How is the Treasury Rate applied in calculating Facilities Capital Cost of Money (FCCOM)?
Facilities Capital Cost of Money (FCCOM) is calculated using DD form 1861. The Treasury Rate is applied as part of the calculation to find the FCCOM amount employed (block 6f) and as an interim step in calculating the FCCOM Factors (block 6c(1)).
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DD1861 will be filled out for every contract for which FCCOM will be applied. The calculations in block 6 require three inputs:
1) The FCCOM Factors in block 6c(1). These factors are specific to each contractor. They are calculated using the Facilities Capital Cost of Money Factors Computation Form (CASB-CMF) usually filled out by DCAA. The factors will adjust up and down based on the the company-wide business base and the Treasury Rate.
2) The amount of indirect costs from your specific contract associated with each FCCOM Factor. For instance if there is an Engineering Overhead FCCOM Factor, you would need to list the amount of Engineering Overhead from your specific contract in block 6b, multiply that by the associated FCCOM Factor in block 6c(1) and the product of those two numbers in block 6c(2). Once you sum up all the FCCOM amounts into block 6d, this is the amount of FCCOM that will be applied to our contract.
3) The last input is the U.S. Treasury Rate in block 6e (Note: this should be the same Treasury Rate used to calculate your FCCOM Factors on the CASB-CMF form). Since the Treasury Rate was used to calculate the FCCOM Factors, we can use this same rate to find the Net Book Value (NBV) of the assets on our contract for which we are suppling FCCOM. The NBV is called Facilities Capital Employed on the form (block 6f) and is calculated by taking the total from block 6d and dividing it by the Treasury Rate in block 6e.
FCCOM is a small incentive for a contractor to invest in their facilities capital which is generally acquired through private financing. We use the U.S. Treasury Rate in our calculations even though the rate a contractor would pay to borrow capital in the commercial market may be significantly higher.
For an example of how to fill out DD form 1861 and the CASB-CMF form, reference this course material from CON 170
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