Understanding Volpe's Project Costs
The Volpe Center is a unique federal organization that is 100 percent funded by sponsor projects.
Volpe is a federal fee-for-service research and innovation center in the U.S. Department of Transportation. We are authorized by Congress to conduct business through a Working Capital Fund (49 U.S.C. 328). As a research and innovation center that receives no Congressional appropriations, Volpe's continued success depends on the delivery of quality solutions to our sponsors, who provide our sole source of revenue through project agreements.
Volpe maintains its own facility in Cambridge, MA. Unlike many comparable federal organizations, Volpe receives no base funding or agency support to offset facility operations and maintenance costs.
Volpe's employees are compensated the same as other federal employees.
Volpe staff is compensated according to the federal locality pay tables used for all federal employees, and our labor costs include the same employee benefits, like health and life insurance, received by other federal employees. A sponsor is charged labor costs for only the time that Volpe staff spends working on the sponsor's project. These are direct labor costs.
For example, a GS-13 employee who is paid $48.57 per hour and receives another $25.49 in federal benefits has a direct labor cost of $74.06 per hour.
Volpe's essential administrative functions are covered through overhead charges.
In addition to direct labor costs, Volpe costs include expenses for administrative services that are essential to operate an organization, including human resources, information technology, facilities, financial services, legal services, building services, and utility costs. These are indirect costs. Since we receive no funding other than what comes through project agreements with our sponsors, we recover these indirect costs by charging sponsors an overhead rate that is shared among all projects. This rate is charged only on direct labor costs.
Key Volpe Strategic Goal: Improving the efficiency of our internal processes.
Seeking ways to reduce costs throughout our organization, Volpe has reduced its overhead rate by nearly 10 percent in the past four years.
Volpe's overhead rate in 2013 is 59.5 percent of direct labor charges. With the example of a GS-13 employee who has a direct labor cost of $74.06 per hour, an overhead charge of 59.5 percent (or $44.07) on that compensation brings his or her total hourly cost to $118.13. Another way of looking at this is that 37.3 percent of a sponsor's cost for Volpe labor is for indirect expenses.
Projects that require Volpe to procure materials or support services are charged an acquisition services fee of 4.25 percent of the contract obligation amount to cover the costs of Volpe's acquisitions staff who provide our procurement services.
Thus, a project that costs $200,000 in Volpe direct labor costs and $300,000 in contractor costs would be charged an indirect cost of $119,000 ($200,000 x 59.5%) and an acquisition fee of $12,750 ($300,000 x 4.25%), resulting in a total cost of $631,750.
Volpe costs compare favorably with those of other service providers.
While Volpe does not compete with other service providers, our sponsors have asked how our costs compare to organizations that provide similar services. It is difficult to make comparisons due to the variety of accounting practices used in these organizations. One measure of comparison is the "wrap rate," which is the total hourly rate burdened with indirect charges divided by the unburdened hourly rate. For Volpe, illustrated using the GS-13 example above, our wrap rate is 2.43, as shown below:
The total labor costs for other service providers can include, in addition to employee benefits and overhead, a general and administrative expense rate, a cost of money charge, and a profit fee. Volpe costs include none of these additional fees.
As a federal organization working for the public good, Volpe is not for profit.
In benchmarking other service providers of similar size and budget as Volpe, we have usually found wrap rates (total labor cost divided by labor rate) to be higher than Volpe's rate of 2.43, with several organizations having wrap rates over 3.0. In addition to frequently having higher wrap rates, private sector service providers often have higher labor rates than do federal agencies.
While Volpe's costs are comparable and often favorable, our primary value to our sponsors is that we are a federal center, working for the public good.
Volpe is a federal resource guided by a deep understanding of federal responsibilities, objectives, and practices. We have institutional knowledge of the global transportation system and diverse stakeholder perspectives. We are fundamentally committed to advancing U.S. DOT's strategic goals and helping sponsors develop and advance transportation systems that best serve the public. As such, we are driven by public interest—not profit.
Contact Us
For additional information on Volpe project costs, call your project manager or contact:
William Henrikson, Chief Financial Officer
Volpe, The National Transportation Systems Center
55 Broadway, Cambridge, MA 02142
Phone: 617-494-2284 | Fax: 617-494-3630
Email: William.Henrikson@dot.gov
Frequently Asked Questions
Does Volpe guarantee its cost estimates?
Initial project cost estimates are typically revised after work is initiated and defined in more detail. Work is performed on a best-effort (not fixed-price) basis. Since Volpe has no funds of its own, Volpe staff are required to stop work if funds run out or expire.
When do customers pay for Volpe support?
Customers must advance spending authority and cash before work begins. Both spending authority and cash may be advanced incrementally.
How are customer funds advanced to Volpe?
Funds are advanced to Volpe upon execution of the agreement under Department of Transportation guidelines. Advances for federal customers are collected via Treasury's Intra-Governmental Payment and Collection System. Advances for non-federal customers are collected via check or wire transfer. Funding amounts can be advanced incrementally.
Can funds for one project be used towards work on another project?
No. Project funds may be used only for the specific project for which the funds were advanced.
Does Volpe have any preferential pricing practices?
No. All customers are charged in the same manner. We have no "discounts" or other special pricing arrangements.
Do project funds expire at the end of each fiscal year?
Under the provisions of the Working Capital Fund (49 U.S.C. 328), project funds are available without regard to fiscal year. However, if a sponsor desires to limit the use of the funds to a specific time period, Volpe will accommodate such requests. Under current Department of Transportation policy, the period of performance for any agreement is limited to not more than five years.
What happens to unexpended funds on completed projects?
Funds are returned to the customer. Projects are reviewed annually to ensure that funds on completed projects are returned.
Can customers terminate projects and have funds returned to them?
Yes. Customers can terminate projects and request the return of all unexpended funds, after project close-out costs have been covered.
How can customers be confident that Volpe is charging them appropriately?
In addition to regularly sending our customers financial status reports, Volpe is audited regularly by DOT's Office of the Inspector General (OIG) to ensure that our organization is operating economically, efficiently, and effectively. Throughout Volpe's history, the OIG has always found Volpe's financial information to be accurate.
Is the same overhead rate charged for Volpe off-site employees as Volpe on-site employees?
No. Some Volpe employees are based in Washington, D.C. or other locations. Since off-site employees do not occupy office space at the Volpe Center, the logistics costs for these employees is less than for on-site employees. Hence, the indirect rate for off-site employees is 48 percent versus 59.8 percent for on-site employees. The salary rates for off-site employees are based on the prevailing locality rates at their duty locations, which could be more or less than the rate in the Boston metro area.