When it comes to government contracting, few topics cause as much confusion as General & Administrative (G&A) costs. They’re a necessary part of running a business, but if you don’t understand them, they can quietly eat away at your competitiveness. Worse yet, poorly managed G&A can cause issues with compliance, pricing, and even contract performance.
The good news? With the right approach, G&A costs can be tracked, managed, and even optimized so they work for your business instead of against it.
Defining G&A Costs and Their Role in Government Contracts
Indirect costs are expenses that can’t be pinned to a single contract but are still essential to running the business. Under that umbrella, you’ll typically see three categories: fringe, overhead, and G&A.
- Fringe Costs: Benefits like health insurance, retirement contributions, paid time off, and payroll taxes.
- Overhead Costs: Expenses that support contract performance at a segment or department level (e.g., fuel for a company vehicle or IT systems tied to a division).
- General & Administrative (G&A) Costs: The broadest category, costs that support the enterprise, such as executive salaries, accounting, HR, legal, or company-wide insurance.
The distinction between overhead and G&A is one that often trips firms up. Overhead supports work execution, while G&A underpins the entire enterprise. Put another way: overhead is what it costs to deliver projects; G&A is what it costs to stay in business. That nuance is important because contracting officers will scrutinize whether your G&A pool really reflects enterprise-wide support and not just contract execution.
Example – Misclassification:
- Before: A contractor classifies company-wide IT as overhead instead of G&A. The result: overhead rates skyrocket while G&A looks artificially low. Reviewers flag the imbalance, questioning whether the company understands cost allocation.
- After: By moving IT into G&A, overhead returns to a defensible level, and G&A properly reflects enterprise-wide support. The firm demonstrates it understands its indirect structure, earning credibility with auditors.
Calculating G&A Expenses Accurately
The common formula for a G&A rate looks simple:
G&A Rate = (Total G&A Expenses)/Total Cost Input (TCI)
But the “devil is in the base.” Total Cost Input (TCI) is the broadest option, spreading G&A across all direct and indirect costs. Because the denominator is larger, the resulting rate is typically lower and more stable, but it can mask inefficiencies if your pool is growing faster than your cost base.
By contrast, a Value-Added Base excludes materials and subcontracts. That smaller denominator produces a higher G&A rate, which may raise competitiveness concerns. However, it can also present a clearer picture of how much infrastructure supports the core labor-driven portion of your work. Consistency is key: auditors will question shifts in methodology that appear motivated by rate manipulation.
Here’s where contractors can misstep: changing methodologies from year to year without justification. Even if it lowers your rate, inconsistency will raise red flags in an audit.
And what makes a “good” G&A rate? There isn’t a universal benchmark. Small firms may see rates in the 10–15% range, while larger firms can often sustain 5–10%. What matters most is not whether your rate is high or low, but whether it’s defensible, grounded in consistent methodology and transparent classification.
Example – Base Selection:
- Before: A small GovCon uses Vaule-Added Base that excludes subcontract and material costs. Because subcontractor costs make up most of their spend, their G&A rate calculates at 14%, making them look “expensive” in bids.
- After: With DCAA approval, they switch to a Total Cost Input (TCI), which spreads G&A all over direct and indirect costs. . The same G&A pool now produces a defensible 8% rate, giving them stability in proposals without cutting necessary infrastructure.
Allocating G&A Costs to Contracts
In competitive bidding, your G&A rate becomes part of your pricing narrative: too high, and bids look inflated; too low, and reviewers may doubt whether your infrastructure can support the work.
What many contractors overlook is that FAR Part 31 requires equitable allocation of G&A across all contracts, including fixed-price ones. You cannot decide to leave a contract out simply because it might make your pricing less competitive. Every award must carry its share.
This is also where the line between overhead and G&A becomes critical. IT support for a single division is overhead; enterprise-wide IT systems are G&A. A business development manager supporting capture efforts may feel “contract-related,” but since their role benefits the company, they usually belong in G&A. Auditors apply a simple test: who benefits? If it’s the entire company, it’s G&A.
Example – Allocation Misstep:
- Before: A contractor excludes G&A from a fixed-price R&D contract, reasoning that the work is “standalone.” During an audit, DCAA questions the inequitable treatment, triggering a cost adjustment and repayment.
- After: The firm corrects its policy to allocate G&A across all contracts. In the next audit, reviewers find consistency in the application of FAR Part 31 rules, avoiding findings and building trust in the contractor’s internal controls.
Managing and Monitoring G&A Costs
Understanding G&A is one thing; managing it effectively is another. The strongest GovCon firms treat G&A not as a budget bucket, but as a strategic lever. A key part of that discipline is knowing what doesn’t belong in the pool.
Unallowable costs are expenses that federal regulations—specifically FAR Part 31—prohibit contractors from charging to government contracts, either directly or indirectly. In other words, the government will not reimburse these costs and including them in your G&A pool can trigger audit findings or credibility issues in proposals. Examples include alcohol, entertainment, lobbying, bad debt, and certain advertising. Because FAR Part 31 expressly names them, there is no gray area—these costs must be excluded from your indirect pools.
- Filter ruthlessly. Exclude unallowable costs ) and low value spend before they ever enter the pool. It’s not just about compliance; it’s about not wasting proposal credibility defending expenses you can’t recover.
- Right-size infrastructure. A $5M firm may manage HR off the side of a desk, but a $50M firm cannot. Your back office should grow in step with your pipeline, not faster.
- Invest in scalable technology. Cloud-based accounting, timekeeping, and HR tools reduce audit risk, but too many subscriptions can quietly bloat your G&A. Integration is the cost saver here.
- Stay proactive. Many firms true-up their rates only at year-end, leaving surprises during proposal season. Quarterly reforecasting keeps your rates accurate, and your bids more competitive.
- Tie every dollar to strategy. A G&A expense should either protect compliance, improve efficiency, or drive growth. If it doesn’t check one of those boxes, it’s noise in your pool.
Firms that approach G&A this way not only reduce expenses but also position themselves as disciplined, reliable, and competitive.
Example – Monitoring Discipline:
- Before: A mid-size contractor only adjusts its G&A pool at year-end. Midyear, they submit bids with outdated rates, and worse, a few unallowable items like a glossy magazine ad promoting the company (which FAR 31 expressly prohibits) are sitting in the pool. By the time the proposal evaluation comes back and auditors are questioning costs that FAR 31 expressly prohibits, further actual rates are 3% higher, eroding already thin margins.
- After: The firm implements quarterly reforecasting. Their G&A stays within 0.5% of projections, giving them the confidence to submit tighter bids, and the credibility to defend them if questioned.
Turning G&A from Burden to Advantage
It’s easy to see G&A as a burden, but managed well, it becomes a differentiator. Disciplined pools, FAR alignment, and transparency show evaluators your firm is prepared to deliver. Defensible rates give you the flexibility to bid aggressively without undermining your infrastructure.
At Cheryl Jefferson & Associates, we help GovCon firms build cost structures that are compliant, competitive, and scalable. Because when your G&A is under control, your entire business is better positioned to grow and WIN.
