FAR 52.215-16 AND FAR 52.215-17, Facilities Capital Cost of Money

Applicability: These FAR solicitations/clauses address the allowability/reimbursement of facilities capital cost of money. FAR 52.215-16, Facilities Capital Cost of Money, is included in solicitations expected to result in contracts that are subject to FAR Subpart 31.2 (the cost principles for contracts with commercial organizations). FAR 52.215-17, Waiver of Facilities Capital Cost of Money, is included in the contract if the contractor receiving the award did not propose facilities capital cost of money in its offer.

 

Key Requirements: The solicitation requirement at FAR 52.215-16 and the contract clause at FAR 52.215-17 work in tandem to address the allowability of cost of money under the awarded contract. FAR 52.215-16 states that facilities capital cost of money will be an allowable cost under the contemplated contract, if the criteria for allowability in FAR are met. The solicitation provision further states that one of these allowability criteria is that the prospective contractor must propose facilities capital cost of money in its offer. When the contractor fails to include facilities capital cost of money in its offer, FAR 52.215-17 is the contract clause that prohibits reimbursement under the contract. This contract clause specifically states that the Contractor did not include facilities capital cost of money as a proposed cost of the contract, and therefore it is an unallowable cost under the contract.

 

Compliance Verification: Due to the simplicity of the language in the clause at FAR 52.215-17, compliance verification can be performed by numerous Government representatives, including the Contracting Officer’s Technical Representative, Contract Specialists, the cognizant auditor (e.g., the Defense Contract Audit Agency), and/or the Contracting Officer. If the clause is in the contract, and the invoice lists cost of money as an element of reimbursement, one or more of these individuals will most likely notice this and disallow those costs. In addition, if it is part of the contractor’s annual incurred cost submission, it will generally be reviewed/disallowed by the cognizant auditor.

 

Remedies: When the Government determines that the contractor is claiming cost of money even though the clause at FAR 52.215-17 is in the contract, the contracting officer and/or the cognizant auditor will disallow the cost from any invoices and/or incurred cost claims. In addition, since the language in the clause is very clear regarding the unallowability of cost of money, any attempt to claim that cost will most likely be treated as an expressly unallowable cost, which requires the payment of interest and potential penalties by the contractor.

 

Background: The purpose of the clause is to prevent a contractor from omitting cost of money from its proposals and then claiming it after contract award. Prior to implementation of this clause, the Government found frequent instances where contractors where not including cost of money in its offer, but would then claim the costs after contract award. For a competitive cost-type contract award, this provides an unfair advantage to the contractor that bids in this manner. Furthermore, in both a competitive and non-competitive environment, this results in the Government paying more than anticipated at the time of contract award, since cost of money is not included in the estimated cost of the contract but is then claimed afterward by the contractor.

 

Other Key Information: When a contractor employs a capital asset on a Government contract (i.e., starts to use a capital asset), the Government does not reimburse the contractor for the entire cost of the asset at the time it is employed. Rather, the costs of the asset are spread over its useful life, and the applicable contracts pay an allocable share of those costs. For example, a contractor might employ an asset with a 10 year useful life. The cost of that asset will be reimbursed over ten years. However, the contractor must pay for that asset upfront, or borrow funds to purchase that asset (note that the Government does not pay interest cost related to contractor borrowing). Thus, in employing the asset, the contractor foregoes an opportunity to use those monies elsewhere, i.e., there is an opportunity cost to the contractor in employing that asset. Cost of Money is a method of reimbursing for that opportunity cost (thus the term “imputed cost” is used to describe cost of money).

The requirements for Facilities Capital Cost of Money are contained in Cost Accounting Standards 414 and 417. These standards provide the criteria for the measurement and allocation of the cost of capital committed to facilities as an element of contract cost. The imputed cost is calculated by multiplying the cost of money rate to the contractor’s facilities capital. CAS 414 addresses assets that are in use. CAS 417 applies a similar concept as CAS 414, except it applies to capital assets under construction, fabrication, or development. While Cost of Money is part of the Cost Accounting Standards, it is included in all cost based contracts (contracts subject to FAR Part 31.2) thru incorporation at FAR 31.205-10. This FAR cost principle specifically states, among other requirements, that cost of money is an allowable cost if it is specifically identified and proposed in cost proposals relating to the contract under which the cost is to be claimed. It also states that actual interest cost in lieu of the calculated imputed cost of money is unallowable.

 

The Bottom Line: From a contractor perspective, it is imperative to include any cost for facilities capital cost of money for which the contractor desires reimbursement in the contract proposal. Otherwise, those costs will be disallowed under the clause at 52.215-17 and the accompanying cost principle at FAR 31.205-10.

 

Want to learn more?  There’s still time to register for The Trifecta: Cost Analysis, Price Analysis and Estimating Systems, taught by David Capitano, starting on April 30th. 

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