Equipment is defined as a non-expendable capital item of movable or personal property with the following characteristics:
- Costs $5,000 or more per unit
- Has a useful life expectancy of one year or more
- Is complete in itself and will retain its identity as a separate item
- Will not be expended or consumed in research
Only items that cost $5,000 or more and have a useful service life of one year or more should be listed in the equipment line. Please keep in mind that the item must meet both criteria to be considered equipment. If both criteria are not met, the item will be budgeted as a material/supply. Cost estimates should include shipping charges and identify each piece of equipment with a corresponding cost. Provide a generalized specification and justify the need for the equipment in relationship to the statement of work (i.e., why you need the equipment).
The NC State Disclosure Statement (DS-2), which sets forth the capitalization threshold and treatment of capitalized costs, supersedes sponsor guidance to the contrary. As such, it may be necessary to show items costing less than $5,000 in the equipment section of a budget to meet a sponsor’s guidelines. These items will be treated as materials and supplies by NC State.
Fabricated equipment is defined as an item of equipment that:
- Is built or assembled in its original form from individual parts by sponsored project personnel, an internal shop, or an external shop
- Has an aggregate cost of $5,000 or more
- Has a service life of longer than one year
- Must be recorded as capital equipment in the university’s capital asset management system
- Is not a deliverable to the sponsor where title to the finished product will be transferred to the sponsor
The individual component costs associated with the fabricated equipment — regardless of the individual amounts — will be budgeted as equipment and will be excluded from the modified total direct costs (MTDC) base. However, fabricated equipment costs do not include routine maintenance and repair costs associated with a piece of fabricated equipment. An instance where components are simply connected together in a system, such as when individual computers and servers are joined to create a network, does not constitute a fabrication.
Fabricated equipment must be identified prior to the acquisition of component parts. You should note the fabricated equipment deliverable in the statement of work. In the budget justification, specific guidance concerning the fabricated equipment should include:
- The specific relationship the activity will have with the performance of the overall project scope
- How the component costs will be accounted
- The anticipated functionality
- The value of the finished fabrication
- The expected ownership vesting of the equipment
Costs that should be budgeted and charged as fabricated equipment include materials and supplies necessary for the fabrication, as well as any internal- or external-shop service fees. Although project personnel may participate in the fabrication, their salaries will not be exempt from the indirect costs (F&A) rate assessment. Only labor costs that are implicit in the internal- or external-shop rates will be exempt from indirect costs. Labor, travel and other costs associated with the services of an outside party in a fabrication should be incorporated in the external-shop service fees.
If a proposal anticipates that the total fabrication will cost more than $5,000 but the final product ends up aggregating to less than $5,000, all component costs will then be subject to indirect costs.
If the total cost of the individual components required for the equipment assembly is less than $5,000, then it does not meet the definition of fabricated or capitalized equipment. Therefore, indirect costs will be assessed on the cost of each individual component.
Once your project is funded and you begin procuring fabricated equipment components, you will charge those individual costs to the equipment account code series (i.e., 5000), but you will need to make a special notation on invoices prior to sending them to accounts payable. You must consult with your college business office prior to incurring fabricated equipment component costs in order to avoid administrative errors.
If ownership of the final product is to transfer to the sponsor, the indirect costs rate applies to the individual fabrication components.