GovCon Accounting: Wrap Rates, FAR 31 and DCAA Audits

Written By Mark Sue

This guide is for founders who have won, or are bidding on, government contracts. The government can audit every dollar it pays you, so pricing, bookkeeping and billing have to follow its rules. The guide shows how to price the work, keep the books clean and stay ready for an audit.

What's in the guide

  • Building the billed rate: a $50/hour engineer becomes $122/hour, a 2.4× wrap rate, after fringe, overhead, G&A and fee
  • Who checks your books: DCAA, DCMA, contracting officers, SBA and DOJ and Inspectors General
  • Contract types from firm fixed price to cost plus fixed fee, and who carries cost risk
  • NDAA FY2026 thresholds for certified cost or pricing data and Cost Accounting Standards (CAS)
  • FAR Part 31 allowable vs. unallowable costs
  • The annual DCAA audit cycle and the six DFARS business systems
  • Getting paid faster: progress payments, performance-based payments and billing through PIEE
  • A compliance risk map, GovCon finance KPIs, five costly mistakes and a 10-point audit-readiness scorecard

Questions this guide answers

What is a wrap rate in government contracting?

It is the billed rate divided by direct labor. In the guide's example, $50/hour of direct labor plus fringe (35%), overhead (45%), G&A (15%) and fee (8%) bills at $122/hour, a 2.4× wrap rate.

What costs are unallowable under FAR Part 31?

The guide lists entertainment and alcohol, lobbying, fines and penalties, interest and bad debt, donations, and pay above the federal cap. Billing an expressly unallowable cost triggers penalties, not just a refund, so segregate them in the general ledger.

When do Cost Accounting Standards apply?

For contracts after June 30, 2026, NDAA FY2026 moved the lines: certified cost or pricing data starts at $10M, CAS applies in modified form at $35M, and full CAS coverage starts at $100M. Older awards stay on the $2.5M line.

How do I prepare for a DCAA audit?

Start with job-cost accounting by contract, signed daily timekeeping, defined indirect cost pools and unallowables segregated in the GL. File incurred-cost submissions on time; they are due 6 months after fiscal year end.

How can a government contractor get paid faster?

Commercial invoices are paid after delivery. Progress payments let you bill 80% of costs incurred as a large business or 90% as a small business, and performance-based payments pay on milestones you negotiate. The Prompt Payment Act adds interest if the government pays after 30 days.

How Strativ helps

Strativ sets up accounting systems that support government work, including job costing by contract, indirect rate tracking and clean segregation of unallowable costs. Strativ also helps companies pursue SBIR and other non-dilutive awards, which often lead to the first government contract.

Request the full guide to get the complete one-page reference, or book a call to talk through your numbers with Mark.

Mark Sue