Noah King
As federal contractors grow, the very success they work toward can begin to compress margins. More contracts mean more program managers, contract administrators, compliance staff, systems, and oversight. The indirect structure that once felt manageable can quickly become a drag on profitability if it is not intentionally designed, monitored, and aligned with the way you price and execute work. Scaling federal operations without losing margin requires a clear understanding of your indirect rates and a disciplined approach to cost control.
In the federal space, margin is shaped as much by indirects as by direct labor rates. Fringe, overhead, and general and administrative (G&A) pools capture the cost of benefits, facilities, tools, management, finance, HR, contracts, and corporate functions that support your projects. When you apply these pools to your direct labor base, you get your wrap rate—the fully burdened cost that sits underneath every proposed labor hour. If you are pricing to the market’s guess about your indirects rather than to your actual structure, you may be winning work at rates that do not sustain your business as you add staff, locations, or contract vehicles.
A key step is to design an indirect rate structure that reflects how your work is really delivered. That may mean separating site and company overhead, distinguishing between segments of your business, or ensuring that support costs are in the right pools. As operations scale, back-office and contract support functions should be built for efficiency and compliance, not just speed. Clear processes for timekeeping, expense coding, subcontract management, and procurement help keep costs in the right buckets and reduce the risk of unallowable charges creeping into your pools.
Cost control in this environment is not about cutting into the muscle of delivery. It is about monitoring utilization, managing bench time, and identifying patterns that drive indirect inflation. When professional staff spend large portions of their time on internal tasks that should be supported by overhead roles, your effective indirects rise even if your formal rates do not. Regularly reviewing labor utilization, overtime, training, business development time, and internal projects helps you decide where to invest in dedicated overhead resources and where to tighten controls.
Unallowable costs under the FAR can quietly erode margin if they are not managed. Advertising, certain legal costs, entertainment, and other disallowed expenses must be tracked and excluded from your pools. As you scale, the volume of these activities often increases. Without a disciplined chart of accounts and consistent coding, you may be absorbing unallowables into your indirect rates, making your real margins thinner than your models suggest.
With better insight into your indirect rates, your bid strategy becomes more precise. You can decide when it makes sense to pursue cost-plus, T&M, or fixed-price contracts based on your ability to manage risk and control costs on each vehicle. You can design labor mixes that leverage the right balance of senior and junior staff while maintaining a competitive wrap. You can also be more selective about opportunities, avoiding bids where the required discount to win would push your effective margins below what your indirect structure can sustain.
Scaling your federal footprint does not have to mean accepting shrinking profit. When indirect rate optimization and cost control are treated as strategic levers rather than back-office chores, you gain the ability to grow with confidence. If you would like to review whether your current indirect rate strategy and cost structure are supporting or constraining your growth, a FEDCON advisor can work with you to analyze your rates, refine your model, and align your pricing with the way you truly operate.
