Pricing & cost

Firm-Fixed-Price

A Firm-Fixed-Price contract provides a fixed price for supplies or services regardless of the contractor's actual costs. The contractor bears full responsibility for all costs and resulting profit or loss. FFP contracts are preferred when requirements are well-defined and costs can be reasonably estimated. FFP contracts offer the lowest administrative burden and incentivize efficiency because any cost savings become additional profit. However, they also create risk if requirements change or costs exceed estimates. Pricing must include sufficient margin to cover uncertainties. FFP is required for commercial items and is the default contract type when conditions support its use.

Time and Materials

A Time and Materials contract pays the contractor based on actual labor hours at fixed hourly rates plus actual costs of materials at cost (or with an agreed markup). T&M contracts are used when it is not possible to estimate the extent or duration of work or anticipate costs with reasonable certainty. T&M contracts require government surveillance to ensure efficient performance because the contractor has less financial incentive to control costs. Contracts must include a ceiling price that the contractor cannot exceed without authorization. T&M is common for professional services, maintenance, and support work where scope may evolve based on discovered issues.

Cost-Plus-Fixed-Fee

A Cost-Plus-Fixed-Fee contract reimburses the contractor for allowable costs incurred in performing the work plus a fixed fee (profit) that does not vary with actual costs. CPFF contracts are used when costs cannot be estimated with sufficient accuracy to use a fixed-price contract. The fee is established at contract award and remains fixed unless the scope changes. The contractor assumes minimal cost risk but must have an accounting system adequate to track and segregate costs by contract. CPFF is common in research and development and other efforts where outcomes are uncertain. Contractors must follow FAR cost principles and may face audit.

Cost Accounting Standards

Cost Accounting Standards are a set of rules issued by the Cost Accounting Standards Board governing how contractors measure, assign, and allocate costs on federal contracts. CAS ensures consistency and transparency in contractor cost accounting practices. CAS applies to negotiated contracts over certain dollar thresholds, with full or modified coverage depending on contract value and contractor status. Compliance requires consistent treatment of costs across contracts, disclosure of accounting practices, and agreement to adjust contract prices for cost accounting changes. CAS-covered contractors need robust accounting systems and cost accounting policies.

Truth in Negotiations Act

The Truth in Negotiations Act requires contractors to submit certified cost or pricing data for negotiated contracts above certain thresholds when price is not based on adequate competition or established catalog prices. TINA helps ensure the government pays fair prices by requiring disclosure of all relevant cost data. Contractors must certify that cost or pricing data is accurate, complete, and current as of the certification date. Defective pricing (submitting inaccurate data) can result in price adjustments, interest, and penalties. TINA exceptions apply to commercial items, adequate price competition, and prices set by law or regulation.

Actual Cost of Work Performed

Actual Cost of Work Performed is an earned value management metric representing the total costs actually incurred in accomplishing work during a specific time period. ACWP is compared against planned costs and earned value to assess cost performance and identify variances requiring management attention.

Cost-Benefit Analysis

Cost-Benefit Analysis is an analytical method used to evaluate the economic merits of an acquisition by comparing projected costs against expected benefits. CBA helps decision-makers determine whether an investment is worthwhile and compare alternative approaches to meeting requirements.

Cost Plus

Cost Plus refers to a category of contract types where the government reimburses the contractor for allowable costs incurred plus a fee. Cost-plus contracts include CPFF, CPIF, CPAF, and CPPC variations, each with different fee structures and risk allocation between government and contractor.

Cost Plus Award Fee

A Cost Plus Award Fee contract reimburses allowable costs plus a base fee and an award fee based on performance evaluation. The award fee pool is earned through meeting or exceeding performance criteria evaluated by the Award Fee Evaluation Board, providing incentive for superior performance.

Cost Performance Index

The Cost Performance Index is an earned value management metric calculated as earned value divided by actual cost. CPI indicates cost efficiency, with values above 1.0 showing favorable cost performance and values below 1.0 indicating cost overruns. CPI is a key indicator for forecasting final costs.

Cost Plus Incentive Fee

A Cost Plus Incentive Fee contract reimburses allowable costs plus a fee that varies based on the relationship between actual costs and target costs. CPIF contracts share cost risk between government and contractor through a formula that increases or decreases fee based on cost performance.

Cost Plus Percentage of Cost

Cost Plus Percentage of Cost is a contract type where fee increases proportionally with costs incurred. CPPC contracts are prohibited for federal acquisitions because they provide no incentive for cost control. This prohibition is a fundamental principle of federal procurement law.

Fixed Price

Fixed Price is a category of contract types where the contractor agrees to a set price for deliverables regardless of actual costs incurred. Fixed price contracts place cost risk on the contractor and include FFP, FPI, and FPAF variations with different risk and incentive structures.

Fixed Price Incentive

A Fixed Price Incentive contract establishes a ceiling price and target cost/profit with a sharing formula that adjusts final price based on actual costs. FPI contracts motivate cost efficiency by allowing contractors to increase profit through cost savings while capping government exposure.

Fixed Price Award Fee

A Fixed Price Award Fee contract combines a firm fixed price with an award fee pool earned through performance evaluation. FPAF provides incentive for superior performance on fixed-price work where quality, timeliness, or other factors beyond cost control are important evaluation criteria.

Independent Government Cost Estimate

An Independent Government Cost Estimate is the government's internal projection of what a procurement should cost, developed independently from contractor input. The IGCE serves as a baseline for evaluating proposal prices and determining price reasonableness during source selection.

Independent Research and Development

Independent Research and Development refers to contractor-initiated research conducted without direct government funding. IR&D costs may be allowable as indirect costs on government contracts within certain limits, encouraging contractors to invest in innovation that benefits future government programs.

Working Capital Fund

A Working Capital Fund is a revolving fund that finances goods and services provided by one government organization to others on a reimbursable basis. WCFs operate like internal businesses, with revenues from customers covering operating costs without annual appropriations.

Work In Progress

Work In Progress refers to partially completed work that has been started but not finished or delivered. WIP is important for contract accounting, progress payments, and performance measurement, representing costs incurred on work not yet accepted by the customer.

Year to Date

Year to Date refers to the period from the beginning of the current fiscal or calendar year to the present date. YTD metrics are used in contract reporting, financial analysis, and performance measurement to track cumulative progress and spending.

Contractor Financial Status Report

A Contractor Financial Status Report is a periodic financial report submitted by contractors to provide the government with current information on contract costs, funding status, and financial performance. CFSRs support oversight and enable timely identification of cost or funding issues.

Construction Work in Progress

Construction Work in Progress refers to the accounting for costs of construction projects that are not yet complete. CWIP tracking is important for major construction contracts to properly account for capitalized costs and work performed but not yet placed in service.

Fixed Price Incentive Fee

A Fixed Price Incentive Fee contract establishes a target cost, target profit, ceiling price, and profit adjustment formula. FPIF contracts share cost risk between government and contractor, with contractor profit varying based on relationship between actual and target costs within the ceiling.

Forward Pricing Rate Agreement

A Forward Pricing Rate Agreement is a negotiated agreement between a contractor and the government establishing billing rates for indirect costs to be used in pricing future contracts. FPRAs reduce negotiation time by pre-establishing agreed-upon rates for overhead, G&A, and other indirect costs.

Full-Time Equivalent

Full-Time Equivalent is a unit of measure representing one employee working full-time for one year. FTE calculations are used in contract pricing, workforce planning, and performance measurement to normalize staffing across different work schedules and part-time arrangements.

Generally Accepted Accounting Principles

Generally Accepted Accounting Principles are the standard framework of accounting rules and standards used for financial reporting. While government contracts follow FAR cost principles, GAAP compliance is relevant for financial statements and certain contractor accounting practices.

General and Administrative

General and Administrative costs are indirect expenses incurred for the overall management and administration of a business that cannot be directly attributed to specific contracts. G&A rates are applied to contracts as part of the indirect cost structure and are subject to audit.

Not to Exceed

Not to Exceed specifies a ceiling amount that cannot be surpassed without contract modification. NTE values are used for level-of-effort work, time-and-materials contracts, and task orders to establish funding limits and control government obligations.

Contract Financing Document

A Contract Financing Document authorizes and tracks contract financing payments such as progress payments, performance-based payments, or advance payments. CFDs document the basis for financing, amounts authorized, and liquidation requirements.

Fee for Service

Fee for Service is a payment model where contractors are paid for each service performed or deliverable provided. FFS arrangements are common in healthcare, professional services, and transaction-based contracts where work is measured in discrete units.

Obligation

An Obligation is a legally binding commitment by the government to pay for goods or services. Obligations represent funds reserved against appropriations and are recorded when contracts are awarded or modified to increase funding.

Incremental Funding Notice

An Incremental Funding Notice advises a contractor of additional funds obligated to a contract that was not fully funded at award. INCs modify the available funding amount and may adjust the amount of work authorized under the contract.

Price Reduction Clause

A Price Reduction Clause is a contract provision requiring price adjustments when certain conditions are met, such as when a contractor's commercial prices decrease. PRCs help ensure the government receives fair pricing throughout the contract period.

Rough Order of Magnitude

A Rough Order of Magnitude is a preliminary cost estimate used for planning before detailed requirements are known. ROMs typically have wide accuracy ranges and help agencies budget for future procurements during early planning phases.

Total Ownership Cost

Total Ownership Cost encompasses all costs of acquiring, operating, maintaining, and disposing of a system over its entire lifecycle. TOC analysis supports informed acquisition decisions by considering full lifecycle implications, not just purchase price.

Cost Schedule Risk Database

The Cost Schedule Risk Database is a repository of historical cost and schedule data used for risk analysis in government programs. CSRD supports probabilistic cost estimation and schedule risk assessment by providing empirical data on program variances.

Defense Pricing and Procurment Handbook

The Defense Pricing and Procurement Handbook provides comprehensive guidance on defense acquisition pricing policies and procedures. DPPH assists contracting officers and contractors in understanding cost and pricing requirements for defense contracts.

Actual Cost of Work Performed

Actual Cost of Work Performed represents the total direct and indirect costs actually incurred and recorded in accomplishing work performed during a given time period. ACT is a fundamental metric in Earned Value Management used alongside BCWP and BCWS to measure cost performance and variance. In EVM analysis, comparing ACT (also known as ACWP) against BCWP reveals cost variance—whether the project is over or under budget for work completed. Contractors using EVMS must accurately track and report actual costs to provide the government visibility into contract financial performance and enable early identification of cost overruns.

Best-Value Cost Analysis

Best-Value Cost Analysis is the evaluation methodology used to compare competing proposals when award will be made based on the best overall value to the government considering both technical merit and cost or price. BCA involves analyzing proposed costs for realism, reasonableness, and completeness. In best-value procurements, the government may pay more for superior technical approaches if the additional value justifies the price premium. The cost analysis examines labor rates, hours, material costs, indirect rates, and profit to ensure proposed prices are fair and reasonable. BCA supports the source selection authority's tradeoff decisions between technical excellence and cost.

Budgeted Cost of Work Performed

Budgeted Cost of Work Performed is the earned value metric representing the budget authorized for work that has actually been completed. BCWP measures progress by calculating the budgeted value of work accomplished, regardless of actual costs incurred, and is central to Earned Value Management analysis. BCWP is compared against BCWS (planned value) to determine schedule variance and against ACWP (actual costs) to determine cost variance. A BCWP lower than BCWS indicates the project is behind schedule; BCWP lower than ACWP indicates cost overrun. Contractors must accurately measure work completion using objective methods to report meaningful BCWP values.

Budgeted Cost of Work Scheduled

Budgeted Cost of Work Scheduled is the earned value metric representing the budget authorized for work planned to be accomplished by a specified date. BCWS establishes the time-phased budget baseline against which actual performance is measured in Earned Value Management systems. The sum of all BCWS values over the contract period equals the Performance Measurement Baseline. Comparing BCWS against BCWP reveals schedule variance—whether work is being completed as planned. BCWS is established during baseline development and should only change through formal baseline change control processes.

Bureau of Labor Statistics

The Bureau of Labor Statistics is a federal agency within the Department of Labor responsible for collecting, analyzing, and publishing statistical data on labor economics. BLS data is extensively used in government contracting for wage determinations, economic price adjustments, and cost analysis. Contractors reference BLS data for labor category pricing, geographic wage differentials, and escalation factors in multi-year contracts. The Service Contract Act and Davis-Bacon Act wage determinations draw on BLS occupational data. BLS inflation indices are commonly used in contract economic price adjustment clauses to adjust prices over time.

Department of State Standardized Regulations

The Department of State Standardized Regulations govern allowances, differentials, and benefits for U.S. Government civilian employees stationed overseas. DSSR establishes entitlements such as cost of living allowances, hardship differentials, danger pay, and living quarters allowances for personnel assigned to foreign posts. Contractors performing work overseas or employing personnel at foreign locations may reference DSSR rates when developing cost proposals for international contracts. Understanding DSSR allowances helps contractors accurately estimate labor costs for overseas positions and ensures competitive compensation packages that attract qualified personnel for foreign assignments.

Employment Cost Index

The Employment Cost Index is a quarterly economic indicator published by the Bureau of Labor Statistics measuring changes in labor costs including wages, salaries, and employer costs for employee benefits. ECI tracks compensation trends across industries and occupations without being affected by employment shifts between industries. In government contracting, ECI data supports economic price adjustment clauses in multi-year contracts, allowing periodic adjustments to labor rates based on documented market changes. Contractors may reference ECI when justifying proposed labor rate escalation or negotiating price adjustments. ECI provides objective, third-party data for cost discussions with contracting officers.

Earned Value

Earned Value is a project management methodology that integrates scope, schedule, and cost parameters to measure project performance and progress objectively. EV calculates the budgeted value of work actually completed, enabling comparison against planned progress and actual costs to identify variances early. Earned Value analysis uses metrics including BCWP (earned value), BCWS (planned value), and ACWP (actual cost) to calculate schedule variance, cost variance, and performance indices. Government contracts above certain thresholds require Earned Value Management System implementation. EV data provides early warning of performance problems and supports informed decision-making on contract management actions.

Qualified Business Income

Qualified Business Income refers to the net amount of qualified items of income, gain, deduction, and loss from a qualified trade or business operated as a pass-through entity. The QBI deduction, established by the Tax Cuts and Jobs Act, allows eligible taxpayers to deduct up to 20% of qualified business income from partnerships, S corporations, and sole proprietorships. For government contractors operating as pass-through entities, understanding QBI implications affects business structure decisions and tax planning. Specified service trades or businesses face income limitations on the deduction. Contractors should consult tax advisors to optimize their structure and ensure compliance with QBI rules while maximizing available deductions.

Rate of Return

Rate of Return is a financial metric measuring the gain or loss on an investment relative to the amount invested, expressed as a percentage. In government contracting, ROR analysis may apply to contractor financial performance, investment decisions, or evaluation of public-private partnerships. For contractors, understanding expected ROR helps inform bid/no-bid decisions, pricing strategies, and investment in capabilities. Government cost analysts may examine contractor ROR as part of price reasonableness determinations. ROR considerations influence contract type selection, with cost-reimbursement contracts typically yielding lower but more certain returns than fixed-price contracts.

Shipping and Administrative

Shipping and Administrative refers to costs associated with packaging, shipping, handling, and administrative processing of contract deliverables. S&A costs may be included in unit prices, charged as separate line items, or addressed through standard commercial terms. Understanding how S&A costs are treated in a contract affects pricing strategies and invoice preparation. Some contracts include S&A in the delivered price, while others reimburse actual shipping costs. FOB terms determine when title and risk transfer, affecting how S&A responsibilities are allocated between the government and contractor.

Schedule Variance

Schedule Variance is an Earned Value Management metric that measures the difference between work actually performed and work scheduled to be performed at a given point in time. SV is calculated as BCWP minus BCWS, with negative values indicating behind-schedule performance. SV provides objective measurement of schedule performance without relying solely on milestone dates. In EVM reporting, SV is often expressed as both a dollar value and a percentage (SPI - Schedule Performance Index). Significant negative schedule variance triggers management attention and may require corrective action plans. Understanding SV trends helps identify emerging schedule risks early.

Total Contract Spend

Total Contract Spend represents the aggregate value of all expenditures under a contract, including base contract value, modifications, options exercised, and task orders issued. TCS provides a comprehensive view of contract financial scope beyond initial award value. Tracking TCS helps both government and contractors understand actual contract utilization versus ceiling values. For IDIQ contracts, TCS relative to ceiling indicates remaining capacity for additional work. Contractors use TCS data for revenue forecasting, resource planning, and demonstrating past performance scope. Government procurement reports often reference TCS for spend analysis and market research.

Uncompensated Overtime

Uncompensated Overtime refers to hours worked by exempt employees beyond the standard work week for which no additional compensation is paid. In government contracting, UFP considerations arise when contractors propose labor rates that effectively include uncompensated overtime as part of their pricing strategy. When proposing uncompensated overtime, contractors must ensure proposed hours are realistic and that cost proposals properly reflect the effective hourly rates. Government evaluators assess whether UFP assumptions are reasonable and sustainable. Excessive reliance on uncompensated overtime can raise realism concerns and may indicate understaffing or unrealistic performance assumptions.

Automated Clearing House

The Automated Clearing House is an electronic network for financial transactions in the United States, processing direct deposits, payroll payments, and electronic funds transfers. ACH is the standard method for government contract payments, enabling efficient electronic transfer of funds from Treasury to contractor bank accounts. Contractors must provide ACH banking information during SAM.gov registration to receive contract payments. ACH payments replace paper checks for most federal transactions, reducing processing time and costs. Understanding ACH payment cycles helps contractors forecast cash flow and reconcile payments with invoiced amounts.

Appropriations Change Request

An Appropriations Change Request is a formal request to modify how appropriated funds are allocated or used within authorized purposes. ACRs may involve reprogramming funds between accounts, adjusting budget allocations, or requesting additional authority to obligate funds for specific purposes. ACRs follow established congressional notification and approval procedures depending on the magnitude and nature of the change. Understanding that funding changes require formal processes helps contractors appreciate why contract funding modifications may take time and require multiple approvals.

Agency Negotiated Cost Proposal

An Agency Negotiated Cost Proposal is a cost proposal that has been reviewed, analyzed, and negotiated between the contractor and government to establish agreed-upon costs, rates, and pricing elements. ANCPs form the basis for contract pricing and are documented in the contract file. ANCP development involves submission of cost or pricing data, government analysis and audit, negotiation discussions, and final agreement on pricing terms. Understanding the ANCP process helps contractors prepare for negotiations and document their cost positions effectively. ANCP outcomes establish the baseline for contract administration and modification pricing.

Avoidable Variance

Avoidable Variance refers to cost or schedule deviations that could have been prevented through better planning, management, or execution. AV analysis distinguishes controllable variances from those caused by external factors beyond contractor influence. In Earned Value Management and performance analysis, identifying avoidable variances helps focus management attention on areas where corrective action can be effective. Demonstrating understanding of variance causes and implementing corrective actions for avoidable variances supports positive performance assessments and continuous improvement.

Budgeted Cost of Work Performed Variance

Budgeted Cost of Work Performed Variance measures the difference between the budgeted value of work completed and a reference value such as planned work or actual costs. BCWPV analysis is central to Earned Value Management for identifying cost and schedule performance deviations. BCWPV calculations support variance analysis reports required on contracts with EVM requirements. Positive variances indicate favorable performance while negative variances signal potential problems. Understanding variance trends and causes helps contractors develop effective corrective actions and maintain program health.

Bid History Summary

A Bid History Summary is a compilation of historical bidding data for a specific requirement or commodity, showing previous bid prices, number of bidders, and award outcomes. BHS supports market research and price reasonableness determinations for follow-on procurements. Contracting officers use BHS data to establish price expectations and evaluate current proposals against historical norms. Contractors can reference publicly available bid history through FPDS and other sources to inform pricing strategies. Understanding historical pricing helps contractors position competitively while maintaining profitability.

Budget Line Item

A Budget Line Item is a discrete element within a budget structure that allocates funding for a specific purpose, program, or activity. BLIs provide the basis for financial tracking, obligation authority, and expenditure reporting within government accounting systems. Understanding BLI structures helps contractors appreciate funding constraints and reporting requirements affecting their contracts. Contract funding often corresponds to specific BLIs, and modifications may require coordination across multiple budget elements. BLI visibility supports financial planning and helps contractors anticipate funding availability.

Budget Program

A Budget Program is an organized set of activities and resources directed toward a common purpose or goal, structured within an agency's budget framework. BPs provide the organizational basis for budget formulation, justification, and execution. Understanding how customer budget programs are structured helps contractors identify funding sources and align their offerings with programmatic priorities. Budget program decisions affect contract funding availability and timing. Contractors tracking customer budget programs can anticipate procurement opportunities and funding constraints.

Blanket Tasking Unit

A Blanket Tasking Unit is a pre-established work unit or service increment used to simplify ordering and pricing under blanket purchase agreements or task order contracts. BTUs define standardized service packages with fixed prices, enabling rapid ordering without individual negotiations. BTU structures reduce administrative burden for routine, recurring requirements. Understanding how BTUs are defined and priced helps contractors develop competitive rate structures and efficient delivery models. BTU-based contracts emphasize responsiveness and consistent service delivery at established price points.

Business Unit

A Business Unit is an organizational segment within a company that operates with defined responsibilities, resources, and performance accountability. BUs may be organized by market, product line, geography, or function and serve as the basis for indirect cost allocation and management reporting. In government contracting, BU designations affect indirect rate structures, cost accounting, and organizational conflicts of interest. DCAA audits examine how costs are allocated across business units. Understanding BU structures helps contractors maintain compliant accounting systems and appropriately allocate costs to government contracts.

Contract Access Fee

A Contract Access Fee is a charge assessed by a contract-holding agency on orders placed by other agencies through government-wide or multi-agency contract vehicles. CAFs fund contract administration and management activities performed by the administering agency. CAFs are typically calculated as a percentage of order value and are incorporated into contract pricing or charged separately. Understanding CAF structures helps contractors and ordering agencies evaluate total costs when using assisted acquisition vehicles. CAF rates vary by contract vehicle and may be negotiable for large orders.

Cost Estimate

A Cost Estimate is an assessment of the likely costs to complete a defined scope of work, developed using historical data, parametric models, engineering analysis, or vendor quotes. CEs support budget planning, proposal pricing, and cost reasonableness evaluations. Accurate cost estimating is fundamental to successful government contracting. Government CEs establish expectations for proposal evaluation while contractor CEs inform bid decisions and pricing strategies. Well-documented CEs with clear assumptions and basis of estimate support defensible pricing and successful negotiations.

Cost Estimating Relationship

A Cost Estimating Relationship is a mathematical expression that relates cost to one or more independent variables such as weight, complexity, or performance parameters. CERs enable parametric cost estimation by applying historical cost data to new programs with similar characteristics. CERs are developed through statistical analysis of historical cost data and are validated against actual program outcomes. Understanding CER development and application helps contractors prepare credible parametric estimates and respond to government cost realism evaluations. Well-documented CERs support price reasonableness determinations.

Contract Full-Time Equivalent

A Contract Full-Time Equivalent is a measurement unit representing one person working full-time on a contract for a defined period, typically one year. CFTEs provide a standardized way to measure and compare labor effort across contracts regardless of actual staffing arrangements. CFTE calculations normalize part-time, overtime, and varying work schedules to equivalent full-time positions. Understanding CFTE requirements helps contractors plan staffing and pricing for labor-intensive contracts. Government agencies use CFTE metrics for workforce planning, budget justification, and contractor staffing oversight.

Central Intelligence Agency Retirement and Disability System

The Central Intelligence Agency Retirement and Disability System is a specialized retirement program for intelligence community personnel. In contracting contexts, CIARDS references may appear in personnel cost structures, benefits administration, or contractor support for intelligence agency human resources functions. Contractors supporting intelligence agency HR systems may need to understand CIARDS along with other federal retirement systems. CIARDS has unique provisions reflecting the specialized nature of intelligence work. Compliance with CIARDS requirements may affect contractor operations supporting intelligence personnel management.

Cost Non-Add

Cost Non-Add refers to cost elements that are not included in calculation bases for indirect rate application or fee calculations. CNAs are tracked separately to avoid inappropriate multiplication of costs through indirect rate structures. Understanding CNA treatment helps contractors develop compliant cost proposals and maintain accurate accounting systems. Common CNAs include subcontract costs above certain thresholds, purchased materials, and travel expenses. DCAA reviews CNA treatment during audits to ensure costs are appropriately classified and rates are correctly applied.

Capital Planning and Investment Control

Capital Planning and Investment Control is a decision-making process for federal IT investments, ensuring that investments support agency missions, reduce risks, and provide returns. CPIC integrates budget, procurement, and project management decisions for IT portfolios. CPIC processes affect how agencies prioritize and fund IT initiatives. Understanding CPIC helps contractors align solutions with agency investment priorities and budget cycles. CPIC reviews evaluate business cases, alternatives analyses, and performance metrics. Strong alignment with CPIC priorities supports IT opportunity pursuit.

Cost Plus Percentage of Cost Fee

Cost Plus Percentage of Cost Fee is a contract type where the contractor's fee is calculated as a percentage of allowable costs incurred. CPPCF contracts are prohibited for federal government use because they provide incentive to increase costs rather than control them. Understanding the CPPCF prohibition helps contractors avoid proposing prohibited arrangements and recognize compliant cost-reimbursement alternatives. Legitimate cost-plus arrangements include CPFF, CPIF, and CPAF where fees are fixed or tied to performance rather than cost magnitude. CPPCF restrictions protect government interests in cost control.

Direct Cost

Direct Costs are expenses that can be specifically identified with a particular contract, project, or cost objective. DCs include direct labor, direct materials, subcontracts, travel, and other costs incurred solely for contract performance. Understanding DC identification and allocation is fundamental to government contract pricing and accounting. FAR cost principles govern DC allowability and allocability. Proper DC classification affects indirect rate calculations and overall contract profitability. DCAA reviews DC treatment during audits and proposal evaluations.

Direct Funding

Direct Funding refers to budget authority provided directly for a specific program, project, or activity rather than through working capital funds or reimbursable arrangements. DF provides dedicated resources for designated purposes. Understanding funding types helps contractors anticipate customer budget constraints and contract funding approaches. DF appropriations have specific purposes and limitations that affect contract scope and modifications. Different funding types may have different fiscal year constraints and obligation rules.

Direct Labor

Direct Labor refers to labor costs that can be specifically identified with and charged directly to a particular contract or cost objective. DL includes wages, salaries, and associated costs for employees performing work directly on contract requirements. Understanding DL classification is fundamental to government contract pricing and cost accounting. DL costs form the base for many indirect rate calculations. Proper DL identification and charging supports compliant cost accounting and accurate contract pricing. DCAA examines DL practices during audits.

Direct Labor Hour

A Direct Labor Hour is a unit of measure representing one hour of work performed directly on a contract or cost objective. DLH tracking supports cost accounting, billing, earned value management, and performance measurement. DLH data is essential for labor-intensive contracts where pricing and performance are measured in hours. Understanding DLH tracking requirements helps contractors develop compliant timekeeping systems. DLH rates multiplied by hours provide the basis for labor cost calculations in many contract types.

Economic Order Quantity

Economic Order Quantity is a formula-based inventory management approach that determines the optimal order quantity minimizing total inventory costs including ordering and holding costs. EOQ analysis supports efficient procurement and inventory management decisions. EOQ considerations affect delivery order quantities and logistics contract pricing. Understanding EOQ principles helps contractors develop efficient supply chain strategies. EOQ calculations balance procurement frequency against inventory carrying costs to optimize total costs.

Economic Price Adjustment

An Economic Price Adjustment is a contract clause that provides for upward or downward revision of contract prices based on changes in specified economic indicators such as labor rates, material costs, or established price indices. EPA clauses allocate inflation risk between government and contractor. EPA provisions are appropriate for multi-year contracts where cost uncertainty makes firm-fixed pricing impractical. Understanding EPA mechanisms helps contractors develop pricing strategies that account for economic fluctuations. EPA adjustments require documentation demonstrating actual cost changes tied to specified indicators.

Estimate to Complete

Estimate to Complete is the projected cost required to finish remaining contract work from a specific point in time. ETC calculations are essential for earned value management, financial forecasting, and management decision-making. ETC accuracy affects program budgeting and performance assessments. Understanding ETC development helps contractors provide reliable forecasts and manage cost performance. ETC combined with actual costs to date yields the Estimate at Completion, a key program management metric.

Facilities Capital Cost of Money

Facilities Capital Cost of Money is an imputed cost representing the contractor's investment in facilities capital employed in contract performance. FCCM is an allowable cost element recognizing the cost of capital tied up in contractor facilities and equipment. FCCM calculations follow CAS 414 requirements based on net book value of facilities capital and Treasury rates. Understanding FCCM helps contractors recover appropriate capital costs. FCCM is calculated separately from other costs and added to contract prices after profit/fee determination.

Federal Financing Bank

The Federal Financing Bank is a government corporation within the Treasury Department that provides financing for federal agencies and federally sponsored programs. FFB financing may affect funding structures for certain government programs and contractor payment arrangements. Understanding FFB role helps contractors comprehend government funding mechanisms for some programs. FFB financing supports various loan guarantee and lending programs. FFB rates and terms may affect program economics and contractor cash flow considerations.

Firm Fixed Price – Level of Effort

Firm Fixed Price – Level of Effort is a contract type requiring the contractor to provide a specified level of effort over a stated period for a fixed price. FFP-LOE contracts pay for effort rather than deliverables, with the government accepting risk that effort may not achieve desired outcomes. FFP-LOE is appropriate when work cannot be defined in terms of specific end products. Understanding FFP-LOE characteristics helps contractors price and manage level-of-effort requirements. FFP-LOE requires accurate effort tracking and may involve specific labor category and hour requirements.

Firm Fixed Price with Economic Price Adjustment

Firm Fixed Price with Economic Price Adjustment is a contract type combining a firm fixed price with provisions for adjusting the price based on specified economic indicators. FFP-EP provides price certainty while accommodating economic fluctuations over contract duration. FFP-EP is appropriate for longer-term contracts where inflation risk would otherwise require excessive price contingencies. Understanding FFP-EP mechanics helps contractors develop appropriate pricing strategies. FFP-EP adjustments follow contract-specified formulas tied to labor indices, material costs, or published price lists.

Fiscal Year

A Fiscal Year is the twelve-month accounting period used for budgeting and financial reporting. The federal government fiscal year runs from October 1 through September 30, with FY designation reflecting the calendar year in which it ends. Understanding FY timing is critical for government contracting, as it affects funding availability, obligation deadlines, and procurement cycles. End-of-FY periods typically see accelerated contracting activity. FY budget cycles drive agency procurement planning and priorities.

General and Administrative Cost Pool

A General and Administrative Cost Pool is the accumulated indirect costs supporting overall business operations that cannot be directly attributed to specific contracts or projects. G&A pools include executive management, corporate functions, and general business expenses. G&A pool composition and allocation methods affect indirect rates and contract pricing. Understanding G&A pool requirements helps contractors develop compliant cost accounting systems. DCAA examines G&A pool content and allocation methods during audits.

Government Cost Estimate

A Government Cost Estimate is the government's internal assessment of expected costs for a procurement action. GCEs inform budget planning, price reasonableness determinations, and negotiation positions. GCEs are typically procurement-sensitive and not disclosed to contractors. Understanding that GCEs exist helps contractors appreciate the importance of well-supported pricing. GCE development uses various methodologies including parametric analysis, analogies, and engineering estimates. Contractor prices significantly above GCEs may face additional scrutiny.

General Ledger

The General Ledger is the master accounting record containing all financial transactions and account balances. GL structure and accuracy are fundamental to contractor accounting systems and government contract cost accounting compliance. GL requirements support cost accounting, financial reporting, and audit readiness. Understanding GL structure helps contractors maintain compliant accounting systems. DCAA examines GL accuracy and structure during accounting system audits and cost proposal evaluations.

Gross Margin

Gross Margin is the difference between revenue and direct costs, expressed as a percentage of revenue. GM analysis helps contractors assess contract profitability and pricing competitiveness before indirect costs and profit. Understanding GM helps contractors evaluate pricing strategies and contract economics. GM varies by contract type, competition, and performance risk. Strong GM management supports overall business profitability and financial sustainability in government contracting.

Independent Cost Estimate

An Independent Cost Estimate is a cost assessment prepared separately from the contractor's proposal to provide an objective basis for evaluating proposed prices. ICEs support price reasonableness determinations and negotiation strategies. Understanding that ICEs inform government evaluations helps contractors develop well-supported pricing. ICE preparation involves independent analysis of requirements, market conditions, and historical data. ICE accuracy affects procurement decisions and negotiation outcomes.

Labor Category

A Labor Category is a classification of personnel based on skills, experience, education, and responsibilities. LABs standardize labor descriptions for pricing, staffing, and performance evaluation in service contracts. Understanding LAB definitions helps contractors develop compliant staffing and pricing approaches. LAB qualifications determine personnel eligibility for specific roles. LAB rates established in contracts affect pricing competitiveness and profitability.

Labor Agreement Matrix

A Labor Agreement Matrix documents the labor categories, rates, qualifications, and terms applicable to a contract or set of contracts. LAMs provide a reference for staffing decisions, pricing calculations, and compliance verification. LAM accuracy is essential for contract pricing and staffing compliance. Understanding LAM requirements helps contractors manage labor costs and qualifications. LAM updates may be required as rates change or labor category definitions evolve.

Life-Cycle Cost

Life-Cycle Cost is the total cost of a system over its entire life span, including acquisition, operations, support, and disposal. LC analysis supports informed decisions by considering all costs rather than just initial procurement price. LC considerations affect source selection and best value determinations. Understanding LC analysis helps contractors demonstrate total value beyond acquisition cost. LC emphasis encourages designs and solutions optimizing long-term cost effectiveness.

Indirect Hours

Indirect Hours are labor hours that cannot be directly attributed to a specific contract or project and are instead allocated across multiple cost objectives. IH includes time spent on general management, training, corporate functions, and other indirect activities. IH tracking affects indirect rate calculations and cost accounting compliance. Understanding IH classification helps contractors maintain accurate timekeeping and cost allocation. Proper IH management supports compliant indirect rate structures and audit readiness.

Last In, First Out

Last In, First Out is an inventory costing method where the most recently acquired items are assumed to be sold or used first. LIFO affects inventory valuation and cost of goods sold calculations in contractor accounting systems. LIFO usage in government contracting must be consistent with contractor cost accounting practices and disclosed to the government. Understanding LIFO implications helps contractors manage inventory costs and comply with CAS requirements. LIFO may not be appropriate for all government contract cost accounting situations.

Limitation of Cost

Limitation of Cost is a contract clause establishing the ceiling on government financial obligation for cost-reimbursement contracts. LOC provisions require contractors to notify the government when costs approach specified percentages of the funded amount. LOC compliance prevents overruns and ensures contractors communicate funding status proactively. Understanding LOC requirements helps contractors manage cost-reimbursement contracts appropriately. LOC notifications trigger discussions about additional funding or scope adjustments.

Limitation of Funds

Limitation of Funds is a contract clause used in incrementally funded contracts establishing the amount of funds allotted and the government's liability limitation. LOF provisions clarify that government obligation does not exceed allotted amounts. LOF clauses protect the government from liability exceeding appropriated funds while allowing work to proceed with available funding. Understanding LOF requirements helps contractors manage cash flow and staffing for incrementally funded contracts. LOF notifications are required as costs approach allotted amounts.

Leave Without Pay

Leave Without Pay refers to employee leave status where no compensation is provided during the absence period. LWOP impacts government contracts through staffing availability, labor charging, and indirect rate calculations. LWOP situations affect contract staffing and may require workforce adjustments. Understanding LWOP implications helps contractors manage labor resources and maintain contract performance. Extended LWOP periods may necessitate replacement hiring or workload redistribution.

Management Decision Package

A Management Decision Package is a budget formulation element presenting resource requirements, justification, and alternatives for management decision. MDEPs organize budget requests to support informed resource allocation decisions. MDEP preparation affects program funding outcomes. Understanding MDEP processes helps contractors appreciate how programs compete for resources. MDEP presentations influence budget decisions affecting contract funding availability.

Monthly Expenditure Report

A Monthly Expenditure Report is a periodic financial report documenting costs incurred, funds expended, and budget status for a contract or program. MERs provide regular financial visibility supporting cost management and funding decisions. MER accuracy and timeliness affect contract financial management. Understanding MER requirements helps contractors maintain compliant financial reporting. MER data supports budget execution monitoring and cost performance assessment.

Inbound Military Interdepartmental Purchase Request

An Inbound Military Interdepartmental Purchase Request is a funding document received by a contracting activity from another DoD organization requesting procurement support. MIPR-INs transfer funds and authorize contracting on behalf of the requesting organization. MIPR-IN processing affects contract funding and customer relationships. Understanding MIPR-IN procedures helps contractors navigate multi-organizational requirements. MIPR-IN acceptance establishes the contracting activity's authority to procure on behalf of the funding organization.

Outbound Military Interdepartmental Purchase Request

An Outbound Military Interdepartmental Purchase Request is a funding document sent by a DoD organization to another activity requesting procurement support. MIPR-OUTs transfer funds and request contracting services from organizations with appropriate contracting capabilities. MIPR-OUT usage enables organizations to leverage specialized contracting expertise. Understanding MIPR-OUT processes helps contractors appreciate how requirements flow between organizations. MIPR-OUT coordination affects acquisition timelines and customer relationships.

Net Present Value

Net Present Value is a financial analysis technique calculating the present value of future cash flows minus initial investment. NPV analysis supports investment decisions and cost-benefit evaluations in acquisition planning and proposal development. NPV calculations inform best value assessments and lifecycle cost comparisons. Understanding NPV methodology helps contractors develop compelling cost analyses. NPV presentations demonstrate financial sophistication and support value-based proposals.

Non-Recurring

Non-Recurring costs are one-time expenses that do not repeat in subsequent contract periods, such as initial tooling, setup costs, or first article testing. NR costs are distinguished from recurring costs that continue throughout production or performance. NR cost identification affects contract pricing and amortization approaches. Understanding NR cost treatment helps contractors develop accurate pricing strategies. NR costs may be amortized across production quantities or charged as separate line items.

Not-To-Exceed Ceiling Level

A Not-To-Exceed Ceiling Level specifies the maximum contract value that cannot be exceeded without modification. NTE-CL establishes firm upper bounds on government financial obligations, particularly important for cost-type and labor-hour contracts. NTE-CL management prevents unauthorized cost overruns. Understanding NTE-CL implications helps contractors monitor spending against contract ceilings. NTE-CL notifications are required as costs approach ceiling values to enable timely ceiling increases or scope adjustments.

Operations and Support

Operations and Support refers to the lifecycle phase and associated costs for operating and sustaining systems after deployment. O&S costs typically constitute the largest portion of total lifecycle costs, including maintenance, logistics, personnel, and consumables. O&S cost estimation affects acquisition decisions and total ownership cost analyses. Understanding O&S drivers helps contractors develop supportable systems and competitive sustainment proposals. O&S optimization is a key objective in system design and support planning.

Other Direct Cost

Other Direct Costs are expenses directly attributable to a contract that are not labor, subcontracts, or materials, such as travel, equipment, and special services. ODCs are separately identified direct costs requiring appropriate documentation and approval. ODC management affects contract pricing and cost accounting. Understanding ODC treatment helps contractors develop compliant cost proposals. ODC categories and allowability vary by contract type and agency requirements.

Profit and Loss Statement

A Profit and Loss Statement is a financial document summarizing revenues, costs, and expenses over a specific period. P&L analysis demonstrates financial performance and supports contractor responsibility determinations. P&L statements are commonly required in financial capability assessments. Understanding P&L presentation helps contractors demonstrate financial health. P&L trends affect responsibility determinations and bonding capacity assessments.

Price Analysis Limit

Price Analysis Limit establishes the dollar threshold above which formal cost analysis rather than price comparison becomes required. PAL thresholds vary by agency and procurement type. PAL awareness affects proposal pricing strategies and documentation requirements. Understanding when cost analysis is required helps contractors prepare appropriate pricing substantiation. Procurements below PAL may use simplified price evaluation approaches.

Performance-Based Acquisition Pricing

Performance-Based Acquisition Pricing structures contract payments around achieved performance outcomes rather than input measures. PBA pricing aligns contractor incentives with government performance objectives. PBA pricing requires careful analysis of performance metrics and risk allocation. Understanding PBA pricing models helps contractors develop competitive approaches. PBA pricing transparency demonstrates outcome-focused value propositions.

Present Value

Present Value is the current worth of future cash flows discounted at an appropriate rate. PV analysis supports investment decisions, lease-versus-buy evaluations, and life cycle cost comparisons. PV calculations are essential for cost-benefit analyses in proposals. Understanding PV methodology helps contractors develop compelling economic justifications. PV comparisons support government best-value determinations.

Resource Hours

Resource Hours quantify the labor effort required for tasks or projects. RH estimates support staffing plans, cost proposals, and schedule development. RH estimation accuracy affects proposal competitiveness and contract profitability. Understanding RH calculation methods helps contractors develop realistic estimates. RH tracking supports earned value management and performance measurement.

Remaining Monetary Value

Remaining Monetary Value represents the unobligated or unexpended funds available on a contract. RMV tracking helps manage contract funding status and identifies when additional funding may be needed. RMV monitoring is essential for contract financial management. Understanding RMV status helps contractors plan work within available funding. RMV awareness supports proactive communication about funding needs.

Return on Assets

Return on Assets is a financial ratio measuring how effectively a company uses its assets to generate profit. ROA analysis supports financial capability assessments and contractor responsibility evaluations. ROA metrics may be evaluated in financial capability reviews. Understanding ROA calculation helps contractors present financial performance effectively. Strong ROA demonstrates efficient asset utilization and financial health.

Return on Investment

Return on Investment measures the gain or loss generated relative to the investment cost. ROI analysis supports business case development and investment decision-making in government acquisitions. ROI calculations strengthen proposal value propositions. Understanding ROI presentation helps contractors demonstrate solution benefits. Compelling ROI analysis supports best-value award decisions.

Remain Overnight

Remain Overnight refers to travel requiring overnight lodging away from the traveler's duty station. RON travel affects per diem eligibility and travel cost calculations in contract pricing. RON requirements affect travel cost estimates in proposals. Understanding RON policies helps contractors develop accurate travel budgets. RON compliance with Joint Travel Regulations ensures cost allowability.

Recurring Unit Cost

Recurring Unit Cost represents the ongoing production cost per unit excluding non-recurring development costs. RU analysis supports production pricing and learning curve projections. RU estimation is critical for production contract pricing. Understanding RU components helps contractors develop competitive production proposals. RU trends affect profitability projections and pricing strategies.

Total Allocation of Funds

Total Allocation of Funds represents the complete funding amount authorized for a contract or program. TAF establishes the maximum funding available for obligation and expenditure. TAF awareness helps contractors understand contract funding limits. Understanding TAF status supports financial planning and work scheduling. TAF monitoring prevents overruns and supports proactive funding discussions.

Treasury Account Symbol

A Treasury Account Symbol is the unique identifier for federal government appropriation and fund accounts. TAS codes track funding sources and support financial reporting and accountability. TAS understanding helps contractors navigate federal funding structures. Correct TAS identification ensures proper funding documentation. TAS knowledge supports compliance with federal financial management requirements.

Total Cost of Ownership Rate

Total Cost of Ownership Rate expresses lifecycle costs as a periodic rate for comparison purposes. TCO rates enable standardized comparison of alternatives with different cost profiles. TCO rate calculation supports cost-benefit analyses in proposals. Understanding TCO rate methodology helps contractors present compelling economic cases. TCO rate comparisons support government best-value determinations.

Total Contract Spend Metric

Total Contract Spend Metric measures the complete expenditure across a contract or contract portfolio. TCS metrics support spend analysis, budget planning, and procurement strategy development. TCS metric tracking supports contract financial management. Understanding TCS patterns helps contractors anticipate funding and workload trends. TCS analysis supports strategic planning and resource allocation.

Total Obligation Authority

Total Obligation Authority represents the maximum amount that can be obligated for a program or account. TOA establishes funding ceilings for planning and budget execution. TOA awareness helps contractors understand funding constraints. Understanding TOA levels supports realistic program planning. TOA tracking ensures obligations remain within authorized limits.

Travel Work

Travel Work refers to level of effort specifically allocated for travel activities supporting contract performance. TW identification separates travel labor from other work categories for cost tracking and billing. TW estimation affects proposal pricing and cost structures. Understanding TW requirements helps contractors budget travel appropriately. TW tracking supports accurate invoicing and cost reporting.

Unliquidated Monetary Reserve

Unliquidated Monetary Reserve represents contract funds obligated but not yet expended through payment. UMR tracking monitors the gap between obligations and actual disbursements. UMR awareness supports contract financial management. Understanding UMR patterns helps contractors anticipate payment timing. UMR analysis identifies potential funding issues or administrative delays.

Unit Price

Unit Price is the cost charged for a single unit of product or service. UP structures simplify pricing for quantity-based procurements and enable straightforward cost comparisons. UP development affects proposal competitiveness and contract profitability. Understanding UP requirements helps contractors develop appropriate pricing structures. UP accuracy supports contract administration and billing.

Unit Price Book

A Unit Price Book compiles standard prices for commonly procured items or services. UPBs establish consistent pricing references for estimating, ordering, and contract administration. UPB familiarity helps contractors understand government pricing expectations. Understanding UPB development supports pricing strategy. UPB compliance may be required for certain supply contracts.

Value Analysis and Review

Value Analysis and Review is a systematic examination of products, services, or processes to identify cost reduction and value improvement opportunities. VAR studies evaluate function, performance, and cost relationships. VAR expertise supports cost reduction and value engineering initiatives. Understanding VAR methodology helps contractors identify improvement opportunities. VAR capabilities demonstrate commitment to delivering value.

Value Added Tax

Value Added Tax is a consumption tax levied on goods and services in many countries outside the United States. VAT considerations affect pricing and cost accounting for overseas contracts. VAT understanding is essential for international contracts. Knowing VAT treatment helps contractors develop accurate international pricing. VAT compliance requirements vary by country and contract structure.

Variable Cost

Variable Cost is an expense that changes in proportion to production volume or activity level. VCs include materials, direct labor, and other costs that vary with output. VC analysis supports accurate cost estimation and pricing. Understanding VC behavior helps contractors develop responsive pricing strategies. VC management affects profitability at different volume levels.

Workers Compensation

Workers Compensation is insurance providing wage replacement and medical benefits to employees injured in the course of employment. WC costs are indirect costs included in contractor overhead rates. WC compliance is required for contractor operations. Understanding WC cost treatment helps contractors develop accurate overhead rates. WC experience affects insurance costs and contract pricing.

Work Hours

Work Hours quantify the time spent on contract tasks or activities. WH tracking supports labor cost accounting, billing, and performance measurement. WH estimation affects proposal pricing and profitability. Understanding WH calculation methods helps contractors develop accurate estimates. WH reporting supports contract billing and earned value measurement.

Whole Life Cost

Whole Life Cost represents the total cost of ownership including acquisition, operation, maintenance, and disposal over an asset's lifecycle. WLC analysis supports investment decisions and best-value determinations. WLC estimation demonstrates lifecycle cost awareness in proposals. Understanding WLC methodology helps contractors present total value propositions. WLC analysis supports government acquisition planning and budgeting.

Year of Execution

Year of Execution refers to the fiscal year when funds are actually spent or work is performed. YOE considerations affect budget planning, funding profiles, and cost escalation calculations. YOE understanding supports accurate cost estimation and pricing. Understanding YOE factors helps contractors develop realistic budget projections. YOE analysis accounts for inflation and economic changes affecting costs.