Proposal Cost (B&P -- Bid and Proposal)

Bid and Proposal (B&P) costs are the costs a contractor incurs when preparing, submitting, and supporting bids, proposals, and applications for potential contracts. In federal cost accounting, B&P is treated as an allowable indirect cost under FAR 31.205-18, meaning contractors may include these costs in their indirect cost pools and recover them through overhead or G&A rates charged to government contracts. The ability to recover B&P costs through indirect rates is one of the structural features of cost-reimbursable contracting that makes sustained pursuit of large government programs economically viable for defense and federal contractors.

What are Bid and Proposal costs?

FAR 31.205-18 defines B&P costs as costs incurred in preparing, submitting, or supporting any bid or proposal on a potential government or non-government contract. The key qualifying criterion is that the costs must not be incurred in the performance of a contract. Once work has begun under a contract, the costs of preparing reports, cost proposals for modifications, or re-planning documents are generally charged directly to that contract, not to B&P.

Allowable B&P costs include labor of employees who write, review, and produce proposals; allocated facilities costs for proposal war rooms or working spaces; direct materials consumed in prototype preparation for a proposal (subject to limits); consultants engaged specifically for proposal support; and travel directly related to oral presentations or site visits that are part of the proposal process. Costs that are unallowable under FAR 31.205 generally remain unallowable even when embedded in B&P activity - entertainment expenses and alcohol incurred during proposal team events, for example, are not transformed into allowable B&P costs by association with proposal work.

B&P costs are typically accumulated in an indirect cost pool and allocated to final cost objectives (government contracts) through the G&A rate. The Defense Contract Audit Agency (DCAA) reviews B&P cost claims as part of incurred cost audits to verify that claimed costs meet the FAR allowability criteria, are properly allocated, and are not misclassified from direct contract work. Contractors with Cost Accounting Standards (CAS) obligations must also ensure that their B&P cost accounting practices comply with CAS 420, which specifically addresses accounting for IR&D and B&P costs.

There is no statutory ceiling on the total amount of B&P costs a contractor may incur, but DCAA and contracting officers scrutinize the ratio of B&P spending to contract revenue as an indicator of reasonableness. Extremely high B&P rates relative to the company's contract base can trigger questions about whether costs are properly classified and whether the allocation methodology produces equitable results.

Why it matters for contractors

B&P cost recovery through indirect rates is what allows government contractors to sustain continuous proposal efforts without treating each bid as a pure sunk cost. Understanding B&P accounting rules enables contractors to make informed resource allocation decisions: how much can be spent pursuing a given opportunity before recovery through the indirect rate becomes implausible, and how to structure pursuit activities to ensure costs are captured in the right pools.

Contractors competing in both government and commercial markets must ensure that B&P costs incurred for government proposal work are not allocated to commercial work and vice versa. Mixed-purpose bid efforts require careful labor charge allocation to avoid cross-subsidization that DCAA would identify as a CAS 402 violation (consistency in allocating costs incurred for the same purpose).

Example

A defense systems integrator spends $2.1 million over six months preparing a proposal for a major Army program. Labor costs account for $1.7 million, with the remainder covering printing, travel for oral presentations, and a proposal consultant. These costs are accumulated in the company's B&P indirect cost pool and allocated across all government contracts through the G&A rate. During the subsequent DCAA incurred cost audit, the auditor verifies that the labor charges were recorded to the B&P project code contemporaneously, that no costs were incurred after contract award (which would make them direct charges to the contract), and that the consultant agreement was supported by a written arrangement with defined deliverables.