8.11.01 Purpose

8.11.02 Scope

8.11.03 Policy

8.11.04 Definitions

8.11.05 Responsibilities

8.11.06 Financing

8.11.07 Purchase vs. Lease Determination

8.11.08 Acquisition of Equipment

8.11.09 Computer Software Acquisition and Financing

8.11.10 Amortization Charges

Appendix A - Equipment Installation and Manufacture

Appendix B - Instructions for Using the Purchase vs. Lease Cost Analysis Spreadsheet

Appendix C - Working Capital Fund (WCF) Invested Equipment Allocation Process
 
 

8.11.01
PURPOSE
This subchapter states policies for: (1) financing the acquisition of equipment; (2) determining whether to purchase or lease the equipment; (3) recording costs for manufacture of equipment; (4) acquiring and financing computer software; and (5) amortizing equipment. See Subchapter 7.01 for information on equipment accountability and control.
 

8.11.02
SCOPE
This subchapter applies to NIST-Gaithersburg and NIST-Boulder.
 

8.11.03
POLICY
It is NIST policy that equipment needs are normally filled as an investment of the Working Capital Fund (WCF). Exceptions to this policy are contained in Section 8.11.06. Funds for investment are obtained from the appropriation process, from biweekly amortization charges, and from an equipment replacement surcharge.
 

8.11.04
DEFINITIONS
a. Acquisition Cost - The full cost of putting a piece of equipment into use, including all costs related to acquisition, delivery, and major installation costs in excess of $500.

b. Computer Software - Commercially available computer programs and routines used to extend the capabilities of data processing equipment. Generally includes such items as documents, manuals, and instructions used to control the operations of computer hardware, and the physical medium, such as tape, disk, or CD, on which the software is delivered. Software is classified as equipment (object class 31.2).

c. Equipment - Non-expendable property, such as computers and office, shop, and scientific and technical equipment, which is complete in itself, and is of a durable nature with an estimated useful life of at least one year. Equipment can be either capitalized or expensed on the NIST financial statements. However, the capitalization threshold has no bearing on the source of funding used to finance the equipment. All equipment with an acquisition cost of $5,000 or more, or that is part of a system, the cost of which is at least $5,000 is subject to inventory control by Personal Property.

For accounting purposes, equipment is either Capitalized or Expensed.

(1) Capitalized Equipment has an initial acquisition cost of $25,000 or more and an estimated useful life of two years or more.

(a) Depreciation - Depreciation expense is recognized in the NIST financial statements for all capitalized equipment, regardless of source of funding. It is recorded and calculated using a systematic method applied over the useful life of the asset, usually on a straight-line basis.

(b) Useful Life - The estimated number of years the equipment normally functions adequately before it wears out; becomes technologically obsolete; or the project for which the equipment was acquired is completed and the equipment is not likely to be used in other projects. Useful life is used to determine the depreciation expense on capitalized equipment. See Subchapter 7.01 Appendix B, Useful Life - Depreciation and Amortization, for standard useful lives.

(2) Expensed Equipment has an initial acquisition cost of less than $25,000, or an estimated useful life of less than two years.

Equipment is either purchased as an investment of the WCF or as an operating expense (unfinanced).

(1) WCF Invested Equipment - Equipment costing $10,000 or more, with an estimated useful life of at least one year, is acquired as an investment of the NIST Working Capital Fund (WCF). At the descretion of OU managers, equipment costing $2,500 to $10,000 may be purchased as an investment of the WCF. Obligations and accruals are recorded in cost centers in the series 800-809 for direct purchase or 810-849 for manufacture.

(a) WCF Invested Equipment Allocations - Permission to purchase or manufacture equipment with Working Capital Funds is granted each year to OUs by the Director, in the form of a Working Capital Fund invested equipment allocation (see Appendix C).

(b) Amortization Charges - The NIST Organic Act was amended on July 29, 1985, to allow NIST to recover through charges, and retain as earnings, the estimated replacement value of its equipment and inventory. Thus, the WCF is repaid for each piece of WCF invested equipment through biweekly amortization charges (object class 50.1) and surcharges (object class 50.3) which are generally applied to overhead cost centers.

(2) Unfinanced Equipment - Equipment not acquired as an investment of the WCF, costs less than $10,000, has as estimated useful life of less than one year, or otherwise meets the criteria for non-WCF invested equipment provided in Section 8.11.06. The acquisition cost is charged directly to the cost center creating the need for the equipment.
 

8.11.05
RESPONSIBILITIES
a. The Budget Division and Financial Policy Division are responsible for establishing policies for financing equipment and monitoring spending against authorizations.

b. The Budget Division:

(1) Recommends annually to the Director, the amount and allocation of Working Capital Funds to be made available for investment in equipment, taking into consideration other investment alternatives;

(2) Ensures that equipment needs (WCF and non-WCF) associated with new budget initiatives are included in budget submissions;

(3) Reviews estimates to confirm that each OU has adequate long-term funding to repay the WCF through amortization charges for new investments;

(4) Authorizes WCF invested equipment cost centers (800-849);

(5) Makes recommendations on special requests for WCF invested equipment allocations; and

(6) Monitors spending against authorization for each discretionary and special WCF invested equipment allocation.

c. The Financial Policy Division:

(1) Calculates the maximum amount of Working Capital Funds that can be invested in equipment each year;

(2) Administers amortization policies; and

(3) Ensures that NIST procedures and policies are in compliance with DoC policies and that NIST financial statements are prepared according to generally accepted accounting principles.
 

8.11.06
FINANCING
a. Working Capital Fund Invested Equipment - Equipment costing $10,000 or more is acquired as an investment of the WCF unless it meets one of the criteria below for non-WCF invested equipment. This mechanism was established to permit appropriate costing of the equipment over its lifetime and to ensure that adequate replacement funding will be available. Guidelines for financing the procurement of equipment using Working Capital Funds are provided in Appendix C.

(1) Two or more OUs may pool their WCF invested equipment allocations to purchase a single piece of equipment for their mutual use. The amortization charge is split among the OUs.

(2) Equipment may be jointly funded by the Working Capital Fund and another source of funding. If federal government/ non-federal government/ CRADA sources are used, the consent of the sponsor is required. Amortization charges are recovered only on that portion of the cost funded from the Working Capital Fund. The portion of the total cost funded by a non-WCF source is charged directly to that specific cost center.

(3) Executive furniture and office equipment are purchased as an investment of the Working Capital Fund if the acquisition cost is $10,000 ($2,500 to $10,000 at the discretion of the OU management) or more even though the use of the equipment may be strictly technical rather than administrative. There is usually a continuing need for this type of equipment, and there is little danger that the WCF investment will not be recovered through amortization charges. However, executive furniture and office equipment may be purchased with funds deposited with NIST by sponsors of Research Associate programs to cover special supplies as provided for by the Memoranda of Agreement covering these programs.

b. Unfinanced Equipment - Equipment costing less than $10,000, and other instances, as stated below, may be charged directly to the cost center(s) creating the need for the equipment.

(1) Appropriated or Overhead funds should be used when one of the following conditions is met:

(a) The equipment costs less than $10,000 ($2,500 to $10,000 at the discretion of the OU management).

(b) Equipment will be consumed, destroyed, contaminated, modified, or lose its original identity so as to render it useless at the completion of the task(s) for which it was originally purchased and would be declared surplus at that point.

(c) The utility of the equipment is so specific as to be limited to only the technical project for which it is bought.

(d) The organizational unit has only appropriated funding.

(e) Primary standards may be procured and constructed with STRS appropriated funds.

(f) Books, regardless of price, which are purchased for the permanent collection of the NIST Office of Information Services are coded as equipment. This classification as equipment is dictated by guidelines established by the Office of Management and Budget. Books purchased for other than the NIST Office of Information Services are coded as Supplies (object class 26.0).

(2) Federal Government/Non-Federal Government/CRADA Cost Centers

Equipment may be purchased with federal government/non-federal government/CRADA funds in the cost center(s) creating the need for the equipment rather than as an investment of the Working Capital Fund, unless the federal government/ non-federal government/CRADA order contains a statement which specifically precludes equipment purchases. It is preferable that special equipment requirements be stated in the federal government/non-federal government/CRADA order.

(3) Expense and Income Cost Centers

Equipment may be charged to Miscellaneous Expense and Income cost centers (585-594) without regard to price or useful life provided that the sponsor(s) (government or nongovernment) has given implicit or explicit permission to purchase or manufacture such equipment.

Equipment may not be charged to other Expense and Income cost centers (595-699) that are reimbursed through fees established for conferences, training classes, calibrations, SRMs, or tests. Any exceptions to this policy must be approved by the Budget Division and the Financial Policy Division.
 

8.11.07
PURCHASE VS. LEASE DETERMINATION
a. Requests for the acquisition of equipment should be carefully evaluated to determine if it is more economical to purchase or lease. The Federal Property Management Regulations and the General Accounting Office recommend leasing only when a savings can be effected. The determination to lease rather than to purchase should be fully justified and should not be based on the availability of funds.

b. To evaluate whether it is more economical to lease or purchase items of significant value, the requesting organizational unit assists the contracting officer in performing a cost comparison for lease vs. purchase. All requisitions for the lease of an asset valued at over $100,000 must be accompanied by a cost analysis and justification which has been reviewed and approved by the Deputy Chief Financial Officer. See Appendix B for instructions on the comparative cost analysis spreadsheet that should be used in this analysis. The following factors should be considered when undertaking a comparative cost analysis:

(1) Length of time that the equipment is to be used, including extent of usage and potential additional use by another federal agency if the equipment becomes excess to the acquiring agency;

(2) Financial and other advantages of all types and makes of equipment available;

(3) Leasing costs and purchase options;

(4) Purchase costs of new equipment currently being leased, including similar equipment or equipment of a different type and make;

(5) Costs of installation and maintenance;

(6) Imminent technological improvements; and

(7) Other pertinent factors.

c. The determination to purchase or lease equipment is made after completion of the comparative cost analysis by the requisitioner.

d. Procurement of a capital asset or group of related assets where the total fair-market value exceeds $1 million must be in conformance with OMB Circular A-94.
 

8.11.08
ACQUISITION OF EQUIPMENT
a. Purchase - If it is more economical to purchase rather than to lease, subject to any special approvals outlined in Subchapter 2.03, Procurement, the following approval procedures apply:

(1) Equipment costing less than $5,000 is subject to the approval policy established within the OU.

(2) Equipment costing from $5,000 to $100,000 may be approved by the OU Director or this authority may be redelegated to division chiefs, Senior Management Advisors (SMA), and program managers by the OU Director.

(3) Equipment costing $100,000 or more requires the approval of the OU Director.

(4) Any equipment costing $500,000 or above and/or any amendment that would increase the original cost of the equipment to equal $500,000 or above requires the approval of the NIST Deputy Director.

b. Manufacture of Equipment - The cost to manufacture equipment is accumulated in a cost center established for that purpose in the 810-849 series. Research and development costs are not included (see Appendix A, paragraph 2.d.).

c. Equipment Purchased After Initial Rental - The cost placed on the property records is the gross purchase order price (price before application of rental credits). The life expectancy for amortization purposes is determined by Personal Property after recommendation from the requesting OU. The net cost is treated as a charge to the appropriate source of funding.

d. Equipment Purchased With a Trade-In - Prior approval from Personal Property must be obtained before trade-in can occur. The charge to the source of funding and the cost placed in the property records is the gross purchase order price less the amount of the trade-in. If the equipment to be traded is not fully amortized, the unamortized balance is charged to the responsible OU.
 

8.11.09
COMPUTER SOFTWARE ACQUISITION AND FINANCING
a. Purchased computer software is considered to be equipment by OMB guidelines and is always assigned to object class 31.2, with no dollar constraints.

b. Software may be purchased with an OU's Working Capital Fund invested equipment allocation only in the following circumstances:

(1) The software is general purpose in nature and applicability and its expected life is more than one year and its cost is $5,000 or more. The property records will be adjusted to include the software cost with the cost of the computer on which it is to be used; and/or

(2) The software is acquired at the same time as computer hardware that is also purchased as Working Capital Fund invested equipment.

c. Software not meeting the above requirements is charged as a current operating expense to the benefiting cost center(s).

d. Without exception, costs for software developed in-house are charged as a current operating expense. Working Capital funds are not used to develop software in-house.

e. Capitalization - The Deputy Chief Financial Officer capitalizes software only when it is acquired at the same time as the related computer hardware which is also capitalized. (The decision to capitalize or expense property is based on the purchase price, useful life, and certain other factors. The source of funding has no bearing on this decision.)
 

8.11.10
AMORTIZATION CHARGES
a. Useful life is used as the amortization period unless the requisitioner of the equipment requests a shorter life when preparing Form CD-435, Procurement Request. If the requisitioner wants an amortization period longer than the standard useful life stated in Chapter 7.01, Appendix B, Useful Life - Depreciation and Amortization, a memorandum with justification must be forwarded to the Financial Policy Division for approval.

b. The charge is based on the amortization period of the individual item and the original amount financed by the WCF. Amortization charges (object class 50.1) are applied biweekly on an individual item basis, generally to overhead cost centers. Any exception to this must be requested in writing to the Financial Policy Division for prior approval.

c. Amortization charges terminate when the accumulated amortization charges for an individual item equal the amount paid by the WCF invested equipment cost center and the Working Capital Fund has therefore been replenished.

d. When there remains an unamortized balance on an item of equipment no longer used by an organization unit, the following procedures apply. If the item is:

(1) Excessed - Amortization charges continue until the item is acquired by another NIST organizational unit, retired, or fully amortized;

(2) Traded In - The new equipment is recorded in the property system at the gross cost (amount paid plus trade-in allowance).  If the unamortized balance of financing on the old equipment exceeds the trade-in allowance, the difference is paid back to the WCF in a lump sum.  The remaining unamortization financing will be repaid to the WCF under the new equipment.

(3) Transferred or Loaned Within NIST - Amortization charges are picked up by the receiving organizational unit; or

(4) Transferred Outside NIST or Retired for Any Reason - All remaining amortization charges are paid in a lump sum by the owning organizational unit.

e. NIST has statutory authority to retain and use earned net income to offset the effects of inflation on equipment and inventories. Since the cost of equipment continues to increase, a surcharge using object class 50.3 is added to the regular amortization charge. This surcharge collects the estimated additional cost associated with replacing equipment in the future. See Subchapter 8.08 Appendix F for the current rate.