GovCon Wednesday’s
A Step-by-Step Approach
Estimated Read Time: 8 minutes
If you’ve followed along with our GovCon indirect rate series, you already know what a Provisional Billing Rate (PBR) is and why it’s essential.
Now let’s get into the how.
PBRs aren’t just paperwork they’re a core component of your cash flow strategy. Calculating your rates accurately ensures you’re billing in line with FAR 42.704, avoiding audit flags, and recovering real costs without overstepping compliance boundaries.
This guide walks you through the simplified version of how to calculate a PBR from identifying indirect cost pools to selecting the proper base.
Step 1: Know Your Cost Pools
When calculating your PBR, you’ll begin by estimating the three standard indirect cost pools:
- Fringe Benefits – Employee-related expenses like health insurance, retirement contributions, and paid leave.
- Overhead (OH) – Costs related to supporting direct labor (e.g., project management, office rent, supplies).
- General & Administrative (G&A) – Enterprise-level expenses like accounting, HR, legal, and executive management.
Each of these pools groups together specific types of costs that need to be recovered during contract performance.
Step 2: Choose the Right Allocation Base
Once your cost pools are defined, choose the base that each rate will be applied to. Common choices include:
- Direct Labor Costs – Often used for fringe and overhead
- Total Cost Input (TCI) – Frequently used for G&A
- Direct Labor Hours – Useful if you have labor-driven contracts
- Modified Total Direct Costs (MTDC) – Used in some federal agreements
Choosing the correct base is critical. It must reflect the activity that drives the cost pool, it’s a compliance issue if it doesn’t.
Step 3: Do the Math
Here’s the simplified formula you’ll use for each indirect rate:
Indirect Rate (%) = (Projected Indirect Costs) ÷ (Projected Allocation Base)
Let’s break it down with an example for your G&A Rate:
- Projected G&A Costs: $300,000
- Projected TCI Base: $2,000,000
- G&A Rate = 300,000 ÷ 2,000,000 = 15%
This 15% would be your provisional G&A rate, applied to your invoices until a final indirect cost rate is established after year-end.
Step 4: Prepare Your Supporting Documentation
Under FAR 42.704, PBRs must be supported by reasonable, auditable projections. That means:
- You should have justifications and assumptions for each number.
- Prior year actuals can be used, but they must be adjusted for changes (e.g., growth, headcount, new contracts).
- Be prepared to explain why your selected base is appropriate.
- If DCAA requests a billing rate proposal, follow DCAA’s ICE model guidelines for documentation format.
Why This Process Matters
Too often, GovCons submit incomplete or unsubstantiated rates leading to delays, disapprovals, or even payment holds. Misaligned PBRs create downstream problems like:
- Underbilling that hurts cash flow
- Overbilling that triggers audit findings
- Invoice rejections that slow down your revenue
By calculating your rates methodically and aligning with FAR 42.704 guidance, you’ll not only ensure compliance you’ll gain billing predictability and strengthen your relationship with your Contracting Officer or DCAA point of contact.
What’s Next in the Series?
We’re just getting started. Check out the full VSINGH CPA PBR series:
✅ Part 1: What Are PBRs?
✅ Part 2: Do I Need a PBR? And How Do I Get One Approved?
✅ Part 3: What Goes Into a PBR? Breaking Down the Numbers
✅Part 4: How Do I Calculate My Provisional Billing Rate?
5️⃣Part 5: What Happens After I Submit My PBR?
6️⃣Part 6: Common PBR Mistakes – And How to Avoid Them
7️⃣Part 7: How PBRs Impact My Invoicing and Cash Flow
8️⃣Part 8: Year End ICS
9️⃣Part 9: Can I Update My PBR During the Year?
🔟Part 10: Are You Audit-Ready? Supporting Your PBR with Documentation
If you’re growing fast, your billing strategy needs to keep up.
VSINGH CPA partners with scaling GovCons to build indirect rate systems that support long-term growth and DCAA compliance.
Get the structure you need now—before growth creates risk. Let’s talk.
👉 Check out our YouTube Shorts: https://youtube.com/shorts/3M956Sy9HFQ?si=h9a0Vk_POTTRCKc8