Model 1 - Fringe, Overhead and G&A

This model is very basic. It is used when the contractor has no complications in the incurrence of indirect costs that require multiple overhead or G&A pools. It is easy for the contractor to administer, and easy for the contracting officers to understand. It provides for three indirect rates – one for each cost pool.

Fringe costs are accumulated into only one indirect cost pool, and are allocated on the basis of total labor. Fringe costs essentially are the costs associated with having employees: payroll taxes and employee benefits.

Because these costs are allocated on the basis of total labor, the fringe applied to direct labor will be allocated to final cost objectives, while the fringe applied to indirect labor will be allocated their respective indirect cost pools, to then be reallocated on whatever basis the costs of those pools are distributed. Consequently, fringe applied to overhead labor will be allocated to the overhead cost pool, and fringe allocated to G&A labor will be allocated to the G&A cost pool.