CHALLENGING QUESTIONED COSTS RELATED TO AMORITIZATION OF SOFTWARE DEVELOPMENT EXPENSES - Basic Facts
(Editor’s Note. The following case study represents a response to a client’s request that we provide some “talking points” for them to prepare a response to DCAA questioning amortized costs of developing a software system. We think an edited version of our opinion would provide some interesting insights because it touches on many relevant issues like differing treatments of software costs, ability to submit new incurred cost proposals, challenging DCAA positions, etc.)
Basic Facts
During the period of 2001-2005, Contractor developed an Enterprise Resource Planning (ERP) system to be used internally with the intention of eventually selling the system to both commercial companies and the government. The system was significantly different than its core professional services work but since it had the capabilities in-house, it devoted resources to develop the system. The Contractor recently sold the system to another commercial company where they retained the rights to use and sell the system to government agencies. The Contractor has been discussing the ERP capabilities with several government agencies where there is apparently definite interest. The contractor stated that, in conformity with SOP 98, it capitalized the costs and amortized them over several years. During their review of Contractor’s 2002-2005 incurred cost proposals, the Defense Contract Audit Agency questioned those costs stating they (1) they were not properly expensed in the periods they were incurred and (2) they were not allocable to government contracts since they benefited only commercial contracts. They are awaiting a response and this paper is intended to provide some ideas for preparing a response.
{TAG_FORM_TITLE}
To discuss your needs, contact Bill Lennett, Principal, at 1-925-362-0712 or email him at
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
.
