Q.  We own several pieces of equipment that have long been depreciated that we charge our commercial clients for using.   We understand we have to charge the government “costs of ownership” for assets but since we have no depreciation expenses we do not see how we can charge the government.  What do you think?

A.  FAR 31.205-11(f) does provide for “use charges” on fully depreciated assets.  To do so, you usually need to negotiate a forward pricing agreement and when deciding on the amount to charge you need to consider (1) the replacement cost and estimated useful life at the time of negotiation (2) the effect of increased maintenance costs and decreased efficiency because of the age of the asset and (3) the amount of previous depreciation charges made to government contracts and subcontracts.  The fact you seem to already have a “commercial” usage charge may also be taken into account.  Several cases have held that usage charges are allowed even if they were never recorded in the financial records.  For example, S.S. White Dental Manufacturing Company (ASBCA No. 4012) allowed a use charge on fully depreciated assets that was not recorded and the Board stated a reasonable use charge amount would cost less than depreciation on newer assets, even though older assets would probably be less efficient and would require more maintenance.  

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