5.10 Cost Accounting on Fabricated Government Deliverable

POLICY:  The activity on a government contract may consist partially or entirely of the fabrication of equipment for delivery to the government. It may also involve the acquisition of government- titled equipment or use of government-furnished equipment for the production of the deliverable. The identification and cost accounting differ for the production equipment and for the government deliverables.

All capital equipment being fabricated by the University for the contractual purpose of delivery to the government shall be assigned a University D-tag number. A single D-tag can be issued for a group of like items such as computers and their peripheral hardware, or a D- tag for each unique item being produced for the government by the University.

The capital equipment acquired by the University or furnished by the government for the production of the deliverable, and not intended or incorporated into the deliverable, shall be assigned an A-tag.

DEFINITION: Fabrication is distinguished by any one or more of the following three characteristics:

1. Creative effort in the design: If creative effort on the part of the University faculty is necessary for the completion of the design specification of the equipment, and if the equipment cannot reasonably be built by an off-campus vendor.
2. Change in the name of the equipment: If the component parts of the finished equipment bear no relationship in name to the finished equipment, the activity should be considered fabrication. For example, a telescope composed of a computer, camera, lens, etc.
3. Complexity of construction: If the construction is complex, the activity is fabrication.

I. COST ACCOUNTING FOR FABRICATED EQUIPMENT FOR THE GOVERNMENT

Government regulations require that the cost of fabricated equipment for delivery to the government be computed in accordance with generally accepted accounting principles, be reasonably accurate and based on procedures that include all direct and indirect costs.

When the proposed project is awarded to the University, the department is to establish a separate account to accumulate the costs associated with the fabrication. A single subsidiary ledger account can be created for a group of like items (a single D-tag for the group), or a subsidiary ledger for each unique item being produced (a single D-tag for each item’s subsidiary ledger). All of the costs in these subsidiary ledger accounts represent the cost of the D-tag.

It is preferred that the cost of purchased production equipment (items issued A-tags) is accounted for in the parent account. Subsidiary ledger accounts are not to include A-tagged items.

Costs comprising the fabricated equipment are to be charged to the appropriate expenditure object code category. For example, charge personnel costs to the personal services category; charge consulting fees and shop costs, component parts with a unit cost less than $5,000, and raw materials, including, lumber, glass and tubing to operations (5751); charge parts with a unit cost of $5,000 or more to the appropriate equipment object code (7xxx).

To avoid the disruption caused when a deficit occurs in a subsidiary ledger fabrication account, the Director of Sponsored Projects Services is authorized to transfer funds from the parent account to the subsidiary ledger account, unless otherwise directed by the Department Head.

Indirect Cost: Indirect cost is budgeted on fabrication costs according to the expenditure object codes assigned to the costs, consistent with the federal negotiated indirect cost rate agreement. The institution incurs substantial indirect costs in the construction of complex equipment and systems and expects full indirect cost recovery in the cost pricing for fabrication projects.

Investigators wishing a reduced indirect cost rate should petition the Vice President for Research. The petition should include a justification for the reduced indirect cost rate and should be approved by the department head and dean.

Waivers will be granted only on the basis of the benefit to the University for fabricating the equipment at less than the full indirect cost rate. Improving the competitive advantage of the proposal is not a legitimate justification for waiver of indirect cost.

Reporting and Inventory: The accumulated production cost of fabricated equipment for delivery to the government is annually reported to the government as "Work-in-Progress" and not as reportable government owned equipment. The inclusion of the cost of fabricated equipment as government owned equipment results in false reporting to the government and is a subject for a negative government audit finding and disapproval of the University’s Capital Asset Module (CAM). Deliverable fabricated equipment is not inventoried.

Completed Fabrication:  Upon property closeout, the Sponsored Projects Services Property Administrator will contact the principal investigator with regard to excess material left over from the fabrication. If excess material exist with a fair mark value greater than $100.00 and is in returnable quantities, the excess material shall be returned to suppliers for full credit less the cost of restocking charge (not greater than 25%) and the cost of handling and transportation. The appropriate adjustments shall be made for the credit to material expenses charged directly to the government.

II. COST ACCOUNTING FOR NON-GOVERNMENT FABRICATED EQUIPMENT:

When requested by a Department Head or principal investigator, the cost accounting practices for the fabrication of equipment for the government may be used for accumulating the costs on the fabrication of equipment for University use or delivery to a non-government sponsor.

III. COST ACCOUNTING FOR FABRICATED GOVERNMENT EQUIPMENT:

If the equipment fabrication is on a sponsored account, is for University use, or for delivery to a non-government sponsor and involves an Indirect Cost waiver or reduction, a separate subsidiary ledger account(s) is to be used to accumulate the cost.