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Forward pricing rates are proposed to the U.S. Government by a contractor, audited by a government representative, and negotiated by the Administrative Contracting Officer

• Every proposal,
• Every invoice for a cost-type contract, and
• Every invoice for a cost-type Contract Line Item Number.

U.S. Government agencies accepting the authority of that ACO, regardless of buying command, accept these provisional rates without audit or other evaluation. Forward pricing rates are proposed and negotiated for use through the end of the contractor?s fiscal year (absent re-negotiation for cause). New rates are proposed and negotiated for the following fiscal year. Rates include each type of indirect cost used by the contractor, such as Labor Overhead and General and Administrative (G&A), and might include labor rates (depending upon the types of contracts in place and anticipated).

For contracts under the Department of Defense, and some other agencies, the ACO comes from a nearby office of the Defense Contract Management Agency; the auditor comes from a nearby office of the Defense Contract Audit Agency. The government, not the contractor, determines whether or not establishing forward pricing rates is cost-effective for the government. The cost (to the government) of this process might not be warranted for a contractor?s applicable dollar amounts.

Forward pricing rates, or provisional rates, are projections for use through the end of the contractor?s fiscal year; however, they are generally based on historical financial data. For rapidly-growing businesses, indirect rates will usually be lower than historical rates. For example, a service provider incurs much more Direct Labor and Labor Overhead costs (in the base), but only slightly more costs for accountants, general liability insurance premiums, and travel for human resources training (in the pool). Indirect rates are calculated by dividing the pool by the base, for allocation among jobs (or projects or contracts).