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    Must all of the NRE be allocated against the first unit or can it be spread against the 4 so that they have an equal cost for the NRE and recurring portions? In other words, can you amortize the cost of the NRE effort? Thank you.


    A basic assumption in the following answer is that the contract at issue is a cost reimbursement type contract rather than a fixed price contract. 
    There are several considerations in determining the assignment of costs on a government cost-reimbursement contract.  Ultimately, the assignment of costs must comply with the applicable assignment and allocability requirements in accordance with Cost Accounting Standards, the Federal Acquisition Regulations (FAR) Part 31, the Department of Defense Federal Acquisition Regulations (DFAR) part 252.211-7003 or as may be further restricted by provisions in the specific contract at issue.  In taking into consideration the assignment of costs, the Defense Contract Management Command (DCMA), the cognizant Administrative Contracting Officer and Defense Contract Audit Agency (DCAA) can provide guidance to the government Contracting Officer and the contractor in situations that may need specific clarification.  Normally, the government Contracting Officer and the contractor have some flexibility to agree to expense costs in the period in which they are incurred if such treatment will result in a more equitable assignment of costs in the circumstances. 
    With regard to Non-Recurring Costs (NRC), many costs shall be expensed in the period in which they are incurred (e.g. planning and analysis, contract administration, contract oversight, financial and administrative support type expenses).  Costs of non-recurring or extraordinary activities that would not have otherwise been incurred shall be separately accumulated as deferred costs and, therefore, shall be amortized over a period during which the benefits of the non-recurring costs are expected to accrue.  However, that amortization period should not exceed five years.  This method would reflect a period assignment of these costs.
    On the other hand, if it makes sense to apply these costs as part of the development costs for each unit, it may be more appropriate to assign those non-recurring costs into a unique overhead pool and allocate these costs to each unit.  In this case of four identical components being procured for two spacecraft (two units per aircraft), each component has elements of direct costs and indirect costs.  The non-recurring costs occurring in support of development work could be accumulated in an appropriate indirect cost pool and then be allocated to each unit in some previously approved and appropriate manner in accordance with guidance given above.  In the event that the majority of these expenses are not yet determined, then appropriate expense amounts must be estimated and then tracked through cost accounting principles and allocated appropriately.  These costs can then be allocated and billed to each unit.  As actual costs are incurred, these indirect costs could then be negotiated between the government Contracting Officer and the contractor.

    You also should address this issue within your company to ensure you allocation is consistent with your cost accounting system.

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