How to Price a Government Contract: Wrap Rates, FFP vs. T&M & CLINs (2026) | Intandem

Step 1: Identify the Contract Type in Section B: FFP vs. T&M vs. Cost-Plus (FAR Part 16 (Types of Contracts))

Your pricing strategy and risk profile change completely depending on whether the contract is Firm-Fixed-Price (FFP), Time & Materials (T&M), or Cost-Reimbursement.

Over 75% of small business federal and state contracts are **Firm-Fixed-Price (FFP, FAR 16.202)**: you quote a fixed total price (e.g., $480,000/year paid in 12 monthly installments of $40,000), and you bear 100% of the performance risk. However, FFP is also where smart small businesses earn the highest profit margins—if you automate workflows and deliver the scope in 15% fewer hours than estimated, you keep 100% of the cost savings.

In **Time & Materials (T&M) or Labor-Hour (LH) contracts (FAR 16.601)**, you quote fixed, fully burdened hourly billing rates for specific Labor Categories (e.g., Senior Cloud Engineer at $148.50/hr), and you bill the government only for the actual hours worked up to a ceiling. In **Cost-Plus-Fixed-Fee (CPFF, FAR 16.306)** contracts, the government reimburses your allowable actual costs plus a negotiated fixed fee, but requires a DCAA-compliant accounting system (SF-1408).

Step 1 Checklist

• Check Section B (Supplies or Services and Prices/Costs) to see the exact Contract Type for every CLIN (Contract Line Item Number).
• Note that a single contract can have hybrid CLINs (e.g., CLIN 0001 FFP Core Services + CLIN 0002 T&M Surge Support + CLIN 0003 Cost-Reimbursable Travel/ODCs).
• Verify whether you need a DCAA-ready accounting system before bidding on any Cost-Reimbursement (CPFF/CPAF) solicitation.

Step 2: Calculate Your Fully Burdened Labor Wrap Rate (The Exact Formula) (FAR Subpart 31.2 Cost Principles)

Never take an employee’s W-2 hourly salary and just add 20%. Understand the 4 layers of a government contracting Wrap Rate: Fringe, Overhead, G&A, and Fee.

Suppose you pay a Project Manager a $104,000/year salary ($50.00/hour based on 2,080 total hours/year). How much must you bill the government per hour to pay payroll taxes, health insurance, PTO, company rent/software, and still earn a 10% net profit? You build your **Wrap Rate**: 1. **Fringe Benefits (typically 25%–32% of Direct Labor):** Covers FICA/Medicare payroll taxes (~7.65%), FUTA/SUTA, Workers’ Comp, 11 Federal Holidays, 10–15 days PTO/Sick Leave, Health Insurance, and 401(k) match. 2. **Overhead (typically 10%–25% for lean SMBs):** Costs directly supporting technical delivery (technical management, cloud/dev tools, training, facility costs if working in your office vs. lower "Government Site" overhead if working at the agency’s building). 3. **General & Administrative / G&A (typically 8%–15%):** Corporate operating costs (executive salaries, accounting, legal, business development, insurance, Intandem software). 4. **Profit / Fee (typically 8%–14%):** Your net pre-tax return.

**Example Multiplicative Wrap Math (Lean Small Business):** `$50.00 Base Wage × 1.28 (28% Fringe) = $64.00` `$64.00 × 1.12 (12% Overhead) = $71.68` `$71.68 × 1.10 (10% G&A) = $78.85 (Total Cost Break-Even)` `$78.85 × 1.10 (10% Profit Fee) = $86.73 / hr Billed Rate` *(A **1.73x Wrap Rate**—which beats large defense primes whose facility wrap rates often exceed 2.30x–2.60x!).*

Step 2 Checklist

• Calculate your true productive billable hours per FTE: `2,080 hours - 88 hours (11 Federal Holidays) - 80 to 120 hours (PTO/Sick) = 1,872 to 1,912 billable hours/year`.
• Keep your small business Overhead and G&A lean—a 1.70x wrap rate lets you pay top-tier salaries while still underpricing bloated large primes by 15%–25%.
• Build separate "Contractor Site" (your office) and "Government Site / Remote" (lower facility overhead) wrap rates.

Step 3: Check Service Contract Act (SCA) & Davis-Bacon Wage Floors (FAR Subpart 22.10 (SCA) & 22.4 (Davis-Bacon))

Paying $0.05/hour below a mandatory Department of Labor Wage Determination—or forgetting the $5.36/hr Health & Welfare fringe—can ruin your margin post-award.

If your solicitation involves non-exempt service workers (technicians, admin support, helpdesk, janitorial, security, maintenance) or construction trades, look in Section J (Attachments) for a **Department of Labor (DOL) Wage Determination (WD)** under the **Service Contract Act (SCA / McNamara-O’Hara)** or **Davis-Bacon Act (DBA)**.

An SCA Wage Determination mandates two legal minimums for every covered occupation code in that specific county: (1) a **Minimum Base Hourly Wage** and (2) a mandatory **Health & Welfare (H&W) Fringe rate** (updated annually by DOL—approx. $5.36/hr or $4.98/hr under EO 13706 paid sick leave), plus mandatory paid vacation (typically 2 weeks after 1 year of service on the contract, including predecessor contractor tenure!) and 11 paid federal holidays.

Step 3 Checklist

• Check Section I and Section J for FAR 52.222-41 (Service Contract Labor Standards) or FAR 52.222-6 (Construction Wage Rate Requirements).
• Map every non-exempt labor category in your proposal to its exact DOL Occupation Code (e.g., `14170 System Support Specialist`) and verify your base wage + H&W fringe meets or exceeds the county floor.
• Include a clear SCA Compliance Matrix in your Price Narrative.

Step 4: Benchmark Competitor Pricing & Avoid "Price Realism" Traps (FAR 15.404-1 Proposal Analysis Techniques)

Know how the Contracting Officer will test your price for "Price Reasonableness" (not too high) and "Price Realism" (not dangerously low).

Under FAR 15.404-1, the government always evaluates **Price Reasonableness** (ensuring you aren’t overcharging the taxpayer) by comparing your total evaluated price (Base Year + All Option Years + FAR 52.217-8 6-Month Extension if applicable) against competing bids and the **Independent Government Cost Estimate (IGCE)**. On many RFPs, the agency also evaluates **Price Realism**—meaning if you bid $40/hour for a Senior Cleared Cybersecurity Architect whose market salary is $85/hour, the agency will disqualify your proposal because your price proves you either don’t understand the PWS or face high performance/turnover risk.

Before locking your numbers, research the **Price-to-Win (PTW)** using three public data sources: (1) look up the expiring incumbent contract on USASpending.gov to see the exact annual obligated amount, (2) check **GSA CALC+ (`calc.gsa.gov`)** for real awarded federal hourly rates by labor category, education, and experience, and (3) request past bid tabulations on SLED contracts.

Step 4 Checklist

• Check USASpending.gov for the incumbent contract’s annual run rate (divide total obligations by years active to find the baseline IGCE).
• Apply a 2.5% to 3.5% annual escalation to your labor rates across Option Years 1, 2, 3, and 4 on FFP and T&M bids so inflation doesn’t eat your Year 4 profit.
• Double-check all Excel `SUM()` and multiplication formulas in your Section B CLIN spreadsheet—if unit price × quantity doesn’t equal the extended total, the unit price governs!

See Incumbent Award Values & Write Your Price Narrative in Bid Workspace: Intandem pairs active solicitations with historical agency spend and incumbent award context, while Tandy AI and Bid Workspace help you structure your Basis of Estimate (BOE) and Price Volume narrative cleanly. Explore Contract Intelligence | Open Bid Workspace