Capital Equipment Policy

Effective Date: March 2013
Revision Date: December 2014
PDF Version: Capital Equipment Policy for Schools with Sponsored Research

Government Owned Property Overview and Procedures
Harvard's Capital Equipment Policy Training (online)

Policy Statement

Capital equipment is an asset of the University that should be safeguarded and used for University programs and purposes.  

This appendix, as part of the Financial Management of Facilities and Equipment Policy, summarizes the required treatment of capital equipment in any school that has sponsored research. To the extent there is any inconsistency between Harvard's policies and the terms and conditions of a sponsoring agency's award under which equipment is provided, the more restrictive of the two shall govern.

Reason for Policy

The University receives funding for sponsored projects from external sources, including significant funding from the federal government.  The University must properly classify, safeguard, and depreciate equipment.  In addition, certain sponsors may have capital equipment requirements in the terms and conditions of the award.

Federal Regulations and Guidance include:

  • OMB Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, 2 CFR 200 (Uniform Guidance)
  • Federal Acquisition Regulations (FAR), parts 45 and 52.245
  • Defense Federal Acquisition Regulation Supplement (DFARS)
  • Department of Energy Financial Management Handbook, Chapter 10

Who Must Comply

All schools that accept federal funding must comply with this policy and are required to employ equipment management practices that meet the requirements of the Uniform Guidance.  

Procedures

The following procedures relate to acquisition, records, and disposal of sponsored capital equipment. To meet the capitalization requirements, equipment must have an acquisition cost of $5,000 or more and a life expectancy of one year or more. Capital equipment is recorded on the University’s general ledger as a capital asset and expensed to the appropriate capital equipment object code. Each school is responsible for school-specific procedures and forms.  

I. Acquisition/Purchase

Types of costs that may be capitalized as equipment: 
The following costs are applied towards the $5,000 acquisition cost and should be capitalized with the equipment:

  • Any initial modifications, attachments, accessories, or auxiliary apparatus that are necessary to make an item of capital equipment useable for its acquired purpose
  • Shipping charges, protective in-transit insurance, freight, and installation costs
  • Upgrades, modifications, or enhancement parts that increase the useful life of the equipment by one year or more or add additional functionality

Types of costs that may not be capitalized as equipment:

  • Equipment repair costs 
  • Separate warranty costs or maintenance contracts
  • Demolishing or dismantling costs
  • Spare or replacement parts 

II. Multi-Component Equipment and Fabrications (also known as Work in Progress or WIP) 

Equipment may be a stand-alone unit or a system of parts that function as a unit.  

Multi-Component Equipment
Multi-component equipment is comprised of individual pieces of equipment or material items that are connected together to operate as a system.  Component pieces that individually cost less than the capitalization level but, when combined, exceed the capitalization level, shall be capitalized when purchased for one functional unit.  Component pieces can be purchased from separate vendors and/or with separate invoices.  

Multi-component equipment is distinguished from fabrications (discussed below) in that multi-component equipment does not generally require construction or assemblage over time.

Fabrications (WIP)
A fabrication is equipment that is constructed or developed by combining parts or materials into one identifiable unit.  To be considered a fabrication:  

  • All component parts must work together as one unit;
  • The aggregate cost of all parts in the completed unit meet the $5,000 capital equipment threshold; and
  • The completed fabrication has a useful life of one year or more.

Individual components acquired during a fabrication project are considered equipment regardless of their unit costs.  For example, three parts of a robotic arm each costing $2,500 would accumulate to one $7,500 capital asset.  

There are several steps involved in creating fabrications and placing fabrications in service:

1. Fabrication Approval
A Fabrication Project Request Form, or equivalent documentation, is completed by the department administrator or Principal Investigator at the beginning of each fabrication project.

2. Acquiring Parts for a Fabrication
Fabrications require the purchase of component parts and/or materials over time.  Fabrication costs are charged using the appropriate fabrication object code and tag number or unique WIP activity assigned to a project.  Only costs integral to the fabrication should be charged to the WIP for capitalization.  Integral parts include any piece or material that becomes a permanent part of the fabrication, any supply needed to build the fabrication, and any internal or external shop service fees.

3. Completing a Fabrication
When a fabrication is sufficiently developed and is available for use or is producing science AND meet the capitalization threshold, they should be “placed in service” also known as “PIS” (i.e., considered active equipment for depreciation).  Schools are responsible for notifying Financial Accounting and Reporting (FAR) when a fabrication should be placed in service by submitting the “Notification of Completion of Capital Equipment Fabrication” form.  

A fabrication’s construction period is generally set by the scope of the sponsored project; however, school should review the status of all in-progress fabrications at least every 6 months.  Projects that have not incurred charges after 6 months should be reviewed and placed into service or written off if they are impaired and will not be utilized.  Exceptions should be carefully reviewed, but if there is a compelling reason to extend the WIP period, please notify FAR for review.  For additional guidance, see the Equipment Work in Progress section of Appendix B. If work on the fabrication ends and the capital threshold of $5,000 is not met, the fabrication account must be closed and the asset must be disposed. 

4. Adding Additional Expenses to a Completed Fabrication 
After a fabrication has been placed in service any additional costs should be expensed as incurred.  In some instances, additional costs represent an upgrade and may be capitalized as such.  For costs to be considered a fabrication upgrade, they must increase the useful life by one year or more or add new or additional functionality to the existing fabrication.  Fabrication replacement parts or repairs are not considered upgrades.   

5. Fabrication Modification/Subsequent Project
After a fabrication has been placed in service, any additional modification or subsequent related project that meets the capitalization criteria listed in #4 above should be treated as a separate asset and assigned its own tag number and useful life.  The modification or subsequent project’s tag number should be associated with the original fabrication.    

III. Equipment Classifications

Capital equipment is classified differently depending on ownership or title to the equipment.  Title to or ownership of equipment is determined by the provisions of the sponsoring award, contract, or agency policy.  There are four classifications of capital equipment:

1. Sponsored Purchased/University-titled
Equipment purchased in whole or in part with sponsored funds with title vested to Harvard University is considered “sponsored equipment.”  Sponsored equipment purchased with federal funds may be also be considered “exempt equipment.”  Title to exempt equipment is conditional and is subject to federal use and disposition restrictions.  Equipment purchased with non-federal funds may also be subject to the conditions of the sponsoring agency.  

2. Government-titled Equipment (GTE) 
Equipment purchased with federal funds with title vested to the federal government is considered “government-titled equipment.”  Government-titled equipment may not be disposed or removed from service without approval from the sponsoring agency.  Note that sponsors other than the federal government may also reserve title to equipment according to the terms and conditions of the award.

3. Government-furnished Property (GFP) 
Equipment in the possession of, or acquired directly by, the federal government and subsequently delivered or otherwise made available to the University under a grant or contract is considered “government-furnished property.”  Title to government-furnished property remains with the government, regardless of the equipment’s value.  Government-furnished property must be appropriately identified by tag and in GMAS for special reporting requirements.  

4. University-Funded Equipment
Equipment purchased with non-sponsored university funds is considered “university equipment.”  Title to university-equipment is vested with Harvard University.  University equipment is tested as part of the A-133 audit and is generally subject to the same guidelines as sponsored equipment.  For policy information related to university equipment, see the main Facilities and Equipment Policy and other accompanying appendices.

IV. Records

Identification of Equipment 
Oracle Fixed Assets is Harvard’s system of record for all property, plant and equipment, and departments must ensure all asset information is entered into Oracle Fixed Assets and kept current. Upon receipt of sponsored capital equipment, schools must maintain records that include a description of the equipment, a serial number or other identification number, the source of funding, who holds title,  the acquisition date and cost, the location, use and condition status, and any ultimate disposition data.  Equipment records must be maintained and updated in such a manner that allows for an item of equipment, whether at Harvard or at an off-campus site, to be located within a reasonable amount of time.

Tagging Equipment
To maintain effective identification of equipment, schools must affix uniquely numbered identification tags to equipment.  Tags and tag numbers facilitate the schools' equipment inventory control by enabling individuals to match pieces of equipment to their associated information, as required by federal regulations.  In cases where items cannot be physically tagged (e.g., too small, temperature-sensitive, or in cases where the tag would interfere with use or operation), a property record/tag must still be maintained and available for review upon request.

Inventory Control 
Federal regulations require any school with sponsored capital equipment to perform a full physical inventory of all equipment, both sponsored and non-sponsored, every two years to verify both the accuracy of equipment records and the existence and current use of equipment (whether purchased, fabricated or furnished).  Inventory records must contain information necessary to identify the equipment including equipment description, serial number, acquisition information and location.  It is the responsibility of the schools to perform the federal and University-required inventories and maintain all inventory and equipment records.   

V. Disposition

Disposition is the process of removing equipment which has no further University use from inventory.  If a piece of equipment is on the floor, it must remain in inventory, regardless of whether it is currently being used. Any piece of capital equipment which has ceased to function or for which the University has no future use must be disposed of and removed from inventory records.  Equipment must also follow the dispositional process when it is:

  • No longer in use nor expected to have future use;  
  • No longer the responsibility of Harvard University (e.g. transferred or sold); or,
  • No longer part of the inventory of active items.

Equipment purchased with federal or other external sponsor funds is often subject to sponsor-specific disposition restrictions and cannot be disposed without prior approval.  Contact the Office for Sponsored Programs for assistance in determining sponsor restrictions.

Information regarding capital equipment items that have been removed from the inventory records must be maintained by the school or department.  Ultimate disposition data should include date and description of disposal method (e.g. scrapped, transferred and donated).  Fully depreciated assets that are still being used must remain on the inventory records. 

Responsibilities and Contacts

Harvard University is responsible for capital equipment in accordance with the provisions of the sponsored project and federal guidelines.  Harvard has a decentralized equipment management practice under which individual schools are responsible for most aspects of sponsored equipment management.  Management of capital equipment includes proper record maintenance, safeguarding of equipment, and assurance that disposition or encumbrance of equipment is performed in accordance with federal and other sponsor requirements.
Principal Investigators
Principal Investigators (PIs) are responsible for the management of capital equipment under their sponsored awards and have ultimate responsibility for compliance with this policy and the terms and conditions of the sponsored award.  PIs are responsible for tracking equipment used in their lab or under their direction, assisting in the completion of reports and physical inventories, and notifying the department of any changes with respect to condition, location, loss, or damage. 
Schools
Schools are responsible for maintaining their equipment information in Oracle Fixed Assets and all other records of capital equipment in their possession.  In addition, schools and departments are responsible for using, maintaining, protecting, and disposing capital equipment according to the terms and conditions of the sponsored award through which the equipment was acquired.  Schools are also responsible for following University capital equipment policies. The school subject matter experts are:
Office for Sponsored Programs
The Office for Sponsored Programs (OSP) is responsible for providing policy and procedural guidance. OSP is also responsible for responding to requests for reports and information from sponsors, auditors and other parties. OSP, on behalf of the schools, submits federal reports to the government including DoD form 1662 and NASA form 1018.
Financial Accounting and Reporting
Financial Accounting and Reporting (FAR), within the Office of the Controller, maintains University-funded capital equipment policies to ensure adherence with Generally Accepted Accounting Principles (GAAP) and other regulatory requirements, to promote consistent accounting treatment across the University, and to ensure the operating results of University units are not misstated as a result of transactions unrecorded or recorded improperly.

Definitions

Acquisition Cost:  the cost of an asset including the cost to ready the asset for its intended use. The acquisition cost of capital equipment includes the purchase price of the item, the cost of any modifications, attachments, accessories, or auxiliary apparatus necessary to make it usable for purpose for which it is required, costs necessary to obtain and prepare the asset for use, shipping costs, taxes, protective in transit insurance, and installation.  The acquisition cost of donated assets is the fair market value at the time of donation. Acquisition cost does not include repairs, service contracts, or supplemental warranties.
Capital Equipment:  moveable, tangible personal property with a useful life of one year or more, and a per-unit acquisition cost of $5,000 or more. Capital equipment includes scientific equipment, fabrications, software, and donated assets. Capital equipment is recorded on the University’s general ledger as a capital asset and expensed to the appropriate capital equipment object code.
Fabricated Equipment:  equipment constructed or developed by combining parts and/or materials into one identifiable unit.  The aggregate cost of all parts in the completed unit must meet the $5,000 capital equipment threshold and must have a useful life of one year or more.  Fabricated equipment is also known as “work in progress,” “WIP,” or a “fabrication.”  
Government-Furnished Property (GFP):  equipment purchased by the government and subsequently delivered to or made available to the University (FAR 45.101).
Government-Titled Equipment:  equipment purchased with federal funds and titled to the federal government.
Sponsored Purchased/University-Titled:  equipment acquired in whole or in part with federal or other sponsoring agency funds with title vested to Harvard University.  
University-Funded Equipment:  equipment purchased with non-sponsored university funds. Title to university-equipment is vested with Harvard University.  University equipment is tested as part of the A-133 audit and is generally subject to the same guidelines as sponsored-equipment.  For additional information related to University-funded equipment, see the Facilities and Equipment Account Policy and accompanying appendices.
Upgrades: (also known as betterments) capitalized additions to an item of capital equipment that add new or additional functionality or extend the useful life by one year or more.  Replacement parts or repairs are not considered upgrades.  

Related Resources 

University Sponsored Equipment Roles and Responsibilities Matrix

Government-owned Property Overview and Procedures  provides information on managing government-furnished property (GFP) and government-titled equipment (GTE).  

Financial Management of Property, Plant and Equipment Policy (for all capital assets at the University (including equipment, buildings and land))

Revision History

May 2014: Notification of Completion of Capital Equipment Fabrication form added, recommendation to review fabrications every 6 months added, full list of federally-required equipment records added, definition of acquisition cost revised to include fair market value for donations, and definition of capital equipment added

July 2014: Changed title of policy from “Capital Equipment Policy” to “Capital Equipment Policy for Schools with Sponsored Research.”  Adjusted the policy statement to reference the Financial Accounting and Reporting policy and clarify that this policy applied to all equipment (sponsored and non-sponsored) in any school with sponsored research.

December 2014: Updated contacts and references to the Uniform Guidance. 

November 2015: Updated contacts.

January 2016: Added link to University Sponsored Equipment Roles and Responsibilities Matrix.

Appendix: Government-owned Property

The Government-owned Property Overview and Procedures provides more information on managing government-furnished property (GFP) and government-titled equipment (GTE).

Reports

Federal Acquisition Regulation (FAR) Subpart 45.505-14 and OMB Circular A-110 Subpart C.33 require contractor and grantees to submit annual inventory reports of government property held under DoD and NASA agreements.  The reports for DoD and NASA contracts or grants in effect as of September 30 are due no later than October 31 of the same year.  Other equipment reports may be mandated by agency or grant/contract terms.

Management of GFP

Harvard University’s property management system, policies, procedures, practices and systems must be compliant with contractual requirements in accordance with FAR 52.245-1(f). 

A. Acquisition of Property

Acquisition is the process of acquiring Government property through either requisition or transfer from Government sources.  Harvard must document that all property was acquired consistent with its engineering, production planning, and material control operations.

B. Receipt of Government Property

Receipt is the process of government-owned property entering into Harvard’s custody.  Harvard is responsible for the recording of information necessary to meet the record requirements of paragraph (f)(1)(iii)(A)(1) through (5) of the clause at 52.245-1, the identification of property as government-owned in a manner appropriate to the type of property (e.g., tag or sticker); and the management of any discrepancies incident to shipment.

C. Records of Government Property

Receipt is the process of government-owned property entering into Harvard’s custody.  Harvard is responsible for the recording of information necessary to meet the record requirements of paragraph (f)(1)(iii)(A)(1) through (5) of the clause at 52.245-1, the identification of property as government-owned in a manner appropriate to the type of property (e.g., tag or sticker); and the management of any discrepancies incident to shipment.

D. Physical Inventories

Government-owned property must be physically located and reconciled to equipment records throughout the term of the contract.  A final physical inventory must be performed upon contract completion or termination. 

E. Subcontractor Control

Harvard must advise subcontractors of their responsibility to comply with Harvard’s equipment management policies and procedures where applicable, unless the subcontractors have approved systems of their own.  Subcontractors should report to the PI all instances of loss, damage, or destructions of government equipment in the subcontractor’s possession or control, which is accountable under a grant or contract, and submit copies of these reports to the department of the school’s Equipment Management Office, depending on school practice.

F. Relief of Stewardship

When government-owned property is expended in the performance of the contract, a Property Administrator may grant relief of responsibility.  Harvard must follow the proper process for relief of accountability as determined by the Property Administrator.

G. Reports

Government-owned property must be only used for the purpose for which it was furnished or acquired.  

H. Utilization of Government Property

Government-owned property must be used for the purpose for which furnished or acquired.  

I. Maintenance of Government Property

Harvard is responsible for providing the amount of care necessary to obtain the most useful service life of government-owned property.  Each school’s equipment maintenance program should enable the identification, disclosure, and performance of normal and routine preventative maintenance and repair.  Harvard must contact the Property Administrator if a repair or replacement is needed. 

J. Contract Property Closeout

Harvard  must promptly perform and report to the Property Administrator upon contract property closeout and include a physical inventory of government-owned property.