Changes set forth in the revised Cost Principles for Educational Institutions, Office of Management and Budget Circular A-21, have made it necessary to improve our property management procedures, in particular for insurance and inventory purposes. While this notice establishes broad guidelines you should follow when considering equipment fabrication, it is not intended to cover every possible situation which may arise. As future experience with the guidelines indicate a need for modification, we will advise you accordingly.

Fabricated Equipment Costing $500 or More

Initially, you must determine who will actually be fabricating the equipment. The two primary options and related procedures are as follows:

1. Should you or members of your staff be fabricating your own equipment, the labor costs are not to be included in the capitalized value of the fabricated items. The materials and supplies being used to fabricate the equipment item must be budgeted and subsequently requisitioned and paid for under an appropriate equipment class code if the end product is a piece of equipment costing $500 or more with a useful life of at least two years.
2. If you are having the equipment fabricated by an established service center (i.e., the Physical Sciences Laboratory or the Instrumentation Systems Center), the labor costs, associated fringe benefits, and internal indirect costs all would be capitalized and therefore should be budgeted, requisitioned, and paid for using an appropriate equipment class code. In all practicality, the labor costs, fringe benefits, internal indirect costs, and materials and supplies will be lumped together when you receive a quotation from an established service center.

May we emphasize that if the equipment being fabricated is to be paid for from extramural funds (primarily 133 & 144), it must be identified in the application and the subsequent award document under the equipment category. When the requisition is processed, it must include a clear reference to the item budgeted in the award document. Should multiple requisitions be used to purchase component parts, each must include a reference to the equipment item in the award document. It is also advisable that the initial requisition number be cross-referenced on all succeeding requisitions and that it also include the final estimated cost of the fabricated item. This will help establish an audit trail and assist the Inventory Office in determining how close the item is to completion.

The Inventory office will assign an inventory number to the very first item purchased toward the fabricated equipment, and will notify the appropriate department. Each succeeding requisition should now include a reference to the item in the award document, the newly assigned inventory number, and a cross-reference to the initial requisition. We will expect each department to assume the responsibility for notifying both the Inventory Office and the Risk Management Office when the fabrication is complete. This notification will allow both offices to properly inventory, tag, and insure the final product as appropriate. Please note that the procedures identified above are not intended to replace the Fabricated Equipment Insurance Report initiated each spring by the Department of Risk Management.

Items Purchased under $500 that Could Be Capitalized

If you are purchasing a single item costing less than $500, which can not stand alone and therefore is considered an integral part of another existing piece of equipment, that item can be capitalized. If this type of purchase will be made from extramural funds (primarily 133 & 144), the item must be identified in the application and subsequent award under the equipment section of the budget.

Regardless of the source of funds, when processing the requisition for a capital item under $500 you must reference the piece of equipment it will be added to plus the U.W. inventory number assigned to that piece of equipment. Under no circumstances should a true consumable supply (items with a useful life of less than two years) be capitalized even though it is used with or is a part of piece of already existing equipment. In addition, costs incurred for necessary maintenance, repair, or equipment upkeep, which assures an efficient operating condition, should not be considered capital expenditures.

If you have questions or require assistance concerning the above, contact William J. Vance (Associate Director) at 608-262-0181.