Today we continue our series on the CAS Working Group Guidance Papers. Between 1975 and 1981, DoD convened a group of CAS "experts" to come up with practical solutions to issues that contracting officers were facing in trying to interpret and apply the (then) new rules and regulations being promulgated by the Cost Accounting Standards Board (CASB). During that time, the Working Group published a total of 25 "interim" guidance papers. According to DoD, twenty of the 25 interim papers are still current. The complete working group guidance papers can be downloaded here. For those of you who are getting bored with this series, hang on a little longer - we'll be finished after No. 20.
WG 77-19 - Administration of Leased Facilities Under Cost Accounting Standard 414, Cost of Money as an Element of the Cost of Facilities Capital.
This is another guidance paper on CAS 414, Cost of Money. Back when CAS 414 and later CAS 417 (facilities under construction) were being considered, many in the Government contracting community were opposed to it. They felt like is was stacking profit on top of profit and there were even some contracting officers who refused to consider it in negotiations. That was awhile back and contracting officers carried bigger sticks back then.
This particular guidance deals with leases. CAS 414 provides that the cost of money will be computed on the average net book value of facilities, capital items, including certain leased facilities, for which constructive cost of ownership is allowed in lieu of rental costs under Government procurement regulations.
Two issues surfaced when attempting to implement the standard. The first was whether to recognize cost of money as part of constructive ownership cost in determining whether allowable cost will be based on constructive cost of ownership or rental costs. The second issue was when to include the net book value of leased assets on the CASB-CMF form.
Cost of money is a cost which the contractor would be allowed if he had purchased the property. Therefore, it should be included as an ownership cost in making the determination whether allowable cost will be based on constructive cost of ownership or leasing costs. After that determination, cost of money should be allowed as a separate item under FAR 31.205-11 and not included as a constructive ownership cost in determining allowable cost.
Timing for including net book value of leased assets on the CASB-CMF form involves at least two possibilities, at the beginning of the lease term or at the time when cumulative leasing cost exceed cumulative cost of ownership, commonly referred to as the cross-over point.
Cost of money should be included as an ownership cost in making the determination whether allowable cost of leased facilities will be based on constructive cost of ownership or leasing costs.
Where it has been determined that to allow leasing costs is more advantageous to the Government, the value of the leased facilities will not be included in the cost of money as a cost of facilities capital computation.
Leased assets for which a decision has been made to limit reimbursement to constructive cost of ownership will be included on CASB-CMF form at their net book value computed at the effective date of the Standard (long since passed) or at the beginning of the term of the lease whichever is later.
Net book value for the purpose of computing a contractor's cost of facilities capital on leased assets shall be computed based on the asset's fair value at the beginning of the term of the lease less an amount equal to accumulated depreciation from the beginning of the term of the lease computed in a manner as if the contractor had purchased the asset. The cost of money will not be included in the net book value of leased assets as reflected on the CASB-CMF form.
The cost of money related to leased assets will be allocated to benefiting cost objectives as an integral part of the cost of money factors for all capital assets.
Land will be shown on the CASB-CMF form (at its fair value at the beginning of the term of the lease) for each accounting period it is used in regular business operations.