By Anonymous on Wednesday, August 14, 2002 - 05:12 pm:

What has the CO given as the reason for this change in accounting. Could it be that they just don't want to deal with the gov property issues that will arrise if you charge the cost direct to the contract??

By Anonymous on Wednesday, August 14, 2002 - 05:22 pm:

First Anonymous:

The contracting officer points to FAR 45.102, saying that we must provide the property necessary to perform the contract. That's the only reason he's given.

By carol athey on Wednesday, August 14, 2002 - 07:44 pm:

We have recently encountered exactly this same issue and exactly this same position from a CO on a major proposal we submitted and are in final negotiations on. We have never encountered this kind of resistance regarding purchase of computers that are a specific requirement of a contract. The CO cites property paperwork hassles as the reason he wants us to "own" the machines.

By AnonYmus on Thursday, August 15, 2002 - 02:11 pm:

All,

I know this topic has been touched on before because I remember various posters pointing out my approach was too aggressive. I'm sure the webmaster will point you to it, for what it's worth.

If memory serves, the issue was whether direct-charged PCs (used for testing) could be amortized and depreciated as an indirect cost. I believed then, and I believe now, that they could be in the right circumstances, with the right Disclosure Statement language and (in this case) with a CAS cost impact proposal for the change in cost accounting practice -- though you likely have a solid argument that the cost accounting practice change is directed (i.e., beneficial and not detrimental to Government interests).

If you don't want to make the change, then CAS 401 and 402, as well as the FAR Part 31 definition of direct cost, should be helpful in making your case to the CO. You might also point out that you would be required to follow 52.230-6 and make all the submissions for DCAA to audit, and if they have a problem you're going to point back at the CO.

Please post later on how it turns out.

By joel hoffman on Thursday, August 15, 2002 - 02:24 pm:


Original anonymous, did you keep the computers on the previous contracts or did you turn them over to the Government when you were done using them on the contract?

If you kept them, did you rebate the Government for the benefit you received or for the proceeds from any salvage value received?

Please clarify your original practice. Thanks. happy sails! joel hoffman

By Anonymous on Thursday, August 15, 2002 - 03:37 pm:

I'm the original anonymous.

The computers became the property of the government. We did with them as instructed. (I don't remember exactly what we did with each and every one of them, but we did as instructed. I'm think we were told to just dispose of some of them. A desktop computer is pretty much out of date after a couple of years. Some of them may still be in use on the current contract as government-furnished property.) We did not keep them for our own use and did not use them for anything other than performance under the contract in question.

By joel hoffman on Thursday, August 15, 2002 - 06:41 pm:

Anon, I agree with you that it would be improper accounting practice to charge equipment that is allocable to a single cost objective as an indirect cost. I don't know whether you are subject to CAS, but the FAR 31.2 definitions of direct and indirect costs, plus your normal accounting procedures should override the CO's personal preference, using FAR Part 45 as the excuse. Good luck. happy sails! joel

By anonconorig on Thursday, August 15, 2002 - 07:17 pm:

Joel:

And I totally agree with you. Having gone through the same scenario before. Government property laws are what they are-most of us didn't write them. Think Anon should stick to his/her guns!

By Eric Ottinger on Friday, August 16, 2002 - 09:10 am:

All,

I keep waiting for one of our walking FARs to answer this question. These PCOs are merely complying with the plain language of FAR Part 45.

Dr. Goetz, one of my favorite professors at the AAP site has answered this question several times. Unfortunately, AAP has truncated some of his excellent answers.

http://www.deskbook.osd.mil/scripts/
rwisapi.dll/@e_search.env?CQ_PROCESS_LOGIN=YES&CQ_LOGIN=
YES&CQ_USER_NAME=guest&CQ_PASSWORD=
guest&CQ_SAVE[SearchText]=%22general+purpose+equipment
%22&CQ_SAVE[file_name]=22\2292.html&CQ_SAVE
[docid]=7177&CQ_SAVE[CQlibs]=Ask_a_Prof&CQ_SAVE[T]=#FIRSTHIT

http://www.deskbook.osd.mil/scripts/rwisapi.dll/@e_search.env?CQ_
PROCESS_LOGIN=YES&CQ_LOGIN=YES&CQ_USER
_NAME=guest&CQ_PASSWORD=guest&CQ_SAVE[SearchText
]=%22general+purpose+equipment%22&CQ_SAVE[file_name]=
111\11143.html&CQ_SAVE[docid]=8634&CQ_SAVE[CQlibs
]=Ask_a_Prof&CQ_SAVE[T]=#FIRSTHIT

If the Part 45 rewrite had gone through, there would be a flat prohibition against furnishing general purpose equipment like PCs.

Further, under the current FAR there is an absolute prohibition for items with a unit cost less than $10,000 (with an exception for non-profits.)

Although I share the general view that PCs are often in the same category as chairs, desks and typewriters, I would note that support contractor PCs are often an integral part of the government customers IT network. The government IT office will frequently insist on configuation control to address security concerns and assure compatibility.

Eric

By joel hoffman on Friday, August 16, 2002 - 12:03 pm:

Part 45.102 discusses policy, not the proper accounting for contractor acquired property. It doesn't appear practical for the contractor to maintain this equipment for any other business than this contract.

happy sails! joel

By Eric Ottinger on Friday, August 16, 2002 - 12:25 pm:

Joel,

Try FAR 45.302.

There has been massive noncompliance with this section of the FAR. But, I would like to think WIFCON should be able to get something like this right.

See 45.302-1 Policy.

(a) "Contractors shall furnish all facilities required for performing Government contracts except as provided in this subsection."

Eric

By joel hoffman on Friday, August 16, 2002 - 01:48 pm:

Eric - I'm back from lunch... Are you saying that FAR 45.302-1 prohibits the use of contractor-acquired property for use on a single contract? Here, the Government apparently agrees that the property is necessary, reasonable and allocable to the project. happy sails! joel

By joel hoffman on Friday, August 16, 2002 - 04:22 pm:


Oops. Thought I posted a clarification to the above. Is FAR 45.302-1 prescribing a policy where the Contractor must provide the computers out of existing stock or alternatively, must share newly purchased computers with its other programs to avoid calling them "contractor acquired property", which is a no-no? happy sails! joel

By Eric Ottinger on Friday, August 16, 2002 - 04:23 pm:

Joel,

If the contractor buys this stuff and charges it direct to the government cost type contract, the equipment becomes government furnished property (GFP). Under Part 45, anything which doesn’t fit one of the other definitions for GFP is “facilities.” This less than intuitive use of the term “facilities” is probably a big reason why these rules are frequently ignored.

Allowing the contractor to purchase such “facilities” as a direct charge to the contract is the same thing as “furnishing” the equipment to the contractor.

Under FAR 45.301(d) the PCO is flatly prohibited from furnishing items with a unit cost less than $10,000 (with exceptions for non-profits, etc.) If PCO’s are authorizing such purchases, they would do well to talk about the “network,” not the individual PCs.

There are exceptions to the general rule against furnishing facilities in 45.301, but they are very restrictive.

If the Part 45 rewrite had gone through, there would not be any way to “furnish” general purpose equipment to the contractor, unless the equipment was a deliverable line item.

By the way, did you notice that our first Anon is in the data processing business, but they expect the government to buy computers. What’s wrong with this picture.

Eric

By joel hoffman on Friday, August 16, 2002 - 04:47 pm:

Eric, I think I understand that the FAR says: Contractor furnish the facilities to perform the contract; Government don't furnish the facilities to perform the contract. However, Contractor's aren't always going to have excess (latest)equipment laying around waiting for a contract.

This is a Catch 22. For a cost contract, anything bought for exclusive use on the contract becomes contractor acquired property, a direct cost.

If the KO really intends to direct this Contractor to charge the computers as an overhead item, I'd buy the additional, new computers for the rest of my business, move the old stuff over to the cost contract and charge the new stuff to overhead. That would certainly satisfy the apparent restriction in 45.302, make no practical sense, force the contractor to assign the less efficient tools and equipment to the Government contract and screw the Government. happy sails! joel

By Eric Ottinger on Friday, August 16, 2002 - 05:03 pm:

Joel,

Alternatively, if I were the contractor, I would rent the PCs the same way that I rent the copier, the fax and maybe the furniture.

By the time the contract is complete, I would pay three times as much for the PCs as I would have paid if I had bought them outright.

I am not saying that the policy always produces the most businesslike result.

Eric

By John Ford on Sunday, August 18, 2002 - 12:01 pm:

I have been waiting for someone to address the accounting and allowability issues presented by this question. In this regard, because this is a cost type contract, the Allowable Cost and Payment clause should apply. Under that clause, the contractor is reimbursed its costs as determined by the cost principles in FAR Part 31. Several cost principles seem to come into play here. Specifically, 31.201-4 and 31.202. Under those cost principles, the cost of the computers can only be charged to the contract in question and only as a direct charge. However, that does not answer the question whether the cost should be expensed or capitalized. If the contract is CAS covered, CAS 404 and 409 could require capitalization, i.e., that the cost of the computers be charged to the contract as a depreciation cost. However, under both the cost principles and CAS, the depreciation costs would be direct costs of the contract as they benefit only that contract. Because the original question dealt with the proper accounting treatment for these costs, I think the controlling contract clause is the Allowable Cost and Payment clause. In this regard, not all of FAR Part 45 is incorporated into the contract by the Government Property clause. Parts not included are the policy provisions Eric has been discussing. The contractor is only bound by what is in its contract, not what the FAR says is government policy.

By joel hoffman on Sunday, August 18, 2002 - 01:57 pm:

Thanks, John. That makes sense. happy sails! joel

By Vern Edwards on Sunday, August 18, 2002 - 06:28 pm:

Just a note:

FAR Subpart 9904.404, CAS 404, Capitalization of Tangible Assets, requires contractors to capitalize the acquisition cost of tangible assets and to have a written policy about the capitalization of tangible assets. However, under FAR § 9904.404-40(b)(1), capitalization is mandatory only for tangible assets having an acquisition cost of $5,000 or more. A contractor may capitalize the acquisition cost of assets with a value of less than $5,000, but it doesn't have to do so. Most individual desktop computers will have an acquisition cost that is less than $5,000.

FAR Supart 9904.409, CAS 409, Depreciation of Tangible Capital Assets, establishes requirements for the assignment of the cost to accounting periods and for allocating it to cost objectives. The standard allows annual depreciation cost to be charged as direct "only if such charges are made on the basis of usage and only if depreciation costs of all like assets used for similar purposes are charged in the same manner."

By AnonYmus on Monday, August 19, 2002 - 06:06 pm:

I'm certainly not going to rehash this topic because my POV is thoroughly on the record under the prior thread ... but:

Would it make an difference if the contractor in question established a separate CAS business segment for this type of work and charged the costs of PCs to a segment indirect cost pool or CAS 418 service center?

Would it make any difference if there was only one contract (final cost objective) in the segment to absorb indirect costs? Would it make any difference if the CAS 418 service center absorbed all the PC costs and allocated them to benefiting contracts based on usage?

Just wondering...