Monday, October 15, 2012

What You Need to Know to Claim Cost of Money - Part 2

This is the second of a multi-part series on Cost of Money (aka. Facilities Capital Cost of Money, FCCM, and FCCOM) written by PNWC's David Koeltzow. If you missed the Part 1 introduction, you can read it here. Regulatory references can be found at:

  • FAR 31.205-10 - Cost of Money
  • 48 CFR 9904-414 Cost of money as an element of the cost of facilities capital (CAS 414)
  • 48 CFR 9904-417 Cost of money as an element of the cost of capital assets under construction (CAS 417)

Who can claim FCCOM? Baring solicitation provisions to the contrary, any prospective Government contractor may propose FCCOM and any Government contractor may claim FCCOM. Generally, contractors must propose it in their initial pricing proposals in order to claim it or bill for it (FAR 31.205-10(b)(3). Some solicitations, notably SBIRs (small-business innovative research) solicitations specifically exclude cost of money.

As appropriate for the FCCOM worth shown below, most business with significant assets and Government contracts use FCCOM.  However, small businesses often appreciate even a few thousand more in extra revenue.

What is FCCOM Worth? This depends on the following factors:

  1. The FCCOM (interest) rate?  As shown at the FCCOM rate from 1980 to 2012 hit a high of 14.875% in 1981 and is now at an all time low of 1.75% for the second half of 2012.  The average rate from 1980 to 2012 has been about 7.25%.
  2. The value of the land, buildings, and equipment needed to perform on the Government contracts?  We've served businesses with assets less than $10,000 and more than $10,000,000.  
  3. How much of your business is for negotiated Government contracts?  We've served Government contractors with less than $500,000 and more than $100,000,000.

FCCOM for a company with $10 thousand invested in assets at today's rate is $175 (assuming it only provides services on negotiated Government contracts). For a company with $10 million invested in assets, FCCOM is an impressive $175 thousand. While the treasury rate is at an all-time low right now, it seems inevitable that it will raise some day. FCCOM revenues would be over four times higher if the Treasury rate was near the average of about 7.25%.

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