Why Budgets are Important for PBR’s and Price Proposals

Part 2 of a 2-part series

Provisional Billing Rates and the Budget

Provisional Billing Rates (PBRs) are crucial for government contractors. PBRs are the projected indirect cost rates, like fringe, overhead, and G&A costs, for the next year’s billing.  The actual rates are settled at the end of the fiscal year.  Having a budget helps the company stay close to the PBR rates in order to avoid large fluctuations in rates at the end of the year.  This is where communicating the budget and company goals to employees becomes important.  Employees will need to stay within the budgeted amount of hours and spending in order for the company to be successful in minimizing fluctuations of the rates.  Reviewing the budget on a regular basis throughout the year will also be crucial to staying on target with the expected billing rates for the year.  Not only does the budget assist in creating the PBR and staying on target with those rates, but things change.  New contracts, loss of contracts, labor law changes, etc. can all affect the expected rates for the upcoming year.  Having a budget to show the effects of the anticipated changes helps to explain and defend proposed changes to the projected rates from last year’s final settled rates.

Price Proposals and the Budget

One specific area of a proposal is the cost and pricing (FAR Subpart 15.4 – Contract Pricing) of the project. For a government contractor who is already maintaining a budget, a large portion of the work of proposing estimated costs is already done.  Having a maintained budget means the government contractor should have a good handle on the expected rates, number of employee hours needed to complete certain tasks, the cost of employees (payroll taxes, fringe benefits, etc), travel and equipment leasing costs, etc.  All of these areas help in creating the proposal which should make the proposal process more efficient.  A budget will lay out the details and supporting information needed to explain and defend the proposed costs, equipping the government contractor to defend the proposed estimated costs and price.

The more accustomed to using and determining budgets business owners become, the more effective and useful the budgets will become. Business owners will be able to set goals and determine how to stay on target.  Government contractors will be able to make the PBR and proposal process more efficient and be better able to defend their proposed rates and costs as needed.  A budget is a business tool which should never be ignored.  You should talk to your accountant about your budget or start a budget to make sure you are on target for your company goals.

Contributed by Jamie M. Shryock, CPA