What You Need to Know to Claim Cost of Money - Part 5

Today we conclude our series on cost of money with a few closing thoughts and comments. To read the earlier posts in this series, start here.

Calculate a ROM to see what it is worth to you. This is pretty simple and you should do it to determine whether it is worth pursuing. The more assets you have, the more likely it is that it will be worth your while to go through the exercise. Take the net book value of assets times the Treasury rate times the percentage of your negotiated Government contracts to your total business. A company with $100,000 in net book value of assets and with 50 percent negotiated contracts could earn an additional $875; not much but probably worth the effort.

Monitor the treasury rate. The treasury rate is now at an all-time low but three years ago it was higher than five percent. An increasing rate might make a difference on whether its worthwhile to propose/claim cost of money.

Become familiar with the form. Cost of money is proposed/claimed using Form CASB-CMF. This form is readily available on the web in both Word and PDF fill-in.

Track your assets in a manner that facilitates the completion of the CASB-CMF form. Most asset management software provides for fields or user-defined fields that can be used to sort and compile asset values that correspond to the fields in the CASB-CMF form. This will reduce the time it takes to prepare cost of money calculations.

Remember to use net book values for financial reporting purposes. Most companies have multiple depreciation schedules. There is one for financial reporting, another for federal income tax, another for federal alternative minimum tax, and possibly one for state income tax.

If you would like to discuss cost of money further, contact David Koeltzow toll free at 866-849-4887, Extension 6.

What You Need to Know to Claim Cost of Money - Part 4

We are progressing through a series of blog posts on the subject of cost of money. Today we are going to identify for you the eight building blocks needed to propose and claim cost of money (FCCOM). Many contractors do not avail themselves of this additional source of revenue. Some may think its too complicated. Others, not worth the effort. Still others, unaware of the provision. While it may be a bit complicated, it is, at its essence, no more difficult than many other analytic task performed every day. And, its also possible to "outsource" the process, as we discussed in our first posting in this series. Here then are the eight building block necessary for FCCOM.

1. FCCOM Rate: The FCCOM rate is a treasury rate that is adjusted every six months. The semi-annual base rates are at http://www.fms.treas.gov/prompt/rates.html. For future estimates, the FCCOM rate is the most current rate (1.75 percent) however, an exception exists for the costs in the first fiscal year when the blended rate for that year is already known.  For historical purposes (i.e., completing DCAA’s Incurred Cost Electronically {ICE}), the FCCOM rate is (i) the average of the two half year rates for contractors using a calendar year, or (ii) a weighted rate for contractors whose fiscal years are not calendar years. Note, a “major fluctuation” in asset value may require further refinement to ensure fairness. 

2. Net Book Value (NBV): This is the asset’s cost less book depreciation (or amortization). Book (not tax) depreciation should be used.  For most contractors, the average of the NBV at the start and end of the fiscal year is applicable; however, a weighted value is applicable when a “major fluctuation” in asset values occur (i.e., significant asset purchases).  Estimated future costs should use estimated future NBV.  Expensed assets have no NBV and goodwill is not includable.  See FAR 31.205-52 if the NBV includes the purchase method of accounting for a business combination.

3. Type of Asset: The FCCOM computations segregate assets into Land, Building, and Equipment. Note that FCCOM applies to all capital assets even though land is not typically depreciated and intangibles is not clearly listed.  Also note that the Government (i.e., Defense) has varied the profit rates for these asset types in an effort to “encourage” business investments.

4. What Indirect Expense Pool Benefits From the Asset: FCCOM computations segregate assets by indirect rate pools. Typically, depreciation or amortization by pool will provide that information. The value of the land (a non-depreciable asset) will need to be considered separately.

5. Total Applicable Indirect Allocation Bases: The FCCOM rates use the total indirect bases as the divisor. 

6. Proposed Allocation Bases on Government Contracts:  The FCCOM costs charged to the Government contracts is based on the FCCOM rates multiplied by the Government contracts’ indirect bases.This is just like the other Overhead costs.  FCCOM is just separately identified.  Note that the Government (i.e., Defense) often does not pay profit on FCCOM; although the pre-negotiation position of the Government excludes FCCOM from the base in computing profit, the negotiated base may include FCCOM.

7. Type of Ownership of Assets: The FCCOM computations segregate how assets are owned into Recorded, Leased, and Corporate/Group (Corporate). Leased assets are your capital leases and operating leases (i.e., related-party) that cost of ownership is being used on instead of lease rates.  Corporate assets are recorded or leased assets allocated from Corporate.  Recorded assets are the remaining assets on your books.

8. Extent Assets Are Distributed: FCCOM computations segregate distributed from undistributed assets. Distributed assets are those assets allocated using “any reasonable basis” that are solely applicable to a single indirect expense pool (i.e, Overhead).   Undistributed assets are all the rest, which are usually expensed via service centers.  Undistributed assets are either (i) allocated to the applicable indirect expense pool based on how depreciation would have been allocated (the “regular” method), or (ii) included as part of G&A (the “alternative” method; this requires Government agreement that it is immaterial or approximates the “regular” method).

Next: Final Comments

What You Need to Know to Claim Cost of Money - Part 1

Today we begin a series of posts written by PNWC's David Koeltzow. One of David's specialties is Facilities Capital Cost of Money.

Facilities Capital Cost Of Money (FCCOM) is an additional source of revenue (it’s not part of profit nor is it an out-of-pocket expense) allowed on Government contracts that only cost contractors the administrative effort to document, compute, and propose it.  This blog strives to increase the use of this valuable option by clarifying Government rhetoric and improving your ability to compute FCCOM.  PNWC also offers to compute FCCOM for you at affordable rates.

Businesses with Government contracts often erroneously and unwittingly (i) include unallowable costs, and (ii) exclude allowable costs.  However, the most frequently allowable costs that we see businesses exclude knowingly is FCCOM.  Why?  The FCCOM regulations are difficult to understand and sometimes not worth the trouble.  This blog’s intention is to help you identify how much FCCOM is worth to you, decrease your efforts/costs to use FCCOM, and increase your revenues from Government contracts by allowing you to include FCCOM in support of your proposed and claimed costs.

Pacific Northwest Consultants (PNWC) is proficient in understanding and computing FCCOM and offers to develop and provide you with a detailed template that computes your FCCOM.  You may be able to use this customized template with minimal adjustment for multiple proposals and even multiple years.  Pricing for small contractors with simple scenarios begins at $150. Call us for a quick cost estimate for your situation 

What is FCCOM? FCCOM is the obscure replacement for interest that the Government agreed to allow following the uproar over the Government’s disallowance of all interest per Federal Acquisition Regulation (FAR) 31.205-20.  “Interest” was disallowed partly because it includes a factor for how risky a business is; certainly, tax payers should not provide extra funds to support a high risk business over a low risk business.  “Capital Cost of Money” is based on the Treasury rates and applies uniformly to all businesses.  “Facilities” covers the land, buildings, and equipment that you use for your regular business activity; this includes tangible (you can touch it) and intangible (i.e., software).  FCCOM is not applicable for idle facilities or land held for speculation.  Like depreciation, FCCOM is not chargeable for assets being developed or constructed until it’s placed into use.  Although it is easiest for most to think of FCCOM as being similar to interest, the Government doesn’t like that comparison.  In fact, claiming FCCOM is not contingent on you having any interest costs.  FCCOM became effective in 1976 via Cost Accounting Standards (CAS) 414 and the later 417 (for assets under construction).  Conformance to CAS is generally required for only very large Government contractors.  However, FCCOM is allowable to all Government contractors via FAR 31.205-10.  Peculiarly, FCCOM is not a cost on your books and payments for FCCOM simply increases your revenue.

Next: Who can claim FCCOM and what is it worth?

Facilities Capital Cost of Money (FCCM)

Cost Accounting Standards 414 and 417 allow contractors to recover facilities capital cost of money under their Government contracts. These CAS Standards have been incorporated into FAR 31.205-10 so as to apply to all contractors, regardless of their level of CAS coverage. Contractors with investments in property, plant, and equipment should not overlook these imputed costs. In order to claim these costs, FCCM must have been included in the initial pricing proposal. We have seen cases where contractors failed to propose FCCM and were later precluded from billing them becasue they were not initially proposed. The computation of the FCCM rate(s) is not complex but is beyond the scope of this post. The FCCM rate changes every six months, January 1st and July 1st. The current rate (as well as historical rates) can be found on the Treasury's website. Note that this site does not refer to Facilities Capital Cost of Money but rather to Prompt Payment Act Interest Rates. The FCCM rates are the same as the Prompt Payment Act rates. CAS and FAR require that the interest rate be based on the rates determined by the Secretary of the Treasury, pursuant to Public Law 92-41 (Prompt Payment Act).

For your convenience, we have included a permanent link to the FCCM rates on our resources page.