Other Direct Cost (ODC)

Other Direct Costs (ODCs) are costs incurred specifically for and directly attributable to a single government contract that are not labor costs, including travel and per diem, materials, supplies, computer time, subcontractor costs, consultant fees, and specialized equipment, billed directly to the contract without going through an indirect cost pool.

What are Other Direct Costs?

ODCs represent the non-labor direct costs on a government contract. Every dollar charged as an ODC must be specifically identifiable to the contract being charged and must benefit that contract exclusively. Common ODCs include travel expenses for on-site visits (airfare, lodging, per diem), materials and supplies purchased specifically for the contract, subcontractor invoices, software licenses acquired for contract performance, data purchases, and specialized testing or laboratory services. ODCs are important in contract pricing because they can represent a significant portion of the total contract cost, particularly on contracts involving extensive travel, specialized equipment, or significant subcontracting. The government scrutinizes ODC proposals for reasonableness, travel should be at government per diem rates, materials should be competitively sourced, and consultant hourly rates should be market-competitive. Contractors must maintain records proving that ODCs were actually incurred for the specific contract (receipts, invoices, time records), as DCAA auditors verify ODC charges during incurred cost audits.

Why ODCs matter for government contractors

ODC management directly affects cost-type contract profitability. Unallowable ODCs, such as alcohol at a business dinner, first-class airfare without authorization, or personal expenses, cannot be billed and reduce profit. Conversely, underestimating ODCs in a proposal creates funding problems during performance. Accurate ODC forecasting and documentation are essential financial management disciplines.

Example

A government IT contractor is performing a systems integration task order that requires travel to six client sites, purchase of test equipment, and use of a specialized simulation software license. The contract price includes $85,000 in estimated ODCs covering $30,000 in travel, $25,000 in test equipment purchases, and $30,000 in software licenses. The contractor tracks each actual ODC against the estimate, ensuring all expenses are properly documented and within approved limits.

Frequently Asked Questions

Are subcontractor costs always ODCs?

Subcontractor costs are typically treated as ODCs (direct costs to the prime contract) because they are incurred specifically for the prime contract. However, the accounting treatment depends on the contractor's disclosed accounting practices and the nature of the subcontract. Some contractors treat subcontractors as a separate direct cost category.

What is the government per diem rate and how does it apply to ODC travel?

The government per diem rate is the maximum daily amount the government will reimburse for lodging and meals/incidental expenses while traveling for government contract purposes. GSA publishes per diem rates for U.S. destinations at gsa.gov/travel/plan-book/per-diem-rates. Exceeding per diem without prior government approval results in the excess being unallowable.

Do ODCs receive indirect cost (overhead or G&A) loading?

Yes. On most cost-type contracts, indirect cost pools are applied to ODCs as part of the total cost calculation. The specific allocation methodology depends on the contractor's cost accounting practices. G&A, in particular, is often applied to total cost including ODCs.

Can a contractor make profit on ODCs?

On cost-plus contracts, profit (fee) is typically applied to the total cost including ODCs. However, fee application to ODCs can be limited by contract terms, particularly for large subcontract ODCs where the prime adds less value. The specific fee arrangement is negotiated as part of the contract pricing.