Equipment Acquisition - Fabrication

Introduction

Occasionally, there is a need to build a piece of equipment for functionality that doesn't currently exist.  The equipment is built at the University.  Many different categories of costs go into creating the equipment and in order to represent the true cost of the asset, these costs need to be moved to the proper equipment object code by Journal Voucher (JV).  This allows for the full cost of the asset to be depreciated over its useful life and the costs to be excluded from indirect cost.

These JV's should be processed at least annually (if on a fabrication budget) or quarterly if on a budget that incurs Facilities and Administrative (F&A) costs.

Fabricated items for Delivery to an External Entity or Non-University Owned items purchased for Direct Resale

Fabricated items for delivery to an external entity or non-University-owned items purchased for direct resale to an external customer or for delivery to a sponsoring agency without intervening use by the University should not be tagged or inventoried.  Salaries, supplies, and other costs incurred in fabrications are to be left in their original expenditure object code, not transferred to Object Code 06.  These costs will incur the usual indirect costs for grants and contracts.  Individual parts or equipment items that fall into this category and meet the standard definition of equipment should be coded 06-96 on purchase requisitions.

Fabricated Items for Sale to Another University Department

If fabricating an item that will eventually be sold to another University department, please follow the fabrication procedures until the fabrication is complete and all costs have been JV'd to the 06-XX object code and then follow the University's procedures for Equipment Disposal - Internal Transfer.  These sales must be processed using a Journal Voucher to reassign funding for the negotiated sales amount, not a Cost Transfer Invoice (CTI) or an Internal Sales Document (ISD). 

Definition

Equipment fabrication  –  The transformation of salaries, benefits, supplies and materials, services, equipment, maintenance, and/or travel into one or more items of customized capital equipment for University of Washington use.

The need to fabricate an asset comes about when the equipment does not already exist or additional functionality needs to be added to an existing piece of equipment.  The following criteria must be met:

  • Equipment fabrication title is the same as the prime/parent budget
  • Equipment is not a deliverable
  • Equipment fabrication is either:
    • Documented in the research proposal;
    • Approved by the sponsor in writing (if necessary to comply with Grant and Contract terms and conditions or to inform of changed statement of work); or
    • Noted in the Grant and Contract file as to why the fabrication was not included in the original proposal and why sponsor approval is not required.
  • Equipment fabrication meets the equipment definition:
    • Estimated total cost is greater than $2,000 and
    • Estimated useful life of at least one year.

As the costs to build (fabricate) the equipment are incurred, they are charged accordingly as salaries, benefits, supplies and materials, services, etc.  These costs are subsequently reclassified to equipment through the fabrication JV process.  Indirect cost is automatically adjusted when each fabrication JV is processed.

Note regarding Machinery & Equipment (M&E) Tax Exemption:  M&E expenses that are originally coded M&E at the time of purchase can be included in a fabrication. If supplies for the fabrication cost less than $1,000 per item (the minimum value for purchases to qualify for the M & E Tax Exemption) then you can buy them as tax exempt (use object code 05-41) if you make a comment that this item will be part of a fabrication that will exceed $1,000. Costs such as salaries, benefits, and design costs, etc. do not qualify for the exemption.

Allowable Costs

Allowable costs to be included in a fabrication are detailed out by activity below:

  • Design Costs - including development/procurement of drawings and schematics, development of component specifications and development/production of operating documents and flow charts:
    • 01-XX Salaries and 07-XX Benefits (including graduate student tuition, if applicable - not common)
    • 03-XX Recharge services and supplies internal to the University (i.e. Facilities services Fabrication Shop charges such as welding/constructing a framework to house electronic components)
    • 03-XX Services external to the University (Service contracts)
    • 05-XX Supplies and Materials
    • 19-10 Prorated Direct Costs (For APL use only)
  • Construction Costs - if it meets the fabrication criteria and is to be used for its designed purpose only or if it does not meet the fabrication criteria, but contributes directly to the design of another item that does meet the fabrication criteria:
    • Same costs as those listed above in "Design Costs"
    • 05-40 Equipment
      • Note:  If over $2,000, in order for equipment to be purchased outside of the 06-XX object code categories, a note must accompany the purchase request that the item is being acquired on a fabrication budget.  Please add "Fabrication" or "FABR" to the order's Item Description (PAS) or Comments (eProcurement) so that Equipment Inventory can properly approve the purchase.
    • 05-40 or 03-64 Maintenance contract (first year only) on a sub-component (if in place at the time the asset is initially put into use)
      • Note:  If maintenance contract is purchased with equipment, it may be coded as equipment.  If purchased alone, it should be coded as 03-64.
    • 05-45 Software
      • If sole use is for the fabricated item, or
      • If it is a critical part of the equipment (i.e. Equipment wouldn't function without it, and its development is performed only because it is directly associated with the equipment)
      • Note:  If over $2,000, in order for equipment to be purchased outside of the 06-XX object code categories, a note must accompany the purchase request that the item is being acquired on a fabrication budget.  Please add "Fabrication" or "FABR" to the order's Item Description (PAS) or Comments (eProcurement) so that Equipment Inventory can properly approve the purchase.
  • Modification Costs of Existing Equipment (if adding new functionality):
  • Same costs as those listed above in "Construction Costs"
  • Note:  Adding new functionality involves something other than expanding on an existing functionality.
  • Testing Costs (to confirm proper assembly):
    • Same costs as those listed above in "Construction Costs"
    • 04-XX Travel (if travel supports both testing and research, the travel costs should be prorated between the two types of effort)
    • Note:  Testing to see if an item produces intended results or whether it works in a specific environment is an R&D event and is not allowable.
  • Modification Costs of Fabricated Equipment (only if prior to initial use or deployment for research):
    • Same costs as those listed above in "Design Costs"
  • Installation Costs (if necessary to make sure the fabricated equipment is functioning properly prior to initial use and if directly related to the installation)
    • Same costs as those listed above in "Design Costs"
    • 04-XX Travel (if travel supports both testing and research, the travel costs should be prorated between the two types of effort)

Unallowable Costs

Unallowable costs in a fabrication include:

  • Cannibalized parts (parts removed from an existing asset that has already been recorded, capitalized, and fully depreciated)
  • Maintenance contracts (other than first year or if not in place at the time the asset is initially put into use)
  • Modification Costs of Existing Equipment (if not adding new functionality)
  • Modification Costs of Fabricated Equipment (if after initial use or deployment for research)
  • Repair and Maintenance
  • Replacement parts
  • Replacement supplies
  • Research and Development (R&D)
    • Note:  If the fabricated item has not been built before and may require significant testing and redesign/modification before an actual working item is obtained, the costs up to the point that there is a proven design are likely R&D and should not be included in the cost of the fabrication.  The cost of building the original fabricated asset should not be significantly different than the cost of building subsequent assets.
  • Spare parts
  • Supplies (that do not become an actual part of the item, e.g. books, tools, paper towels, test equipment, etc.)
  • Testing (if data gathered is to be used in research)
  • Travel (if it just supports research or to discuss design issues)

Procedure

Department:

  • Determines need to fabricate equipment.
  • Includes fabrication in proposal with separate budget.  Typically, there will be one budget number established for the fabrication and a second budget number for non-fabrication.
    • NOTE:  Effective April 13, 2009, all new fabrications need to be processed on a fabrication sub-budget. Any current fabrications will be grandfathered in to the old process until their budget is up for renewal.  At the time of renewal, a fabrication sub-budget will need to be established and fabrications process on that sub-budget.  
  • If fabrication is not in proposal, requests sponsor approval, if required.
  • Notifies Grant and Contract Accounting (GCA) to establish a fabrication sub-budget (with budget type and class of 05-49) to accumulate costs associated with the fabrication.
  • As soon as fabrication work begins, works with departmental inventory contact to:
    • Obtain an equipment tag for the item.  The tag number is needed for the next steps though it may not be affixed to the equipment at this time.  The tag should be placed on the fabricated equipment item as soon as it is feasible.
    • Enter the asset information into OASIS as a "T" status asset or submit information to Equipment Inventory on a UW Equipment Information (Orange) Card.  The item should be treated the same as a newly purchased piece of equipment.  Information to be entered should include:
  • UW Tag Number (contact your departmental inventory person)
  • Description
  • Manufacturer
  • Model
  • Serial Number
  • Custodian/User
  • Building
  • Wing
  • Room Number
  • Status (enter T)
  • Requisition Number (enter 000000)
  • Accountable Budget
  • Total Cost (enter $2,000.00 minimum)
  • Class Code
  • Date Received (Estimated date fabrication will be functional and should begin depreciating)
  • Acquisition Method (enter FB for Fabrication)
  • Starts building equipment.
  • On an annual basis (or quarterly, if on a budget than an F&A rate is being applied to):
     

Note:  A sub-budget for fabricated equipment does not eliminate the need to submit an annual fabrication JV request to Equipment Inventory to move the costs over to the appropriate equipment object code.

Note:  For non-fabrication budgets that incur Facilities & Administrative (F&A) Costs, Grant and Contract Accounting recommends departments process fabrication JV requests quarterly.  This helps minimize excessive cash draw downs on federal awards and also benefits the department by providing a more accurate account of their award expenditures and budget balances.

Note:  At this time, fabrication JVs cannot be done electronically through MyFinancial.desktop.

Grant and Contract Accounting:

  • Upon notification from department to establish a fabrication sub-budget (with budget type and class of 05-49), verifies equipment ownership code to make sure equipment is properly coded (University, Federal, or Agency owned) and establishes sub-budget.  The equipment title of the fabrication sub-budget should be the same as the prime/parent budget.
  • Upon receipt of approved fabrication JV request and JV from Equipment Inventory, submits the JV for processing. 

Equipment Inventory:

  • Upon initial fabrication asset set up in OASIS, reviews the entry for complete information.
  • Upon receipt of annual fabrication JV request from department, reviews it to ensure that an asset is correctly established in OASIS.
  • If asset is:
    • Correctly established, approves the fabrication JV request, creates JV, and forwards both JV request and JV to GCA's CATS team for processing.
    • Incorrectly established, works with department to get asset correctly established, then approves the fabrication JV request, creates JV, and forwards both JV request and JV to GCA's CATS team for processing.

Note:  The JV debits the appropriate equipment object code (06-10, 06-11, 06-90, or 06-91) and credits the cost transfer object code 21-50 instead of the original cost category.  This results in an F&A cost reduction while retaining the identity of the original transactions.

  • After JV processes:
    • Adds the new 06-XX expenditures to OASIS;
    • Adjusts the total cost of the fabrication asset; and
    • Approves the asset (if 1st JV).

Form

Fabrication JV request

 

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