Cost Allocation Guidelines for File Servers and Other Components

Network file servers represent a product category in which the same physical product can be either eligible or ineligible for discounts, depending on how the product is utilized. The Eligible Services List posted in the Reference Area of this web site indicates the eligibility status for thirteen separate uses for file servers. (See the entry for "Servers" in the Internal Connections section of the List.)

When the same file server is used for a combination of eligible and ineligible functions, the applicant can submit a cost allocation in order to request discounts for the eligible functionality. However, for some components such as file servers, the exact usage of the product may be difficult to determine before the server is installed and utilized. Thus, the applicant may have questions about how such components should be cost allocated.

The SLD requires that the method of cost allocation chosen by an applicant be based on objective criteria, and provide a realistic result. For example, cost allocation information submitted to the SLD by service providers and applicants can be based on comparative retail prices, a breakdown of the storage capacity utilized, manufacturing costs of component parts, and other factors. In addition, applicants can also use the method described below.

A straightforward method of cost allocation utilizes a simple average of the different functions of a product. This approach is particularly useful when the exact usage of the eligible and ineligible functions is difficult to determine beforehand. The following example shows how this approach can be used for a cost allocation of a file server.

Assume that a file server has a pre-discount cost of $5,000. Using the list of server types provided in the "Servers" entry of the Eligible Services List, the applicant determines that the file server would accomplish the following functions:

Application services (ineligible)
Data storage (ineligible)
E-mail services (eligible)
DHCP Services (eligible)
Domain Name Services (eligible)

Because two out of five functions are not eligible, 40% of the server cost, or $2,000, must be subtracted from the pre-discount amount. The applicant would make the appropriate entries in the eligible and ineligible categories for Item 23 of the Form 471. Additionally, the attachment required by Item 21 of the Form 471 should provide sufficient detail so that the SLD review team can understand the subtraction of the ineligible components.

Applicants should be sure that they subtract ineligible functions from their funding requests. If ineligible functions are not subtracted, then applicants risk denial of the request under the procedures given in Processing of Service Requests (The 30% Rule) posted in the Reference Area of this web site.

For complete information about cost allocation, refer to Cost Allocation Guidelines for Products and Services that Combine Eligible and Ineligible Components posted in the Reference Area of this web site.

QUESTION: If a file server is dedicated for use as an e-mail server (eligible) but coincidentally provides a basic print server capability, is cost allocation required?

ANSWER: Certain features that are used coincidentally - that is, they are provided as part of the core network operating system - do not need to be subtracted from a funding request using cost allocation. (Information in the "File Servers" entry of the Eligible Services List provides further information.) Although a print server is not eligible, if a file server is used principally for other functions, and only coincidentally for basic print server capabilities that are provided by the core network operating system, then cost allocation for the print server feature is not required. However, if the print server feature provides more than an ancillary, insubstantial capability, as would be the case if an additional software product for printing was installed for the server, then cost allocation would be required.

NOTE: Coincidental, ancillary features can be included in the description of services on the Item 21 attachment and clearly marked to indicate that they are ancillary.

QUESTION: Does an uninterruptible power supply connected to a file server also need to be cost-allocated, if the server is cost-allocated?

ANSWER: If a component is cost-allocated and protected by an uninterruptible power supply (UPS), the cost allocation percentage applied to the component must be applied to the UPS. This cost allocation requirement is also true for other products and services (such as equipment racks and maintenance contracts) that are eligible only to the extent that the supported equipment is eligible. For example, if a file server is cost-allocated to be 60% eligible, then a maintenance contract for that file server would also be 60% eligible.