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I'm completing some coursework for my Software Project Management university module (studying Computer Science). We have to assemble a bid for a hypothetical software development project.

I have calculated my daily charge-out rates for each of my employees (salary + overheads / number of working days) and calculated the cost of each work package.

For the Bid Summary document we need to calculate the labour costs and non-labour costs for the entire project. I'm a bit stuck of what is included in each; are overheads included in non-labour costs or labour costs? It'd be good to have a reference as well so I can back up my calculations. Thank you!

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    Only your teacher knows what the expected answer is. But in real life, if it can be tied to a per-person cost, it's probably labor rather than overhead.
    – Todd A. Jacobs
    Nov 26, 2016 at 21:38

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I searched PMBOK 5th Edition and found no clear statement on the handling of overhead.

The General Services Administration (GSA) governs contracting with the US Federal government. The GSA Federal Acquisition Regulation Part 16.6 Time-and-Materials, Labor-Hour, and Letter Contracts states:

(b) Description. A time-and-materials contract provides for acquiring supplies or services on the basis of:
(1) Direct labor hours at specified fixed hourly rates that include wages, overhead, general and administrative expenses, and profit; ...

Overhead is applicable solely to labor costs. Overhead is not permitted for other direct costs (ODCs) which GSA's term for non-labor costs.

“Direct materials” means those materials that enter directly into the end product, or that are used or consumed directly in connection with the furnishing of the end product or service.

“Materials” means— (1) Direct materials, including supplies transferred between divisions, subsidiaries, or affiliates of the contractor under a common control; (2) Subcontracts for supplies and incidental services for which there is not a labor category specified in the contract; (3) Other direct costs (e.g., incidental services for which there is not a labor category specified in the contract, travel, computer usage charges, etc.); and (4) Applicable indirect costs.

Although the offeror is not permitted to apply overhead and G&A to ODCs, the offeror can apply material handling costs, as follows:

(3) Material handling costs. When included as part of material costs, material handling costs shall include only costs clearly excluded from the labor-hour rate. Material handling costs may include all appropriate indirect costs allocated to direct materials in accordance with the contractor's usual accounting procedures consistent with Part 31.

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If you are in the United States or Asia, I'd recommend checking a resource like the Project Management Body of Knowledge (PMBoK). In Europe of the Middle East check the Prince2 guides. These are considered the "official" answers for project management related questions in their respective regions.

As Code Gnome indicated, it is going to be subjective based on your teacher and their curriculum as well. You may want to review your notes or course material again to see if there is indication there are as to which way your instructor leans.

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I do know if there is a hard and fast rule on this. When you are doing your price build up, you need to include overhead somewhere so that your price will cover it and you don't want to double count it. So, I assume if you are a seller of both services and products, put your overhead costs in one or the other depending on what you sell most. In a real life example with my firm, where we sell both, our overhead is in labor; however, we have divisions that sell only products so their overhead is in materiel. It is not double counted because it is a different division and different overhead costs. Unless there is an accounting rule on this of which I am unaware, pick one and stick to it.

(I am not 100% confident in my answer since there are accounting rules outside of my area of expertise, so consider my contribution with that in mind.)

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