Most contractors don’t lose money because they’re bad at their trade.
They lose money because General and Administrative Rate (G&A) is misunderstood, misapplied, or ignored.
Let’s clear up the biggest misconception. If you don’t recover G&A, you are subsidizing your customers.
Both FALIB (Mr and Sr) reports explicitly identify and isolate G&A as a real, allowable cost pool — not a blended overhead guess.
This is where confusion usually arises. The key rule is that changing the base changes the percentage, not the dollars. Total Cost Input (TCI) includes all allowable costs and is Servvian’s default base. It is used for break-even validation, forward planning, and maintaining a conservative pricing discipline. The Value-Added Base (VAB), by contrast, excludes large pass-through or non-value-added costs and is only appropriate when the business model genuinely qualifies. It is most commonly used in government contracting and in material-heavy environments. Servvian calculates G&A dollars first and then applies those dollars to the appropriate base.
Break-Even Means Full Cost Recovery
Break-even does not mean payroll is covered.
Break-even means:
Every allowable cost required to operate the business has been recovered.
A company can be:
Busy
Cash-flow positive
Still structurally unprofitable
That outcome almost always traces back to under-recovered G&A.
Servvian’s methodology forces G&A into the model before pricing decisions are made.
The Servvian Planning Rule: One Base
Servvian forward planning always starts with a single-element base:
Direct base labor wages only
Why this matters:
Prevents compounding distortions
Keeps rates auditable and defensible
Aligns with accepted cost allocation standards
Burden, overhead, and G&A are layered after the base — never blended into it.
A critical Servvian principle:
If you choose a G&A rate first, the model is already broken.
The correct order is:
Identify real costs
Select the correct base
Calculate the rate
This sequencing guarantees that the math always reconciles.
Why the G&A rate can change without changing the math becomes clear once dollars are separated from percentages. In a simplified example, assume G&A totals $182,655. Applied to a larger base such as Total Cost Input, the resulting percentage is lower. Applied to a smaller base such as Value-Added Base, the percentage is higher. The rate moves; the dollars do not. If the dollars fail to reconcile across bases, the model is wrong.
The choice of base must match how costs behave. In government contracting, Value-Added Base is often appropriate due to significant pass-throughs, cost allowability requirements, and audit scrutiny. Servvian supports VAB when it is properly justified and documented. In commercial environments, operations are typically labor-intensive, pass-throughs are minimal, and G&A supports the entire business. In those cases, Total Cost Input is almost always the correct base.
Using VAB without qualifying inflates perceived margins, under-recovers real costs, and introduces pricing risk. That is why Servvian defaults to Total Cost Input unless a business clearly belongs in the VAB category.
This is conservative by design. Total Cost Input does not reduce profitability; it makes profitability real, repeatable, and defensible. Value-Added Base is a tool, not a shortcut.
Handled correctly, Servvian’s methodology produces predictable, transparent, fully recoverable G&A, with one clean planning base, proper cost layering, defensible rates, and reconciled dollars every time.
General and Administrative (G&A) and Overhead are often conflated, but they serve different purposes and must be treated separately. Overhead captures costs that directly support production or delivery—such as supervision, indirect labor, and operational support—and is allocated to the work being performed. G&A, by contrast, represents the cost of running the business itself, including leadership, finance, legal, HR, IT, and corporate infrastructure, and it applies across the entire enterprise. Overhead varies with operational volume; G&A exists regardless of project mix. When these are blended, costs become obscured, margins appear inflated, and break-even becomes unreliable. Servvian separates Overhead from G&A to preserve cost visibility, ensure proper recovery, and maintain defensible pricing, turning indirect costs from a rough estimate into a controlled, auditable structure.
Disclaimer:
The information provided is for educational and planning purposes only. G&A methodologies and base selection (TCI or VAB) must be evaluated based on each company’s specific cost structure, contract type, and regulatory environment. Servvian does not provide legal, tax, or government compliance certification advice. Contractors are responsible for ensuring alignment with applicable accounting standards and contractual requirements.