Federal Contract Pricing Strategy: Wrap Rates, Indirects, and Fee
Pricing is the #1 area where GovCon companies either leave money on the table or lose competitions entirely. This guide breaks down wrap rates, indirect rate structures, fee strategy, and price-to-win analysis for federal contractors.
Cabrillo Club
Editorial Team · February 7, 2026

Pricing is the single area where government contractors most frequently leave money on the table or lose competitions they should have won. Get your wrap rates wrong and you either underbid yourself into a loss-making contract or overprice yourself out of contention. Misallocate your indirects and DCAA will disallow costs during an audit, turning projected profit into realized loss. Set fee too aggressively on a cost-type contract and evaluators question your understanding of the work. Pricing is not just a finance function—it is a strategic discipline that determines whether your company grows profitably or wins itself into financial trouble.
The difference between a 30% win rate and a 50% win rate often has nothing to do with technical approach. It comes down to whether your pricing team understands how the government evaluates cost, how to structure rates competitively, and how to present a price that is both credible and compelling. This guide walks through the full pricing stack—from base labor rates through indirects, wrap rate calculation, fee strategy, and price-to-win methodology.
This article is part of our Winning Federal Contracts guide which covers the full competitive strategy for GovCon, from pipeline development through post-award execution.
Cost Elements in Federal Pricing
Every federal contract price is built from the same foundational cost elements. Understanding what falls into each category—and how the government expects to see them presented—is table stakes for competitive pricing.
Direct Labor
Direct labor is the base salary cost of personnel performing work directly on a specific contract. This is your starting point and typically the largest single cost element. For each labor category in your proposal, you need a base hourly rate derived from annual salary divided by productive hours (typically 1,880 to 2,080 hours depending on your company's leave and holiday policy). Getting these base rates right matters because every indirect rate multiplies against them—a $5/hour error in base rate can become a $15/hour error in your fully loaded rate.
Other Direct Costs (ODCs)
ODCs include non-labor costs directly attributable to contract performance: software licenses, equipment purchases, subcontractor costs, and specialized materials. These costs are typically passed through with G&A applied but without overhead, depending on your cost accounting structure. Subcontractor costs deserve special attention—some companies apply full G&A to subs while others maintain a separate, lower sub-handling rate. Your disclosed accounting practices must be consistent.
Travel
Travel is typically estimated separately and must comply with the Federal Travel Regulation (FTR) or Joint Travel Regulations (JTR) for DoD contracts. Use per diem rates from GSA for lodging and meals, and provide realistic trip estimates. Over-estimating travel inflates your price; under-estimating creates cost overruns on firm-fixed-price work. G&A is generally applied to travel costs, but overhead is not.
Materials and Supplies
Materials encompass consumable items needed for contract performance. In IT services contracts, this might include hardware components, cloud computing costs, or specialized equipment. For contracts subject to the Materials and Services cost accounting standard (CAS 411), your allocation methodology must be consistent and defensible.
Understanding Indirect Rates
Indirect rates are the multipliers that transform base labor into fully loaded costs. They represent the real cost of doing business—benefits, facilities, corporate management, business development—that cannot be charged directly to any single contract. For government contractors, these rates must be calculated consistently and disclosed to DCAA. There are three primary indirect rate pools that stack on top of direct labor.
Fringe Benefits
Fringe includes employer-paid benefits: health insurance, retirement contributions (401k match), employer FICA/Medicare taxes, life insurance, disability insurance, paid time off (PTO), and paid holidays. For GovCon companies, fringe rates typically range from 30% to 45% of direct labor, depending on the richness of the benefits package. Companies competing for cleared technical talent tend to run higher fringe rates because competitive benefits are a recruitment necessity. Your fringe rate is applied to direct labor dollars to produce 'labor plus fringe' cost.
Overhead
Overhead captures indirect costs related to contract performance that are not direct labor or fringe. This typically includes: facility costs (rent, utilities, maintenance), indirect labor (project managers overseeing multiple contracts, IT support staff, security personnel), equipment depreciation, and employee training. Overhead rates for GovCon companies generally range from 15% to 40%, with site-specific overhead pools being common for companies with multiple offices. Overhead is applied on top of labor plus fringe.
General & Administrative (G&A)
G&A covers corporate-level expenses that benefit the entire organization: executive compensation, corporate accounting and legal, HR, business development and proposal costs, corporate insurance, and corporate IT. G&A is applied to total cost input (direct labor + fringe + overhead + ODCs) or, in some structures, to a value-added base. Typical G&A rates range from 8% to 20%. Companies with high BD spend or large corporate staffs relative to revenue will have higher G&A. This is the rate where small companies often struggle—with limited revenue to spread corporate costs across, G&A can balloon above 20%, making it difficult to compete on price.
Understanding how these three pools stack is critical. They are not simply added together—they are applied sequentially, each multiplying on top of the previous. This compounding effect is why seemingly small changes in any single rate can significantly impact your fully loaded price.
Wrap Rate Calculation
The wrap rate (also called the loaded rate or burden multiplier) is the factor that converts a base hourly salary into the total cost to the government. Let's walk through a concrete example for a Senior Systems Engineer with a base salary of $140,000 per year.
Step 1: Base Hourly Rate. $140,000 annual salary / 2,080 productive hours = $67.31/hour base rate.
Step 2: Apply Fringe (38%). $67.31 x 1.38 = $92.89/hour. This covers health insurance, 401k match, FICA, PTO, and other benefits.
Step 3: Apply Overhead (25%). $92.89 x 1.25 = $116.11/hour. This covers facilities, indirect labor, and operational support.
Step 4: Apply G&A (12%). $116.11 x 1.12 = $130.04/hour. This covers corporate management, BD, and administrative functions.
Step 5: Apply Fee (10% for this example). $130.04 x 1.10 = $143.04/hour fully loaded billing rate.
The wrap rate multiplier in this example is $143.04 / $67.31 = 2.13x. That means every dollar of base labor costs the government $2.13 when fully loaded. This multiplier is what evaluators scrutinize. If your wrap rate is 2.5x while competitors are at 2.0x, you need a compelling technical discriminator to justify the premium—or you need to reduce your indirect cost structure.
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Editorial Team
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