In contracting and coming up with the bases of estimate, and taking into consideration competitiveness, What does a company need to be aware of when contracting out 1099 vs employees. Thank you for your advice.  

When you develop your indirect rates, you should review the level of Fringe Benefits provided 1099 employees versus regular employees.  You must ensure that according to DOL regulations, even though you may call your employees 1099, that you by law are or are not required to provide fringe benefits.

Based on that determination, if 1099 employees are NOT receiving Fringe Benefits (i.e. Leave, Health Insurance, Payroll Taxes, etc.,) then you would exclude them from the base used to develop your Fringe Benefit Rate.  If you do provide specific fringe benefits even to 1099 employees but they are significantly different then your regular employees, then you might consider establishing Two (2) Fringe Benefit Rates.  One for 1099 and one for Regular employees.

As far as your Overhead and G&A Indirect Rates, normally these indirect type costs are still applicable to both 1099 and Regular employees because the efforts of overhead and G&A function supports both.

If any 1099 employees provide indirect support (Overhead or G&A) then their costs go into the respective indirect pool so there is generally no issues as to the impact on the O/H and G&A Rates.

In summary, it is generally how your Fringe Benefits are calculated and applied that must be determined to be fair and reasonable!  It is always important to ensure compliance with DOL definitions and guidelines as to how and when a person is classified.

Hope this helps.