Arcvue
Cost accounting—why you keep two sets of rates
You bill on an estimate, then settle up on what was true.
Every GovCon company doing cost-reimbursable work maintains two sets of indirect rates. One is what you bill on. The other is what actually happened. The difference is a debt in one direction or the other—settled at year end, or revised under FAR 42.704 while the year is still running. Arcvue computes the actual rates nightly against the filed ones and shows the variance while revising is still an option.
One is forward-looking and approved. The other is history and audited.
| Provisional | Actual | |
|---|---|---|
| When set | Start of the fiscal year, or when approved | After the year closes |
| Based on | Forward-looking estimates | Costs actually incurred |
| Used for | Billing the government through the year | The year-end true-up |
| Who approves | DCAA, or self-certified for smaller firms | Audited by DCAA |
Basis the two-rate regime as cost-reimbursable work requires it.
Five moments, and the fourth is the one that gets skipped.
- Start of year. You submit a provisional rate proposal—fringe 35 per cent, overhead 25, G&A 10.
- Through the year. You bill contracts at those rates.
- Whenever the actuals move. FAR 42.704 lets either party revise the billing rates, prospectively or retroactively, to prevent a substantial overpayment or underpayment. A significant variance you can see and leave alone is a finding waiting for the incurred-cost audit.
- Year end. You close the books and compute what the rates actually were.
- True-up. Bill at 35 and land at 33, and you owe the difference back on cost-plus work. Land higher and the government owes you.
Basis a worked true-up at illustrative rates. Synthetic sample. Two points of fringe on a million dollars of labor is twenty thousand, and it is owed whether or not anyone was watching the rate move.
Estimates are not wrong so much as early.
- Headcount. More hires means more fringe dollars, spread across a larger labor base.
- Healthcare. Actual claims differ from budgeted premiums.
- Facilities. Lease and utility costs move.
- Revenue mix. More T&M against cost-plus changes the G&A base.
- Timing. Large costs land unevenly across a year.
Rates computed from the ledger, for periods that have actually closed.
Indirect Rates computes from GL actuals, so a closed period shows what the rate was rather than what it was expected to be. That is the number a true-up is settled on.