FCCOM Calculator
Facilities Capital Cost of Money & Treasury Rate Application
How is the Treasury Rate Applied in Calculating FCCOM?
Facilities Capital Cost of Money (FCCOM) is an allowable cost in government contracting that compensates a contractor for the investment of capital in facilities used to perform government contracts. The calculation is governed by Cost Accounting Standard (CAS) 414. A critical component of this calculation is the application of the Treasury Rate.
The Role of the Treasury Rate
The Treasury Rate used in calculating FCCOM is technically known as the "Renegotiation Board Interest Rate" or the "Prompt Payment Act Interest Rate." This rate is determined semi-annually (usually in January and July) by the Secretary of the Treasury. It acts as an imputed interest rate, representing the opportunity cost of the capital tied up in the contractor's facilities.
It is important to note that this is not an actual interest expense paid to a bank. Instead, it is a calculated amount that the government allows the contractor to recover to encourage investment in efficient facilities.
Step-by-Step Calculation Logic
To determine the FCCOM allocable to a specific contract, the Treasury Rate is applied through the following logical flow:
- Step 1: Determine Net Book Value (NBV). The contractor identifies the average Net Book Value of the tangible capital assets (land, buildings, equipment) allocable to a specific overhead pool (e.g., Engineering Overhead or Manufacturing Overhead).
- Step 2: Apply the Treasury Rate. The average NBV is multiplied by the current Treasury Rate. This yields the "Total Facilities Capital Cost of Money" for that specific pool.
Formula: NBV × Treasury Rate = Pool FCCOM - Step 3: Calculate the FCCOM Factor. The Pool FCCOM is divided by the total allocation base for that pool (e.g., Total Direct Labor Dollars). This results in a decimal factor.
Formula: Pool FCCOM / Allocation Base = FCCOM Factor - Step 4: Allocate to Contract. Finally, the FCCOM Factor is multiplied by the specific base costs incurred on the contract in question.
Formula: Contract Base × FCCOM Factor = Contract FCCOM
Practical Example
If a company has machinery with a Net Book Value of $1,000,000 assigned to the manufacturing pool, and the current Treasury Rate is 4.5%, the total Cost of Money for that pool is $45,000 ($1M × 4.5%). If the total manufacturing labor (the allocation base) is $500,000, the FCCOM factor is 0.09 (or 9%). For a contract with $50,000 in manufacturing labor, the billable FCCOM would be $4,500.
Why it Matters
Understanding how the Treasury Rate is applied is vital for compliance and pricing. FCCOM is an allowable cost but is excluded from the cost base when calculating profit or fee objectives in weighted guidelines. Correct application ensures contractors recover their facility investment costs without inflating profit calculations improperly.