Equipment

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a. Determine company capitalization criteria.

b. Establish useful life of equipment as equal to contract Period of Performance.

c. If consistent with company capitalization criteria, capitalize equipment.

d. Charge depreciation directly to contract; expect to recover ratably over PoP.

e. If not possible to capitalize, establish a FFP CLIN and charge the equipment there. Define the CLIN such that delivery of the equipment = completion. Submit a DD250 and close the CLIN. When contract PoP is completed, residual inventory belongs to the contractor.

Hmm do the contract terms permit it.  I do not doubt the approach and undoubtedly the $4500 is minimal but I do wonder impact of scope commensurate with contract terms and conditions.   could be okay or could not be okay or am I completely off base?

On 12/10/2020 at 12:15 PM, Corduroy Frog said:

Govt wishes contractor to purchase $4500 worth of equipment, and will accept the charge on a cost-reimbursable CLIN.  When contractor "bills" the govt, they are effectively "selling" the ownership of the equipment to the govt.  However, govt indicates they will not wish for the equipment to be theirs at the end of the contract.

How is best way for the contractor to handle this:

1. Charge the govt $4500 on a cost-reimbursable invoice and be done with it.
2. Charge the govt $4500 as above, but however, retain the equipment as a fixed asset on the books of the corporation and depreciate accordingly.
3. Retain the equipment but only charge the govt the depreciation as it occurs on the equipment.

Contractor should comply with its contract property clause. Is there one? Far 52.245-1, for example, provides that the government has title to the property. Contractor should not be depreciating or putting others' property on their books. Submit the cost of the equipment on a voucher or invoice in due course. The facts seem to indicate a government preference for after the period of performance, not during. In any event, contract action needs to be accomplished with the government property administrator to disposition it such as scrap, abandon, etc., unless the line item on the contract requires delivery to the government. If so, I don't understand the government stating it doesn't want it after the period of performance. Why would that be the Contractor's problem?

My view is so different from yours Corduroy, that it feels like there may be a big disconnect between us. Please feel free to clarify or tell me where I am off base.

Corduroy Frog said:

Govt wishes contractor to purchase $4500 worth of equipment, and will accept the charge on a cost-reimbursable CLIN.

Is the contractor a university or educational non-profit?

Mr. Roberts, I don't know enough about the answer to clarify anything.  Sorry.  Already on this thread there have been wide differences in opinions.  I will admit to not having a firm grasp on the subject, which is why I asked the question.

Thanks to everyone who has taken the time to respond.

Corduroy frog,  I think your best choice is “e” from here_to_help’s post

Frog,

You need to pay attention to the contract clause at FAR 52.245-1, Government Property -- I am assuming it is in your contract.  If so, your situation will be covered under either para. (j) or para. (k) of the clause.  

You are correct that title for the equipment passes immediately to the Government, even though you maintain possession for the duration of contract performance (or until it is delivered or consumed) in your government property records.  When the contract is over, the contracting officer will give you disposition instructions for the property.  The contracting officer (or plant clearance officer) may instruct you to deliver it somewhere, to sell it and credit the Government for the sales amount, or abandon it, among other choices.