Why Your Forward Pricing Rates Are Costing You Contracts (and How to Fix Them)

Approved does not equal optimized in government contracting. That’s difficult news for people who think a green light from DCAA means their forward pricing rate proposals (FPRPs) are perfect. In reality, getting approval and winning contracts are two entirely different outcomes.

If your business struggles to convert bids into awards or win low-margin work, burning out your teams, it’s time to look hard at your forward pricing rates.

What Are Forward Pricing Rates?

Forward pricing rates are the indirect cost estimates a contractor submits to the government to support pricing for future contracts. These include fringe, overhead, G&A, and cost of money rates. Once approved (or provisionally accepted), these rates become the basis for pricing negotiations on cost-reimbursement or time and materials contracts.

However, approval is based on adequacy, not competitiveness. Your rates may be accurate and supportable, but that doesn’t mean they position you to win.

“An adequate forward pricing rate proposal includes all significant cost elements and must comply with FAR 15.403 and the DCAA Forward Pricing Rate Proposal Adequacy Checklist.”
– DCAA Forward Pricing Rate Proposal Guidance

How Overstated Rates Hurt Your Proposals

When forward pricing rates are bloated or disconnected from operational realities, they result in:

• Uncompetitive fully burdened labor rates
• Overpriced cost volumes that lose on best value
• Inconsistent win rates despite technical strength
  

We’ve seen this firsthand with clients who inherited outdated indirect rate structures. One contractor had an approved G&A rate of 22%, technically fine, but industry benchmarks for their niche hovered around 14–16%. On paper, their price was “fair and reasonable.” In practice, they were pricing themselves out of contention.

Numbers could be inflated for several reasons:

• Cost Pool Overlaps: Misallocating shared costs across too many pools
• Lack of Rate Segregation: Using a single G&A rate for diverse contract types
• Infrequent Rate Reviews: Not adjusting for operational changes or pipeline shifts
• Overcompensation for Risk: “Padding” estimates that DCAA approves but agencies reject
• Setting it and forgetting it: This is the biggest one. Using numbers that have worked before, or not considering the changes that will affect pricing. 

How to Optimize Your Forward Pricing Rates

Many people think fixing this means gaming the system. However, it means creating realistic, data-backed rates that reflect your business’s operations today and where you’re headed.

There’s a roadmap on how to do it:

1. Review Your Cost Pools Quarterly
   Regularly review indirect cost allocations to ensure they reflect actual business activities and support price realism.
2. Reconcile With Actuals
   Use incurred cost submissions (ICE models) to compare your provisional rates against actuals. You have a trust issue if your final G&A is 10% but your provisional was 18%.
3. Benchmark Against Market Rates
   Understand what competitors are submitting by analyzing awarded contracts via SAM.gov. If your rates consistently sit above awardees, it’s a red flag.
4. Collaborate Across Teams
   Finance and business development must be in sync. Your pricing strategy should reflect the realities of execution and not just what the spreadsheet says.
5. Conduct a Pre-Award Pricing Readiness Review
   Work with a Government Contracts CPA to run a mock audit of your rates and narratives. It’s far easier to revise proactively than to explain reactively.
   

Win with Forward Pricing Rates

Your forward pricing rates tell a story to auditors and to contracting officers. If that story is bloated, outdated, or disconnected from your performance, you will lose to contractors who’ve done the work to get theirs right.

Ready to transform your rates from “adequate” to “award-winning”? Let’s talk.