FAR 31.205-10—Cost of money.
Plain-English Summary
FAR 31.205-10 explains the allowability of "cost of money" in federal contracting and distinguishes it from ordinary interest on borrowings. It covers three core subjects: what cost of money is, when it is treated as an incurred cost for cost-reimbursement and progress payment purposes, and the two cost accounting standard concepts it refers to—facilities capital cost of money under 48 CFR 9904.414 and cost of money for capital assets under construction under 48 CFR 9904.417. The section also sets the conditions for allowability, including compliance with the applicable CAS measurement, assignment, and allocation rules, compliance with FAR 31.205-52 limits, and specific identification and proposal of estimated facilities capital cost of money in the relevant cost proposal. It further makes clear that actual interest expense cannot be substituted for the calculated imputed cost of money. In practice, this section matters because it determines whether contractors can recover a notional financing charge on capital tied up in facilities or construction assets, and it requires careful proposal preparation, CAS compliance, and contract-specific identification to avoid disallowance.
Key Rules
Cost of money is imputed
Cost of money is not actual interest on borrowings. It is a calculated, non-cash cost recognized for federal cost allowability purposes, so contractors cannot treat ordinary financing charges as the same thing.
Treated as incurred cost
For cost-reimbursement contracts, and for progress payment purposes under fixed-price contracts, cost of money is treated as an incurred cost. That means it can be included in the cost buildup only when otherwise allowable and properly supported.
Covers two CAS concepts
The term refers to facilities capital cost of money under CAS 9904.414 and cost of money as an element of the cost of capital assets under construction under CAS 9904.417. Which rule applies depends on the type of asset or cost being claimed.
Must follow CAS measurement rules
Allowability depends on measuring, assigning, and allocating the cost in accordance with the applicable CAS standard, or adding it to the cost of capital assets under construction under CAS 9904.417. If the CAS method is not followed, the cost is not allowable.
Subject to FAR 31.205-52 limits
Even if properly calculated under CAS, cost of money must also satisfy the limitations in FAR 31.205-52. Those limits can reduce or bar recovery, so allowability is not automatic.
Must be specifically proposed
Estimated facilities capital cost of money must be specifically identified and proposed in the cost proposal for the contract under which it will be claimed. A contractor cannot rely on a general overhead or indirect cost presentation to recover it.
Actual interest is unallowable
A contractor may not claim actual interest expense in place of the calculated imputed cost of money. The regulation requires the imputed amount, not the contractor’s real borrowing cost.
Responsibilities
Contractor
Calculate cost of money using the applicable CAS method, ensure it is properly measured, assigned, and allocated, and specifically identify and propose estimated facilities capital cost of money in the relevant cost proposal. The contractor must also comply with FAR 31.205-52 limits and may not substitute actual interest expense for the imputed amount.
Contracting Officer
Review whether the claimed cost of money is properly proposed, supported, and allowable under the applicable CAS and FAR limitations. The contracting officer should verify that the cost is specifically identified in the proposal and that the contractor is not claiming actual interest in lieu of imputed cost of money.
Agency/Government
Apply the allowability rules consistently when evaluating proposals, incurred cost submissions, and progress payment calculations. The agency must ensure that claimed cost of money is treated as an allowable cost only when the regulatory conditions are met.
Cost Accounting Standards Compliance Function / Accounting Staff
Implement the correct CAS methodology for facilities capital cost of money or capital assets under construction, maintain the supporting calculations, and ensure the cost is properly recorded and allocated in the contractor’s accounting system.
Practical Implications
Contractors must plan for cost of money early; if it is not specifically identified in the proposal, recovery can be lost even if the calculation is otherwise correct.
The biggest compliance risk is confusing imputed cost of money with actual interest expense. They are not interchangeable, and claiming the wrong one can lead to disallowance.
Because FAR 31.205-10 works together with CAS and FAR 31.205-52, contractors need to check multiple rules before billing or proposing the cost.
For fixed-price contracts with progress payments, cost of money can affect the progress payment base, so errors can flow into cash flow and billing calculations.
Contracting officers should look for clear proposal support and CAS-consistent calculations; vague indirect cost treatment or unsupported estimates are common audit findings.
Official Regulatory Text
(a) General . Cost of money- (1) Is an imputed cost that is not a form of interest on borrowings (see 31.205-20 ); (2) Is an "incurred cost" for cost-reimbursement purposes under applicable cost-reimbursement contracts and for progress payment purposes under fixed-price contracts; and (3) Refers to- (i) Facilities capital cost of money (48 CFR9904.414); and (ii) Cost of money as an element of the cost of capital assets under construction (48 CFR9904.417). (b) Cost of money is allowable, provided- (1) It is measured, assigned, and allocated to contracts in accordance with 48 CFR9904.414 or measured and added to the cost of capital assets under construction in accordance with 48 CFR9904.417, as applicable; (2) The requirements of 31.205-52 , which limit the allowability of cost of money, are followed; and (3) The estimated facilities capital cost of money is specifically identified and proposed in cost proposals relating to the contract under which the cost is to be claimed. (c) Actual interest cost in lieu of the calculated imputed cost of money is unallowable.