Contractor has established a separate capital overhead rate to apply to all contract effort that utilizes a relatively high level of equipment and facilities assets. The pool represents similar costs of other overhead pools (e.g. indirect costs, fringe benefits, etc.) as well as a higher level of asset-related costs. The asset utilization aspect is the criteria used to apply the capital overhead rate. The indirect costs in the capital overhead pool include a higher level of costs related to certain activities of the company. Some projects of the company, such as certain production and direct research and development effort, utilize a high level of equipment and facilities-related expenses and hence the pool includes relatively high levels of depreciation expenses resulting from capitalized assets, facilities expenses and infrastructure costs. The creation of a separate overhead pool for certain work requiring a high level of asset and facility utilization clearly meets the requirement for a homogeneous indirect cost pool. The costs in the pool (e.g. indirect expenses plus relatively high level of asset and facilities-related expenses) are homogeneous because they have been incurred to support certain types of projects (e.g. those utilizing a high level of asset and facilities-related support).

Conversely, inclusion of these capital asset and facilities-related expenditures in a pool of costs where the direct projects do not utilize those assets would be considered non-homogeneous. If these asset-related expenditures were included in one of the other two overhead pools, the two conditions of non-homogeneity established by the CAS Board would be met: (1) allocating substantial asset-related costs to direct projects not utilizing them represents a non-causal and non-beneficial relationship to final cost objectives and (2) if the costs were allocated separately as they are done under the current system, the allocation to final costs objectives does result in materially different cost allocations. To allocate these asset-related expenses to projects not utilizing a significant amount of the assets would generate an inequitable result.

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