Capitalization of Maintenance Costs
Q. Our question specifically relates to eligible maintenance costs under a service contract, including both facility and vehicle maintenance. The grantee owns the facilities from which the contractor operates. The facilities were constructed with 80 percent FTA funds. Vehicles and facility are owned by the grantee and purchased with FTA funds. The service contractor is responsible for maintenance of the facility within the scope of the service contract. The contractor is also responsible for maintenance of buses that are acquired with 80 percent FTA funds. FTA Circular 9030.1C, Chapter III.4.c. the grant management guidelines for urbanized areas states in part that "If a grantee purchases service instead of operating service directly, and maintenance is included in the contract for that purchased service, then the grantee may apply for preventive maintenance capital assistance under the capital cost of contracting policy.” The capital cost of contracting policy states, "Only the costs attributable to privately owned assets are eligible under this policy. Items purchased with Federal, state, or local government assistance are not eligible.” The combined effect of these two conditions is that no affirmative statement is found specifying maintenance costs eligible for capitalization where an agency purchases service from a contractor on a contract that includes maintenance with grantee provided vehicles IN A FEDERALLY FUNDED FACILITY. Please advise.
A. You are correct that FTA Circular 9030.1C does not provide affirmative guidance to cover every ownership arrangement. The Circular’s Chapter III, Exhibit III-1 does not provide appropriate guidance in your situation because the directions for use of Exhibit III-1 expressly state that the information presented is “[b]ased on assumption that contractor provides the assets.”
The situation you describe differs from the assumptions underlying the information presented in the table in Exhibit III-1 since the grantee owns the maintenance facility. Thus, the blanket values assumed in the table cannot be used and the grantee will need to calculate the proportion of the contract that actually represents allowable capital costs. These include: (1) all vehicle maintenance costs, and (2) all costs to maintain the grantee’s facilities. In this case, since the facility is already owned by the grantee, depreciation of the facility cannot be included as an eligible cost, since to do so would be double counting because FTA and grantee funds have already been used to cover the capital costs of the maintenance facility itself.
The values in Exhibit III-1 are applicable in situations where the maintenance facility is owned by the contractor as reimbursement for the capital value of the facility is assumed in those values. Since the facility is owned by the grantee, while the Capital Cost of Contracting does apply, the eligible amount will have to be determined based on the contract itself. The amount of the contract costs attributed to the vehicle maintenance and facility maintenance is eligible for federal capital funds at 80% as Preventive Maintenance.
1. Circular 9030.1C Section III of the Grant Management Guidelines (Eligible Grant Activities), Section III.4.c. states in part that "If a grantee purchases service instead of operating service directly, and maintenance is included in the contract for that purchased service, then the grantee may apply for preventive maintenance capital assistance under the capital cost of contracting policy."
2. Under the Capital Cost of Contracting (III.4.f.), paragraph two states "Only the costs attributable to privately owned assets are eligible under this policy. Items purchased with Federal, state, or local government assistance are not eligible."
3. Finally, paragraph five states that "The table of Exhibit III-1 is based on the assumption that the contractor provides the assets. Thus, for example, if a contractor provides maintenance, it is assumed in the calculations that the contractor does so in a facility provided by the contractor." (Revised: July 2010)
Q. My company, NextBus, provides service to public transit systems. We contract with these systems to sell them cellular modem-equipped GPS trackers that are installed on their vehicles, and then we use our hosted software and hardware to provide real-time passenger information. We also sell signs that have modems built in so we can communicate with the signs. The costs to our customers include hardware (trackers and signs) and recurring costs (cellular costs, software maintenance, warranties on the hardware, etc.) My question is this - if we sell a piece of hardware whose one-time, initial price includes, for example, five years of cellular and warranty costs, to a public transit system, can the public transit system consider, for FTA funding purposes, the purchase price of the hardware a capital expense. In other words, can we roll five years of recurring costs into year one and the entire cost is a capital cost?
A. Preventive Maintenance is recognized as an allowable capital expense (see Chapter II, page 5 of FTA Circular 4220.1F and http://www.ntdprogram.gov/ntdprogram/Glossary.htm#M for examples). Additional guidance on the definition of "maintenance" can be found in the Uniform System of Accounts (USOA) established by FTA. According to statute (49 USC 5335), FTA grantees are required to follow the USOA for their accounting. You may find a copy of the USOA here: http://www.ntdprogram.gov/ntdprogram/pubs/reference/USOA.pdf, with the definition of "Expense Functions" located in Chapter 6. The Maintenance Functions are listed in categories 041 through 141 (pages 63 through 80 of the PDF version or pages 65 through 82 of the document itself).
With regard to how preventive maintenance is budgeted, however, the transit agency should contact the appropriate FTA Regional Office. (Posted: December 2009)
Q. When purchasing bus related software ITS equipment, does the maintenance fee associated with maintaining the software and hosting fees (for hosting the data) qualify as a covered reimbursable capital expense (under S5309) or does that have to be covered by non-federal sources?
A. Allowable costs are addressed in Chapter IV of FTA Circular 5010.1D (Grant Management Requirements) (http://www.fta.dot.gov/documents/C_5010_1D_Finalpub.pdf) and in OMB regulations at 2 CFR Part 225 (Cost Principles for State, Local and Indian Tribal Governments) (http://www.whitehouse.gov/sites/default/files/omb/assets/omb/fedreg/2005/083105_a87.pdf). (Posted: January, 2013)