Cost of Money

Allowable or Unallowable: Allowable

Source: Cost Accounting Standards (CAS), Federal Acquisition Regulation (FAR)

Cost of money

Allowable, with provisions.

Overview

Cost of money— (1) Is an imputed cost that is not a form of interest on borrowings (see 31.205-20);

(2) Is an “incurred cost” for cost-reimbursement purposes under applicable cost-reimbursement contracts and for progress payment purposes under fixed-price contracts; and

(3) Refers to—

• (i) Facilities capital cost of money (48 CFR 9904.414); and

• (ii) Cost of money as an element of the cost of capital assets under construction (48 CFR 9904.417).

(b) Cost of money is allowable, provided—

(1) It is measured, assigned, and allocated to contracts in accordance with 48 CFR 9904.414 or measured and added to the cost of capital assets under construction in accordance with 48 CFR 9904.417, as applicable;

(2) The requirements of 31.205-52, which limit the allowability of cost of money, are followed; and

(3) The estimated facilities capital cost of money is specifically identified and proposed in cost proposals relating to the contract under which the cost is to be claimed.

Purpose

Contractor management must consider the cost of capital required to make each investment and the potential return from that investment. To attract investment, the prospective return on investment generally must be higher than the cost of capital required to make the investment. The US Government realizes that the cost of capital is a real cost that effects investment decisions and recognizes that it must provide the incentive and allowance to provide for a return on investment.

Related Topics and Cost Accounting Standards (CAS)

Facilities Capital Cost of Money

CAS 414 - Cost of Money as an Element of the Cost of Facilities Capital

CAS 417 - Cost of Money as an Element of the Cost of Capital Assets under Construction