Costs are categorized as either expenses or investments and the criteria are set forth in Chapter 1, Volume 2A, Paragraph 010201 of the Financial Management Regulation (FMR).
The expense/investment threshold determines the appropriation that will be used by DoD to purchase assets. In each year’s National Defense Authorization Act, Congress provides an exception to the normal fiscal law that dictates that investment items must be purchased with procurement appropriations. The expense/investment threshold exception allows the DOD to purchase investment items, not exceeding a certain threshold, with Operations and Maintenance funds. The current threshold is $250,000.
Purchases of non-centrally managed items with a unit cost less than $250,000 at the system level are considered expenses. Purchases of non-centrally managed items with a unit cost equal to, or greater than, $250,000 are investments. If an item is centrally managed, it is considered an investment cost, regardless of the unit cost.
Expense items are generally funded with Operations and Maintenance (O&M) and these items are often consumed in routine operations. Under some circumstances, expense items should be funded with RDT&E funds, depending on the purpose.
Investment items may be funded with procurement, MILCON or RDT&E (depending on the item, purpose and dollar amount of the cost) and are generally not consumed in routine operations.
10 U.S.C. § 2245a also addresses this issue and states, “Funds appropriated to the Department of Defense for operation and maintenance may not be used to purchase any item (including any item to be acquired as a replacement for an item) that has an investment item unit cost that is greater than $250,000.”
The item you are purchasing has a unit cost of $495,000 and should be purchased with procurement. Recommend that you also discuss it with your local Comptroller.