Depreciation can be described as a reduction in value of a given asset because of many factors. These factors include decay, rust, depletion technological outdating, usage, wear and tear, passage of time, inadequacy or any other such factors. Facility capital cost of money, on the other hand, is the imputed value that indicates the contractor`s cost of employing capital on investing in assets of facilities under construction that benefit the government. In other words, we can say plant capital cost is the accrued cost of investing in an asset while depreciation is the drop in value on this asset over time. There are various advantages of having facilities capital cost of money as an allowable cost (Alston, Worthington, & Goldsman, 1992). As an allowable cost, for capital intensive contracts, the contractor can recover money used in acquiring assets to start the work contracted. This money is reimbursed over the period of the contract, and thus one can use this money for other purposes during the contract's period. The cost of investment is significantly reduced thus increasing the profit margin of the contractor and the firm as a whole (National Science Foundation (U.S.), 1977).
There are two key benefits of using facility capital cost of money for the government and VectorCal. The government benefits from it through lower production cost and improved efficiency in their products. Through facility capital cost of money, VectorCal can recover financing cost in capital investments and have better means for their production. The ability to recover capital cost act as an incentive from the government thus the VectorCal improve their equipment and plants (Alston, Worthington, & Goldsman, 1992). By so doing, lower production costs and efficiency is attained. That was without a doubt an advantage.
There are various circumstances whereby facilities capital cost of money can be an allowable cost. Facilities capital cost of money is allowable if the contractor`s capital investments measured, allocated to contracts and costing accordance with the federal acquisition regulatory system. It is allowable if the entrepreneur, in compliance with all the standards required, maintains adequate records. It is also allowable if the facilities capital cost of money estimated is shown in cost proposals or individually identified with relation to the contract of which the cost has to be claimed (National Science Foundation (U.S.), 1977). The single most significant advantage of having facilities capital cost as being allowable is proposing it in the contractor`s offer. That was important because if one fails to include it will inhibit reimbursement of the cost. There are various factors that make facilities capital cost of money unallowable. One is by not including the facilities capital cost of money in the contractor`s offer. That would, therefore, include in it the clause waiver of facilities capital cost of money. The actual interest cost instead of calculated imputed cost of money on capital assets that are under construction, development or fabrication is unallowable (Alston, Worthington, & Goldsman, 1992).
There are various instances where companies can make facilities capital cost of money available. There are factors that enhance these. These include having expenses that are allocable meaning they are costs solely incurred to advance the work under contract. They have to be reasonable and be consistently treated. Companies make the facilities capital costs of money available by incurring certain expenses. An example is incurring advertisement costs specifically required by a contract exclusively for getting rear items needed of contract performance or cost of activities that promote the sale of products sold to the government. Another instance is by incurring bonding costs (National Science Foundation (U.S.), 1977). They arise when a government requires certainty in assurance against losses to other parties involved or itself by the contractors default or reason of the act.
References
Alston, F. M., Worthington, M. M., & Goldsman, L. P. (1992). Contracting with the federal government. New York: Wiley.
National Science Foundation (U.S.). (1977). NSF grant policy manual. Washington: National Science Foundation.
