Thursday, January 3, 2013

Facilities Capital Cost of Money and Rent Paid to Affiliated Parties

As a general rule, in order to claim cost of money, a contractor must first propose it. FAR 31.205-10, Cost of Money, states that facilities capital cost of money (FCCOM) is allowable provided an estimate of FCCOM was specifically identified and proposed in cost proposals relating to the contract under which the cost is to be claimed. So, to claim it, you have to had proposed it.

Over in FAR 31.205-36, there is a discussion on how to compute allowable rental costs when contractors are paying rent to related parties. According to FAR 31.205-36(b), the following costs are allowable:

Charges in the nature of rent for property between any divisions, subsidiaries, or organizations under common control, to the extent that they do not exceed the normal costs of ownership, such as depreciation, taxes, insurance, facilities capital cost of money, and maintenance (excluding interest or other unallowable costs pursuant to Part 31), provided that no part of such costs shall duplicate any other allowed cost (emphasis added).

Similarly, Section 7-206.2 of the Defense Contract Audit Manual includes the following:

Leasing costs between divisions, subsidiaries, or organizations under common control for operating leases are generally allowable to the extent that costs do not exceed the normal costs of ownership (excluding interest or other costs unallowable and including cost of money) (emphasis added).

Periodically, a question arises concerning the allowability of FCCOM in a rental computation when the contractor did not originally propose FCCOM. If the contractor did not initially propose FCCOM, can it include FCCOM as one of the elements for calculating the cost of ownership?

The NASA Board of Contract Appeals answered that question in a 1988 case involving Engineering, Inc. (NASA BCA No. 187-2, CCH 88-2, pg 105.029). The Government had questioned FCCOM as part of the cost of ownership because Engineering, Inc. had waived FCCOM in its contract. The Board, in ruling against the Government, specifically ruled that Engineering Inc. was entitled to rental costs not to exceed the normal costs of ownership including FCCOM, despite having waived FCCOM in its contract.

You can read more about FCCOM here. If you have any questions concerning the application of FCCOM, feel free to contact David Koeltzow ("Kelso") at 360-910-4146.

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