Fabricated Equipment: Grant Accounting

When a lab builds its own instrument or apparatus from purchased parts, raw materials, and researcher labor rather than buying a finished unit off the shelf, the resulting item is fabricated equipment. Federal grant accounting treats a completed fabrication the same as a purchased item of equipment once it meets the same threshold test in 2 CFR 200.1’s equipment definition — but getting there involves accounting mechanics that purchased equipment never triggers: a dedicated fabrication account, work-in-progress (WIP) cost accumulation, a capitalization event, and an indirect-cost treatment that splits materials from labor. This guide walks through each of those mechanics and the compliance traps around them.

What Counts as a Fabrication

2 CFR 200.1 does not use the word “fabrication” — the regulatory text simply defines equipment as tangible personal property (including information technology systems) with a useful life of more than one year and a per-unit acquisition cost equal to or exceeding the lesser of the institution’s own capitalization level or $10,000 (raised from $5,000 in OMB’s April 2024 Uniform Guidance revision, effective for awards issued on or after October 1, 2024). “Fabrication” is the accounting term research institutions apply when that finished unit doesn’t come from a single purchase order but is instead assembled in-house from individually purchased components, custom-machined parts, and/or raw materials, generally because no commercial off-the-shelf item meets the research need (a custom optical bench, a purpose-built bioreactor, a modified detector array).

The distinguishing test institutions generally apply, corroborated across several major research universities’ own published accounting-for-fabricated-equipment guidance: the individual components, taken separately, would not meet the equipment capitalization threshold or definition on their own, but when integrated into a single functional unit, the aggregate cost and useful life of the finished item does. A single expensive instrument bought fully assembled from one vendor is not a fabrication, even if it costs well over $10,000 — it’s simply a large equipment purchase. Merely modifying or adding an accessory to an existing, already-capitalized piece of equipment is also usually treated differently from a from-scratch fabrication; check your own institution’s policy, since the line between “fabrication” and “equipment modification” is an institutional accounting distinction, not a federal one.

Setting Up a Fabrication Account

Because a fabrication accumulates cost over time — sometimes over multiple budget periods or even multiple awards — institutions track it separately from ordinary direct-cost object codes, using a dedicated fabrication or “work-in-progress” (WIP) account or project number set up specifically for that build. Purchases of parts, raw materials, and fabrication-specific services are charged to this account as they occur, rather than to the general supplies or equipment line, so the running total can be reconciled against the eventual finished asset.

Typical mechanics, consistent across the institutional fabrication-accounting policies reviewed for this guide (e.g., Cornell University Policy 3.9, UC Berkeley’s Controller’s Office guidance, and comparable NYU, Harvard, Dartmouth, and UNC policies):

A dedicated account/object code pair distinguishes capitalizable (‘inventorial’) fabrication costs from non-capitalizable (‘non-inventorial’) ones — for example, UC Berkeley uses separate account codes for fabrication costs expected to meet all capitalization criteria versus those that won’t.
The PI or department is responsible for notifying central accounting when the fabrication is complete and the item is placed in service — capitalization is not automatic just because spending stops; someone has to affirmatively close out the WIP account and trigger the asset record.
Open WIP accounts get periodically reviewed (institutional policies commonly specify a fixed interval, such as every six months) to confirm the fabrication is still active and progressing, and to catch stalled builds before they become an audit finding.
Fabrications must be capitalized no later than the closeout of the award funding them — an unfinished, unclosed fabrication sitting open past its award’s period of performance is a common single-audit red flag, since it leaves federal funds parked in an ambiguous asset status.

If a fabrication draws funding from more than one award, or continues past a single award’s period of performance, document the cost-allocation basis for which award paid for which component — the same allocability standard that applies to any shared cost under 2 CFR 200 Subpart E applies here.

Capitalization: When the Fabrication Becomes Equipment

A fabrication converts from an accumulating pool of direct costs into a capitalized fixed asset when three conditions are all met:

Aggregate cost meets the threshold — the combined cost of the components and materials that make up the finished unit equals or exceeds the applicable capitalization threshold (federally, $10,000 under the current 2 CFR 200.1 definition; note that an individual institution’s own capitalization policy can set a lower internal threshold, and some institutions haven’t yet updated their own policy to the new federal figure, so check your institution’s current threshold rather than assuming $10,000 applies everywhere).
Useful life exceeds one year.
The item is placed in service — it’s complete, functional, and actually being used for its intended research purpose, not merely fully paid for. Capitalization date is normally the placed-in-service date, not the date of the last purchase order.

Once capitalized, the fabricated item is added to the institution’s equipment inventory and becomes subject to the same ongoing federal property-management obligations as any purchased item of equipment — tagging, periodic physical inventory, use restrictions, and disposition rules. See CASRAI’s guide to property management system requirements under 2 CFR 200.313 for what happens after capitalization.

Indirect-Cost (F&A) Treatment — the Part That Trips People Up

This is the mechanic most likely to produce a real compliance error, because it isn’t a single simple rule — it splits by cost type:

Materials, parts, and purchased components charged to the fabrication are treated the same way ordinary equipment is treated for F&A purposes: excluded from the Modified Total Direct Cost (MTDC) base, per 2 CFR 200.1’s MTDC definition, which excludes “equipment” and “capital expenditures” outright. No indirect costs are assessed against these charges, whether the institution’s negotiated F&A rate or a de minimis rate applies to the rest of the award.
Personnel effort and salary charged to building the fabrication is not exempt. A graduate student’s or technician’s labor hours spent machining, assembling, or wiring a fabricated instrument are ordinary direct-cost salary charges — they are not “equipment” and are not on 2 CFR 200.1’s MTDC exclusion list, so they remain part of the indirect-cost base like any other direct labor charge on the award. Institutional guidance is explicit and consistent on this point (UC Berkeley’s own published fabrication-accounting guidance, for example, states plainly that departmental labor participating in a fabrication remains subject to indirect costs regardless of how the resulting equipment is classified).
If the fabrication ultimately fails to meet the capitalization threshold or useful-life test — say, the finished aggregate cost lands under $10,000, or an institution’s internal threshold is higher and the item doesn’t clear it — none of the exclusion applies, and the full cost (materials and labor alike) is subject to indirect costs as an ordinary direct charge, exactly like any other supply purchase. This is one reason institutions track fabrications in a separate, reconcilable account from the start: the F&A treatment isn’t settled until the fabrication is finished and its final aggregate cost is known.

Because materials/parts and labor get different F&A treatment on the very same build, a fabrication account that doesn’t separately code the two cost types makes it difficult to apply the exclusion correctly at closeout — and difficult for a sponsor’s auditor to verify it was applied correctly. This is the single most common source of dispute in fabrication accounting: charging 100% of a fabrication’s cost (materials and labor lumped together) as equipment-exempt from F&A, when only the materials/components portion actually qualifies.

Fabricated vs. Purchased Equipment vs. Supplies

Fabrication accounting only becomes relevant once you’ve already established that the finished item is equipment rather than a supply — the underlying $10,000/one-year test is identical either way. See CASRAI’s comparison of supplies vs. equipment under 2 CFR 200.1 for how that threshold distinction drives different compliance rules generally; this guide picks up specifically where a research team builds rather than buys the finished item. If you’re weighing whether to build a custom fabrication at all versus leasing or purchasing a comparable commercial unit, CASRAI’s guide to lease vs. purchase analysis under 2 CFR 200.465 covers the parallel allowability question for the buy-vs-lease decision.

Common Compliance Pitfalls

Never closing the WIP account. A fabrication that keeps accumulating minor charges indefinitely, past the point where the item is actually in use, looks to an auditor like either an incomplete asset or a vehicle for miscoding ineligible costs. Close it out and capitalize promptly once the item is placed in service.
Lumping labor in with the F&A-exempt materials cost. As above — this is the most frequently cited error in fabrication accounting reviews.
Missing the award-closeout deadline. If the fabrication isn’t finished and capitalized by the time the funding award closes, institutions generally require documented justification for why the WIP remains open, and some sponsors will scrutinize or disallow costs on an asset that was never actually completed and placed in service during the period of performance.
Assuming a $10,000 threshold applies at every institution. The federal floor is $10,000 as of the April 2024 Uniform Guidance revision, but an institution’s own capitalization policy governs which items it actually capitalizes, and not every institution has updated its own threshold to match the new federal figure yet. Confirm your institution’s current policy rather than assuming the federal number is automatically in effect locally.
Treating a modified existing asset as a new fabrication (or vice versa) without checking institutional policy — the two are accounted for differently and mixing them up can misstate both the asset record and the F&A base.

Frequently Asked Questions

Is “equipment fabrication” a term defined in 2 CFR 200?

No. 2 CFR 200.1 defines “equipment” by its cost/useful-life characteristics, not by how it was acquired, so a fabricated item is simply equipment that happens to have been built rather than bought once it meets that definition. “Fabrication,” “fabrication account,” and the associated work-in-progress accounting mechanics are institutional accounting terminology layered on top of the federal definition, not federal regulatory terms themselves — though the resulting compliance obligations (capitalization, property management, F&A treatment) all trace back to the same federal equipment definition.

Does a fabricated item need prior sponsor approval like purchased special-purpose equipment does?

2 CFR 200.439 requires prior written approval from the federal awarding agency or pass-through entity for special-purpose equipment with a unit cost of $10,000 or more, and for general-purpose equipment regardless of cost, when charged as a direct cost. A fabrication that will result in equipment meeting those criteria is generally subject to the same prior-approval requirement — check whether your award’s terms require budget-level prior approval for the fabrication as a planned equipment acquisition, not just at the point of final capitalization.

What happens to the fabrication account if the project ends before the item is finished?

This is exactly the scenario institutional WIP-review policies are built to catch. Depending on institutional policy and sponsor terms, options can include obtaining a no-cost extension to finish the build, transferring remaining allowable costs to another funding source to complete the fabrication, or capitalizing the item at whatever stage it has reached if it independently meets the threshold and is usable. An unfinished, unclosed fabrication left open past award closeout is a common single-audit finding — flag it to your sponsored-programs office well before the award’s end date, not after.

Who is responsible for notifying accounting that a fabrication is complete?

Institutional policy generally places this responsibility on the PI or department, not on central accounting to notice on its own — central accounting typically has no independent way of knowing a build is functionally complete and placed in service unless told. Build this into your lab’s own project-closeout checklist rather than relying on the fabrication account to be reviewed and closed automatically.

Accounting for Fabricated Equipment on Federal Grants