Pricing & Rates

Provisional vs.
Actual Indirect Rates

Why your company maintains two sets of rates, how the annual true-up works, and which rates Arcvue uses where.

4 min read Concept Guide

The Two Sets of Rates

Every GovCon company that does cost-reimbursable work maintains two sets of indirect rates:

	Provisional Rates	Actual Rates
When set	Beginning of fiscal year (or when DCAA approves)	After fiscal year closes
Based on	Forward-looking estimates	Actual incurred costs
Used for	Billing the government during the year	True-up at year-end
Who approves	DCAA (or self-certified for smaller firms)	Audited by DCAA

How It Works in Practice

January: You submit your provisional rate proposal to DCAA. "We expect fringe to be 35%, overhead 25%, G&A 10%."
Throughout the year: You bill contracts using these provisional rates.
Year-end: You close the books and calculate what the rates actually were.
True-up: If actual fringe was 33% but you billed at 35%, you owe the government the difference on cost-plus contracts. If actuals were higher, the government owes you.

Why They Differ

Provisional rates are estimates. Actual costs vary because:

Headcount changes: More hires = more fringe dollars but spread across a larger labor base
Healthcare costs: Actual claims differ from budgeted premiums
Facilities: Unexpected lease changes, utility costs
Revenue mix: More T&M vs. cost-plus changes the G&A base
Timing: Large expenses hit unevenly across the year

Which Rates Does Arcvue Use?

Indirect Rates module: Computes rates from your actual financial data (GL actuals). These are your actual rates for periods that have closed.
Pricing module → Vehicle Rate Pools: Stores DCAA provisional rates separately. These are what you price with on cost-reimbursable proposals.
Forecast projections: Uses the latest actual rates as the baseline, with optional adjustments for expected changes.

Arcvue-computed rates and DCAA provisionals will almost always differ. DCAA provisionals exclude certain costs that Arcvue includes in its computation (unallowable expenses are treated differently in the submission). The Vehicle Rate Pools in Pricing exist specifically to capture the DCAA-approved numbers for proposal compliance.

Where This Appears in Arcvue

Indirect Rates module—actual rate computation from GL data
Pricing → Vehicles & Import—DCAA provisional rates per vehicle
Pricing → Economics—shows which rates are applied to the buildup
Operational Assumptions—GL account mapping that drives rate computation

The Operator's View

I was unfortunate enough to learn the difference between provisional and actual indirect rates early in my career—and the lesson came at someone else’s expense.

The fifth business I ever took to market had a deal locked up: great buyer, great price, hitting forecast. Then the quality of earnings came back. The business had a significant cost-plus contract, and they had been booking their year-end financials at provisional rates rather than actuals. On cost-plus, the government can’t audit your reimbursable indirect rates in real time, so you bill using your beginning-of-year estimate and true it up at year-end when you know what your indirect costs actually came in at.

This particular business had been underrunning their rates—a consequence of rapid growth compressing their indirect base. Which meant the government had been paying them more month to month than their actual costs supported. That delta was a liability hiding off the balance sheet, meaningful but not outlandish in isolation. What it actually killed was confidence. The lack of controls signaled to the buyer that if they missed this, what else had they missed? The deal was torpedoed.

Provisional vs. actual isn’t an accounting footnote. On cost-plus work, it’s the difference between financials you can take to market and financials that blow up a deal in due diligence.