those costs are pooled and allocated to that work, usually in proportion to the department's direct labor.
Companies differ in how many overhead pools they keep. Some separate on-site and off-site overhead, or keep fringe benefits in a pool of their own.
What Is G&A?
G&A covers the costs of running the company: executive leadership, finance and accounting, human resources, contracts administration, and similar functions. Bid and proposal costs, which are allowable indirect costs under FAR 31.205-18, are often allocated through G&A as well.
Because G&A supports the whole operation, it is spread across a broad base. Total cost input is common. For contractors covered by the Cost Accounting Standards, CAS 410 also recognizes value-added and single-element bases where they better reflect how G&A benefits the work.
How Indirect Costs Stack in a Cost Buildup
A typical buildup follows this order, though each company's disclosed or established accounting practices control the details:
- Direct labor for each labor category
- Fringe benefits, when kept as a separate pool
- Overhead applied to the direct labor it supports
- Other direct costs, such as materials, travel, and subcontracts
- G&A applied to its base, often total cost input
- Fee or profit
The allocation base matters as much as the rate. Applying G&A to the wrong base produces the wrong price before fee is ever added, and indirect rates are a routine focus of government audit.
Why It Matters on a Bid
Indirect rates have a direct effect on competitiveness. Two companies with identical direct labor can arrive at different prices because of how they structure and allocate indirect costs.
Rates used in a proposal also need to match the company's accounting practices and be supportable in audit, which is why pricing teams, finance, and capture need to agree on them early.
Frequently Asked Questions
Is fringe part of overhead?
It depends on the company. Some contractors include fringe benefits in their overhead pool, and others maintain a separate fringe pool applied to direct labor before overhead.
What is a wrap rate?
A wrap rate is the combined multiplier of fringe, overhead, and G&A, and sometimes fee, applied to a direct labor rate to produce a fully burdened rate.
Are bid and proposal costs allowable?
Yes. Under FAR 31.205-18, bid and proposal costs are allowable as indirect costs, subject to the cost principles, and are commonly allocated through G&A.