The overhead indirect rate is a foundational building block of every incurred cost proposal. It captures costs associated with supporting the direct execution of contracts — facilities, maintenance, IT support, and indirect labor — and allocates them proportionally across cost objectives. Understanding how overhead is pooled, allocated, and applied is essential for DCAA audit compliance and accurate contract billing.
What Is the Overhead Rate?
The overhead rate is calculated by dividing total overhead pool costs (Schedule C) by the overhead allocation base (Schedule E). Unlike G&A, which covers company-wide management expenses, overhead is tied to specific functional activities like engineering, manufacturing, or program management. The resulting rate is applied to each contract's direct labor base before G&A allocation occurs.
FAR 31.203 & CAS 418 Compliance
FAR 31.203 governs how indirect costs are accumulated and allocated to cost objectives. CAS 418 requires that the allocation base represent the activity that causes or generates the overhead costs — typically direct labor. Together, these regulations ensure that overhead is distributed equitably across contracts and that the allocation method is consistently applied.
Multiple Overhead Pools
The ICP Dashboard supports up to six overhead pools (e.g., Engineering Overhead, Manufacturing Overhead), each with its own pool composition, allocation base, and computed rate on Schedule C(1) through C(6). This allows contractors with diverse operations to maintain separate overhead structures that accurately reflect their cost drivers.
Impact on the Rate Structure
Overhead is applied to contracts before G&A, making the overhead amount part of the G&A allocation base (TCI or Value Added). An error in overhead cascades through the entire rate structure. The ICP Dashboard computes overhead rates to 4 decimal places and automatically reconciles across Schedules A, C, E, and H to ensure mathematical accuracy.
The interactive breakdown below visualizes the overhead indirect rate calculation step by step, including pool composition, allocation bases, CAS 418 compliance, and how overhead flows through your incurred cost proposal.