Weighted Average Overhead Rates for Calculation of Net Fee

Weighted Average Overhead Rates for Calculation of Fixed Fee

On March 7, 2005, the Department announced a change in the method of calculating the fixed fee (profit) portion of fees in consultant agreements. The new method used a statewide average overhead rate for all fixed fee calculations, and eliminated profit on non-salary direct costs. The fixed fee percentages currently listed in Chapter 5 of the Department’s Volume 1; Consultant Contract Administration Manual are not impacted by this change.

Previously, a separate rate was provided for geotechnical work. In reviewing this practice, the Department has determined that many consultants that provide geotechnical services also provide a diversified range of engineering and other services, with geotechnical services reflected in their approved indirect cost rate. For this reason, effective June 1, 2016 a separate average overhead rate for geotechnical services will no longer be provided.

Weighted average overhead rates will be revised annually on or about June 1 as new fiscal year information becomes available. Please note that this policy is limited to the calculation of fixed fee (profit) amounts and does not impact allowable overhead rates.

Current Average Overhead Rate Effective June 1, 2017: 152.83%

The revised rate will apply to proposals for agreements and modifications received in Consultant Services on or after June 01, 2017, and similarly for task order proposals (for existing agreements) received in District or other offices. If a project profile was established in SAFe prior to June 1 the rate will remain at the rate established at time of profile creation.

This rate was calculated based on a weighted average with the weighting based on funds encumbered from FY 2013 through FY 2017 (as of 12-31-16). Sixty (60) firms were included in calculations for the overall rate. An example on how to compute the fixed fee calculation is shown below. Questions should be directed to Dan Krajcovic, Susan Stehle, Jim Prosch or Mat Mauger in the Office of Consultant Services.

Example - ABC Engineering, Inc.

Total Direct Labor (DL) $150,000 ABC Engineering’s Overhead Rate 145% 2014 Weighted Average Overhead Rate (Eng) 152.83% Fixed Fee Percentage 12%

Fixed Fee Calculation = [DL + DL(Weighted Avg O/H Rate)] x (Fixed Fee%)] = [$150,000 + $150,000(1.5283)] x (.12) = [$150,000 + $229,245] x (.12) = $45,509 OR

= [(DL) x ( 1.00 + Weighted Avg O/H Rate)] x (Fixed Fee%)] = 150,000(2.5283)(.12) = $45,509