Pricing an SCA contract is not like pricing commercial work. Two of the numbers in your build are set by the government before you ever open a spreadsheet, and neither one is negotiable. Everything else in your rate stacks on top of them.

I sat down with Jenny Clark, GovCon CFO at Solvability, to walk through the full rate build from the bottom up: what the two mandatory floors are, what sits above them, and where contractors most reliably get into trouble. This conversation ran longer than our first one on SCA fringe versus corporate fringe, because there is more ground here. It is useful both before you bid and after you win.

Pricing Is Math

Jenny opened with a line that framed the whole conversation: "I always like to talk about math, and that's what pricing is. If you don't know the math, you're going to make a mistake."

The inputs are not a mystery. When you are bidding, the Wage Determination is part of the solicitation. You know the locations where the work will be performed, and for each location you know which Wage Determination applies. That document hands you the wage rates for each job classification and the Health & Welfare rate you are required to provide.

What contractors get wrong is not the availability of the numbers. It is the order of operations. Get the math wrong in one direction and you lose money on a contract you should have priced differently. Get it wrong in the other direction and you price yourself out of work you could have won.

The Rate Stack, From the Bottom Up

A compliant labor rate builds in a specific order: direct labor pay rate, then the SCA Health & Welfare obligation (or cash in lieu), then fringe, then overhead, then G&A, and finally fee or profit.

That order matters more than it looks. The bottom two layers are compliance floors set by the government. Everything above them is a business decision that belongs to you. Determine your compliance floor first, then build profit on top of it. Contractors who start from a target price and work backward almost always end up shaving the wrong layer.

Floor One: The Wage Determination Minimum Wage

You will find it in Section J of the solicitation. It lists minimum wages by labor category, and your direct labor rate cannot go below the number listed for that category. If the Wage Determination says $22.00 per hour, then $21.50 is not close enough. There is no rounding down.

You can always pay above the floor, and plenty of contractors do. In a tight labor market, paying above the Wage Determination is how you recruit and retain people. That is a competitiveness and profitability decision, not a compliance one, and it is entirely yours to make.

What a Wage Determination Actually Looks Like

Few people describe this, so it is worth saying plainly. A Wage Determination looks like something printed off a dot matrix printer in 1985. It runs many pages, because it lists every possible job classification that could touch the contract. It specifies the location it applies to, which might be a single county or a broader region. Each job classification carries its own required minimum wage rate.

The thing to keep straight is that the wage rate and the H&W rate are two different obligations. They live on the same document, they are both mandatory, and they are calculated separately.

When Your Position Is Not on the Wage Determination

Sometimes you win the contract and realize a position you need does not appear anywhere on the Wage Determination. This happens most often with hybrid roles that do not map cleanly onto a standard classification.

There is a formal process for this, called conformance. You go to the DOL, explain why the position is necessary for the contract, propose a wage rate for it, and show how you arrived at that number. Approval is typical. It is not an adversarial process.

The part that matters is timing. Do this proactively when you win the contract, not retroactively after you have been paying someone for eight months at a rate nobody approved. Retroactive conformance is a far harder conversation.

Floor Two: The Health & Welfare Obligation

In payroll systems this often shows up as cash in lieu, or CILOFB, which stands for cash in lieu of fringe benefits.

A Wage Determination shows two H&W rates, and the lower one applies when Executive Order 13706 is in effect, which requires 56 hours of paid sick leave per year. That rate is lower because the cost of the sick leave is accounted for separately. DOL's current pair, from AAM 252 effective August 10, 2026, is $5.92 per hour standard and $5.42 per hour under EO 13706. Wage Determinations issued before that still show the prior pair of $5.55 and $5.09.

In practice, well over 90% of active contracts fall under EO 13706, so the EO rate is the number most contractors are actually working with, and today that is usually still $5.09 rather than $5.42, because the increase reaches a contract only when the Contracting Officer incorporates a revised Wage Determination. There will eventually be a day when the higher rate no longer applies to any active contract at all. If you want the full breakdown of how the obligation works, our H&W explainer covers it in detail.

Fringe, Overhead, G&A, and Fee

Above the two floors, the layers are more familiar, though Jenny's plain-English versions are worth repeating.

Fringe is your corporate benefit package. Holiday pay, vacation, and paid time off live here as well, and note that PTO is specified by seniority inside the Wage Determination itself. Many contractors apply part of the H&W rate toward benefits the employee elects and give employees choices about how. That is common and permitted. You simply have to be able to show you did it correctly.

Overhead is the cost of running the technical side of the business: tools, equipment, supervision, all the things your employees need in order to actually do the job.

G&A is back office and headquarters cost. Accounting, human resources, executive leadership, professional fees, consulting.

Fee or profit sits on top. On cost-plus contracts there is usually guidance, and 6% to 8% is typical. Fixed-price and time-and-materials arrangements are less common on SCA work but they do happen, and there you decide your total price.

Jenny's caveat is worth carrying forward: there is real interpretation involved in these layers, and they are not structured identically at every company. The goal is understanding what each layer is for, not memorizing one company's chart of accounts.

Where It Actually Gets Hard: Cash Versus Credited Benefits

This is the part of the conversation I would point most people to.

If you provide the entire H&W obligation as cash in lieu, it is relatively straightforward. It appears on the pay stub under a separate earnings code. It costs you more, because the employer pays payroll taxes on those wages, but employees tend to appreciate seeing the money.

If you provide benefits instead, the employer-paid portion counts toward the obligation. Clean enough on its own.

The complexity arrives when you do both, crediting benefits and paying cash to true up the difference. Three things move at once. Hours worked change every pay period, so the obligation changes every pay period. Benefit elections change at least annually, and sometimes mid-year after a life event. And benefits are calculated monthly while payroll runs biweekly or semi-monthly, so a given month might contain 160 hours, or it might not.

Reconciling monthly benefit amounts against biweekly payroll transactions, per employee, is where the math gets slippery. It is not conceptually difficult. It is relentless.

Who Owns the Tracking

Jenny raised a question I do not hear asked often enough: who actually owns H&W reporting? Is it HR, payroll, or accounting?

The HR view and the accounting view of this calculation genuinely differ, and that difference causes real internal conflict about how the calculation should be performed. Meanwhile, when something goes wrong with someone's pay, HR usually takes the call, because they are the ones fielding employee questions.

Whoever is talking to employees needs to be well informed and able to explain clearly what is happening on the pay stub. That is not a small ask when the underlying calculation moves every pay period.

The Spreadsheet Problem

Jenny and I arrived at the same place here from different directions.

Her version: someone inherits a spreadsheet that has been passed down repeatedly. They do not fully know what it is supposed to do, and they do not know what has to be updated regularly to keep it accurate.

My version: assume generously that the math in the spreadsheet is correct. If it is complicated to follow, that is still a problem in a DOL audit. If you need an instruction manual to explain how your calculations work, that is going to present a problem. You want to hand an investigator something self-explanatory that does not require a phone call to walk through. We wrote more about why spreadsheets break down at this specific job, and if you are weighing your options beyond a spreadsheet, we also compared compliance software against a trust or TPA.

Here is something worth saying out loud, because it rarely gets said: DOL investigators are not on a hunt to find something wrong. If something is wrong, they will dig. But most investigations are not complicated if they do not have to be. Give them streamlined, simple information and the investigator is glad to close the case and move on, rather than digging seven layers down looking for a five cent variance.

If the Rate Comes Out Higher Than You Want

Sometimes you build the stack, look at the number, and do not like it. That is a pricing signal, not a compliance problem to work around.

Do not shave fringe to hit a target price. Shaving fringe does not lower your cost. It converts the gap into a back-pay liability you will settle later, usually at a worse moment. Corrections are genuinely painful. They upset employees, they create extra payroll work, and nobody involved wants to do them.

The distinction I keep coming back to is this. SCA contracts are hyper competitive and margins are thin. Making a strategic decision to lower your fee from 12% to 8% in a proposal is a legitimate business call, and people make it every day. Mistakenly cutting into the H&W rate or the minimum wage is a completely different thing. You cannot cut into those without getting into trouble.

Everything above the two floors is negotiable. The two floors are not.

For the pricing and rate build side, Jenny's team at Solvability works through exactly this kind of stack with small and mid-size GovCon firms. Connect with her at solvability.com or on LinkedIn.

For the compliance side, calculating the obligation per employee and per contract, handling the cash in lieu true-up every pay period, and keeping records that hold up in a DOL investigation, that's what SimpleFringe is built for.