[Federal Register: August 31, 2005 (Volume 70, Number 168)]
[Rules and Regulations]
[Page 51880-51909]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31au05-25]
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OFFICE OF MANAGEMENT AND BUDGET
2 CFR Parts 215 and 220
Cost Principles for Educational Institutions (OMB Circular A-21)
AGENCY: Office of Management and Budget.
ACTION: Relocation of policy guidance to 2 CFR chapter II.
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SUMMARY: The Office of Management and Budget (OMB) is relocating OMB
Circular A-21, ``Cost Principles for Educational Institutions,'' to
Title 2 in the Code of Federal Regulations (2 CFR), subtitle A, chapter
II, part 220. This relocation is part of our broader initiative to
create 2 CFR as a single location where the public can find both OMB
guidance for grants and agreements and the associated Federal agency
implementing regulations. The broader initiative provides a good
foundation for streamlining and simplifying the policy framework for
grants and agreements, one objective of OMB and Federal agency efforts
to implement the Federal Financial Assistance Management Improvement
Act of 1999 (Pub. L. 106-107).
Furthermore, this document makes changes to 2 CFR part 215, Uniform
Administrative Requirements for Grants and Agreements With Institutions
of Higher Education, Hospitals, and Other Non-Profit Organizations (OMB
Circular A-110). The changes will add to part 215 new references to 2
CFR parts 220, 225, and 230 for the cost principles in OMB Circulars A-
21, A-87, and A-122, respectively; will update part 215 to include a
citation for the Social Security Administration's grant regulation; and
will correct part 215 to add the amendatory language of A-110 published
on October 8, 1999, and to correct a typographic error.
DATES: This document is effective August 31, 2005. This document
republishes the existing OMB Circular A-21, which already is in effect.
FOR FURTHER INFORMATION CONTACT: Gil Tran, Office of Federal Financial
Management, Office of Management and Budget, telephone (202) 395-3052
(direct) or (202) 395-3993 (main office) and e-mail
Hai_M._Tran@omb.eop.gov.
SUPPLEMENTARY INFORMATION: On May 10, 2004 [69 FR 25970], we revised
the three OMB circulars containing Federal cost principles. The purpose
of those revisions was to simplify the cost principles by making the
descriptions of similar cost items consistent across the circulars
where possible, thereby reducing the possibility of misinterpretation.
Those revisions resulted from OMB and Federal agency efforts to
implement Public Law 106-107, and were effective on June 9, 2004.
In this document and the two documents immediately following this
one, we relocate those three OMB circulars to the CFR, in Title 2 which
was established on May 11, 2004 [69 FR 26276] as a central location for
OMB and Federal agency policies on grants and agreements. When we
established 2 CFR and relocated OMB Circular A-110 in that new title,
we stated that we would relocate in the near future the other OMB
circulars related to grants and agreements. Today's documents are a
significant step toward that end.
Our relocation of OMB Circular A-21 does not change the substance
of the circular. Other than adjustments needed to conform to the
formatting requirements of the CFR, this notice relocates in 2 CFR the
version of OMB Circular A-21 as revised by the May 10, 2004 notice.
Conforming changes to 2 CFR part 215. There is a need for
conforming changes to 2 CFR part 215, which contains administrative
requirements for grants and other financial assistance agreements with
educational institutions and other nonprofit organizations. The
amendments to Sec. 215.25(c)(6) and (e), Sec. 215.27, and Sec.
215.29(b) add the new references to 2 CFR parts 220, 225, and 230 for
the cost principles in OMB Circulars A-21, A-87, and A-122,
respectively.
Update and corrections to 2 CFR part 215. Additional changes to 2
CFR part 215 are needed to update Sec. 215.5 and to correct Sec.
215.36 and Sec. 215.72. The update to Sec. 215.5 adds the CFR
citation for the Social Security Administration's (SSA) implementation
of the grants management common rule, ``Uniform Administrative
Requirements for Grants and Cooperative Agreements to State and Local
Governments.'' The changes to Sec. 215.36 provide the corrections
needed to include the amendments to OMB Circular A-110 that were
published as final on October 8, 1999 [64 FR 54926] and were
inadvertently omitted from our publication of part 215 last year [69 FR
26281]. The change to Sec. 215.72 provides correction for a long-
standing typo.
List of Subjects
2 CFR Part 215
Accounting, Colleges and universities, Cooperative agreements,
Grant programs, Grants administration, Hospitals, Nonprofit
organizations, Reporting and recordkeeping requirements.
2 CFR Part 220
Accounting, Colleges and universities, Grant programs, Grant
administrations, Reporting and recordkeeping requirements.
Dated: August 8, 2005.
Joshua B. Bolten,
Director.
Authority and Issuance
0
For the reasons set forth above, the Office of Management and Budget
amends 2 CFR, subtitle A, chapter II, as follows:
PART 215--[AMENDED]
0
1. The authority citation for part 215 continues to read as follows:
Authority: 31 U.S.C. 503; 31 U.S.C. 1111; 41 U.S.C. 405;
Reorganization Plan No. 2 of 1970; E.O. 11541, 35 FR 10737, 3 CFR,
1966-1970, p. 939.
Sec. 215.5 [Amended]
0
2. Section 215.5 is amended by adding ``20 CFR part 437,'' following
``15 CFR part 24,''.
0
3. Section 215.25 is amended by revising paragraphs (c)(6) and (e) to
read as follows:
Sec. 215.25 Revision of budget and program plans.
* * * * *
(c) * * *
(6) The inclusion, unless waived by the Federal awarding agency, of
costs that require prior approval in accordance with any of the
following, as applicable:
(i) 2 CFR part 220, ``Cost Principles for Educational Institutions
(OMB Circular A-21);''
(ii) 2 CFR part 230, ``Cost Principles for Non-Profit Organizations
(OMB Circular A-122);''
(iii) 45 CFR part 74, Appendix E, ``Principles for Determining
Costs Applicable to Research and Development under Grants and Contracts
with Hospitals;'' and
(iv) 48 CFR part 31, ``Contract Cost Principles and Procedures.''
* * * * *
(e) Except for requirements listed in paragraphs (c)(1) and (c)(4)
of this
[[Page 51881]]
section, Federal awarding agencies are authorized, at their option, to
waive cost-related and administrative prior written approvals required
by 2 CFR parts 220 and 230 (OMB Circulars A-21 and A-122). Such waivers
may include authorizing recipients to do any one or more of the
following.
* * * * *
0
4. Section 215.27 is revised to read as follows:
Sec. 215.27 Allowable costs.
For each kind of recipient, there is a set of Federal principles
for determining allowable costs. Allowability of costs shall be
determined in accordance with the cost principles applicable to the
entity incurring the costs. Thus, allowability of costs incurred by
State, local or federally-recognized Indian tribal governments is
determined in accordance with the provisions of 2 CFR part 225, ``Cost
Principles for State, Local, and Indian Tribal Governments (OMB
Circular A-87.'' The allowability of costs incurred by non-profit
organizations is determined in accordance with the provisions of 2 CFR
part 230, ``Cost Principles for Non-Profit Organizations (OMB Circular
A-122).'' The allowability of costs incurred by institutions of higher
education is determined in accordance with the provisions of 2 CFR part
220, ``Cost Principles for Educational Institutions (OMB Circular A-
21).'' The allowability of costs incurred by hospitals is determined in
accordance with the provisions of Appendix E of 45 CFR part 74,
``Principles for Determining Costs Applicable to Research and
Development Under Grants and Contracts with Hospitals.'' The
allowability of costs incurred by commercial organizations and those
non-profit organizations listed in Attachment C to Circular A-122 is
determined in accordance with the provisions of the Federal Acquisition
Regulation (FAR) at 48 CFR part 31.
0
5. Section 215.29 is amended by:
0
a. Revising paragraph (b) to read as set forth below; and
0
b. Revising ``the provisions of OMB Circular A-87 and extend such
policies'' in paragraph (c) to read ``the provisions of 2 CFR part 225,
``Cost Principles for State, Local, and Indian Tribal Governments (OMB
Circular A-87)'' and extend such policies''.
Sec. 215.29 Conditional exemptions.
* * * * *
(b) To promote efficiency in State and local program
administration, when Federal non-entitlement programs with common
purposes have specific statutorily-authorized consolidated planning and
consolidated administrative funding and where most of the State
agency's resources come from non-Federal sources, Federal agencies may
exempt these covered State-administered, non-entitlement grant programs
from certain OMB grants management requirements. The exemptions would
be from:
(1) The requirements in 2 CFR part 225, ``Cost Principles for
State, Local, and Indian Tribal Governments (OMB Circular A-87)'' other
than the allocability of costs provisions that are contained in
subsection C.3 of Appendix A to that part;
(2) The requirements in 2 CFR part 220, ``Cost Principles for
Educational Institutions (OMB Circular A-21)'' other than the
allocability of costs provisions that are contained in paragraph C.4 in
section C of the Appendix to that part;
(3) The requirements in 2 CFR part 230, ``Cost Principles for Non-
Profit Organizations (OMB Circular A-122)'' other than the allocability
of costs provisions that are in paragraph A.4 in section A of Appendix
A to that part;
(4) The administrative requirements provisions of part 215 (OMB
Circular A-110, ``Uniform Administrative Requirements for Grants and
Agreements with Institutions of Higher Education, Hospitals, and Other
Non-Profit Organizations,''); and
(5) The agencies' grants management common rule (see Sec. 215.5).
* * * * *
0
6. Section 215.36 is amended as follows:
0
a. Paragraph (d) is redesignated as paragraph (e).
0
b. Paragraph (c) is amended by removing from the first sentence
``Unless waived by the Federal awarding agency,'' and capitalizing the
new opening word ``The''.
0
c. A new paragraph (d) is added, as follows:
Sec. 215.36 Intangible property.
* * * * *
(d) (1) In addition, in response to a Freedom of Information Act
(FOIA) request for research data relating to published research
findings produced under an award that was used by the Federal
Government in developing an agency action that has the force and effect
of law, the Federal awarding agency shall request, and the recipient
shall provide, within a reasonable time, the research data so that they
can be made available to the public through the procedures established
under the FOIA. If the Federal awarding agency obtains the research
data solely in response to a FOIA request, the agency may charge the
requester a reasonable fee equaling the full incremental cost of
obtaining the research data. This fee should reflect costs incurred by
the agency, the recipient, and the applicable subrecipients. This fee
is in addition to any fees the agency may assess under the FOIA (5
U.S.C. 552(a)(4)(A)).
(2) The following definitions apply for purposes of paragraph (d)
of this section:
(i) Research data is defined as the recorded factual material
commonly accepted in the scientific community as necessary to validate
research findings, but not any of the following: Preliminary analyses,
drafts of scientific papers, plans for future research, peer reviews,
or communications with colleagues. This ``recorded'' material excludes
physical objects (e.g., laboratory samples). Research data also do not
include:
(A) Trade secrets, commercial information, materials necessary to
be held confidential by a researcher until they are published, or
similar information which is protected under law; and
(B) Personnel and medical information and similar information the
disclosure of which would constitute a clearly unwarranted invasion of
personal privacy, such as information that could be used to identify a
particular person in a research study.
(ii) Published is defined as either when:
(A) Research findings are published in a peer-reviewed scientific
or technical journal; or
(B) A Federal agency publicly and officially cites the research
findings in support of an agency action that has the force and effect
of law.
(iii) Used by the Federal Government in developing an agency action
that has the force and effect of law is defined as when an agency
publicly and officially cites the research findings in support of an
agency action that has the force and effect of law.
* * * * *
Sec. 215.72 [Amended]
0
7. Section 215.72 is amended by removing from paragraph (b) the
reference to ``Sec. 215.73(a),'' and adding ``paragraph (a) of this
section,'' in its place.
0
8. Part 220 is added to Chapter II to read as follows:
PART 220--COST PRINCIPLES FOR EDUCATIONAL INSTITUTIONS (OMB
CIRCULAR A-21)
Sec.
220.5 Purpose.
[[Page 51882]]
220.10 Scope.
220.15 Policy.
220.20 Applicability.
220.25 OMB responsibilities.
220.30 Federal agency responsibilities.
220.35 Effective date of changes.
220.40 Relationship to previous issuance.
220.45 Information contact.
Appendix A to Part 220--Principles for Determining Costs Applicable
to Grants, Contracts, and Other Agreements with Educational
Institutions
Authority: 31 U.S.C. 503; 31 U.S.C. 1111; 41 U.S.C. 405;
Reorganization Plan No. 2 of 1970; E.O. 11541, 35 FR 10737, 3 CFR,
1966-1970, p. 939.
Sec. 220.5 Purpose.
This part establishes principles for determining costs applicable
to grants, contracts, and other agreements with educational
institutions.
Sec. 220.10 Scope.
The principles in this part deal with the subject of cost
determination, and make no attempt to identify the circumstances or
dictate the extent of agency and institutional participation in the
financing of a particular project. Provision for profit or other
increment above cost is outside the scope of this part.
Sec. 220.15 Policy.
The principles in this part are designed to provide that the
Federal Government bear its fair share of total costs, determined in
accordance with generally accepted accounting principles, except where
restricted or prohibited by law. Agencies are not expected to place
additional restrictions on individual items of cost. The successful
application of cost accounting principles requires development of
mutual understanding between representatives of educational
institutions and of the Federal Government as to their scope,
implementation, and interpretation.
Sec. 220.20 Applicability.
(a) All Federal agencies that sponsor research and development,
training, and other work at educational institutions shall apply the
provisions of Appendix A to this part in determining the costs incurred
for such work. The principles shall also be used as a guide in the
pricing of fixed price or lump sum agreements.
(b) Each federal agency that awards defense-related contracts to a
Federally Funded Research and Development Center (FFRDC) associated
with an educational institution shall require the FFRDC to comply with
the Cost Accounting Standards and with the rules and regulations issued
by the Cost Accounting Standards Board and set forth in 47 CFR part 99.
Sec. 220.25 OMB responsibilities.
OMB is responsible for:
(a) Issuing and maintaining the guidance in this part.
(b) Interpreting the policy requirements in this part and providing
assistance to ensure effective and efficient implementation.
(c) Granting any deviations to Federal agencies from the guidance
in this part, as provided in Appendix A to this part. Exceptions will
only be made in particular cases where adequate justification is
presented.
(d) Conducting broad oversight of government-wide compliance with
the guidance in this part.
Sec. 220.30 Federal Agency responsibilities.
The head of each Federal agency that awards and administers grants
and agreements subject to this part is responsible for requesting
approval from and/or consulting with OMB (as applicable) for deviations
from the guidance in Appendix A to this part and performing the
applicable functions specified in Appendix A to this part.
Sec. 220.35 Effective date for changes.
Institutions as of the start of their first fiscal year beginning
after that date shall implement the provisions. Earlier implementation,
or a delay in implementation of individual provisions, is permitted by
mutual agreement between an institution and the cognizant Federal
agency.
Sec. 220.40 Relationship to previous issuance.
(a) The guidance in this part previously was issued as OMB Circular
A-21. Designations of the attachment to the Circular and the appendices
to that attachment have changed, as shown in the following table:
------------------------------------------------------------------------
The portion of OMB Circular A-21 that Is designated in this part as .
was designated as . . . . .
------------------------------------------------------------------------
(1) The Attachment to the circular, Appendix A to Part 220--
entitled ``Principles For Determining Principles For Determining
Costs Applicable to Grants, Contracts, Costs Applicable to Grants,
and Other Agreements with Educational Contracts, and Other
Institutions,''. Agreements with Educational
Institutions.
(2) Exhibit A in the attachment to the Exhibit A, List of Colleges and
circular, entitled ``List of Colleges Universities Subject to
and Universities Subject to Section Section J.12.h of Circular A-
J.12.h of Circular A-21,''. 21, to Appendix A.
(3) Exhibit B in the attachment to the Exhibit B, Listing of
circular, entitled ``Listing of Institutions that are eligible
Institutions that are eligible for the for the utility cost
utility cost adjustment,''. adjustment, to Appendix A.
(4) Exhibit C in the attachment to the Exhibit C, Examples of ``major
circular, entitled ``Examples of project'' where direct
`major project' where direct charging charging of administrative or
of administrative or clerical staff clerical staff salaries may be
salaries may be appropriate,''. appropriate, to Appendix A.
(5) Appendix A to the attachment to the Attachment A, CASB's Cost
circular, entitled ``CASB's Cost Accounting Standards (CAS), to
Accounting Standards (CAS),''. Appendix A.
(6) Appendix B to the attachment to the Attachment B, CASB's Disclosure
circular, entitled ``CASB's Disclosure Statement (DS-2), to Appendix
Statement (DS-2),''. A.
(7) Appendix C to the attachment to the Attachment C, Documentation
circular, entitled ``Documentation Requirements for Facilities
Requirements for Facilities and and Administrative (F&A) Rate
Administrative (F&A) Rate Proposals,''. Proposals, to Appendix A.
------------------------------------------------------------------------
(b) Historically, OMB Circular A-21 superseded Federal Management
Circular 73-8, dated December 19, 1973. FMC 73-8 was revised and
reissued under its original designation of OMB Circular No. A-21. The
provisions of A-21 were effective October 1, 1979, except for
subsequent amendments incorporated herein for which the effective dates
were specified in these revisions (47 FR 33658, 51 FR 20908, 51 FR
43487, 56 FR 50224, 58 FR 39996, 61 FR 20880, 63 FR 29786, 63 FR 57332,
65 FR 48566 and 69 FR 25970).
Sec. 220.45 Information contact.
Further information concerning this part may be obtained by
contacting the Office of Federal Financial Management, Office of
Management and Budget, Washington, DC 20503, telephone (202) 395-3993.
[[Page 51883]]
Appendix A to Part 220--Principles for Determining Costs Applicable to
Grants, Contracts, and Other Agreements With Educational Institutions
Table of Contents
A. Purpose and Scope
1. Objectives
2. Policy guides
3. Application
4. Inquiries
B. Definition of Terms
1. Major functions of an institution
2. Sponsored agreement
3. Allocation
4. Facilities and administrative (F&A) costs
C. Basic Considerations
1. Composition of total costs
2. Factors affecting allowability of costs
3. Reasonable costs
4. Allocable costs
5. Applicable credits
6. Costs incurred by State and local governments
7. Limitations on allowance of costs
8. Collection of unallowable costs
9. Adjustment of previously negotiated F&A cost rates containing
unallowable costs
10. Consistency in estimating, accumulating and reporting costs
11. Consistency in allocating costs incurred for the same
purpose
12. Accounting for unallowable costs
13. Cost accounting period
14. Disclosure statement
D. Direct Costs
1. General
2. Application to sponsored agreements
E. F&A Costs
1. General
2. Criteria for distribution
F. Identification and Assignment of F&A Costs
1. Definition of Facilities and Administration.
2. Depreciation and use allowances
3. Interest
4. Operation and maintenance expenses
5. General administration and general expenses
6. Departmental administration expenses
7. Sponsored projects administration
8. Library expenses
9. Student administration and services
10. Offset for F&A expenses otherwise provided for by the
Federal Government
G. Determination and Application of F&A Cost Rate or Rates
1. F&A cost pools
2. The distribution basis
3. Negotiated lump sum for F&A costs
4. Predetermined rates for F&A costs
5. Negotiated fixed rates and carry-forward provisions
6. Provisional and final rates for F&A costs
7. Fixed rates for the life of the sponsored agreement
8. Limitation on reimbursement of administrative costs
9. Alternative method for administrative costs
10. Individual rate components
11. Negotiation and approval of F&A rate
12. Standard format for submission
H. Simplified Method for Small Institutions
1. General
2. Simplified procedure
I. Reserved
J. General Provisions for Selected Items of Cost
1. Advertising and public relations costs
2. Advisory councils
3. Alcoholic beverages
4. Alumni/ae activities
5. Audit and related services
6. Bad debts
7. Bonding costs
8. Commencement and convocation costs
9. Communication costs
10. Compensation for personal services
11. Contingency provisions
12. Deans of faculty and graduate schools
13. Defense and prosecution of criminal and civil proceedings,
claims, appeals and patent infringement
14. Depreciation and use allowances
15. Donations and contributions
16. Employee morale, health, and welfare costs
17. Entertainment costs
18. Equipment and other capital expenditures
19. Fines and penalties
20. Fund raising and investment costs
21. Gains and losses on depreciable assets
22. Goods or services for personal use
23. Housing and personal living expenses
24. Idle facilities and idle capacity
25. Insurance and indemnification
26. Interest
27. Labor relations costs
28. Lobbying
29. Losses on other sponsored agreements or contracts
30. Maintenance and repair costs
31. Material and supplies costs
32. Meetings and conferences
33. Memberships, subscriptions and professional activity costs
34. Patent costs
35. Plant and homeland security costs
36. Pre-agreement costs
37. Professional service costs
38. Proposal costs
39. Publication and printing costs
40. Rearrangement and alteration costs
41. Reconversion costs
42. Recruiting costs
43. Rental costs of buildings and equipment
44. Royalties and other costs for use of patents
45. Scholarships and student aid costs
46. Selling and marketing
47. Specialized service facilities
48. Student activity costs
49. Taxes
50. Termination costs applicable to sponsored agreements
51. Training costs
52. Transportation costs
53. Travel costs
54. Trustees
K. Certification of Charges
Exhibit A to Appendix A--List of Colleges and Universities Subject
to Section J.12.h of Appendix A
Exhibit B to Appendix A--Listing of Institutions That are Eligible
for the Utility Cost Adjustment
Exhibit C to Appendix A--Examples of ``major project'' Where Direct
Charging of Administrative or Clerical Staff Salaries May Be
Appropriate
Attachment A to Appendix A--Cost Accounting Standards (CAS) for
Educational Institutions
Attachment B to Appendix A--CASB's Disclosure Statement (DS-2)
Attachment C to Appendix A--Documentation Requirements for
Facilities and Administrative (F&A) Rate Proposals
A. Purpose and Scope
1. Objectives. This Appendix provides principles for determining
the costs applicable to research and development, training, and
other sponsored work performed by colleges and universities under
grants, contracts, and other agreements with the Federal Government.
These agreements are referred to as sponsored agreements.
2. Policy guides. The successful application of these cost
accounting principles requires development of mutual understanding
between representatives of universities and of the Federal
Government as to their scope, implementation, and interpretation. It
is recognized that--
a. The arrangements for Federal agency and institutional
participation in the financing of a research, training, or other
project are properly subject to negotiation between the agency and
the institution concerned, in accordance with such governmentwide
criteria or legal requirements as may be applicable.
b. Each institution, possessing its own unique combination of
staff, facilities, and experience, should be encouraged to conduct
research and educational activities in a manner consonant with its
own academic philosophies and institutional objectives.
c. The dual role of students engaged in research and the
resulting benefits to sponsored agreements are fundamental to the
research effort and shall be recognized in the application of these
principles.
d. Each institution, in the fulfillment of its obligations,
should employ sound management practices.
e. The application of these cost accounting principles should
require no significant changes in the generally accepted accounting
practices of colleges and universities. However, the accounting
practices of individual colleges and universities must support the
accumulation of costs as required by the principles, and must
provide for adequate documentation to support costs charged to
sponsored agreements.
f. Cognizant Federal agencies involved in negotiating facilities
and administrative (F&A) cost rates and auditing should assure that
institutions are generally applying these cost accounting principles
on a consistent basis. Where wide variations exist in the treatment
of a given cost item among institutions, the reasonableness and
equitableness of such treatments should be fully considered during
the rate negotiations and audit.
3. Application. These principles shall be used in determining
the allowable costs of work performed by colleges and universities
[[Page 51884]]
under sponsored agreements. The principles shall also be used in
determining the costs of work performed by such institutions under
subgrants, cost-reimbursement subcontracts, and other awards made to
them under sponsored agreements. They also shall be used as a guide
in the pricing of fixed-price contracts and subcontracts where costs
are used in determining the appropriate price. The principles do not
apply to:
a. Arrangements under which Federal financing is in the form of
loans, scholarships, fellowships, traineeships, or other fixed
amounts based on such items as education allowance or published
tuition rates and fees of an institution.
b. Capitation awards.
c. Other awards under which the institution is not required to
account to the Federal Government for actual costs incurred.
d. Conditional exemptions.
(1) OMB authorizes conditional exemption from OMB administrative
requirements and cost principles for certain Federal programs with
statutorily-authorized consolidated planning and consolidated
administrative funding, that are identified by a Federal agency and
approved by the head of the Executive department or establishment. A
Federal agency shall consult with OMB during its consideration of
whether to grant such an exemption.
(2) To promote efficiency in State and local program
administration, when Federal non-entitlement programs with common
purposes have specific statutorily-authorized consolidated planning
and consolidated administrative funding and where most of the State
agency's resources come from non-Federal sources, Federal agencies
may exempt these covered State-administered, non-entitlement grant
programs from certain OMB grants management requirements. The
exemptions would be from all but the allocability of costs
provisions of subsection C.3 of Appendix A to 2 CFR part 225 Cost
Principles for State, Local, and Indian Tribal Governments (OMB
Circular A-87), Section C, subpart 4 to 2 CFR part 220 Cost
Principles for Educational Institutions (OMB Circular A-21), and
subsection A.4 of Appendix A to 2 CFR part 230 Cost Principles for
Non-Profit Organizations,'' (OMB Circular A-122), and from all of
the administrative requirements provisions of 2 CFR part 215,
Uniform Administrative Requirements for Grants and Agreements with
Institutions of Higher Education, Hospitals, and Other Non-Profit
Organizations (OMB Circular A-110), and the agencies' grants
management common rule (see Sec. 215.5 of this subtitle).
(3) When a Federal agency provides this flexibility, as a
prerequisite to a State's exercising this option, a State must adopt
its own written fiscal and administrative requirements for expending
and accounting for all funds, which are consistent with the
provisions of 2 CFR part 225 (OMB Circular A-87), and extend such
policies to all subrecipients. These fiscal and administrative
requirements must be sufficiently specific to ensure that: Funds are
used in compliance with all applicable Federal statutory and
regulatory provisions, costs are reasonable and necessary for
operating these programs, and funds are not to be used for general
expenses required to carry out other responsibilities of a State or
its subrecipients.
4. Inquiries.
All inquiries from Federal agencies concerning the cost
principles contained in this Appendix to 2 CFR part 220, including
the administration and implementation of the Cost Accounting
Standards (CAS) (described in Sections C.10 through C.13) and
disclosure statement (DS-2) requirements, shall be addressed by the
Office of Management and Budget (OMB), Office of Federal Financial
Management, in coordination with the Cost Accounting Standard Board
(CASB) with respect to inquiries concerning CAS. Educational
institutions' inquiries should be addressed to the cognizant agency.
B. Definition of Terms
1. Major functions of an institution refers to instruction,
organized research, other sponsored activities and other
institutional activities as defined below:
a. Instruction means the teaching and training activities of an
institution. Except for research training as provided in subsection
b, this term includes all teaching and training activities, whether
they are offered for credits toward a degree or certificate or on a
non-credit basis, and whether they are offered through regular
academic departments or separate divisions, such as a summer school
division or an extension division. Also considered part of this
major function are departmental research, and, where agreed to,
university research.
(1) Sponsored instruction and training means specific
instructional or training activity established by grant, contract,
or cooperative agreement. For purposes of the cost principles, this
activity may be considered a major function even though an
institution's accounting treatment may include it in the instruction
function.
(2) Departmental research means research, development and
scholarly activities that are not organized research and,
consequently, are not separately budgeted and accounted for.
Departmental research, for purposes of this document, is not
considered as a major function, but as a part of the instruction
function of the institution.
b. Organized research means all research and development
activities of an institution that are separately budgeted and
accounted for. It includes:
(1) Sponsored research means all research and development
activities that are sponsored by Federal and non-Federal agencies
and organizations. This term includes activities involving the
training of individuals in research techniques (commonly called
research training) where such activities utilize the same facilities
as other research and development activities and where such
activities are not included in the instruction function.
(2) University research means all research and development
activities that are separately budgeted and accounted for by the
institution under an internal application of institutional funds.
University research, for purposes of this document, shall be
combined with sponsored research under the function of organized
research.
c. Other sponsored activities means programs and projects
financed by Federal and non-Federal agencies and organizations which
involve the performance of work other than instruction and organized
research. Examples of such programs and projects are health service
projects, and community service programs. However, when any of these
activities are undertaken by the institution without outside
support, they may be classified as other institutional activities.
d. Other institutional activities means all activities of an
institution except:
(1) Instruction, departmental research, organized research, and
other sponsored activities, as defined above;
(2) F&A cost activities identified in Section F of this
Appendix; and
(3) Specialized service facilities described in Section J.47 of
this Appendix. Other institutional activities include operation of
residence halls, dining halls, hospitals and clinics, student
unions, intercollegiate athletics, bookstores, faculty housing,
student apartments, guest houses, chapels, theaters, public museums,
and other similar auxiliary enterprises. This definition also
includes any other categories of activities, costs of which are
``unallowable'' to sponsored agreements, unless otherwise indicated
in the agreements.
2. Sponsored agreement, for purposes of this Appendix, means any
grant, contract, or other agreement between the institution and the
Federal Government.
3. Allocation means the process of assigning a cost, or a group
of costs, to one or more cost objective, in reasonable and realistic
proportion to the benefit provided or other equitable relationship.
A cost objective may be a major function of the institution, a
particular service or project, a sponsored agreement, or an F&A cost
activity, as described in Section F of this Appendix. The process
may entail assigning a cost(s) directly to a final cost objective or
through one or more intermediate cost objectives.
4. Facilities and administrative (F&A) costs, for the purpose of
this Appendix, means costs that are incurred for common or joint
objectives and, therefore, cannot be identified readily and
specifically with a particular sponsored project, an instructional
activity, or any other institutional activity. F&A costs are
synonymous with ``indirect'' costs, as previously used in this
Appendix and as currently used in attachments A and B to this
Appendix. The F&A cost categories are described in Section F.1 of
this Appendix.
C. Basic Considerations
1. Composition of total costs. The cost of a sponsored agreement
is comprised of the allowable direct costs incident to its
performance, plus the allocable portion of the allowable F&A costs
of the institution, less applicable credits as described in
subsection C.5 of this Appendix.
2. Factors affecting allowability of costs. The tests of
allowability of costs under these principles are: they must be
reasonable; they must be allocable to sponsored agreements under the
principles and methods provided herein; they must be given
consistent treatment through application of those generally accepted
accounting principles
[[Page 51885]]
appropriate to the circumstances; and they must conform to any
limitations or exclusions set forth in these principles or in the
sponsored agreement as to types or amounts of cost items.
3. Reasonable costs. A cost may be considered reasonable if the
nature of the goods or services acquired or applied, and the amount
involved therefore, reflect the action that a prudent person would
have taken under the circumstances prevailing at the time the
decision to incur the cost was made. Major considerations involved
in the determination of the reasonableness of a cost are: whether or
not the cost is of a type generally recognized as necessary for the
operation of the institution or the performance of the sponsored
agreement; the restraints or requirements imposed by such factors as
arm's-length bargaining, Federal and State laws and regulations, and
sponsored agreement terms and conditions; whether or not the
individuals concerned acted with due prudence in the circumstances,
considering their responsibilities to the institution, its
employees, its students, the Federal Government, and the public at
large; and, the extent to which the actions taken with respect to
the incurrence of the cost are consistent with established
institutional policies and practices applicable to the work of the
institution generally, including sponsored agreements.
4. Allocable costs.
a. A cost is allocable to a particular cost objective (i.e., a
specific function, project, sponsored agreement, department, or the
like) if the goods or services involved are chargeable or assignable
to such cost objective in accordance with relative benefits received
or other equitable relationship. Subject to the foregoing, a cost is
allocable to a sponsored agreement if it is incurred solely to
advance the work under the sponsored agreement; it benefits both the
sponsored agreement and other work of the institution, in
proportions that can be approximated through use of reasonable
methods, or it is necessary to the overall operation of the
institution and, in light of the principles provided in this
Appendix, is deemed to be assignable in part to sponsored projects.
Where the purchase of equipment or other capital items is
specifically authorized under a sponsored agreement, the amounts
thus authorized for such purchases are assignable to the sponsored
agreement regardless of the use that may subsequently be made of the
equipment or other capital items involved.
b. Any costs allocable to a particular sponsored agreement under
the standards provided in this Appendix may not be shifted to other
sponsored agreements in order to meet deficiencies caused by
overruns or other fund considerations, to avoid restrictions imposed
by law or by terms of the sponsored agreement, or for other reasons
of convenience.
c. Any costs allocable to activities sponsored by industry,
foreign governments or other sponsors may not be shifted to
federally-sponsored agreements.
d. Allocation and documentation standard.
(1) Cost principles. The recipient institution is responsible
for ensuring that costs charged to a sponsored agreement are
allowable, allocable, and reasonable under these cost principles.
(2) Internal controls. The institution's financial management
system shall ensure that no one person has complete control over all
aspects of a financial transaction.
(3) Direct cost allocation principles. If a cost benefits two or
more projects or activities in proportions that can be determined
without undue effort or cost, the cost should be allocated to the
projects based on the proportional benefit. If a cost benefits two
or more projects or activities in proportions that cannot be
determined because of the interrelationship of the work involved,
then, notwithstanding subsection b, the costs may be allocated or
transferred to benefited projects on any reasonable basis,
consistent with subsections C.4.d. (1) and (2) of this Appendix.
(4) Documentation. Federal requirements for documentation are
specified in this Appendix, 2 CFR Part 215, ``Uniform Administrative
Requirements for Grants and Agreements with Institutions of Higher
Education, Hospitals, and Other Non-Profit Organizations,'' and
specific agency policies on cost transfers. If the institution
authorizes the principal investigator or other individual to have
primary responsibility, given the requirements of subsection C.4.d.
(2) of this Appendix, for the management of sponsored agreement
funds, then the institution's documentation requirements for the
actions of those individuals (e.g., signature or initials of the
principal investigator or designee or use of a password) will
normally be considered sufficient.
5. Applicable credits.
a. The term ``applicable credits'' refers to those receipts or
negative expenditures that operate to offset or reduce direct or F&A
cost items. Typical examples of such transactions are: purchase
discounts, rebates, or allowances; recoveries or indemnities on
losses; and adjustments of overpayments or erroneous charges. This
term also includes ``educational discounts'' on products or services
provided specifically to educational institutions, such as discounts
on computer equipment, except where the arrangement is clearly and
explicitly identified as a gift by the vendor.
b. In some instances, the amounts received from the Federal
Government to finance institutional activities or service operations
should be treated as applicable credits. Specifically, the concept
of netting such credit items against related expenditures should be
applied by the institution in determining the rates or amounts to be
charged to sponsored agreements for services rendered whenever the
facilities or other resources used in providing such services have
been financed directly, in whole or in part, by Federal funds. (See
Sections F.10, J.14, and J.47 of this Appendix for areas of
potential application in the matter of direct Federal financing.)
6. Costs incurred by State and local governments. Costs incurred
or paid by State or local governments on behalf of their colleges
and universities for fringe benefit programs, such as pension costs
and FICA and any other costs specifically incurred on behalf of, and
in direct benefit to, the institutions, are allowable costs of such
institutions whether or not these costs are recorded in the
accounting records of the institutions, subject to the following:
a. The costs meet the requirements of subsections C.1 through 5
of this Appendix.
b. The costs are properly supported by cost allocation plans in
accordance with applicable Federal cost accounting principles.
c. The costs are not otherwise borne directly or indirectly by
the Federal Government.
7. Limitations on allowance of costs. Sponsored agreements may
be subject to statutory requirements that limit the allowance of
costs. When the maximum amount allowable under a limitation is less
than the total amount determined in accordance with the principles
in this Appendix, the amount not recoverable under a sponsored
agreement may not be charged to other sponsored agreements.
8. Collection of unallowable costs, excess costs due to
noncompliance with cost policies, increased costs due to failure to
follow a disclosed accounting practice and increased costs resulting
from a change in cost accounting practice. The following costs shall
be refunded (including interest) in accordance with applicable
Federal agency regulations:
a. Costs specifically identified as unallowable in Section J of
this Appendix, either directly or indirectly, and charged to the
Federal Government.
b. Excess costs due to failure by the educational institution to
comply with the cost policies in this Appendix.
c. Increased costs due to a noncompliant cost accounting
practice used to estimate, accumulate, or report costs.
d. Increased costs resulting from a change in accounting
practice.
9. Adjustment of previously negotiated F&A cost rates containing
unallowable costs. Negotiated F&A cost rates based on a proposal
later found to have included costs that are unallowable as specified
by law or regulation, Section J of this Appendix, terms and
conditions of sponsored agreements, or, are unallowable because they
are clearly not allocable to sponsored agreements, shall be
adjusted, or a refund shall be made, in accordance with the
requirements of this section. These adjustments or refunds are
designed to correct the proposals used to establish the rates and do
not constitute a reopening of the rate negotiation. The adjustments
or refunds will be made regardless of the type of rate negotiated
(predetermined, final, fixed, or provisional).
a. For rates covering a future fiscal year of the institution,
the unallowable costs will be removed from the F&A cost pools and
the rates appropriately adjusted.
b. For rates covering a past period, the Federal share of the
unallowable costs will be computed for each year involved and a cash
refund (including interest chargeable in accordance with applicable
regulations) will be made to the Federal Government. If cash refunds
are made for past periods covered by provisional or fixed rates,
appropriate adjustments will be made when the rates are
[[Page 51886]]
finalized to avoid duplicate recovery of the unallowable costs by
the Federal Government.
c. For rates covering the current period, either a rate
adjustment or a refund, as described in subsections a and b, shall
be required by the cognizant agency. The choice of method shall be
at the discretion of the cognizant agency, based on its judgment as
to which method would be most practical.
d. The amount or proportion of unallowable costs included in
each year's rate will be assumed to be the same as the amount or
proportion of unallowable costs included in the base year proposal
used to establish the rate.
10. Consistency in estimating, accumulating and reporting costs.
a. An educational institution's practices used in estimating
costs in pricing a proposal shall be consistent with the educational
institution's cost accounting practices used in accumulating and
reporting costs.
b. An educational institution's cost accounting practices used
in accumulating and reporting actual costs for a sponsored agreement
shall be consistent with the educational institution's practices
used in estimating costs in pricing the related proposal or
application.
c. The grouping of homogeneous costs in estimates prepared for
proposal purposes shall not per se be deemed an inconsistent
application of cost accounting practices under subsection a when
such costs are accumulated and reported in greater detail on an
actual cost basis during performance of the sponsored agreement.
d. Attachment A to this Appendix also reflects this requirement,
along with the purpose, definitions, and techniques for application,
all of which are authoritative.
11. Consistency in allocating costs incurred for the same
purpose.
a. All costs incurred for the same purpose, in like
circumstances, are either direct costs only or F&A costs only with
respect to final cost objectives. No final cost objective shall have
allocated to it as a cost any cost, if other costs incurred for the
same purpose, in like circumstances, have been included as a direct
cost of that or any other final cost objective. Further, no final
cost objective shall have allocated to it as a direct cost any cost,
if other costs incurred for the same purpose, in like circumstances,
have been included in any F&A cost pool to be allocated to that or
any other final cost objective.
b. Attachment A to this Appendix reflects this requirement along
with its purpose, definitions, and techniques for application,
illustrations and interpretations, all of which are authoritative.
12. Accounting for unallowable costs.
a. Costs expressly unallowable or mutually agreed to be
unallowable, including costs mutually agreed to be unallowable
directly associated costs, shall be identified and excluded from any
billing, claim, application, or proposal applicable to a sponsored
agreement.
b. Costs which specifically become designated as unallowable as
a result of a written decision furnished by a Federal official
pursuant to sponsored agreement disputes procedures shall be
identified if included in or used in the computation of any billing,
claim, or proposal applicable to a sponsored agreement. This
identification requirement applies also to any costs incurred for
the same purpose under like circumstances as the costs specifically
identified as unallowable under either this subsection or subsection
a.
c. Costs which, in a Federal official's written decision
furnished pursuant to sponsored agreement disputes procedures, are
designated as unallowable directly associated costs of unallowable
costs covered by either subsection a or b shall be accorded the
identification required by subsection b.
d. The costs of any work project not contractually authorized by
a sponsored agreement, whether or not related to performance of a
proposed or existing sponsored agreement, shall be accounted for, to
the extent appropriate, in a manner which permits ready separation
from the costs of authorized work projects.
e. All unallowable costs covered by subsections a through d
shall be subject to the same cost accounting principles governing
cost allocability as allowable costs. In circumstances where these
unallowable costs normally would be part of a regular F&A cost
allocation base or bases, they shall remain in such base or bases.
Where a directly associated cost is part of a category of costs
normally included in a F&A cost pool that shall be allocated over a
base containing the unallowable cost with which it is associated,
such a directly associated cost shall be retained in the F&A cost
pool and be allocated through the regular allocation process.
f. Where the total of the allocable and otherwise allowable
costs exceeds a limitation-of-cost or ceiling-price provision in a
sponsored agreement, full direct and F&A cost allocation shall be
made to the sponsored agreement cost objective, in accordance with
established cost accounting practices and standards which regularly
govern a given entity's allocations to sponsored agreement cost
objectives. In any determination of a cost overrun, the amount
thereof shall be identified in terms of the excess of allowable
costs over the ceiling amount, rather than through specific
identification of particular cost items or cost elements.
g. Attachment A reflects this requirement, along with its
purpose, definitions, techniques for application, and illustrations
of this standard, all of which are authoritative.
13. Cost accounting period.
a. Educational institutions shall use their fiscal year as their
cost accounting period, except that:
(1) Costs of a F&A function which exists for only a part of a
cost accounting period may be allocated to cost objectives of that
same part of the period on the basis of data for that part of the
cost accounting period if the cost is material in amount,
accumulated in a separate F&A cost pool or expense pool, and
allocated on the basis of an appropriate direct measure of the
activity or output of the function during that part of the period.
(2) An annual period other than the fiscal year may, upon mutual
agreement with the Federal Government, be used as the cost
accounting period if the use of such period is an established
practice of the educational institution and is consistently used for
managing and controlling revenues and disbursements, and appropriate
accruals, deferrals or other adjustments are made with respect to
such annual periods.
(3) A transitional cost accounting period other than a year
shall be used whenever a change of fiscal year occurs.
b. An educational institution shall follow consistent practices
in the selection of the cost accounting period or periods in which
any types of expense and any types of adjustment to expense
(including prior-period adjustments) are accumulated and allocated.
c. The same cost accounting period shall be used for
accumulating costs in a F&A cost pool as for establishing its
allocation base, except that the Federal Government and educational
institution may agree to use a different period for establishing an
allocation base, provided:
(1) The practice is necessary to obtain significant
administrative convenience,
(2) The practice is consistently followed by the educational
institution,
(3) The annual period used is representative of the activity of
the cost accounting period for which the F&A costs to be allocated
are accumulated, and
(4) The practice can reasonably be estimated to provide a
distribution to cost objectives of the cost accounting period not
materially different from that which otherwise would be obtained.
d. Attachment A reflects this requirement, along with its
purpose, definitions, techniques for application and illustrations,
all of which are authoritative.
14. Disclosure Statement.
a. Educational institutions that received aggregate sponsored
agreements totaling $25 million or more subject to this Appendix
during their most recently completed fiscal year shall disclose
their cost accounting practices by filing a Disclosure Statement
(DS-2), which is reproduced in Attachment B to this Appendix. With
the approval of the cognizant agency, an educational institution may
meet the DS-2 submission by submitting the DS-2 for each business
unit that received $25 million or more in sponsored agreements.
b. The DS-2 shall be submitted to the cognizant agency with a
copy to the educational institution's audit cognizant office.
c. Educational institutions receiving $25 million or more in
sponsored agreements that are not required to file a DS-2 pursuant
to 48 CFR 9903.202-1 shall file a DS-2 covering the first fiscal
year beginning after the publication date of this revision, within
six months after the end of that fiscal year. Extensions beyond the
above due date may be granted by the cognizant agency on a case-by-
case basis.
d. Educational institutions are responsible for maintaining an
accurate DS-2 and complying with disclosed cost accounting
practices. Educational institutions must file amendments to the DS-2
when disclosed practices are changed to comply with a new
[[Page 51887]]
or modified standard, or when practices are changed for other
reasons. Amendments of a DS-2 may be submitted at any time. If the
change is expected to have a material impact on the educational
institution's negotiated F&A cost rates, the revision shall be
approved by the cognizant agency before it is implemented.
Resubmission of a complete, updated DS-2 is discouraged except when
there are extensive changes to disclosed practices.
e. Cost and funding adjustments. Cost adjustments shall be made
by the cognizant agency if an educational institution fails to
comply with the cost policies in this Appendix or fails to
consistently follow its established or disclosed cost accounting
practices when estimating, accumulating or reporting the costs of
sponsored agreements, if aggregate cost impact on sponsored
agreements is material. The cost adjustment shall normally be made
on an aggregate basis for all affected sponsored agreements through
an adjustment of the educational institution's future F&A costs
rates or other means considered appropriate by the cognizant agency.
Under the terms of CAS-covered contracts, adjustments in the amount
of funding provided may also be required when the estimated proposal
costs were not determined in accordance with established cost
accounting practices.
f. Overpayments. Excess amounts paid in the aggregate by the
Federal Government under sponsored agreements due to a noncompliant
cost accounting practice used to estimate, accumulate, or report
costs shall be credited or refunded, as deemed appropriate by the
cognizant agency. Interest applicable to the excess amounts paid in
the aggregate during the period of noncompliance shall also be
determined and collected in accordance with applicable Federal
agency regulations.
g. Compliant cost accounting practice changes. Changes from one
compliant cost accounting practice to another compliant practice
that are approved by the cognizant agency may require cost
adjustments if the change has a material effect on sponsored
agreements and the changes are deemed appropriate by the cognizant
agency.
h. Responsibilities. The cognizant agency shall:
(1) Determine cost adjustments for all sponsored agreements in
the aggregate on behalf of the Federal Government. Actions of the
cognizant agency official in making cost adjustment determinations
shall be coordinated with all affected Federal agencies to the
extent necessary.
(2) Prescribe guidelines and establish internal procedures to
promptly determine on behalf of the Federal Government that a DS-2
adequately discloses the educational institution's cost accounting
practices and that the disclosed practices are compliant with
applicable CAS and the requirements of Attachment A to this
Appendix.
(3) Distribute to all affected agencies any DS-2 determination
of adequacy and/or noncompliance.
D. Direct Costs
1. General. Direct costs are those costs that can be identified
specifically with a particular sponsored project, an instructional
activity, or any other institutional activity, or that can be
directly assigned to such activities relatively easily with a high
degree of accuracy. Costs incurred for the same purpose in like
circumstances must be treated consistently as either direct or F&A
costs. Where an institution treats a particular type of cost as a
direct cost of sponsored agreements, all costs incurred for the same
purpose in like circumstances shall be treated as direct costs of
all activities of the institution.
2. Application to sponsored agreements. Identification with the
sponsored work rather than the nature of the goods and services
involved is the determining factor in distinguishing direct from F&A
costs of sponsored agreements. Typical costs charged directly to a
sponsored agreement are the compensation of employees for
performance of work under the sponsored agreement, including related
fringe benefit costs to the extent they are consistently treated, in
like circumstances, by the institution as direct rather than F&A
costs; the costs of materials consumed or expended in the
performance of the work; and other items of expense incurred for the
sponsored agreement, including extraordinary utility consumption.
The cost of materials supplied from stock or services rendered by
specialized facilities or other institutional service operations may
be included as direct costs of sponsored agreements, provided such
items are consistently treated, in like circumstances, by the
institution as direct rather than F&A costs, and are charged under a
recognized method of computing actual costs, and conform to
generally accepted cost accounting practices consistently followed
by the institution.
E. F&A Costs
1. General. F&A costs are those that are incurred for common or
joint objectives and therefore cannot be identified readily and
specifically with a particular sponsored project, an instructional
activity, or any other institutional activity. See Section F.1 of
this Appendix for a discussion of the components of F&A costs.
2. Criteria for distribution.
a. Base period. A base period for distribution of F&A costs is
the period during which the costs are incurred. The base period
normally should coincide with the fiscal year established by the
institution, but in any event the base period should be so selected
as to avoid inequities in the distribution of costs.
b. Need for cost groupings. The overall objective of the F&A
cost allocation process is to distribute the F&A costs described in
Section F of this Appendix to the major functions of the institution
in proportions reasonably consistent with the nature and extent of
their use of the institution's resources. In order to achieve this
objective, it may be necessary to provide for selective distribution
by establishing separate groupings of cost within one or more of the
F&A cost categories referred to in subsection E.1 of this Appendix.
In general, the cost groupings established within a category should
constitute, in each case, a pool of those items of expense that are
considered to be of like nature in terms of their relative
contribution to (or degree of remoteness from) the particular cost
objectives to which distribution is appropriate. Cost groupings
should be established considering the general guides provided in
subsection E.2.c. of this Appendix. Each such pool or cost grouping
should then be distributed individually to the related cost
objectives, using the distribution base or method most appropriate
in the light of the guides set forth in subsection E.2.d. of this
Appendix.
c. General considerations on cost groupings. The extent to which
separate cost groupings and selective distribution would be
appropriate at an institution is a matter of judgment to be
determined on a case-by-case basis. Typical situations which may
warrant the establishment of two or more separate cost groupings
(based on account classification or analysis) within an F&A cost
category include but are not limited to the following:
(1) Where certain items or categories of expense relate solely
to one of the major functions of the institution or to less than all
functions, such expenses should be set aside as a separate cost
grouping for direct assignment or selective allocation in accordance
with the guides provided in subsections b and d.
(2) Where any types of expense ordinarily treated as general
administration or departmental administration are charged to
sponsored agreements as direct costs, expenses applicable to other
activities of the institution when incurred for the same purposes in
like circumstances must, through separate cost groupings, be
excluded from the F&A costs allocable to those sponsored agreements
and included in the direct cost of other activities for cost
allocation purposes.
(3) Where it is determined that certain expenses are for the
support of a service unit or facility whose output is susceptible of
measurement on a workload or other quantitative basis, such expenses
should be set aside as a separate cost grouping for distribution on
such basis to organized research, instructional, and other
activities at the institution or within the department.
(4) Where activities provide their own purchasing, personnel
administration, building maintenance or similar service, the
distribution of general administration and general expenses, or
operation and maintenance expenses to such activities should be
accomplished through cost groupings which include only that portion
of central F&A costs (such as for overall management) which are
properly allocable to such activities.
(5) Where the institution elects to treat fringe benefits as F&A
charges, such costs should be set aside as a separate cost grouping
for selective distribution to related cost objectives.
(6) The number of separate cost groupings within a category
should be held within practical limits, after taking into
consideration the materiality of the amounts involved and the degree
of precision attainable through less selective methods of
distribution.
d. Selection of distribution method.
[[Page 51888]]
(1) Actual conditions must be taken into account in selecting
the method or base to be used in distributing individual cost
groupings. The essential consideration in selecting a base is that
it be the one best suited for assigning the pool of costs to cost
objectives in accordance with benefits derived; a traceable cause
and effect relationship; or logic and reason, where neither benefit
nor cause and effect relationship is determinable.
(2) Where a cost grouping can be identified directly with the
cost objective benefited, it should be assigned to that cost
objective.
(3) Where the expenses in a cost grouping are more general in
nature, the distribution may be based on a cost analysis study which
results in an equitable distribution of the costs. Such cost
analysis studies may take into consideration weighting factors,
population, or space occupied if appropriate. Cost analysis studies,
however, must be appropriately documented in sufficient detail for
subsequent review by the cognizant Federal agency, distribute the
costs to the related cost objectives in accordance with the relative
benefits derived, be statistically sound, be performed specifically
at the institution at which the results are to be used, and be
reviewed periodically, but not less frequently than every two years,
updated if necessary, and used consistently. Any assumptions made in
the study must be stated and explained. The use of cost analysis
studies and periodic changes in the method of cost distribution must
be fully justified.
(4) If a cost analysis study is not performed, or if the study
does not result in an equitable distribution of the costs, the
distribution shall be made in accordance with the appropriate base
cited in Section F, unless one of the following conditions is met:
it can be demonstrated that the use of a different base would result
in a more equitable allocation of the costs, or that a more readily
available base would not increase the costs charged to sponsored
agreements, or the institution qualifies for, and elects to use, the
simplified method for computing F&A cost rates described in Section
H of this Appendix.
(5) Notwithstanding subsection E.2.d.(3) of this Appendix,
effective July 1, 1998, a cost analysis or base other than that in
Section F of this Appendix shall not be used to distribute utility
or student services costs. Instead, subsections F.4.c and F.4.d may
be used in the recovery of utility costs.
e. Order of distribution.
(1) F&A costs are the broad categories of costs discussed in
Section F.1 of this Appendix.
(2) Depreciation and use allowances, operation and maintenance
expenses, and general administrative and general expenses should be
allocated in that order to the remaining F&A cost categories as well
as to the major functions and specialized service facilities of the
institution. Other cost categories may be allocated in the order
determined to be most appropriate by the institutions. When cross
allocation of costs is made as provided in subsection (3), this
order of allocation does not apply.
(3) Normally an F&A cost category will be considered closed once
it has been allocated to other cost objectives, and costs may not be
subsequently allocated to it. However, a cross allocation of costs
between two or more F&A cost categories may be used if such
allocation will result in a more equitable allocation of costs. If a
cross allocation is used, an appropriate modification to the
composition of the F&A cost categories described in Section F of
this Appendix is required.
F. Identification and Assignment of F&A Costs
1. Definition of Facilities and Administration. F&A costs are
broad categories of costs. ``Facilities'' is defined as depreciation
and use allowances, interest on debt associated with certain
buildings, equipment and capital improvements, operation and
maintenance expenses, and library expenses. ``Administration'' is
defined as general administration and general expenses, departmental
administration, sponsored projects administration, student
administration and services, and all other types of expenditures not
listed specifically under one of the subcategories of Facilities
(including cross allocations from other pools).
2. Depreciation and use allowances.
a. The expenses under this heading are the portion of the costs
of the institution's buildings, capital improvements to land and
buildings, and equipment which are computed in accordance with
Section J.14 of this Appendix.
b. In the absence of the alternatives provided for in Section
E.2.d of this Appendix, the expenses included in this category shall
be allocated in the following manner:
(1) Depreciation or use allowances on buildings used exclusively
in the conduct of a single function, and on capital improvements and
equipment used in such buildings, shall be assigned to that
function.
(2) Depreciation or use allowances on buildings used for more
than one function, and on capital improvements and equipment used in
such buildings, shall be allocated to the individual functions
performed in each building on the basis of usable square feet of
space, excluding common areas such as hallways, stairwells, and rest
rooms.
(3) Depreciation or use allowances on buildings, capital
improvements and equipment related to space (e.g., individual rooms,
laboratories) used jointly by more than one function (as determined
by the users of the space) shall be treated as follows. The cost of
each jointly used unit of space shall be allocated to benefiting
functions on the basis of:
(a) The employee full-time equivalents (FTEs) or salaries and
wages of those individual functions benefiting from the use of that
space; or
(b) Institution-wide employee FTEs or salaries and wages
applicable to the benefiting major functions (see Section B.1 of
this Appendix) of the institution.
(4) Depreciation or use allowances on certain capital
improvements to land, such as paved parking areas, fences,
sidewalks, and the like, not included in the cost of buildings,
shall be allocated to user categories of students and employees on a
full-time equivalent basis. The amount allocated to the student
category shall be assigned to the instruction function of the
institution. The amount allocated to the employee category shall be
further allocated to the major functions of the institution in
proportion to the salaries and wages of all employees applicable to
those functions.
c. Large research facilities. The following provisions apply to
large research facilities that are included in F&A rate proposals
negotiated after January 1, 2000, and on which the design and
construction begin after July 1, 1998. Large facilities, for this
provision, are defined as buildings with construction costs of more
than $10 million. The determination of the Federal participation
(use) percentage in a building is based on institution's estimates
of building use over its life, and is made during the planning phase
for the building.
(1) When an institution has large research facilities, of which
40 percent or more of total assignable space is expected for Federal
use, the institution must maintain an adequate review and approval
process to ensure that construction costs are reasonable.
(a)The review process shall address and document relevant
factors affecting construction costs, such as:
i. Life cycle costs
ii. Unique research needs
iii. Special building needs
iv. Building site preparation
v. Environmental consideration
vi. Federal construction code requirements
vii. Competitive procurement practices
(b) The approval process shall include review and approval of
the projects by the institution's Board of Trustees (which can also
be called Board of Directors, Governors or Regents) or other
independent entities.
(2) For research facilities costing more than $25 million, of
which 50 percent or more of total assignable space is expected for
Federal use, the institution must document the review steps
performed to assure that construction costs are reasonable. The
review should include an analysis of construction costs and a
comparison of these costs with relevant construction data, including
the National Science Foundation data for research facilities based
on its biennial survey, ``Science and Engineering Facilities at
Colleges and Universities.'' The documentation must be made
available for review by Federal negotiators, when requested.
3. Interest. Interest on debt associated with certain buildings,
equipment and capital improvements, as defined in Section J.25 of
this Appendix, shall be classified as an expenditure under the
category Facilities. These costs shall be allocated in the same
manner as the depreciation or use allowances on the buildings,
equipment and capital improvements to which the interest relates.
4. Operation and maintenance expenses.
a. The expenses under this heading are those that have been
incurred for the administration, supervision, operation,
maintenance, preservation, and protection of the institution's
physical plant. They include expenses normally incurred for such
items as janitorial and utility services; repairs and ordinary or
normal alterations of buildings,
[[Page 51889]]
furniture and equipment; care of grounds; maintenance and operation
of buildings and other plant facilities; security; earthquake and
disaster preparedness; environmental safety; hazardous waste
disposal; property, liability and all other insurance relating to
property; space and capital leasing; facility planning and
management; and, central receiving. The operation and maintenance
expense category should also include its allocable share of fringe
benefit costs, depreciation and use allowances, and interest costs.
b. In the absence of the alternatives provided for in Section
E.2.d of this Appendix, the expenses included in this category shall
be allocated in the same manner as described in subsection E.2.b for
depreciation and use allowances.
c. For F&A rates negotiated on or after July 1, 1998, an
institution that previously employed a utility special cost study in
its most recently negotiated F&A rate proposal in accordance with
Section E.2.d of this Appendix, may add a utility cost adjustment
(UCA) of 1.3 percentage points to its negotiated overall F&A rate
for organized research. Exhibit B to this Appendix displays the list
of eligible institutions. The allocation of utility costs to the
benefiting functions shall otherwise be made in the same manner as
described in subsection F.4.b of this Appendix. Beginning on July 1,
2002, Federal agencies shall reassess periodically the eligibility
of institutions to receive the UCA.
d. Beginning on July 1, 2002, Federal agencies may receive
applications for utilization of the UCA from institutions not
subject to the provisions of subsection F.4.c of this Appendix.
5. General administration and general expenses.
a. The expenses under this heading are those that have been
incurred for the general executive and administrative offices of
educational institutions and other expense of a general character
which do not relate solely to any major function of the institution;
i.e., solely to instruction, organized research, other sponsored
activities, or other institutional activities. The general
administration and general expense category should also include its
allocable share of fringe benefit costs, operation and maintenance
expense, depreciation and use allowances, and interest costs.
Examples of general administration and general expenses include:
those expenses incurred by administrative offices that serve the
entire university system of which the institution is a part; central
offices of the institution such as the President's or Chancellor's
office, the offices for institution-wide financial management,
business services, budget and planning, personnel management, and
safety and risk management; the office of the General Counsel; and,
the operations of the central administrative management information
systems. General administration and general expenses shall not
include expenses incurred within non-university-wide deans' offices,
academic departments, organized research units, or similar
organizational units. (See subsection F.6. of this Appendix,
Departmental administration expenses.)
b. In the absence of the alternatives provided for in Section
E.2.d of this Appendix, the expenses included in this category shall
be grouped first according to common major functions of the
institution to which they render services or provide benefits. The
aggregate expenses of each group shall then be allocated to serviced
or benefited functions on the modified total cost basis. Modified
total costs consist of the same elements as those in Section G.2 of
this Appendix. When an activity included in this F&A cost category
provides a service or product to another institution or
organization, an appropriate adjustment must be made to either the
expenses or the basis of allocation or both, to assure a proper
allocation of costs.
6. Departmental administration expenses.
a. The expenses under this heading are those that have been
incurred for administrative and supporting services that benefit
common or joint departmental activities or objectives in academic
deans' offices, academic departments and divisions, and organized
research units. Organized research units include such units as
institutes, study centers, and research centers. Departmental
administration expenses are subject to the following limitations.
(1) Academic deans' offices. Salaries and operating expenses are
limited to those attributable to administrative functions.
(2) Academic departments:
(a) Salaries and fringe benefits attributable to the
administrative work (including bid and proposal preparation) of
faculty (including department heads), and other professional
personnel conducting research and/or instruction, shall be allowed
at a rate of 3.6 percent of modified total direct costs. This
category does not include professional business or professional
administrative officers. This allowance shall be added to the
computation of the F&A cost rate for major functions in Section G of
this Appendix; the expenses covered by the allowance shall be
excluded from the departmental administration cost pool. No
documentation is required to support this allowance.
(b) Other administrative and supporting expenses incurred within
academic departments are allowable provided they are treated
consistently in like circumstances. This would include expenses such
as the salaries of secretarial and clerical staffs, the salaries of
administrative officers and assistants, travel, office supplies,
stockrooms, and the like.
(3) Other fringe benefit costs applicable to the salaries and
wages included in subsections F.6.a.(1) and (2) of this Appendix are
allowable, as well as an appropriate share of general administration
and general expenses, operation and maintenance expenses, and
depreciation and/or use allowances.
(4) Federal agencies may authorize reimbursement of additional
costs for department heads and faculty only in exceptional cases
where an institution can demonstrate undue hardship or detriment to
project performance.
b. The following guidelines apply to the determination of
departmental administrative costs as direct or F&A costs.
(1) In developing the departmental administration cost pool,
special care should be exercised to ensure that costs incurred for
the same purpose in like circumstances are treated consistently as
either direct or F&A costs. For example, salaries of technical
staff, laboratory supplies (e.g., chemicals), telephone toll
charges, animals, animal care costs, computer costs, travel costs,
and specialized shop costs shall be treated as direct cost wherever
identifiable to a particular cost objective. Direct charging of
these costs may be accomplished through specific identification of
individual costs to benefiting cost objectives, or through recharge
centers or specialized service facilities, as appropriate under the
circumstances.
(2) The salaries of administrative and clerical staff should
normally be treated as F&A costs. Direct charging of these costs may
be appropriate where a major project or activity explicitly budgets
for administrative or clerical services and individuals involved can
be specifically identified with the project or activity. ``Major
project'' is defined as a project that requires an extensive amount
of administrative or clerical support, which is significantly
greater than the routine level of such services provided by academic
departments. Some examples of major projects are described in
Exhibit C to this Appendix.
(3) Items such as office supplies, postage, local telephone
costs, and memberships shall normally be treated as F&A costs.
c. In the absence of the alternatives provided for in Section
E.2.d of this Appendix, the expenses included in this category shall
be allocated as follows:
(1) The administrative expenses of the dean's office of each
college and school shall be allocated to the academic departments
within that college or school on the modified total cost basis.
(2) The administrative expenses of each academic department, and
the department's share of the expenses allocated in subsection
F.6.b.(1) of this Appendix shall be allocated to the appropriate
functions of the department on the modified total cost basis.
7. Sponsored projects administration.
a. The expenses under this heading are limited to those incurred
by a separate organization(s) established primarily to administer
sponsored projects, including such functions as grant and contract
administration (Federal and non-Federal), special security,
purchasing, personnel, administration, and editing and publishing of
research and other reports. They include the salaries and expenses
of the head of such organization, assistants, and immediate staff,
together with the salaries and expenses of personnel engaged in
supporting activities maintained by the organization, such as stock
rooms, stenographic pools and the like. This category also includes
an allocable share of fringe benefit costs, general administration
and general expenses, operation and maintenance expenses,
depreciation/use allowances. Appropriate adjustments will be made
for services provided to other functions or organizations.
b. In the absence of the alternatives provided for in Section
E.2.d of this
[[Page 51890]]
Appendix, the expenses included in this category shall be allocated
to the major functions of the institution under which the sponsored
projects are conducted on the basis of the modified total cost of
sponsored projects.
c. An appropriate adjustment shall be made to eliminate any
duplicate charges to sponsored agreements when this category
includes similar or identical activities as those included in the
general administration and general expense category or other F&A
cost items, such as accounting, procurement, or personnel
administration.
8. Library expenses.
a. The expenses under this heading are those that have been
incurred for the operation of the library, including the cost of
books and library materials purchased for the library, less any
items of library income that qualify as applicable credits under
Section C.5 of this Appendix. The library expense category should
also include the fringe benefits applicable to the salaries and
wages included therein, an appropriate share of general
administration and general expense, operation and maintenance
expense, and depreciation and use allowances. Costs incurred in the
purchases of rare books (museum-type books) with no value to
sponsored agreements should not be allocated to them.
b. In the absence of the alternatives provided for in Section
E.2.d of this Appendix, the expenses included in this category shall
be allocated first on the basis of primary categories of users,
including students, professional employees, and other users.
(1) The student category shall consist of full-time equivalent
students enrolled at the institution, regardless of whether they
earn credits toward a degree or certificate.
(2) The professional employee category shall consist of all
faculty members and other professional employees of the institution,
on a full-time equivalent basis.
(3) The other users category shall consist of all other users of
library facilities.
c. Amount allocated in subsection E.8.b of this Appendix shall
be assigned further as follows:
(1) The amount in the student category shall be assigned to the
instruction function of the institution.
(2) The amount in the professional employee category shall be
assigned to the major functions of the institution in proportion to
the salaries and wages of all faculty members and other professional
employees applicable to those functions.
(3) The amount in the other users category shall be assigned to
the other institutional activities function of the institution.
9. Student administration and services.
a. The expenses under this heading are those that have been
incurred for the administration of student affairs and for services
to students, including expenses of such activities as deans of
students, admissions, registrar, counseling and placement services,
student advisers, student health and infirmary services, catalogs,
and commencements and convocations. The salaries of members of the
academic staff whose responsibilities to the institution require
administrative work that benefits sponsored projects may also be
included to the extent that the portion charged to student
administration is determined in accordance with Section J.10 of this
Appendix. This expense category also includes the fringe benefit
costs applicable to the salaries and wages included therein, an
appropriate share of general administration and general expenses,
operation and maintenance, and use allowances and/or depreciation.
b. In the absence of the alternatives provided for in Section
E.2.d of this Appendix, the expenses in this category shall be
allocated to the instruction function, and subsequently to sponsored
agreements in that function.
10. Offset for F&A expenses otherwise provided for by the
Federal Government.
a. The items to be accumulated under this heading are the
reimbursements and other payments from the Federal Government that
are made to the institution to support solely, specifically, and
directly, in whole or in part, any of the administrative or service
activities described in subsections F.2 through 9 of this Appendix.
b. The items in this group shall be treated as a credit to the
affected individual F&A cost category before that category is
allocated to benefiting functions.
G. Determination and Application of F&A Cost Rate or Rates
1. F&A cost pools.
a. (1) Subject to subsection b, the separate categories of F&A
costs allocated to each major function of the institution as
prescribed in Section F shall be aggregated and treated as a common
pool for that function. The amount in each pool shall be divided by
the distribution base described in subsection G.2 of this Appendix
to arrive at a single F&A cost rate for each function.
(2) The rate for each function is used to distribute F&A costs
to individual sponsored agreements of that function. Since a common
pool is established for each major function of the institution, a
separate F&A cost rate would be established for each of the major
functions described in Section B.1 of this Appendix under which
sponsored agreements are carried out.
(3) Each institution's F&A cost rate process must be
appropriately designed to ensure that Federal sponsors do not in any
way subsidize the F&A costs of other sponsors, specifically
activities sponsored by industry and foreign governments.
Accordingly, each allocation method used to identify and allocate
the F&A cost pools, as described in Sections E.2 and F.2 through F.9
of this Appendix, must contain the full amount of the institution's
modified total costs or other appropriate units of measurement used
to make the computations. In addition, the final rate distribution
base (as defined in subsection G.2 of this Appendix) for each major
function (organized research, instruction, etc., as described in
Section B.1 of this Appendix) shall contain all the programs or
activities that utilize the F&A costs allocated to that major
function. At the time a F&A cost proposal is submitted to a
cognizant Federal agency, each institution must describe the process
it uses to ensure that Federal funds are not used to subsidize
industry and foreign government funded programs.
b. In some instances a single rate basis for use across the
board on all work within a major function at an institution may not
be appropriate. A single rate for research, for example, might not
take into account those different environmental factors and other
conditions which may affect substantially the F&A costs applicable
to a particular segment of research at the institution. A particular
segment of research may be that performed under a single sponsored
agreement or it may consist of research under a group of sponsored
agreements performed in a common environment. The environmental
factors are not limited to the physical location of the work. Other
important factors are the level of the administrative support
required, the nature of the facilities or other resources employed,
the scientific disciplines or technical skills involved, the
organizational arrangements used, or any combination thereof. Where
a particular segment of a sponsored agreement is performed within an
environment which appears to generate a significantly different
level of F&A costs, provisions should be made for a separate F&A
cost pool applicable to such work. The separate F&A cost pool should
be developed during the regular course of the rate determination
process and the separate F&A cost rate resulting therefrom should be
utilized; provided it is determined that such F&A cost rate differs
significantly from that which would have been obtained under
subsection G.1.a of this Appendix, and the volume of work to which
such rate would apply is material in relation to other sponsored
agreements at the institution.
2. The distribution basis. F&A costs shall be distributed to
applicable sponsored agreements and other benefiting activities
within each major function (see Section B.1) on the basis of
modified total direct costs, consisting of all salaries and wages,
fringe benefits, materials and supplies, services, travel, and
subgrants and subcontracts up to the first $25,000 of each subgrant
or subcontract (regardless of the period covered by the subgrant or
subcontract). Equipment, capital expenditures, charges for patient
care and tuition remission, rental costs, scholarships, and
fellowships as well as the portion of each subgrant and subcontract
in excess of $25,000 shall be excluded from modified total direct
costs. Other items may only be excluded where necessary to avoid a
serious inequity in the distribution of F&A costs. For this purpose,
a F&A cost rate should be determined for each of the separate F&A
cost pools developed pursuant to subsection G.1 of this Appendix.
The rate in each case should be stated as the percentage that the
amount of the particular F&A cost pool is of the modified total
direct costs identified with such pool.
3. Negotiated lump sum for F&A costs. A negotiated fixed amount
in lieu of F&A costs may be appropriate for self-contained, off-
campus, or primarily subcontracted activities where the benefits
derived from an institution's F&A services cannot be readily
determined. Such negotiated F&A costs will
[[Page 51891]]
be treated as an offset before allocation to instruction, organized
research, other sponsored activities, and other institutional
activities. The base on which such remaining expenses are allocated
should be appropriately adjusted.
4. Predetermined rates for F&A costs. Public Law 87-638 (76
Stat. 437) authorizes the use of predetermined rates in determining
the ``indirect costs'' (F&A costs in this Appendix) applicable under
research agreements with educational institutions. The stated
objectives of the law are to simplify the administration of cost-
type research and development contracts (including grants) with
educational institutions, to facilitate the preparation of their
budgets, and to permit more expeditious closeout of such contracts
when the work is completed. In view of the potential advantages
offered by this procedure, negotiation of predetermined rates for
F&A costs for a period of two to four years should be the norm in
those situations where the cost experience and other pertinent facts
available are deemed sufficient to enable the parties involved to
reach an informed judgment as to the probable level of F&A costs
during the ensuing accounting periods.
5. Negotiated fixed rates and carry-forward provisions. When a
fixed rate is negotiated in advance for a fiscal year (or other time
period), the over- or under-recovery for that year may be included
as an adjustment to the F&A cost for the next rate negotiation. When
the rate is negotiated before the carry-forward adjustment is
determined, the carry-forward amount may be applied to the next
subsequent rate negotiation. When such adjustments are to be made,
each fixed rate negotiated in advance for a given period will be
computed by applying the expected F&A costs allocable to sponsored
agreements for the forecast period plus or minus the carry-forward
adjustment (over- or under-recovery) from the prior period, to the
forecast distribution base. Unrecovered amounts under lump-sum
agreements or cost-sharing provisions of prior years shall not be
carried forward for consideration in the new rate negotiation. There
must, however, be an advance understanding in each case between the
institution and the cognizant Federal agency as to whether these
differences will be considered in the rate negotiation rather than
making the determination after the differences are known. Further,
institutions electing to use this carry-forward provision may not
subsequently change without prior approval of the cognizant Federal
agency. In the event that an institution returns to a postdetermined
rate, any over- or under-recovery during the period in which
negotiated fixed rates and carry-forward provisions were followed
will be included in the subsequent postdetermined rates. Where
multiple rates are used, the same procedure will be applicable for
determining each rate.
6. Provisional and final rates for F&A costs. Where the
cognizant agency determines that cost experience and other pertinent
facts do not justify the use of predetermined rates, or a fixed rate
with a carry-forward, or if the parties cannot agree on an equitable
rate, a provisional rate shall be established. To prevent
substantial overpayment or underpayment, the provisional rate may be
adjusted by the cognizant agency during the institution's fiscal
year. Predetermined or fixed rates may replace provisional rates at
any time prior to the close of the institution's fiscal year. If a
provisional rate is not replaced by a predetermined or fixed rate
prior to the end of the institution's fiscal year, a final rate will
be established and upward or downward adjustments will be made based
on the actual allowable costs incurred for the period involved.
7. Fixed rates for the life of the sponsored agreement.
a. Federal agencies shall use the negotiated rates for F&A costs
in effect at the time of the initial award throughout the life of
the sponsored agreement. ``Life'' for the purpose of this subsection
means each competitive segment of a project. A competitive segment
is a period of years approved by the Federal funding agency at the
time of the award. If negotiated rate agreements do not extend
through the life of the sponsored agreement at the time of the
initial award, then the negotiated rate for the last year of the
sponsored agreement shall be extended through the end of the life of
the sponsored agreement. Award levels for sponsored agreements may
not be adjusted in future years as a result of changes in negotiated
rates.
b. When an educational institution does not have a negotiated
rate with the Federal Government at the time of the award (because
the educational institution is a new grantee or the parties cannot
reach agreement on a rate), the provisional rate used at the time of
the award shall be adjusted once a rate is negotiated and approved
by the cognizant agency.
8. Limitation on reimbursement of administrative costs.
a. Notwithstanding the provisions of subsection G.1.a of this
Appendix, the administrative costs charged to sponsored agreements
awarded or amended (including continuation and renewal awards) with
effective dates beginning on or after the start of the institution's
first fiscal year which begins on or after October 1, 1991, shall be
limited to 26% of modified total direct costs (as defined in
subsection G.2 of this Appendix) for the total of General
Administration and General Expenses, Departmental Administration,
Sponsored Projects Administration, and Student Administration and
Services (including their allocable share of depreciation and/or use
allowances, interest costs, operation and maintenance expenses, and
fringe benefits costs, as provided by Sections F.5, F.6, F.7 and F.9
of this Appendix) and all other types of expenditures not listed
specifically under one of the subcategories of facilities in Section
F of this Appendix.
b. Existing F&A cost rates that affect institutions' fiscal
years which begin on or after October 1, 1991, shall be unilaterally
amended by the cognizant Federal agency to reflect the cost
limitation in subsection G.8.a of this Appendix.
c. Permanent rates established prior to this revision that have
been amended in accordance with subsection G.8.b of this Appendix
may be renegotiated. However, no such renegotiated rate may exceed
the rate which would have been in effect if the agreement had
remained in effect; nor may the administrative portion of any
renegotiated rate exceed the limitation in subsection a.
d. Institutions should not change their accounting or cost
allocation methods which were in effect on May 1, 1991, if the
effect is to change the charging of a particular type of cost from
F&A to direct, or reclassify costs, or increase allocations, from
the administrative pools identified in subsection to the other F&A
cost pools or fringe benefits. Cognizant Federal agencies are
authorized to permit changes where an institution's charging
practices are at variance with acceptable practices followed by a
substantial majority of other institutions.
9. Alternative method for administrative costs.
a. Notwithstanding the provisions of subsection 1.a, an
institution may elect to claim fixed allowance for the
``Administration'' portion of F&A costs. The allowance could be
either 24% of modified total direct costs or a percentage equal to
95% of the most recently negotiated fixed or predetermined rate for
the cost pools included under ``Administration'' as defined in
Section F.1 of this Appendix, whichever is less, provided that no
accounting or cost allocation changes with the effects described in
subsection G.8.d of this Appendix have occurred. Under this
alternative, no cost proposal need be prepared for the
``Administration'' portion of the F&A cost rate nor is further
identification or documentation of these costs required (see
subsection G.9.c of this Appendix). Where a negotiated F&A cost
agreement includes this alternative, an institution shall make no
further charges for the expenditure categories described in Sections
F.5, F.6, F.7 and F.9 of this Appendix.
b. In negotiations of rates for subsequent periods, an
institution that has elected the option of subsection a may continue
to exercise it at the same rate without further identification or
documentation of costs, provided that no accounting or cost
allocation changes with the effects described in subsection G.8.d of
this Appendix have occurred.
c. If an institution elects to accept a threshold rate, it is
not required to perform a detailed analysis of its administrative
costs. However, in order to compute the facilities components of its
F&A cost rate, the institution must reconcile its F&A cost proposal
to its financial statements and make appropriate adjustments and
reclassifications to identify the costs of each major function as
defined in Section B.1 of this Appendix, as well as to identify and
allocate the facilities components. Administrative costs that are
not identified as such by the institution's accounting system (such
as those incurred in academic departments) will be classified as
instructional costs for purposes of reconciling F&A cost proposals
to financial statements and allocating facilities costs.
10. Individual rate components.
In order to satisfy the requirements of Section J.14 of this
Appendix and to provide
[[Page 51892]]
mutually agreed upon information for management purposes, each F&A
cost rate negotiation or determination shall include development of
a rate for each F&A cost pool as well as the overall F&A cost rate.
11. Negotiation and approval of F&A rate.
a. Cognizant agency assignments. ``A cognizant agency'' means
the Federal agency responsible for negotiating and approving F&A
rates for an educational institution on behalf of all Federal
agencies.
(1) Cost negotiation cognizance is assigned to the Department of
Health and Human Services (HHS) or the Department of Defense's
Office of Naval Research (DOD), normally depending on which of the
two agencies (HHS or DOD) provides more funds to the educational
institution for the most recent three years. Information on funding
shall be derived from relevant data gathered by the National Science
Foundation. In cases where neither HHS nor DOD provides Federal
funding to an educational institution, the cognizant agency
assignment shall default to HHS. Notwithstanding the method for
cognizance determination described above, other arrangements for
cognizance of a particular educational institution may also be based
in part on the types of research performed at the educational
institution and shall be decided based on mutual agreement between
HHS and DOD.
(2) Cognizant assignments as of December 31, 1995, shall
continue in effect through educational institutions' fiscal years
ending during 1997, or the period covered by negotiated agreements
in effect on December 31, 1995, whichever is later, except for those
educational institutions with cognizant agencies other than HHS or
DOD. Cognizance for these educational institutions shall transfer to
HHS or DOD at the end of the period covered by the current
negotiated rate agreement. After cognizance is established, it shall
continue for a five-year period.
b. Acceptance of rates. The negotiated rates shall be accepted
by all Federal agencies. Only under special circumstances, when
required by law or regulation, may an agency use a rate different
from the negotiated rate for a class of sponsored agreements or a
single sponsored agreement.
c. Correcting deficiencies. The cognizant agency shall negotiate
changes needed to correct systems deficiencies relating to
accountability for sponsored agreements. Cognizant agencies shall
address the concerns of other affected agencies, as appropriate.
d. Resolving questioned costs. The cognizant agency shall
conduct any necessary negotiations with an educational institution
regarding amounts questioned by audit that are due the Federal
Government related to costs covered by a negotiated agreement.
e. Reimbursement. Reimbursement to cognizant agencies for work
performed under Part 220 may be made by reimbursement billing under
the Economy Act, 31 U.S.C. 1535.
f. Procedure for establishing facilities and administrative
rates. The cognizant agency shall arrange with the educational
institution to provide copies of rate proposals to all interested
agencies. Agencies wanting such copies should notify the cognizant
agency. Rates shall be established by one of the following methods:
(1) Formal negotiation. The cognizant agency is responsible for
negotiating and approving rates for an educational institution on
behalf of all Federal agencies. Non-cognizant Federal agencies,
which award sponsored agreements to an educational institution,
shall notify the cognizant agency of specific concerns (i.e., a need
to establish special cost rates) that could affect the negotiation
process. The cognizant agency shall address the concerns of all
interested agencies, as appropriate. A pre-negotiation conference
may be scheduled among all interested agencies, if necessary. The
cognizant agency shall then arrange a negotiation conference with
the educational institution.
(2) Other than formal negotiation. The cognizant agency and
educational institution may reach an agreement on rates without a
formal negotiation conference; for example, through correspondence
or use of the simplified method described in this Appendix.
g. Formalizing determinations and agreements. The cognizant
agency shall formalize all determinations or agreements reached with
an educational institution and provide copies to other agencies
having an interest.
h. Disputes and disagreements. Where the cognizant agency is
unable to reach agreement with an educational institution with
regard to rates or audit resolution, the appeal system of the
cognizant agency shall be followed for resolution of the
disagreement.
12. Standard Format for Submission. For facilities and
administrative (F&A) rate proposals submitted on or after July 1,
2001, educational institutions shall use the standard format, shown
in Attachment C to this Appendix, to submit their F&A rate proposal
to the cognizant agency. The cognizant agency may, on an
institution-by-institution basis, grant exceptions from all or
portions of Part II of the standard format requirement. This
requirement does not apply to educational institutions that use the
simplified method for calculating F&A rates, as described in Section
H of this Appendix.
H. Simplified Method for Small Institutions
1. General.
a. Where the total direct cost of work covered by Part 220 at an
institution does not exceed $10 million in a fiscal year, the use of
the simplified procedure described in subsections H.2 or 3 of this
Appendix, may be used in determining allowable F&A costs. Under this
simplified procedure, the institution's most recent annual financial
report and immediately available supporting information shall be
utilized as basis for determining the F&A cost rate applicable to
all sponsored agreements. The institution may use either the
salaries and wages (see subsection H.2 of this Appendix) or modified
total direct costs (see subsection H.3 of this Appendix) as
distribution basis.
b. The simplified procedure should not be used where it produces
results that appear inequitable to the Federal Government or the
institution. In any such case, F&A costs should be determined
through use of the regular procedure.
2. Simplified procedure--Salaries and wages base.
a. Establish the total amount of salaries and wages paid to all
employees of the institution.
b. Establish an F&A cost pool consisting of the expenditures
(exclusive of capital items and other costs specifically identified
as unallowable) that customarily are classified under the following
titles or their equivalents:
(1) General administration and general expenses (exclusive of
costs of student administration and services, student activities,
student aid, and scholarships). In those cases where expenditures
have previously been allocated to other institutional activities,
they may be included in the F&A cost pool. The total amount of
salaries and wages included in the F&A cost pool must be separately
identified.
(2) Operation and maintenance of physical plant; and
depreciation and use allowances; after appropriate adjustment for
costs applicable to other institutional activities.
(3) Library.
(4) Department administration expenses, which will be computed
as 20 percent of the salaries and expenses of deans and heads of
departments.
c. Establish a salary and wage distribution base, determined by
deducting from the total of salaries and wages as established in
subsection a the amount of salaries and wages included under
subsection H.2.b of this Appendix.
d. Establish the F&A cost rate, determined by dividing the
amount in the F&A cost pool, subsection H.2.b of this Appendix, by
the amount of the distribution base, subsection H.2.c of this
Appendix.
e. Apply the F&A cost rate to direct salaries and wages for
individual agreements to determine the amount of F&A costs allocable
to such agreements.
3. Simplified procedure--Modified total direct cost base.
a. Establish the total costs incurred by the institution for the
base period.
b. Establish a F&A cost pool consisting of the expenditures
(exclusive of capital items and other costs specifically identified
as unallowable) that customarily are classified under the following
titles or their equivalents:
(1) General administration and general expenses (exclusive of
costs of student administration and services, student activities,
student aid, and scholarships). In those cases where expenditures
have previously been allocated to other institutional activities,
they may be included in the F&A cost pool. The modified total direct
costs amount included in the F&A cost pool must be separately
identified.
(2) Operation and maintenance of physical plant; and
depreciation and use allowances; after appropriate adjustment for
costs applicable to other institutional activities.
(3) Library.
(4) Department administration expenses, which will be computed
as 20 percent of the salaries and expenses of deans and heads of
departments.
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c. Establish a modified total direct cost distribution base, as
defined in Section G.2 of this Appendix, that consists of all
institution's direct functions.
d. Establish the F&A cost rate, determined by dividing the
amount in the F&A cost pool, subsection b, by the amount of the
distribution base, subsection c.
e. Apply the F&A cost rate to the modified total direct costs
for individual agreements to determine the amount of F&A costs
allocable to such agreements.
I. Reserved
J. General Provisions for Selected Items of Cost
Sections J.1 through 54 of this Appendix provide principles to
be applied in establishing the allowability of certain items
involved in determining cost. These principles should apply
irrespective of whether a particular item of cost is properly
treated as direct cost or F&A cost. Failure to mention a particular
item of cost is not intended to imply that it is either allowable or
unallowable; rather, determination as to allowability in each case
should be based on the treatment provided for similar or related
items of cost. In case of a discrepancy between the provisions of a
specific sponsored agreement and the provisions below, the agreement
should govern.
1. Advertising and public relations costs.
a. The term advertising costs means the costs of advertising
media and corollary administrative costs. Advertising media include
magazines, newspapers, radio and television, direct mail, exhibits,
electronic or computer transmittals, and the like.
b. The term public relations includes community relations and
means those activities dedicated to maintaining the image of the
institution or maintaining or promoting understanding and favorable
relations with the community or public at large or any segment of
the public.
c. The only allowable advertising costs are those that are
solely for:
(1) The recruitment of personnel required for the performance by
the institution of obligations arising under a sponsored agreement
(See also section J.42.b of this Appendix, Recruiting);
(2) The procurement of goods and services for the performance of
a sponsored agreement;
(3) The disposal of scrap or surplus materials acquired in the
performance of a sponsored agreement except when non-Federal
entities are reimbursed for disposal costs at a predetermined
amount; or
(4) Other specific purposes necessary to meet the requirements
of the sponsored agreement.
d. The only allowable public relations costs are:
(1) Costs specifically required by the sponsored agreement;
(2) Costs of communicating with the public and press pertaining
to specific activities or accomplishments which result from
performance of sponsored agreements (these costs are considered
necessary as part of the outreach effort for the sponsored
agreement); or
(3) Costs of conducting general liaison with news media and
government public relations officers, to the extent that such
activities are limited to communication and liaison necessary keep
the public informed on matters of public concern, such as notices of
Federal contract/grant awards, financial matters, etc.
e. Costs identified in subsections c and d if incurred for more
than one sponsored agreement or for both sponsored work and other
work of the institution, are allowable to the extent that the
principles in sections D. (``Direct Costs'') and E. (``F & A
Costs'') of this Appendix are observed.
f. Unallowable advertising and public relations costs include
the following:
(1) All advertising and public relations costs other than as
specified in subsections J.1.c, 1.d and 1.e of this Appendix.
(2) Costs of meetings, conventions, convocations, or other
events related to other activities of the institution, including:
(a) Costs of displays, demonstrations, and exhibits;
(b) Costs of meeting rooms, hospitality suites, and other
special facilities used in conjunction with shows and other special
events; and
(c) Salaries and wages of employees engaged in setting up and
displaying exhibits, making demonstrations, and providing briefings;
(3) Costs of promotional items and memorabilia, including
models, gifts, and souvenirs;
(4) Costs of advertising and public relations designed solely to
promote the institution.
2. Advisory councils.
Costs incurred by advisory councils or committees are allowable
as a direct cost where authorized by the Federal awarding agency or
as an indirect cost where allocable to sponsored agreements.
3. Alcoholic beverages.
Costs of alcoholic beverages are unallowable.
4. Alumni/ae activities.
Costs incurred for, or in support of, alumni/ae activities and
similar services are unallowable.
5. Audit costs and related services.
a. The costs of audits required by, and performed in accordance
with, the Single Audit Act, as implemented by Circular A-133,
``Audits of States, Local Governments, and Non-Profit
Organizations'' are allowable. Also see 31 U.S.C. 7505(b) and
section ----.230 (``Audit Costs'') of Circular A-133.
b. Other audit costs are allowable if included in an indirect
cost rate proposal, or if specifically approved by the awarding
agency as a direct cost to an award.
c. The cost of agreed-upon procedures engagements to monitor
subrecipients who are exempted from A-133 under section ----.200(d)
are allowable, subject to the conditions listed in A-133, section --
--.230 (b)(2).
6. Bad Debt.
Bad debts, including losses (whether actual or estimated)
arising from uncollectable accounts and other claims, related
collection costs, and related legal costs, are unallowable.
7. Bonding costs.
a. Bonding costs arise when the Federal Government requires
assurance against financial loss to itself or others by reason of
the act or default of the institution. They arise also in instances
where the institution requires similar assurance. Included are such
bonds as bid, performance, payment, advance payment, infringement,
and fidelity bonds.
b. Costs of bonding required pursuant to the terms of the award
are allowable.
c. Costs of bonding required by the institution in the general
conduct of its operations are allowable to the extent that such
bonding is in accordance with sound business practice and the rates
and premiums are reasonable under the circumstances.
8. Commencement and convocation costs.
Costs incurred for commencements and convocations are
unallowable, except as provided for in Section F.9 of this Appendix.
9. Communication costs.
Costs incurred for telephone services, local and long distance
telephone calls, telegrams, postage, messenger, electronic or
computer transmittal services and the like are allowable.
10. Compensation for personal services.
a. General. Compensation for personal services covers all
amounts paid currently or accrued by the institution for services of
employees rendered during the period of performance under sponsored
agreements. Such amounts include salaries, wages, and fringe
benefits (see subsection J.10.f of this Appendix). These costs are
allowable to the extent that the total compensation to individual
employees conforms to the established policies of the institution,
consistently applied, and provided that the charges for work
performed directly on sponsored agreements and for other work
allocable as F&A costs are determined and supported as provided
below. Charges to sponsored agreements may include reasonable
amounts for activities contributing and intimately related to work
under the agreements, such as delivering special lectures about
specific aspects of the ongoing activity, writing reports and
articles, participating in appropriate seminars, consulting with
colleagues and graduate students, and attending meetings and
conferences. Incidental work (that in excess of normal for the
individual), for which supplemental compensation is paid by an
institution under institutional policy, need not be included in the
payroll distribution systems described below, provided such work and
compensation are separately identified and documented in the
financial management system of the institution.
b. Payroll distribution.
(1) General Principles.
(a) The distribution of salaries and wages, whether treated as
direct or F&A costs, will be based on payrolls documented in
accordance with the generally accepted practices of colleges and
universities. Institutions may include in a residual category all
activities that are not directly charged to sponsored agreements,
and that need not be distributed to more than one activity for
purposes of identifying F&A costs and the functions to which they
are allocable. The components of the residual category are not
required to be separately documented.
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(b) The apportionment of employees' salaries and wages which are
chargeable to more than one sponsored agreement or other cost
objective will be accomplished by methods which will--
(1) Be in accordance with Sections A.2 and C of this Appendix;
(2) Produce an equitable distribution of charges for employee's
activities; and
(3) Distinguish the employees' direct activities from their F&A
activities.
(c) In the use of any methods for apportioning salaries, it is
recognized that, in an academic setting, teaching, research,
service, and administration are often inextricably intermingled. A
precise assessment of factors that contribute to costs is not always
feasible, nor is it expected. Reliance, therefore, is placed on
estimates in which a degree of tolerance is appropriate.
(d) There is no single best method for documenting the
distribution of charges for personal services. Methods for
apportioning salaries and wages, however, must meet the criteria
specified in subsection J.10.b.(2) of this Appendix. Examples of
acceptable methods are contained in subsection c. Other methods that
meet the criteria specified in subsection J.10.b.(2) of this
Appendix also shall be deemed acceptable, if a mutually satisfactory
alternative agreement is reached.
(2) Criteria for Acceptable Methods.
(a) The payroll distribution system will be incorporated into
the official records of the institution; reasonably reflect the
activity for which the employee is compensated by the institution;
and encompass both sponsored and all other activities on an
integrated basis, but may include the use of subsidiary records.
(Compensation for incidental work described in subsection a need not
be included.)
(b) The method must recognize the principle of after-the-fact
confirmation or determination so that costs distributed represent
actual costs, unless a mutually satisfactory alternative agreement
is reached. Direct cost activities and F&A cost activities may be
confirmed by responsible persons with suitable means of verification
that the work was performed. Confirmation by the employee is not a
requirement for either direct or F&A cost activities if other
responsible persons make appropriate confirmations.
(c) The payroll distribution system will allow confirmation of
activity allocable to each sponsored agreement and each of the
categories of activity needed to identify F&A costs and the
functions to which they are allocable. The activities chargeable to
F&A cost categories or the major functions of the institution for
employees whose salaries must be apportioned (see subsection
J.10.b.(1)(b) of this Appendix), if not initially identified as
separate categories, may be subsequently distributed by any
reasonable method mutually agreed to, including, but not limited to,
suitably conducted surveys, statistical sampling procedures, or the
application of negotiated fixed rates.
(d) Practices vary among institutions and within institutions as
to the activity constituting a full workload. Therefore, the payroll
distribution system may reflect categories of activities expressed
as a percentage distribution of total activities.
(e) Direct and F&A charges may be made initially to sponsored
agreements on the basis of estimates made before services are
performed. When such estimates are used, significant changes in the
corresponding work activity must be identified and entered into the
payroll distribution system. Short-term (such as one or two months)
fluctuation between workload categories need not be considered as
long as the distribution of salaries and wages is reasonable over
the longer term, such as an academic period.
(f) The system will provide for independent internal evaluations
to ensure the system's effectiveness and compliance with the above
standards.
(g) For systems which meet these standards, the institution will
not be required to provide additional support or documentation for
the effort actually performed.
c. Examples of Acceptable Methods for Payroll Distribution:
(1) Plan-Confirmation: Under this method, the distribution of
salaries and wages of professorial and professional staff applicable
to sponsored agreements is based on budgeted, planned, or assigned
work activity, updated to reflect any significant changes in work
distribution. A plan-confirmation system used for salaries and wages
charged directly or indirectly to sponsored agreements will meet the
following standards:
(a) A system of budgeted, planned, or assigned work activity
will be incorporated into the official records of the institution
and encompass both sponsored and all other activities on an
integrated basis. The system may include the use of subsidiary
records.
(b) The system will reasonably reflect only the activity for
which the employee is compensated by the institution (compensation
for incidental work described in subsection a need not be included).
Practices vary among institutions and within institutions as to the
activity constituting a full workload. Hence, the system will
reflect categories of activities expressed as a percentage
distribution of total activities. (See Section H of this Appendix
for treatment of F&A costs under the simplified method for small
institutions.)
(c) The system will reflect activity applicable to each
sponsored agreement and to each category needed to identify F&A
costs and the functions to which they are allocable. The system may
treat F&A cost activities initially within a residual category and
subsequently determine them by alternate methods as discussed in
subsection J.10.c.(2)(c) of this Appendix.
(d) The system will provide for modification of an individual's
salary or salary distribution commensurate with a significant change
in the employee's work activity. Short-term (such as one or two
months) fluctuation between workload categories need not be
considered as long as the distribution of salaries and wages is
reasonable over the longer term, such as an academic period.
Whenever it is apparent that a significant change in work activity
that is directly or indirectly charged to sponsored agreements will
occur or has occurred, the change will be documented over the
signature of a responsible official and entered into the system.
(e) At least annually a statement will be signed by the
employee, principal investigator, or responsible official(s) using
suitable means of verification that the work was performed, stating
that salaries and wages charged to sponsored agreements as direct
charges, and to residual, F&A cost or other categori