Insights

FAR Compliance: What Is Cost of Money and Is It Allowable?

July 16, 2025

“Cost of money” might sound like an oxymoron; after all, how can money cost anything? However, in governmental contracting, cost of money is a very real and often overlooked allowable expense. FAR 31.205-10 refers to cost of money as an imputed (non-cash) cost which is not interest on borrowed funds and is treated as an incurred cost for both cost-reimbursement contracts and progress payments under fixed-price contracts. In simpler terms, cost of money is not expressly related to costs such as financing costs, stock issuance costs, or professional fees outlined in FAR 31.205-20.

Facilities Capital Cost of Money

Cost of money is referencing something called Facilities Capital Cost of Money (FCCM) or the cost of capital assets under construction as noted by FAR 31.205-10. Simply put, FCCM is a way for governmental contractors to be compensated for their investment in capital assets which are used for governmental contracts.

How Is FCCM Calculated?

FCCM is calculated by first taking the net book value (NBV) of the capital assets used in fulfilling the contract. NBV is equal to the original asset cost less accumulated depreciation. Then, the contractor must factor in the percentage these assets were used on the governmental job(s). This percentage can be determined by using predictors such as labor hours, machine hours, or square footage in the case of a building. Once determined, the contractor will multiply the NBV by the allocation percentage of the job(s) and the applicable treasury rate to calculate FCCM.

For example, say there is a governmental contractor who is using a piece of equipment on government contract which cost $100,000 and had accumulated depreciation of $20,000. For purposes of this example, say this piece of equipment is used on the governmental contract 50% of the time and 50% on other contracts, while the treasury rate for the year is 4%. FCCM would be calculated as follows:

Net Book Value = $80,000 = ($100,000 – $20,000)

Allocation Percentage = 50%

Treasury Rate = 4.00%

FCCM = $1,600 = ($80,000 x .50 x .04)

This $1,600 could be allowed as an allowable indirect cost under FAR 31 provided the appropriate conditions are met.

Best Practices

Having a good understanding of what both 48 CFR9904.414 and FAR 31.205-52 have to say about cost of money is a great place to start understanding the rules surrounding compliance. This will help identify the prerequisites for cost of money being an allowable expense.

This normally entails that FCCM is calculated separately from other allowability determinations and for each accounting period. In addition, FCCM must be clearly stated and proposed separately in the cost estimate for the relevant contract.

It is important to have good business conversations around cost of money when navigating and determining a FAR overhead rate.

Learn More

Do not hesitate to contact a member of the AEC team to discuss cost of money, FCCM calculations and allowability under FAR. For more information about McKonly & Asbury’s Architecture, Engineering, and Construction (AEC) experience, visit the AEC Industry Page.