# How to Price CMMC and Compliance Costs Into Defense Quotes > Source: https://netray.co/resources/how-to-price-cmmc-compliance-into-defense-quotes > Publisher: Netray (netray.co), AI and integration engineering for ERP and manufacturing systems. > Section: Knowledge Base ## Short answer How defense subcontractors recover CMMC, NIST 800-171 and ITAR compliance costs in quotes: overhead rates, allowability, fixed-price risk and margin protection. ## Category ai-automation ## Content **Intro:** To price CMMC and compliance costs into defense quotes, treat them as indirect costs recovered through your overhead or G&A rate, not as line items you hope a prime will absorb. Compute the full annual cost of NIST SP 800-171 operation, assessment and staff time, allocate it across the direct labor or cost base of all work that benefits, and test the new rate against your current margin on fixed-price jobs. Unrecovered compliance cost quietly erodes margin on small-lot defense work. **Sections:** #### What the Compliance Bill Actually Includes **Body:** Shops usually count the assessment fee and nothing else. The real cost has recurring layers. Initial gap analysis and remediation: identity, logging, endpoint protection, network segmentation, encryption. Subscriptions: a managed security provider, a SIEM or log retention, a FedRAMP-equivalent cloud enclave. Labor: an internal owner who spends several hours a week on evidence, access reviews, training, vulnerability patching and incident drills. Third-party assessment and reassessment on the CMMC cycle. Legal and consulting for the System Security Plan. Add hardware replacement cycles for controlled workstations and CNC-connected computers. Total cost of ownership over three years gives a fairer annual number than year-one capital. **Bullets:** - One-time: gap assessment, remediation projects, segmentation, enclave setup - Recurring: managed services, licensing, log storage, training, patching - Periodic: C3PAO assessment and annual affirmation work - Hidden: staff hours and the productivity cost of stricter file handling #### Recover It Through Overhead, Not Hope **Body:** Compliance costs are generally indirect: they support the whole business or the whole defense segment, not a single job. Put them in an overhead or G&A pool and spread them through your rate on a stable allocation base. A shop with separate rates for defense and commercial work can load the cost only on the defense segment, which keeps commercial quotes competitive but raises the defense rate. For cost-type and some negotiated contracts, allowability and allocability rules in the FAR cost principles and Cost Accounting Standards apply, so align with your accountant. For firm-fixed-price purchase orders from a prime, nobody reimburses you separately: it must already be in your rate and your price. #### Test Quotes Against the New Rate **Body:** Rerun your last twelve defense quotes with the updated overhead rate and see what happens to margin at the same price. Small lots and short runs feel it most, because a fixed compliance load spread over low direct labor produces a high rate. This is where shops discover that a few unpriced engineering change requests, source inspection visits or first-article reports are quietly losing money. Add explicit charges where the PO allows them, such as FAI documentation or certification packages, and set a minimum order charge that covers the CUI handling overhead of receiving, storing and tracking a controlled drawing for a small job. #### Make the Rate Visible in Your Quoting Process **Body:** A quoting spreadsheet with a hardcoded overhead percentage hides the effect. Put the defense rate, the commercial rate and the minimum order charge in a single table that estimators pull from, with a change log and a named owner. In your ERP, keep burden rates by work center and update them when the annual compliance budget changes. If you use AI to draft quotes, it must read these rates from the same source, and the estimator reviews the margin it implies. Track actual job cost against the quote after delivery, so you know whether the compliance load is truly being recovered. #### When to Walk Away From a Job **Body:** If a small CUI job cannot clear the true fully loaded cost, decline it, quote it with a realistic premium, or recommend the prime source it elsewhere. Chasing every RFQ to preserve a customer relationship is how small shops fund their prime's supply chain. Also consider whether you are better off partnering with a larger sub who already carries the compliance cost. This is financial guidance in general terms; confirm allowability, rates and pricing structure with your accountant and, for government contracts, with someone who knows FAR Part 31. **Cta:** Netray can build a quoting assistant on your own ERP history that applies your actual burden rates and flags quotes where compliance load turns margin negative. **Faq:** #### Can I charge a prime extra for CMMC compliance? **Answer:** Sometimes on negotiated or cost-type work, where allowable indirect costs are recovered through rates. On firm-fixed-price purchase orders, there is usually no separate reimbursement, so the cost must be built into your pricing or minimum charges. Ask early and document your rate basis. #### Is CMMC compliance an allowable cost? **Answer:** Security costs are generally treated as indirect costs that can be allowable under FAR Part 31 when they are reasonable and allocable. How they are recovered depends on your contract type and accounting system. Consult your accountant or government contracts advisor for your specific situation. #### How much should a small machine shop budget for CMMC Level 2 per year? **Answer:** Ranges vary widely with scope and starting point. Many small shops should expect five-figure annual operating costs plus one-time remediation and assessment fees, with narrower scoping lowering both. Get quotes from a managed provider and a C3PAO, and model a three-year total instead of a one-year number. ## Related Slugs - cost-accounting-standards-defense - gross-margin-analysis-manufacturing - manufacturing-costing-methods-comparison - syteline-job-costing-configuration-guide - ai-quoting-aerospace-defense-manufacturers ## Search terms CMMC cost recovery overhead rate, price CMMC into quotes, allowable cost cybersecurity defense, defense subcontractor overhead rate, CMMC compliance cost small machine shop, small lot defense pricing margin, minimum order charge machine shop --- Talk to an engineer: https://netray.co/contact?intent=erp_ai | Machine catalog: https://netray.co/agent/catalog.json