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52.232-7 Payments under Time-and-Materials and Labor-Hour Contracts

 

(4) The hourly rates shall include wages, indirect costs, general and administrative expense, and profit.

Can someone explain, or help me understand, the profit and how it impacts the hourly rate?  I understand how the wages and fringe benefits make a fully-burdened labor rate; however, it states profits as well.  How is this calculated and/or accounted for on a T&M contract?

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Sunnyo,

The hourly labor rates on a T&M contract are essentially firm fixed price (FFP) rates. You are allowed to bill a rate per hour (per labor category). That rate is fixed. Doesn't matter if the hour is an overtime hour or a straight time hour; you still get to bill only one rate per hour (per labor category). That FFP rate must include all your costs and all your profit. How do you calculate profit? The same way you would on any FFP contract. You propose something and you negotiate it and eventually the contract is executed. The executed contract specifies the FFP rate per hour per labor category. Your costs are still your costs. The difference between your costs and the amounts you bill is your profit or loss.

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Sunnyo:

Please enter one post in one category for the same item.  You posted the same item in 3 different categories the first time and in 2 different categories the second.

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