Cost of Money Law and Legal Definition

Cost of money refers to the interest that could be earned if the amount invested in a business or security was invested in a government bond or time deposit. In other words the amount of interest that would be earned if the dollar value of inventory were invested at the State's current investments earning rate. It also refers to the imputed cost determined by applying a cost-of-money rate to facilities capital employed in contract performance, or to an investment in tangible and intangible assets while they are being constructed, fabricated or developed for the contractor's own use. Although technically not a recovery of interest, cost of money is intended to compensate a contractor for the capital cost of employing certain facilities in the performance of contracts, and therefore has many of the characteristics of a reimbursement for interest. However a cost of money provision is allowable only if the contractor's capital investment is accounted for in accordance with the relevant Cost Accounting Standards and is specifically identified or proposed in the contractor's cost proposal for a given contract.