Are prime billable rates fixed?

Many government contracts are structured in a way where the prime is required to submit and categorize its staff by "Labor Category" or LCATs.

Think of these as a job types and levels. Junior Data Analyst, Mid Communications Specialist, Senior Architect, etc.

On a Time and Materials contract (T&M) the prime typically bid a fixed billable rate or price. The above roles might be $100/hour, $130/hour, and $180/hour respectively.

As a 1099, if you discover the prime is on a T&M contract, you should try to find out what those rates are because that will effectively determine your cap. Your prime won't want to lose money on you, but you don't want to leave too much money on the table.

However, on other types of contarcts, like a "cost + fee" contract, the contract structure is usually that the government will reimburse any costs incurred by the prime, including labor costs, and then award them a fee if the prime performs its contractual duties.

There are also LCATs in these types of contracts, but typically the billable rates aren't fixed. The prime just has to manage to the overall costs, and then can be flexible on the actual billable rates.

The prime says, "okay government, I can do X task but it will cost $1,000,000. I think I will need 2 Data Analysts, 1 Comms Specialist, and 1 Senior Architect."

As long as the prime stays under that $1,000,000 target, the prime can generally pay whatever they want for any single individual.

What this means for you as a 1099 is that you have more flexibility so you can bid higher. If you're valuable enough and the prime has enough budget left, they can pay it. After all, they're not making money directly off your work. They're making money on the award fee.

In that scenario your negotiation strategy should be to find out what the key performance metrics are for the contract, and then show how you can help exceed those metrics.

THEN you can pitch a very high rate.

It's less important that you're a generically good data analyst and more a pro who can use your data analysis skills to help the government hit a very important goal as indicated in the contract.

So prime billable rates are often fixed, but there are many contract types where they aren't. The practical difference for you as a 1099 is mostly in the negotiation research and strategy.

Want the full playbook? Check out Going 1099.