How to Build a Forward Pricing Rate Proposal (FPRP) That Survives DCAA Review and Wins Contracts

Summary of Keypoints

• A Forward Pricing Rate Proposal (FPRP) establishes pre-reviewed indirect rates for future proposals and billing, allowing contractors to avoid rebuilding rate justifications for every bid and giving contracting officers confidence in pricing for cost-reimbursement, T&M, and IDIQ contracts.
• An FPRP is built on verifiable historical cost data adjusted for documented future changes, using recent incurred cost data as the baseline and projecting forward by clearly quantifying anticipated staffing, facility, IT, or business mix changes in compliance with FAR 15.404-1.
• DCAA focuses on consistency, methodology, and support, reviewing whether indirect pools, allocation bases, and rate calculations align with established accounting practices and Cost Accounting Standards principles, even for non-CAS-covered contractors.
• Strong narratives and supporting schedules are critical to adequacy and acceptance, including detailed pool and base schedules, fringe calculations, organizational charts, chart-of-accounts mapping, historical rate comparisons, and clear explanations of assumptions and adjustments.
• A well-maintained FPRP is a strategic asset, not a one-time submission, requiring ongoing variance analysis, updates for major business changes, and alignment with incurred cost submissions to ensure rates remain defensible, negotiable, and usable for future awards.

Most small- to mid-sized contractors treat Forward Pricing Rate Proposals like mystical documents only major defense contractors can create. They hear “FPRP” and immediately assume it’s too complex, too technical, or not relevant to their business.

That hesitation costs them contracts.

A Forward Pricing Rate Proposal isn’t mysterious. Instead, it provides a structured approach to establishing the indirect rates you will use for future proposals and billing. When done correctly, an FPRP streamlines your proposal process, speeds up contract negotiations, and gives contracting officers confidence in your pricing.

If you are bidding on multiple cost-reimbursement or time-and-materials contracts, or if you are planning to bid on IDIQ vehicles, you need an FPRP. Not having one means you are pricing every proposal from scratch, risking inconsistencies that raise red flags during evaluation.

Let’s walk you through exactly how to build an FPRP that DCAA will accept, and that actually helps you win work.

What an FPRP Actually Does (and Why You Need One)

According to DCAA guidance, a Forward Pricing Rate Proposal establishes billing and proposal rates for future periods, typically covering one to three fiscal years. These rates include fringe benefits, overhead, general and administrative expenses, and, sometimes, the cost of money.

Once your FPRP is reviewed and negotiated with the government, you get a Forward Pricing Rate Agreement that allows you to use those rates for proposals and billing without needing to renegotiate them for every contract.

Think of it as pre-approval for your cost structure. Instead of justifying your indirect rates in every single proposal, you reference your approved FPRP. Instead of waiting for DCAA to audit your rates before you can bill, you use your established provisional rates.

For contractors working multiple contracts or competing for high-volume vehicles, this dramatically reduces administrative burden and shortens the time from proposal submission to contract award.

Step 1: Understand When You Need an FPRP

Not every contractor needs a formal FPRP. If you are doing exclusively firm-fixed-price work under the cost or pricing data threshold, you probably don’t need one. However, if any of these apply, you should have an FPRP:

• Pursuing cost-reimbursement or time-and-materials contracts. 
• Bidding on multiple contracts per year that require detailed indirect rate support. 
• Establishing provisional billing rates so you don’t have to wait for final rate determination.
• Competing for IDIQ contracts where you’ll submit frequent task order proposals. 
• Approaching or exceeding CAS coverage thresholds, and need to demonstrate consistent cost accounting practices.

The investment in developing an FPRP pays off quickly when submitting multiple proposals. Instead of rebuilding rate justifications each time, you can reference established rates with supporting documentation already on file.

Step 2: Gather Your Historical Cost Data

Your FPRP must be grounded in actual historical performance. According to FAR 15.404-1, forward pricing should be based on the most recent verifiable data available, adjusted for known or anticipated changes.

Start by pulling your most recent incurred cost submission. If you submit annual ICE reports to DCAA, this data is already organized in the format you need. If not, you will need to compile it from your accounting records.

For each indirect rate, you need the total costs in the pool, the total allocation base, the resulting actual rate, and a breakdown of the significant cost categories within the pool.

For example, your overhead pool might include indirect labor, rent, utilities, equipment depreciation, and supplies. Show what you actually spent in each category, not rough estimates.

This historical data serves two purposes. First, it establishes the baseline for your forward rates. Second, it demonstrates to DCAA that your accounting system can actually produce the cost data required for government contracting.

If your accounting records cannot support this level of detail, you have a bigger problem than just the FPRP. You need to fix your accounting system before you can develop defensible forward rates.

Step 3: Build Your Forward Rate Calculations

Now, develop the actual forward rates. This is where contractors often get intimidated, but the process is straightforward if you work through it systematically.

Start with your most recent actual rates. These are your baselines. If your actual overhead rate last year was 45%, that’s your starting point for estimating next year’s overhead.

Identify and document anticipated changes. Are you planning to hire additional indirect staff? Moving to a larger facility? Implementing new IT systems? Each of these changes affects your cost pools and potentially your rates.

Quantify each adjustment. Don’t just say “overhead will increase due to staff additions.” Show that you are adding two program managers at $120K each, plus 30% fringe, for a total of $312K to your overhead pool.

Project your allocation bases. Your rates are calculated by dividing cost pools by allocation bases. If your business is growing, your allocation base should reflect that growth. If your contract mix shifts from FFP to cost-plus, it affects which costs go into which pools.

Calculate the forward rates. Divide your projected pool costs by your projected bases. These are your forward rates.

Per Cost Accounting Standards, your methodology must be consistent with your established practices. If you have historically allocated overhead based on direct labor dollars, you cannot suddenly switch to direct labor hours without disclosure and justification.

Review this simplified example:

Overhead Rate Calculation:

• Historical actual overhead costs: $2.1M
• Projected overhead costs: $2.3M (adding facility expansion and two indirect staff)
• Historical direct labor base: $4.2M
• Projected direct labor base: $4.8M (reflecting contract pipeline growth)
• Forward overhead rate: $2.3M / $4.8M = 47.9%

Then perform similar calculations for fringe, G&A, and any other indirect rates.

Step 4: Document Your Basis of Estimate

The narrative supporting your FPRP is just as important as the numbers. DCAA needs to understand your methodology, your assumptions, and the reasoning behind your projections.

Your narrative should explain your allocation methodology and how it complies with FAR Part 31 and CAS requirements. It should detail each cost pool and describe the types of costs included and excluded. An explanation of your allocation bases and justification for why each base is appropriate for the related pool is needed.

Document all adjustments from historical actuals to forward projections. Describe anticipated business changes affecting your cost structure. Explain how your forward rates compare to historical trends.

Do not write this narrative like it’s a technical manual. Write it as if you’re explaining your cost structure to an intelligent person unfamiliar with your business. Be specific about what is changing and why, but keep the language clear and direct.

FPRPs with excellent calculations but terrible narratives can raise more questions than they answer. The result is a lengthy back-and-forth with DCAA, delayed negotiations, and frustrated contracting officers. A well-written narrative prevents those problems.

Step 5: Prepare Supporting Schedules and Documentation

FPRPs need detailed schedules that support every number in your rate calculations. At minimum, you need:

Indirect Cost Pool Schedules showing each cost element, organized by account, with subtotals by cost category and adjustments for unallowable costs per FAR Part 31.

Allocation Base Schedules demonstrating how you calculated direct labor, total cost input, or whatever base you are using, with reconciliation to projected revenue or contract pipeline.

Fringe Benefit Calculations breaking down each component, like FICA, health insurance, retirement contributions, and workers’ compensation, with projected costs per employee or as a percentage of direct labor.

Organizational Chart showing your indirect and direct labor structure, so DCAA understands how you have classified positions.

Chart of Accounts mapping your accounting structure to your cost pools and demonstrating how costs flow from the general ledger to contracts.

Historical Rate Comparison showing your actual rates for the past two to three years alongside your forward projections so evaluators can assess trends.

All of this documentation should tie back to your accounting system. DCAA will verify that the costs you’re projecting are based on how you actually operate, not aspirational numbers pulled out of thin air.

Step 6: Review for Allowability and Compliance

Before you submit your FPRP, conduct a thorough review of FAR Part 31 allowability. Unallowable costs that slip into your indirect pools will invalidate your rates and create audit problems.

Go through each cost pool line by line and verify that all costs are reasonable, allocable, and allowable under FAR 31.205. Common unallowable costs that contractors accidentally include are entertainment expenses, portions of executive compensation above allowable limits, lobbying costs, advertising costs that don’t meet the allowability test, penalties and fines, and interest on borrowing.

If you find unallowable costs in your historical actuals, you need to adjust them out before using those actuals as the basis for forward projections. Show the adjustment clearly in your supporting schedules.

Also, verify that your allocation methodology complies with Cost Accounting Standards if you are CAS-covered. Even if you are not CAS-covered, following CAS principles demonstrates sophistication and reduces the likelihood of DCAA questioning your methods.

Step 7: Submit to the Appropriate Government Office

Once your FPRP is complete, you submit it to the cognizant DCAA office or, in some cases, directly to the ACO (Administrative Contracting Officer).

Your submission package should include a transmittal letter stating the purpose and period covered, the complete FPRP with all calculations and narratives, supporting schedules and documentation, and your most recent financial statements and incurred cost submission.

According to DCAA guidance, they’ll first evaluate your FPRP for adequacy. Are all the required elements present? Is the documentation sufficient? If it’s inadequate, they will send it back with a deficiency notice.

If adequate, they will conduct a detailed review of your rates, methodology, and supporting data. This may include audit procedures to verify the historical data and test the reasonableness of your projections.

The review process typically takes 60 to 120 days, though complex FPRPs or first-time submissions can take longer. Stay responsive to DCAA questions and provide additional documentation promptly.

Step 8: Negotiate and Establish Your Forward Pricing Rate Agreement

After DCAA completes its review, it will issue an audit report with conclusions and recommendations. This report is sent to your ACO, who will negotiate the final rates with you.

Negotiation does not mean haggling over every percentage point. This discussion relates to areas where DCAA questioned your projections and reaching an agreement on reasonable rates based on the evidence.

Common negotiation points include:

• Projected growth rates if DCAA thinks your pipeline assumptions are too optimistic
• Allocation methodology if they believe a different base is more appropriate
• Treatment of specific costs if allowability is questionable
• The period covered if your business is experiencing rapid change

Once you reach an agreement, the ACO issues a Forward Pricing Rate Agreement. This agreement specifies your negotiated rates, the period they cover, how they’ll be used for proposals and billing, and the circumstances under which they can be reopened or revised.

Your FPR provides you with provisional billing rates and establishes that your rates are acceptable for pricing new proposals during the covered period. This is what makes the entire FPRP process worthwhile.

Step 9: Maintain and Update Your FPRP

FPRP is not a one-time document. It needs to be updated regularly to reflect actual performance and changing circumstances.

At year-end, compare your actual indirect rates to your forward projections. If there are significant variances, understand why. Were your growth assumptions wrong? Did unexpected costs hit your pools? Did your contract mix shift differently than anticipated?

When you prepare your annual incurred cost submission, include a variance analysis comparing actuals to the rates in your FPRP. This demonstrates to DCAA that you are monitoring your cost structure and that your forward projections are grounded in reality.

If your business experiences major changes during the FPRP period, like significant contract awards or losses, facility moves or expansions, acquisition of another company, or reorganization of indirect functions, you may need to submit a revised FPRP. The goal is to keep your established rates aligned with your actual cost structure so they remain valid for proposals and billing.

The FPRP Pre-Submission Checklist

Before you submit your FPRP, walk through this checklist:

Cost Calculations: Are all indirect rates calculated using appropriate allocation bases? Do the calculations follow Cost Accounting Standards principles? Are the rates consistent with your historical methodology?

Supporting Data: Do you have detailed schedules for all cost pools? Can you reconcile every number to accounting records? Have you provided historical comparison data?

Narrative Documentation: Have you explained your methodology clearly? Did you document all adjustments from historical to forward rates? Have you addressed anticipated business changes?

Allowability: Have you reviewed all costs against FAR Part 31? Are unallowable costs identified and excluded? Have you documented your allowability determinations?

Compliance: Does your FPRP comply with CAS requirements if applicable? Are your practices consistent period-over-period? Have you disclosed any methodology changes?

Completeness: Have you included all required schedules and exhibits? Is your transmittal letter clear and complete? Have you provided contact information for follow-up questions?

If you can check all these boxes, your FPRP is ready for submission.

The Bottom Line

Building an FPRP is methodical. You are taking your actual historical cost data, projecting it forward with documented adjustments, and presenting it in a format that DCAA can review and the government can use for negotiations.

The contractors who struggle with FPRPs are usually the ones whose accounting systems do not capture the necessary data or who try to develop rates without understanding the underlying cost structure. Fix those foundational issues first, and the FPRP becomes straightforward.

The contractors who succeed with FPRPs treat them as strategic tools, not compliance burdens. They use the FPRP process to understand their cost structure better, identify opportunities for efficiency, and position themselves competitively.

A well-prepared FPRP saves time on every future proposal. It streamlines billing, demonstrates financial sophistication to contracting officers, and protects you from the chaos of justifying rates on the fly during proposal season.

Ready to build an FPRP that actually helps you win contracts? Let’s talk about turning your cost data into a competitive advantage.