What's the difference between "overhead" and "salary" for the contractor? If they charge 500k for the job and give 250k to their employee, it doesn't really matter whether they billed him at an hourly rate of $30 or $300.
Overhead comes out of company budget. The company has to make it up. They can't charge 500k for the job, they can charge whatever the DCAA approved labor rate for the engineer is per hour. Anything else they want to charge the gov for they have to pay out of their pocket.
Actually I didn't phrase that right. Anything else they want to pay the engineer they have to pay for out of pocket -- they can't charge the government for it.
Where would the company get the money from to pay the contractor "out of pocket"? Or to pay rent or lobbyists or R&D or legal fees or give its shareholders dividends?
For most defence contractors, the government is the only client. They can't be passing 100% of their income to their employees. So why not charge 60k labour, 440k for overheads, and pay some of that 440k to the guy actually doing the work?
