Monday, April 30, 2018

Charging Capital Equipment Direct to Contracts

Contractors have been known to include the cost of capital equipment (or the unamortized value of capital equipment) in contract pricing proposals and incurred cost proposals. There may well be situations where this would be appropriate. Those situations are rare however and contract auditors have been instructed to question the cost of capital items except for:

  1. Approved special tooling and test equipment that falls within the narrow definition of FAR 31.205-40, Special Tooling and Test Equipment., 
  2. Specific contract authorization.

While there may be other situations where it would be appropriate to expense the cost of capital equipment directly to a contract, it would probably be a tough sell to the contracting officer, especially after the incurrence of the cost. Should such situations arise, we highly recommend that contractors pursue advance agreements with the contract officer to forestall future disagreements.

There is certainly financial incentives for contractors to "hide" the cost of capital items in materials, purchased parts, or supplies or elsewhere. If you can get the Government to pay for it under a contract, its free to use on other work once the Government contract ends (or even during performance of that contract). Please don't be tempted to try it. Contract auditors (e.g. Auditors of the Defense Contract Audit Agency) are trained to look for those types of transactions and if discovered, could and probably would result in a "suspected irregular conduct" referral to one of the many Government criminal investigative agencies.

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