Difference between revisions of "Facility Closing/Consolidation"
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| − | The determination of allowability of Internal | + | The determination of allowability of '''Internal Restructuring''' costs rest on the broader Cost Principle concept of '''Reasonableness'''. |
Revision as of 14:59, 4 December 2014
Facility Closing/Consolidation
Large corporations may have many different locations and often expand to new locations or close current locations. When a location is closed the question is often asked, are Facility Closing/Consolidation costs allowable, and if so, how do you recover those costs.
FAR 31 - Contract Cost Principles and Procedures
In order to determine allowability a couple of FAR 31 - Contract Cost Principles need to be reviewed. They are:
- Idle Facilities and Idle Capacity Costs - FAR 31.205-17.
This is important because if the facilities were necessary when acquired or to meet fluctuations in workload, the costs are allowable up to a reasonable period of time. For example, a facility rent expense is $5M per year and has a 5 year lease left ($20M). A reasonable business expense for the lease cancellation would be $5M. However, there are other regulations (DFAR, see below) that could affect this.
- Organization Costs - FAR 31.205-27.
This cost principle is tricky, and note that the three areas described in the regulation are resisting or planning to resist a change in interest, raising capital, or changing the corporate structure. These are all typically external restructuring activities. The cost principles are silent on internal restructuring, they therefore are not expressly unallowable.
The determination of allowability of Internal Restructuring costs rest on the broader Cost Principle concept of Reasonableness.
