Wanting to compare notes on financial statement presentation of cost relating to bidding for work.  I mostly help clients with business and software processess and custom reporting solutions.  I am dealing with developing job overhead rates, and my client has historically included bidding activity in overhead cost to be applied to jobs.  In my mind, this cost should show in Selling, General and Administrative, and shouldn't be charged back to jobs.  If you have to bid 20 jobs to get 1, why should the jobs you win get loaded with costs for your failed bidding efforts?  I have always thought of bidding work as essentially a sales and marketing effort, true?   My client's outside CPA has accepted this approach for years, which doesn't seem correct to me. 

Any thoughts would be appreciated. 

- Tom Cobb

Good Question, Tom, but think of it this way; If a company only gets one out of 20 bids, their S,G,&A overhead structure will be more costly than that for a company that gets 1 out of every 10 bids. Monthly internal management reporting should probably not be represented exactly like GAAP financial statements.

Bid and Proposal work is SG&A and from a management perspective, should be charged to jobs to reflect the indirect cost of doing those jobs, just as executive and district manager salaries are. If you charge it to a specific cost type and GL account account, your financials can still present this cost as SG&A below the gross profit line. If your client does government contract work subject to audit by DCAA, however, B&P costs must comprise it's own separate cost pool and can not be incorporated in indirect overhead rates, but rather in a separate B&P rate.

Thanks for everyone's input.

Definition from the AICPA Audit Guide

Indirect costs include the costs of indirect labor, contract supervision, tools and equipment, supplies, quality control and inspection, insurance, repairs and maintenance, depreciation and in certain circumstances support costs.  

Support costs included in indirect costs could include bidding and estimating costs as well as purchasing costs.

What ever is chosen, it needs to be consistently applied and if margins are squeezed, people need to remember that the jobs need to pay for these excluded support costs.  Some feel that classifying these costs as indirect help keep attention to the details.  Don't think that one is right or wrong.

I agree that the costs should be shown as part of G & A salaries.

I agree that the cost is an SG&A cost, but if the outside CPA is ok with it I guess it is no different then trying to apply burden to jobs to pickup non direct PM time, and other indirect costs.  It could be an issue if a customer wants a breakdown of the burden rate on a T&M job, hard to explain how that applies to their job.