Capped indirect rates are a method of limiting the amount of indirect costs that can be charged to a government contract by setting a maximum percentage for each indirect cost category. This method is used to ensure that the government is not paying more than a reasonable amount for indirect costs, while still allowing the contractor to recover their indirect costs.
Capped indirect rates are often used by government contractors who have high levels of indirect costs, such as overhead or general and administrative expenses, and want to avoid the risk of having their indirect rates disallowed or questioned by the DCAA (Defense Contract Audit Agency).
In order to use capped indirect rates, contractors must develop and submit a proposal to the government that outlines their proposed rates for each indirect cost category, along with supporting documentation to justify the proposed rates. The government will review the proposal and may negotiate the rates with the contractor to ensure that they are reasonable and appropriate.
Once the capped indirect rates are approved, the contractor must apply them consistently across all of their government contracts and must monitor their indirect costs to ensure that they do not exceed the capped rates. If indirect costs exceed the capped rates, the excess costs may be considered unallowable and may not be reimbursed by the government.
Using capped indirect rates can be a helpful tool for government contractors to manage their indirect costs and ensure compliance with DCAA requirements. However, it is important for contractors to carefully develop and justify their proposed rates, and to monitor their indirect costs to ensure that they do not exceed the capped rates. Additionally, contractors should be prepared for the possibility of negotiation with the government over their proposed rates.
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