A professional service firm such as an engineering design firm or construction engineering and inspection firm can be thought of as a rocket ship. Looking at the business as a rocket ship, it gets easier to remember and share the elements of developing a successful business.
Like a rocket ship a business has two basic parts, the engines that power the ship, and the guidance systems to set course. Our rock ship has five engines and four guidance systems.
Thinking back to when you first started your firm, if you did not go through the checklist you see below formally, you did so informally.
MassDOT routinely prequalifies Architectural and Engineering Firms (A&E) to provide services in various A&E discipline categories.
MassDOT uses this prequalification information when selecting firms for new A&E contract services. Municipalities and other parties may also use this information. An Audited Overhead Rate must be submitted to the Audit Operations Section as part of the prequalification process.
MassDOT uses a qualifications-based selection process for the procurement of firms for all A&E contracts and surveying services.
Subcontracting allows small and disadvantaged businesses to substantially impact the federal procurement preference programs. Large prime contractors receiving Federal contract awards valued over $700,000 ($1.5 million for construction) are required to establish plans and goals for subcontracting with small businesses, veteran-owned small businesses, service-disabled veteran-owned small businesses, HUBZone small businesses, small disadvantaged businesses and women-owned small business concerns. More information on the government's subcontracting program can be found under the Federal Acquisition Regulations Subpart 19.7
Professional architectural, engineering, railroad, and utility companies who perform work for government agencies are generally required to have an independently audited overhead rate. You calculate this rate by dividing total allowable indirect expenses over direct labor but getting to this step and optimizing this result involves some effort.
It might seem as you're jumping through hoops to satisfy a regulatory body, but that's only partially true. If you're working in this space, your livelihood and success depend on your ability to be fully reimbursed for your eligible costs and make the right decisions on future contracts. These are just a few of the reasons why understanding and optimizing your overhead rate are vital.
Technically known as a firm's "indirect cost rate," the more familiarly known "overhead rate" is the percentage of general expenses that consultants can bill to contracting government agencies. More specifically, it is the ratio of allowable indirect costs to total allocable direct labor costs.
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