Is it proper for them to recover CAS 417 cost of money through its own billing rate or should it be recovered through the overhead rate? Would they be paid for cost of money twice using this method (once through the billing rate and once through overhead)?
The following response is based solely on the question and background information provided. As we do not have all the facts particular to your situation, we highly recommend you consult, as applicable, your Contracting Officer and/or Legal Office for further guidance.
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Per CAS 417-40 if a contractor is constructing, fabricating or developing a tangible or intangible capital assets for the contractor's own use - the cost of money attributable to the asset shall be included in the capitalized acquisition cost of such assets. The asset should then be capitalized based on that acquisition cost and the costs allocated appropriately according to the nature of the asset. The related FCCOM costs included in the acquisition costs should be able to be tracked and identified, but would be recovered over the useful life of the asset through the capitalization costs.
Whether FCCOM would have been paid twice depends on if the contractor has handled the costs both correctly and incorrectly. It is possible double payment could occur if the contractor is both (a) placing the costs in the acquisition costs and charging the related capitalization through an indirect rate and (b) charging the costs as an applied FCCOM rate to government contracts. A review of contractor's cost recovery methods may be needed to ensure costs are being recovered appropriately - through capitalization, not separately billed - and that they are not double charged.