Explain if this is a reasonable indirect rate

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Question: A factory performs work on one contract to assemble electromechanical units. The overhead costs for the year are $1,000,000. During the year, the direct costs are projected at $10,000,000. The contracting officer has issued a modification resulting in 20% reduction in the work. The contractor is attempting to negotiate an overhead rate of 18% as part of reaching a bilateral agreement for the contract modification.

Explain if this is a reasonable indirect rate. If it is not, then provide a pre-negotiation objective to address this?

(Provide references)

Reference no: EM133638411

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