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CIRCULAR A-21
Revised 05/10/04
TO THE HEADS OF EXECUTIVE
DEPARTMENTS AND ESTABLISHMENTS
SUBJECT: Cost Principles
for Educational Institutions
1. Purpose.
This Circular establishes principles for determining costs applicable
to grants, contracts, and other agreements with educational institutions.
The principles 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.
The principles 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. Provision for profit or other increment above
cost is outside the scope of this Circular.
2. Supersession.
The Circular supersedes Federal Management Circular 73 8, dated December
19, 1973. FMC 73 8 is revised and reissued under its original designation
of OMB Circular No. A 21.
3. Applicability.
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All Federal agencies that sponsor research and development, training,
and other work at educational institutions shall apply the provisions
of this Circular 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.
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In addition, Federally Funded Research and Development Centers associated
with educational institutions shall be required to comply with the Cost
Accounting Standards, rules and regulations issued by the Cost Accounting
Standards Board, and set forth in 48 CFR part 99; provided that they
are subject thereto under defense related contracts.
4. Responsibilities.
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.
5. Attachment.
The principles and related policy guides are set forth in the Attachment,
"Principles for determining costs applicable to grants, contracts,
and other agreements with educational institutions."
6. Effective
date. The provisions of this Circular shall be 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). 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.
7. Inquiries.
Further information concerning this Circular may be obtained by contacting
the Office of Federal Financial Management, Office of Management and Budget,
Washington, DC 20503, telephone (202) 395 3993.
Attachment
PRINCIPLES
FOR DETERMINING COSTS APPLICABLE TO GRANTS,
CONTRACTS, AND OTHER AGREEMENTS WITH
EDUCATIONAL INSTITUTIONS
TABLE
OF CONTENTS
A. Purpose
and scope
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Objectives
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Policy guides
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Application
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Inquiries
B. Definition
of terms
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Major functions of an institution
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Sponsored agreement
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Allocation
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Facilities and administrative (F&A) costs
C. Basic
considerations
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Composition of total costs
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Factors affecting allowability of costs
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Reasonable costs
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Allocable costs
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Applicable credits
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Costs incurred by State and local governments
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Limitations on allowance of costs
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Collection of unallowable costs
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Adjustment of previously negotiated F&A cost rates containing unallowable
costs
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Consistency in estimating, accumulating and reporting costs
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Consistency in allocating costs incurred for the same purpose
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Accounting for unallowable costs
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Cost accounting period
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Disclosure statement
D. Direct
costs
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General
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Application to sponsored agreements
E. F&A
costs
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General
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Criteria for distribution
F. Identification
and assignment of F&A costs
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Definition of Facilities and Administration.
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Depreciation and use allowances
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Interest
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Operation and maintenance expenses
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General administration and general expenses
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Departmental administration expenses
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Sponsored projects administration
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Library expenses
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Student administration and services
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Offset for F&A expenses otherwise provided for by the Federal Government
G. Determination
and application of F&A cost rate or rates
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F&A cost pools
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The distribution basis
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Negotiated lump sum for F&A costs
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Predetermined rates for F&A costs
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Negotiated fixed rates and carry forward provisions
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Provisional and final rates for F&A costs
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Fixed rates for the life of the sponsored agreement
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Limitation on reimbursement of administrative costs
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Alternative method for administrative costs
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Individual rate components
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Negotiation and approval of F&A rate
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Standard format for submission
H. Simplified
method for small institutions
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General
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Simplified procedure
I. Reserved
J. General
provisions for selected items of cost
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Advertising and public relations costs
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Advisory councils
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Alcoholic beverages
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Alumni/ae activities
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Audit and related services
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Bad debts
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Bonding costs
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Commencement and convocation costs
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Communication costs
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Compensation for personal services
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Contingency provisions
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Deans of faculty and graduate schools
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Defense and prosecution of criminal and civil proceedings, claims, appeals
and patent infringement
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Depreciation and use allowances
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Donations and contributions
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Employee morale, health, and welfare costs
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Entertainment costs
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Equipment and other capital expenditures
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Fines and penalties
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Fund raising and investment costs
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Gains and losses on depreciable assets
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Goods or services for personal use
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Housing and personal living expenses
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Idle facilities and idle capacity
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Insurance and indemnification
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Interest
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Labor relations costs
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Lobbying
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Losses on other sponsored agreements or contracts
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Maintenance and repair costs
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Material and supplies costs
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Meetings and conferences
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Memberships, subscriptions and professional activity costs
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Patent costs
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Plant and homeland security costs
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Pre-agreement costs
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Professional service costs
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Proposal costs
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Publication and printing costs
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Rearrangement and alteration costs
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Reconversion costs
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Recruiting costs
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Rental costs of buildings and equipment
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Royalties and other costs for use of patents
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Scholarships and student aid costs
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Selling and marketing
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Specialized service facilities
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Student activity costs
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Taxes
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Termination costs applicable to sponsored agreements
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Training costs
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Transportation costs
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Travel costs
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Trustees
K. Certification
of charges
Exhibit A List of Colleges and Universities Subject
to Section J.12.h of Circular A 21
Exhibit
B Listing of Institutions that are eligible for the utility cost adjustment
Exhibit
C Examples of "major project" where direct charging of administrative
or clerical staff salaries may be appropriate
Appendix
A CASB's Cost Accounting Standards (CAS)
Appendix
B CASB's Disclosure Statement (DS 2)
Appendix
C Documentation Requirements for Facilities and Administrative (F&A)
Rate Proposals
PRINCIPLES
FOR DETERMINING COSTS APPLICABLE TO GRANTS,
CONTRACTS, AND OTHER AGREEMENTS WITH
EDUCATIONAL INSTITUTIONS
A. Purpose and scope.
1. Objectives. This
Attachment 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
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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.
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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.
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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.
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Each institution, in the fulfillment of its obligations, should employ
sound management practices.
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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.
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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 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:
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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.
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Capitation awards.
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Other awards under which the institution is not required to account
to the Federal Government for actual costs incurred.
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Conditional exemptions.
(1) OMB authorizes conditional exemption from OMB administrative requirements
and cost principles circulars 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 OMB Circulars A 87 (Attachment A, subsection C.3), "Cost Principles
for State, Local, and Indian Tribal Governments," A 21 (Section
C, subpart 4), "Cost Principles for Educational Institutions,"
and A 122 (Attachment A, subsection A.4), "Cost Principles for
Non Profit Organizations," and from all of the administrative requirements
provisions of OMB Circular A 110, "Uniform Administrative Requirements
for Grants and Agreements with Institutions of Higher Education, Hospitals,
and Other Non Profit Organizations," and the agencies' grants management
common rule.
(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 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 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 Circular,
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:
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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.
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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.
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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.
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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; and
(3) specialized service facilities described in Section J.47. 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 Circular, 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 a F&A cost activity, as described in Section
F. 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
Circular, 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 Circular and as currently used in Appendices
A and B. The F&A cost categories are described in Section F.1.
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 5.
2. Factors affecting
allowability of costs. The tests of allowability of costs under these
principles are: (a) they must be reasonable; (b) they must be allocable
to sponsored agreements under the principles and methods provided herein;
(c) they must be given consistent treatment through application of those
generally accepted accounting principles appropriate to the circumstances;
and (d) 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: (a)
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; (b) 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; (c) 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, (d) 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.
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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 (1) it is incurred solely to advance the
work under the sponsored agreement; (2) it benefits both the sponsored
agreement and other work of the institution, in proportions that can
be approximated through use of reasonable methods, or (3) it is necessary
to the overall operation of the institution and, in light of the principles
provided in this Circular, 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.
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Any costs allocable to a particular sponsored agreement under the standards
provided in this Circular 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.
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Any costs allocable to activities sponsored by industry, foreign governments
or other sponsors may not be shifted to federally sponsored agreements.
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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 d. (1) and (2).
(4) Documentation. Federal requirements for documentation are specified
in this Circular, Circular A 110, "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 d. (2), 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.
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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.
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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 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:
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The costs meet the requirements of subsections 1 through 5.
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The costs are properly supported by cost allocation plans in accordance
with applicable Federal cost accounting principles.
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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 Circular, 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:
- Costs
specifically identified as unallowable in Section J, either directly
or indirectly, and charged to the Federal Government.
- Excess
costs due to failure by the educational institution to comply with the
cost policies in this Circular.
- Increased
costs due to a noncompliant cost accounting practice used to estimate,
accumulate, or report costs.
- 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 (a) are unallowable as specified by (i) law or
regulation, (ii) Section J of this Circular, (iii) terms and conditions
of sponsored agreements, or (b) 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).
- 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.
- 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 finalized to avoid duplicate recovery of the unallowable
costs by the Federal Government.
- 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.
- 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.
- 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.
- 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.
- 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.
- Appendix
A 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.
- 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.
- Appendix
A 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- Appendix
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.
-
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: (i) material in amount, (ii) accumulated in a
separate F&A cost pool or expense pool, and (iii) 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.
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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.
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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.
-
Appendix A reflects this requirement, along with its purpose, definitions,
techniques for application and illustrations, all of which are authoritative.
14. Disclosure Statement.
- Educational
institutions that received aggregate sponsored agreements totaling $25
million or more subject to this Circular during their most recently
completed fiscal year shall disclose their cost accounting practices
by filing a Disclosure Statement (DS 2), which is reproduced in Appendix
B. 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.
- The DS
2 shall be submitted to the cognizant agency with a copy to the educational
institution's audit cognizant office.
- 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.
- 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 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.
- 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 Circular 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.
- 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.
- 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.
- 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 this Circular.
(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 for a discussion of the components of F&A
costs.
2. Criteria
for distribution.
- 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.
- 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 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
1. 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 c. 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 d.
- 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.
- Selection
of distribution method.
(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 (a) be
appropriately documented in sufficient detail for subsequent review
by the cognizant Federal agency, (b) distribute the costs to the related
cost objectives in accordance with the relative benefits derived, (c)
be statistically sound, (d) be performed specifically at the institution
at which the results are to be used, and (e) 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: (a) 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 (b) the institution qualifies
for, and elects to use, the simplified method for computing F&A
cost rates described in Section H.
(5) Notwithstanding subsection (3), effective July 1, 1998, a cost analysis
or base other than that in Section F 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.
- Order
of distribution.
(1) F&A costs are the broad categories of costs discussed in Section
F.1.
(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 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.
- 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.
- In the
absence of the alternatives provided for in Section E.2.d, 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 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.
- 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. The review process shall address
and document relevant factors affecting construction costs, such as:
-- Life cycle costs
-- Unique research needs
-- Special building needs
-- Building site preparation
-- Environmental consideration
-- Federal construction code requirements
-- Competitive procurement practices
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 Sections J.25, 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.
- 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, 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.
- In the
absence of the alternatives provided for in Section E.2.d, the expenses
included in this category shall be allocated in the same manner as described
in subsection 2.b for depreciation and use allowances.
- 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, may add a utility
cost adjustment (UCA) of 1.3 percentage points to its negotiated overall
F&A rate for organized research. Exhibit B 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. Beginning on July 1, 2002, Federal agencies shall
reassess periodically the eligibility of institutions to receive the
UCA.
- 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.
5. General administration and general expenses.
- 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 (1) instruction,
(2) organized research, (3) other sponsored activities, or (4) 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 6, Departmental
administration expenses.)
- In the
absence of the alternatives provided for in Section E.2.d, 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. 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.
- 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; 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 (1) and (2) 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.
- 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.
(3) Items such as office supplies, postage, local telephone costs, and
memberships shall normally be treated as F&A costs.
- In the
absence of the alternatives provided for in Section E.2.d, 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 (1) shall
be allocated to the appropriate functions of the department on the modified
total cost basis.
7. Sponsored projects administration.
- 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.
- In the
absence of the alternatives provided for in Section E.2.d, 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.
- 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.
- 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. 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.
- In the absence of the alternatives provided for in Section E.2.d,
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.
- Amount allocated in subsection b 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.
- 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. 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.
- In the
absence of the alternatives provided for in Section E.2.d, 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.
- 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
2 through 9.
- 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.
- (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 2 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 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, 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 2) for each major function (organized
research, instruction, etc., as described in Section B.1) 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.
- 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 (1) such F&A cost rate differs significantly from that which
would have been obtained under subsection a, and (2) 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
1. 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 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 Circular) 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.
- 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.
- 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.
- Notwithstanding the provisions of subsection 1.a, 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 2) 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) and all other types of
expenditures not listed specifically under one of the subcategories
of facilities in Section F.
- 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
a.
- Permanent rates established prior to this revision that have been
amended in accordance with subsection b 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.
- Institutions should not change their accounting or cost allocation
methods which were in effect on May 1, 1991, if the effect is to: (i)
change the charging of a particular type of cost from F&A to direct,
or (ii) 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.
- 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, whichever is less,
provided that no accounting or cost allocation changes with the effects
described in subsection 8.d 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 c). 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.
- 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 8.d have occurred.
- 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,
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 and to provide 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.
- 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.
- 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.
- 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.
- 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.
- Reimbursement. Reimbursement to cognizant agencies for work performed
under Circular A 21 may be made by reimbursement billing under the Economy
Act, 31 U.S.C. 1535.
- 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 Circular.
- 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.
- 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 Appendix C, 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.
H. Simplified
method for small institutions.
1. General.
- Where the total direct cost of work covered by Circular A 21 at an
institution does not exceed $10 million in a fiscal year, the use of
the simplified procedure described in subsections 2 or 3, 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 2) or modified
total direct costs (see subsection 3) as distribution basis.
- 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.
- Establish the total amount of salaries and wages paid to all employees
of the institution.
- 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).
(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.
In those cases where expenditures classified under subsection (1) 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.
- 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 b.
- 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.
- 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.
- Establish the total costs incurred by the institution for the base
period.
- 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).
(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.
In those cases where expenditures classified under subsection (1) 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.
- Establish a modified total direct cost distribution base, as defined
in Section G.2, that consists of all institution's direct functions.
- 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.
- 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.
J.
General provisions for selected items of cost.
Sections
1 through 54 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.
- 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.
- 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.
- 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 subsection b. of section J.42, 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.
- The only allowable public relations costs are:
(1) Costs specifically required by the sponsored agrrement;
(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.
- 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”)
are observed.
- Unallowable advertising and public relations costs include the following:
(1) All advertising and public relations costs other than as specified
in subsections 1.c, 1.d and 1.e.
(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.
- 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 USC 7505(b) and section ___.230 (“Audit
Costs”) of Circular A-133.
- 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.
- 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.
- 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.
- Costs of bonding required pursuant to the terms of the award are
allowable.
- 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.
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.
- 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 f). 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.
-
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.
(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;
(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 b.(2). Examples
of acceptable methods are contained in subsection c. Other methods that
meet the criteria specified in subsection b.(2) also shall be deemed acceptable,
if a mutually satisfactory alternative agreement is reached.
(2) Criteria for Acceptable Methods.
(a) The payroll distribution system will
(i) be incorporated into the official records of the institution;
(ii) reasonably reflect the activity for which the employee is compensated
by the institution; and
(iii) 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 b.(1)b)), 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.
- 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 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 b.(2)(c).
(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 categories are reasonable in relation to work performed.
(f) The system will provide for independent internal evaluation to ensure
the system's integrity and compliance with the above standards.
(g) In the use of this method, an institution shall not be required
to provide additional support or documentation for the effort actually
performed.
(2) After the fact Activity Records: Under this system the distribution
of salaries and wages by the institution will be supported by activity
reports as prescribed below.
(a) Activity reports will reflect the distribution of activity expended
by employees covered by the system (compensation for incidental work
as described in subsection a need not be included).
(b) These reports will reflect an after the fact reporting of the percentage
distribution of activity of employees. Charges may be made initially
on the basis of estimates made before the services are performed, provided
that such charges are promptly adjusted if significant differences are
indicated by activity records.
(c) Reports will reasonably reflect the activities for which employees
are compensated by the institution. To confirm that the distribution
of activity represents a reasonable estimate of the work performed by
the employee during the period, the reports will be signed by the employee,
principal investigator, or responsible official(s) using suitable means
of verification that the work was performed.
(d) 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 b.(2)(c).
(e) For professorial and professional staff, the reports will be prepared
each academic term, but no less frequently than every six months. For
other employees, unless alternate arrangements are agreed to, the reports
will be prepared no less frequently than monthly and will coincide with
one or more pay periods.
(f) Where the institution uses time cards or other forms of after the
fact payroll documents as original documentation for payroll and payroll
charges, such documents shall qualify as records for this purpose, provided
that they meet the requirements in subsections (a) through (e).
(3) Multiple Confirmation Records: Under this system, the distribution
of salaries and wages of professorial and professional staff will be
supported by records which certify separately for direct and F&A
cost activities as prescribed below.
(a) For employees covered by the system, there will be direct cost records
to reflect the distribution of that activity expended which is to be
allocable as direct cost to each sponsored agreement. There will also
be F&A cost records to reflect the distribution of that activity
to F&A costs. These records may be kept jointly or separately (but
are to be certified separately, see below).
(b) Salary and wage charges may be made initially on the basis of estimates
made before the services are performed, provided that such charges are
promptly adjusted if significant differences occur.
(c) Institutional records will reasonably reflect only the activity
for which employees are compensated by the institution (compensation
for incidental work as described in subsection a need not be included).
(d) 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.
(e) To confirm that distribution of activity represents a reasonable
estimate of the work performed by the employee during the period, the
record for each employee will include:
(1) the signature of the employee or of a person having direct
knowledge of the work, confirming that the record of activities allocable
as direct costs of each sponsored agreement is appropriate; and,
(2) the record of F&A costs will include the signature of responsible
person(s) who use suitable means of verification that the work was performed
and is consistent with the overall distribution of the employee's compensated
activities. These signatures may all be on the same document.
(f) The reports will be prepared each academic term, but no less
frequently than every six months.
(g) Where the institution uses time cards or other forms of after the
fact payroll documents as original documentation for payroll and payroll
charges, such documents shall qualify as records for this purposes,
provided they meet the requirements in subsections (a) through (f).
- Salary rates for faculty members.
(1) Salary rates for academic year. Charges for work performed on sponsored
agreements by faculty members during the academic year will be based
on the individual faculty member's regular compensation for the continuous
period which, under the policy of the institution concerned, constitutes
the basis of his salary. Charges for work performed on sponsored agreements
during all or any portion of such period are allowable at the base salary
rate. In no event will charges to sponsored agreements, irrespective
of the basis of computation, exceed the proportionate share of the base
salary for that period. This principle applies to all members of the
faculty at an institution. Since intra university consulting is assumed
to be undertaken as a university obligation requiring no compensation
in addition to full time base salary, the principle also applies to
faculty members who function as consultants or otherwise contribute
to a sponsored agreement conducted by another faculty member of the
same institution. However, in unusual cases where consultation is across
departmental lines or involves a separate or remote operation, and the
work performed by the consultant is in addition to his regular departmental
load, any charges for such work representing extra compensation above
the base salary are allowable provided that such consulting arrangements
are specifically provided for in the agreement or approved in writing
by the sponsoring agency.
(2) Periods outside the academic year.
(a) Except as otherwise specified for teaching activity in subsection
(b), charges for work performed by faculty members on sponsored agreements
during the summer months or other period not included in the base salary
period will be determined for each faculty member at a rate not in excess
of the base salary divided by the period to which the base salary relates,
and will be limited to charges made in accordance with other parts of
this section. The base salary period used in computing charges for work
performed during the summer months will be the number of months covered
by the faculty member's official academic year appointment.
(b) Charges for teaching activities performed by faculty members on
sponsored agreements during the summer months or other periods not included
in the base salary period will be based on the normal policy of the
institution governing compensation to faculty members for teaching assignments
during such periods.
(3) Part time faculty. Charges for work performed on sponsored agreements
by faculty members having only part time appointments will be determined
at a rate not in excess of that regularly paid for the part time assignments.
For example, an institution pays $5000 to a faculty member for half
time teaching during the academic year. He devoted one half of his remaining
time to a sponsored agreement. Thus, his additional compensation, chargeable
by the institution to the agreement, would be one half of $5000, or
$2500.
- Noninstitutional professional activities. Unless an arrangement is
specifically authorized by a Federal sponsoring agency, an institution
must follow its institution wide policies and practices concerning the
permissible extent of professional services that can be provided outside
the institution for noninstitutional compensation. Where such institution
wide policies do not exist or do not adequately define the permissible
extent of consulting or other noninstitutional activities undertaken
for extra outside pay, the Federal Government may require that the effort
of professional staff working on sponsored agreements be allocated between
(1) institutional activities, and (2) noninstitutional professional
activities. If the sponsoring agency considers the extent of noninstitutional
professional effort excessive, appropriate arrangements governing compensation
will be negotiated on a case by case basis.
- Fringe benefits.
(1) Fringe benefits in the form of regular compensation paid to employees
during periods of authorized absences from the job, such as for annual
leave, sick leave, military leave, and the like, are allowable, provided
such costs are distributed to all institutional activities in proportion
to the relative amount of time or effort actually devoted by the employees.
See subsection 11.f.(4) for treatment of sabbatical leave.
(2) Fringe benefits in the form of employer contributions or expenses
for social security, employee insurance, workmen's compensation insurance,
tuition or remission of tuition for individual employees are allowable,
provided such benefits are granted in accordance with established educational
institutional policies, and are distributed to all institutional activities
on an equitable basis. Tuition benefits for family members other than
the employee are unallowable for fiscal years beginning after September
30, 1998. See Section J.45.b, Scholarships and student aid costs, for
treatment of tuition remission provided to students.
(3) Rules for pension plan costs are as follows:
(a) Costs of the institution's pension plan which are incurred in accordance
with the established policies of the institution are allowable, provided:
(i) such policies meet the test of reasonableness, (ii) the methods
of cost allocation are equitable for all activities, (iii) the amount
of pension cost assigned to each fiscal year is determined in accordance
with subsection (b), and (iv) the cost assigned to a given fiscal year
is paid or funded for all plan participants within six months after
the end of that year. However, increases to normal and past service
pension costs caused by a delay in funding the actuarial liability beyond
30 days after each quarter of the year to which such costs are assignable
are unallowable.
(b) The amount of pension cost assigned to each fiscal year shall be
determined in accordance with generally accepted accounting principles.
Institutions may elect to follow the "Cost Accounting Standard
for Composition and Measurement of Pension Cost" (48 Part 9904
412).
(c) Premiums paid for pension plan termination insurance pursuant to
the Employee Retirement Income Security Act (ERISA) of 1974 (Pub. L.
93 406) are allowable. Late payment charges on such premiums are unallowable.
Excise taxes on accumulated funding deficiencies and prohibited transactions
of pension plan fiduciaries imposed under ERISA are also unallowable.
(4) Rules for sabbatical leave are as follows:
(a) Costs of leave of absence by employees for performance of graduate
work or sabbatical study, travel, or research are allowable provided
the institution has a uniform policy on sabbatical leave for persons
engaged in instruction and persons engaged in research. Such costs will
be allocated on an equitable basis among all related activities of the
institution.
(b) Where sabbatical leave is included in fringe benefits for which
a cost is determined for assessment as a direct charge, the aggregate
amount of such assessments applicable to all work of the institution
during the base period must be reasonable in relation to the institution's
actual experience under its sabbatical leave policy.
(5) Fringe benefits may be assigned to cost objectives by identifying
specific benefits to specific individual employees or by allocating
on the basis of institution wide salaries and wages of the employees
receiving the benefits. When the allocation method is used, separate
allocations must be made to selective groupings of employees, unless
the institution demonstrates that costs in relationship to salaries
and wages do not differ significantly for different groups of employees.
Fringe benefits shall be treated in the same manner as the salaries
and wages of the employees receiving the benefits. The benefits related
to salaries and wages treated as direct costs shall also be treated
as direct costs; the benefits related to salaries and wages treated
as F&A costs shall be treated as F&A costs.
- Institution furnished automobiles.
That portion of the cost of institution furnished automobiles that relates
to personal use by employees (including transportation to and from work)
is unallowable regardless of whether the cost is reported as taxable
income to the employees.
- Severance pay.
(1) Severance pay is compensation in addition to regular salary and
wages which is paid by an institution to employees whose services are
being terminated. Costs of severance pay are allowable only to the extent
that such payments are required by law, by employer-employee agreement,
by established policy that constitutes in effect an implied agreement
on the institution's part, or by circumstances of the particular employment.
(2) Severance payments that are due to normal recurring turnover and
which otherwise meet the conditions of subsection (1) may be allowed
provided the actual costs of such severance payments are regarded as
expenses applicable to the current fiscal year and are equitably distributed
among the institution's activities during that period.
(3) Severance payments that are due to abnormal or mass terminations
are of such conjectural nature that allowability must be determined
on a case-by-case basis. However, the Federal Government recognizes
its obligation to participate, to the extent of its fair share, in any
specific payment.
(4) Costs incurred in excess of the institution's normal severance pay
policy applicable to all persons employed by the institution upon termination
of employment are unallowable.
11. Contingency provisions.
Contributions
to a contingency reserve or any similar provision made for events the
occurrence of which cannot be foretold with certainty as to time, intensity,
or with an assurance of their happening, are unallowable, except as noted
in the cost principles in this circular regarding self-insurance, pensions,
severance and post-retirement health costs.
12. Deans
of faculty and graduate schools.
The salaries
and expenses of deans of faculty and graduate schools, or their equivalents,
and their staffs, are allowable.
13. Defense
and prosecution of criminal and civil proceedings, claims, appeals and
patent infringement.
- Definitions.
"Conviction," as used herein, means a judgment or conviction
of a criminal offense by any court of competent jurisdiction, whether
entered upon verdict or a plea, including a conviction due to a plea
of nolo contendere.
"Costs," include, but are not limited to, administrative and
clerical expenses; the cost of legal services, whether performed by
in house or private counsel; the costs of the services of accountants,
consultants, or others retained by the institution to assist it; costs
of employees, officers and trustees, and any similar costs incurred
before, during, and after commencement of a judicial or administrative
proceeding that bears a direct relationship to the proceedings.
"Fraud," as used herein, means –
(1) acts of fraud or corruption or attempts to defraud the Federal Government
or to corrupt its agents;
(2) acts that constitute a cause for debarment or suspension (as specified
in agency regulations), and (3) acts which violate the False Claims
Act, 31 U.S.C., sections 3729 3731, or the Anti kickback Act, 41 U.S.C.,
sections 51 and 54.
"Penalty," does not include restitution, reimbursement, or
compensatory damages.
"Proceeding," includes an investigation.
- (1) Except as otherwise described herein, costs incurred in connection
with any criminal, civil or administrative proceeding (including filing
of a false certification) commenced by the Federal Government, or a
State, local or foreign government, are not allowable if the proceeding
(a) relates to a violation of, or failure to comply with, a Federal,
State, local or foreign statute or regulation, by the institution (including
its agents and employees); and
(b) results in any of the following dispositions:
(i) In a criminal proceeding, a conviction.
(ii) In a civil or administrative proceeding involving an allegation
of fraud or similar misconduct, a determination of institutional liability.
(iii) In the case of any civil or administrative proceeding, the imposition
of a monetary penalty.
(iv) A final decision by an appropriate Federal official to debar or
suspend the institution, to rescind or void an award, or to terminate
an award for default by reason of a violation or failure to comply with
a law or regulation.
(v) A disposition by consent or compromise, if the action could have
resulted in any of the dispositions described in subsections (i) through
(iv).
(2) If more than one proceeding involves the same alleged misconduct,
the costs of all such proceedings shall be unallowable if any one of
them results in one of the dispositions shown in subsection b.
- If a proceeding referred to in subsection b. is commenced by the
Federal Government and is resolved by consent or compromise pursuant
to an agreement entered into by the institution and the Federal Government,
then the costs incurred by the institution in connection with such proceedings
that are otherwise not allowable under subsection b. may be allowed
to the extent specifically provided in such agreement.
- If a proceeding referred to in subsection b. is commenced by a State,
local or foreign government, the authorized Federal official may allow
the costs incurred by the institution for such proceedings, if such
authorized official determines that the costs were incurred as a result
of –
(1) a specific term or condition of a federally sponsored agreement;
or
(2) specific written direction of an authorized official of the sponsoring
agency.
- Costs incurred in connection with proceedings described in subsection
b, but which are not made unallowable by that subsection, may be allowed
by the Federal Government, but only to the extent that:
(1) The costs are reasonable in relation to the activities required
to deal with the proceeding and the underlying cause of action;
(2) Payment of the costs incurred, as allowable and allocable costs,
is not prohibited by any other provision(s) of the sponsored agreement;
(3) The costs are not otherwise recovered from the Federal Government
or a third party, either directly as a result of the proceeding or otherwise;
and,
(4) The percentage of costs allowed does not exceed the percentage determined
by an authorized Federal official to be appropriate considering the
complexity of procurement litigation, generally accepted principles
governing the award of legal fees in civil actions involving the United
States as a party, and such other factors as may be appropriate. Such
percentage shall not exceed 80 percent. However, if an agreement reached
under subsection c has explicitly considered this 80 percent limitation
and permitted a higher percentage, then the full amount of costs resulting
from that agreement shall be allowable.
- Costs incurred by the institution in connection with the defense
of suits brought by its employees or ex employees under section 2 of
the Major Fraud Act of 1988 (Pub. L. 100 700), including the cost of
all relief necessary to make such employee whole, where the institution
was found liable or settled, are unallowable.
- Costs of legal, accounting, and consultant services, and related
costs, incurred in connection with defense against Federal Government
claims or appeals, or the prosecution of claims or appeals against the
Federal Government, are unallowable.
- Costs of legal, accounting, and consultant services, and related
costs, incurred in connection with patent infringement litigation, are
unallowable unless otherwise provided for in the sponsored agreements.
- Costs, which may be unallowable under this section, including directly
associated costs, shall be segregated and accounted for by the institution
separately. During the pendency of any proceeding covered by subsections
b and f, the Federal Government shall generally withhold payment of
such costs. However, if in the best interests of the Federal Government,
the Federal Government may provide for conditional payment upon provision
of adequate security, or other adequate assurance, and agreement by
the institution to repay all unallowable costs, plus interest, if the
costs are subsequently determined to be unallowable.
14. Depreciation and use allowances.
- Institutions may be compensated for the use of their buildings, capital
improvements, and equipment, provided that they are used, needed in
the institutions' activities, and properly allocable to sponsored agreements.
Such compensation shall be made by computing either depreciation or
use allowance. Use allowances are the means of providing such compensation
when depreciation or other equivalent costs are not computed. The allocation
for depreciation or use allowance shall be made in accordance with Section
F.2. Depreciation and use allowances are computed applying the following
rules:
- The computation of depreciation or use allowances shall be based
on the acquisition cost of the assets involved. The acquisition cost
of an asset donated to the institution by a third party shall be its
fair market value at the time of the donation.
- For this purpose, the acquisition cost will exclude:
(1) the cost of land;
(2) any portion of the cost of buildings and equipment borne by or donated
by the Federal Government, irrespective of where title was originally
vested or where it is presently located; and
(3) any portion of the cost of buildings and equipment contributed by
or for the institution where law or agreement prohibits recovery.
- In the use of the depreciation method, the following shall be observed:
(1) The period of useful service (useful life) established in each case
for usable capital assets must take into consideration such factors
as type of construction, nature of the equipment, technological developments
in the particular area, and the renewal and replacement policies followed
for the individual items or classes of assets involved.
(2) The depreciation method used to charge the cost of an asset (or
group of assets) to accounting periods shall reflect the pattern of
consumption of the asset during its useful life.
In the absence of clear evidence indicating that the expected consumption
of the asset will be significantly greater in the early portions than
in the later portions of its useful life, the straight-line method shall
be presumed to be the appropriate method.
Depreciation methods once used shall not be changed unless approved
in advance by the cognizant Federal agency. The depreciation methods
used to calculate the depreciation amounts for F&A rate purposes
shall be the same methods used by the institution for its financial
statements. This requirement does not apply to those institutions (e.g.,
public institutions of higher education) which are not required to record
depreciation by applicable generally accepted accounting principles
(GAAP).
(3) Where the depreciation method is introduced to replace the use allowance
method, depreciation shall be computed as if the asset had been depreciated
over its entire life (i.e., from the date the asset was acquired and
ready for use to the date of disposal or withdrawal from service). The
aggregate amount of use allowances and depreciation attributable to
an asset (including imputed depreciation applicable to periods prior
to the conversion to the use allowance method as well as depreciation
after the conversion) may be less than, and in no case, greater than
the total acquisition cost of the asset.
(4) The entire building, including the shell and all components, may
be treated as a single asset and depreciated over a single useful life.
A building may also be divided into multiple components. Each component
item may then be depreciated over its estimated useful life. The building
components shall be grouped into three general components of a building:
building shell (including construction and design costs), building services
systems (e.g., elevators, HVAC, plumbing system and heating and air-conditioning
system) and fixed equipment (e.g., sterilizers, casework, fume hoods,
cold rooms and glassware/washers). In exceptional cases, a Federal cognizant
agency may authorize a institution to use more than these three groupings.
When a institution elects to depreciate its buildings by its components,
the same depreciation methods must be used for F&A purposes and
financial statement purposes, as described in subsection d.2.
(5) Where the depreciation method is used for a particular class of
assets, no depreciation may be allowed on any such assets that have
outlived their depreciable lives. (See also subsection e.(3))
- Under the use allowance method, the following shall be observed:
(1) The use allowance for buildings and improvements (including improvements
such as paved parking areas, fences, and sidewalks) shall be computed
at an annual rate not exceeding two percent of acquisition cost.
The use allowance for equipment shall be computed at an annual rate
not exceeding six and two-thirds percent of acquisition cost. Use allowance
recovery is limited to the acquisition cost of the assets. For donated
assets, use allowance recovery is limited to the fair market value of
the assets at the time of donation.
(2) In contrast to the depreciation method, the entire building must
be treated as a single asset without separating its "shell"
from other building components under the use allowance method. The entire
building must be treated as a single asset, and the two-percent use
allowance limitation must be applied to all parts of the building.
The two-percent limitation, however, need not be applied to equipment
or other assets that are merely attached or fastened to the building
but not permanently fixed and are used as furnishings, decorations or
for specialized purposes (e.g., dentist chairs and dental treatment
units, counters, laboratory benches bolted to the floor, dishwashers,
modular furniture, and carpeting). Such equipment and assets will be
considered as not being permanently fixed to the building if they can
be removed without the need for costly or extensive alterations or repairs
to the building to make the space usable for other purposes. Equipment
and assets that meet these criteria will be subject to the 6 2/3 percent
equipment use allowance.
(3) A reasonable use allowance may be negotiated for any assets that
are considered to be fully depreciated, after taking into consideration
the amount of depreciation previously charged to the Federal Government,
the estimated useful life remaining at the time of negotiation, the
effect of any increased maintenance charges, decreased efficiency due
to age, and any other factors pertinent to the utilization of the asset
for the purpose contemplated.
(4) Notwithstanding subsection e.(3), once a institution converts from
one cost recovery methodology to another, acquisition costs not recovered
may not be used in the calculation of the use allowance in subsection
e.(3).
- Except as otherwise provided in subsections b. through e., a combination
of the depreciation and use allowance methods may not be used, in like
circumstances, for a single class of assets (e.g., buildings, office
equipment, and computer equipment).
- Charges for use allowances or depreciation must be supported by adequate
property records, and physical inventories must be taken at least once
every two years to ensure that the assets exist and are usable, used,
and needed. Statistical sampling techniques may be used in taking these
inventories. In addition, when the depreciation method is used, adequate
depreciation records showing the amount of depreciation taken each period
must also be maintained.
- This section applies to the largest college and university recipients
of Federal research and development funds as displayed in Exhibit A,
List of Colleges and Universities Subject to Section J.14.h of Circular
A-21.
(1) Institutions shall expend currently, or reserve for expenditure
within the next five years, the portion of F&A cost payments made
for depreciation or use allowances under sponsored research agreements,
consistent with Section F.2, to acquire or improve research facilities.
This provision applies only to Federal agreements, which reimburse F&A
costs at a full negotiated rate. These funds may only be used for (a)
liquidation of the principal of debts incurred to acquire assets that
are used directly for organized research activities, or (b) payments
to acquire, repair, renovate, or improve buildings or equipment directly
used for organized research. For buildings or equipment not exclusively
used for organized research activity, only appropriately proportionate
amounts will be considered to have been expended for research facilities.
(2) An assurance that an amount equal to the Federal reimbursements
has been appropriately expended or reserved to acquire or improve research
facilities shall be submitted as part of each F&A cost proposal
submitted to the cognizant Federal agency which is based on costs incurred
on or after October 1, 1991. This assurance will cover the cumulative
amounts of funds received and expended during the period beginning after
the period covered by the previous assurance and ending with the fiscal
year on which the proposal is based. The assurance shall also cover
any amounts reserved from a prior period in which the funds received
exceeded the amounts expended.
15. Donations and contributions.
- Contributions or Donations rendered.
Contributions or donations, including cash, property, and services,
made by the institution, regardless of the recipient, are unallowable.
- Donated services received.
Donated or volunteer services may be furnished to a institution by professional
and technical personnel, consultants, and other skilled and unskilled
labor. The value of these services is not reimbursable either as a direct
or F&A cost. However, the value of donated services may be used
to meet cost sharing or matching requirements in accordance with Circular
A-110.
- Donated property.
The value of donated property is not reimbursable either as a direct
or F&A cost, except that depreciation or use allowances on donated
assets are permitted in accordance with Section J.14. The value of donated
property may be used to meet cost sharing or matching requirements,
in accordance with Circular A-110.
16. Employee morale, health, and welfare costs and costs.
- The costs of employee information publications, health or first-aid
clinics and/or infirmaries, recreational activities, employee counseling
services, and any other expenses incurred in accordance with the institution's
established practice or custom for the improvement of working conditions,
employer-employee relations, employee morale, and employee performance
are allowable.
- Such costs will be equitably apportioned to all activities of the
institution. Income generated from any of these activities will be credited
to the cost thereof unless such income has been irrevocably set over
to employee welfare organizations.
- Losses resulting from operating food services are allowable only
if the institution’s objective is to operate such services on
a break-even basis. Losses sustained because of operating objectives
other than the above are allowable only (a) where the institution can
demonstrate unusual circumstances, and (b) with the approval of the
cognizant Federal agency.
17. Entertainment costs.
Costs of
entertainment, including amusement, diversion, and social activities and
any costs directly associated with such costs (such as tickets to shows
or sports events, meals, lodging, rentals, transportation, and gratuities)
are unallowable.
18. Equipment
and other capital expenditures.
- For purposes of this subsection, the following definitions apply:
(1) "Capital Expenditures” means expenditures for the acquisition
cost of capital assets (equipment, buildings, and land), or expenditures
to make improvements to capital assets that materially increase their
value or useful life. Acquisition cost means the cost of the asset including
the cost to put it in place. Acquisition cost for equipment, for example,
means the net invoice price of the equipment, including the cost of
any modifications, attachments, accessories, or auxiliary apparatus
necessary to make it usable for the purpose for which it is acquired.
Ancillary charges, such as taxes, duty, protective in transit insurance,
freight, and installation may be included in, or excluded from the acquisition
cost in accordance with the institution's regular accounting practices.
(2) "Equipment" means an article of nonexpendable, tangible
personal property having a useful life of more than one year and an
acquisition cost which equals or exceeds the lesser of the capitalization
level established by the institution for financial statement purposes,
or $5000.
(3) "Special purpose equipment" means equipment which is used
only for research, medical, scientific, or other technical activities.
Examples of special purpose equipment include microscopes, x-ray machines,
surgical instruments, and spectrometers.
(4) "General purpose equipment" means equipment, which is
not limited to research, medical, scientific or other technical activities.
Examples include office equipment and furnishings, modular offices,
telephone networks, information technology equipment and systems, air
conditioning equipment, reproduction and printing equipment, and motor
vehicles.
- The following rules of allowability shall apply to equipment and
other capital expenditures:
(1) Capital expenditures for general purpose equipment, buildings, and
land are unallowable as direct charges, except where approved in advance
by the awarding agency.
(2) Capital expenditures for special purpose equipment are allowable
as direct costs, provided that items with a unit cost of $5000 or more
have the prior approval of the awarding agency.
(3) Capital expenditures for improvements to land, buildings, or equipment
which materially increase their value or useful life are unallowable
as a direct cost except with the prior approval of the awarding agency.
(4) When approved as a direct charge pursuant to subsections J.18.b(1)
through (3)above, capital expenditures will be charged in the period
in which the expenditure is incurred, or as otherwise determined appropriate
by and negotiated with the awarding agency.
(5) Equipment and other capital expenditures are unallowable as indirect
costs. However, see section J.14, Depreciation and use allowances, for
rules on the allowability of use allowances or depreciation on buildings,
capital improvements, and equipment. Also, see section J.43, Rental
costs of buildings and equipment, for rules on the allowability of rental
costs for land, buildings, and equipment.
(6) The unamortized portion of any equipment written off as a result
of a change in capitalization levels may be recovered by continuing
to claim the otherwise allowable use allowances or depreciation on the
equipment, or by amortizing the amount to be written off over a period
of years negotiated with the cognizant agency.
19. Fines and penalties.
Costs resulting
from violations of, or failure of the institution to comply with, Federal,
State, and local or foreign laws and regulations are unallowable, except
when incurred as a result of compliance with specific provisions of the
sponsored agreement, or instructions in writing from the authorized official
of the sponsoring agency authorizing in advance such payments.
20. Fund
raising and investment costs.
- Costs of organized fund raising, including financial campaigns, endowment
drives, solicitation of gifts and bequests, and similar expenses incurred
solely to raise capital or obtain contributions, are unallowable.
- Costs of investment counsel and staff and similar expenses incurred
solely to enhance income form investments are unallowable.
- Costs related to the physical custody and control of monies and securities
are allowable.
21. Gain and losses on depreciable assets.
- (1) Gains and losses on the sale, retirement, or other disposition
of depreciable property shall be included in the year in which they
occur as credits or charges to the asset cost grouping(s) in which the
property was included. The amount of the gain or loss to be included
as a credit or charge to the appropriate asset cost grouping(s) shall
be the difference between the amount realized on the property and the
undepreciated basis of the property.
(2) Gains and losses on the disposition of depreciable property shall
not be recognized as a separate credit or charge under the following
conditions:
(a) The gain or loss is processed through a depreciation account
and is reflected in the depreciation allowable under Section J.14.
(b) The property is given in exchange as part of the purchase price
of a similar item and the gain or loss is taken into account in determining
the depreciation cost basis of the new item.
(c) A loss results from the failure to maintain permissible insurance,
except as otherwise provided in Section J.25.
(d) Compensation for the use of the property was provided through use
allowances in lieu of depreciation.
- Gains or losses of any nature arising from the sale or exchange of
property other than the property covered in subsection a shall be excluded
in computing sponsored agreement costs.
- When assets acquired with Federal funds, in part or wholly, are disposed
of, the distribution of the proceeds shall be made in accordance with
Circular A 110, "Uniform Administrative Requirements for Grants
and Agreements with Institutions of Higher Education, Hospitals, and
Other Non Profit Organizations."
22. Goods or services for personal use.
Costs of
goods or services for personal use of the institution's employees are
unallowable regardless of whether the cost is reported as taxable income
to the employees.
23. Housing
and personal living expenses.
- Costs of housing (e.g., depreciation, maintenance, utilities, furnishings,
rent, etc.), housing allowances and personal living expenses for/of
the institution's officers are unallowable regardless of whether the
cost is reported as taxable income to the employees.
- The term "officers" includes current and past officers.
24.
Idle facilities and idle capacity.
- As used in this section the following terms have the meanings set
forth below:
(1) "Facilities" means land and buildings or any portion thereof,
equipment individually or collectively, or any other tangible capital
asset, wherever located, and whether owned or leased by the institution.
(2) "Idle facilities" means completely unused facilities that
are excess to the institution's current needs.
(3) "Idle capacity" means the unused capacity of partially
used facilities. It is the difference between:
(a) that which a facility could achieve under 100 percent operating
time on a one-shift basis less operating interruptions resulting from
time lost for repairs, setups, unsatisfactory materials, and other normal
delays; and
(b) the extent to which the facility was actually used to meet demands
during the accounting period. A multi-shift basis should be used if
it can be shown that this amount of usage would normally be expected
for the type of facility involved.
(4) "Cost of idle facilities or idle capacity" means costs
such as maintenance, repair, housing, rent, and other related costs,
e.g., insurance, interest, property taxes and depreciation or use allowances.
- The costs
of idle facilities are unallowable except to the extent that:
(1) They are necessary to meet fluctuations in workload; or
(2) Although not necessary to meet fluctuations in workload, they were
necessary when acquired and are now idle because of changes in program
requirements, efforts to achieve more economical operations, reorganization,
termination, or other causes which could not have been reasonably foreseen.
Under the exception stated in this subsection, costs of idle facilities
are allowable for a reasonable period of time, ordinarily not to exceed
one year, depending on the initiative taken to use, lease, or dispose
of such facilities.
- The costs
of idle capacity are normal costs of doing business and are a factor
in the normal fluctuations of usage or indirect cost rates from period
to period. Such costs are allowable, provided that the capacity is reasonably
anticipated to be necessary or was originally reasonable and is not
subject to reduction or elimination by use on other sponsored agreements,
subletting, renting, or sale, in accordance with sound business, economic,
or security practices. Widespread idle capacity throughout an entire
facility or among a group of assets having substantially the same function
may be considered idle facilities.
25. Insurance and indemnification.
- Costs of insurance required or approved, and maintained, pursuant
to the sponsored agreement, are allowable.
- Costs of other insurance maintained by the institution in connection
with the general conduct of its activities, are allowable subject to
the following limitations:
(1) types and extent and cost of coverage must be in accordance with
sound institutional practice;
(2) costs of insurance or of any contributions to any reserve covering
the risk of loss of or damage to federally owned property are unallowable,
except to the extent that the Federal Government has specifically required
or approved such costs; and
(3) costs of insurance on the lives of officers or trustees are unallowable
except where such insurance is part of an employee plan which is not
unduly restricted.
- Contributions to a reserve for a self insurance program are allowable,
to the extent that the types of coverage, extent of coverage, and the
rates and premiums would have been allowed had insurance been purchased
to cover the risks.
- Actual losses which could have been covered by permissible insurance
(whether through purchased insurance or self insurance) are unallowable,
unless expressly provided for in the sponsored agreement, except that
costs incurred because of losses not covered under existing deductible
clauses for insurance coverage provided in keeping with sound management
practice as well as minor losses not covered by insurance, such as spoilage,
breakage and disappearance of small hand tools, which occur in the ordinary
course of operations, are allowable.
- Indemnification includes securing the institution against liabilities
to third persons and other losses not compensated by insurance or otherwise.
The Federal Government is obligated to indemnify the institution only
to the extent expressly provided for in the sponsored agreement, except
as provided in subsection d.
- Insurance against defects. Costs of insurance with respect to any
costs incurred to correct defects in the institution's materials or
workmanship are unallowable.
- Medical liability (malpractice) insurance is an allowable cost of
research programs only to the extent that the research involves human
subjects. Medical liability insurance costs shall be treated as a direct
cost and shall be assigned to individual projects based on the manner
in which the insurer allocates the risk to the population covered by
the insurance.
26. Interest.
- Costs incurred for interest on borrowed capital, temporary use of
endowment funds, or the use of the institution’s own funds, however
represented, are unallowable. However, interest on debt incurred after
July 1, 1982 to acquire buildings, major reconstruction and remodeling,
or the acquisition or fabrication of capital equipment costing $10,000
or more, is allowable.
- Interest on debt incurred after May 8, 1996 to acquire or replace
capital assets (including construction, renovations, alterations, equipment,
land, and capital assets acquired through capital leases) acquired after
that date and used in support of sponsored agreements is allowable,
subject to the following conditions:
(1) For facilities costing over $500,000, the institution shall prepare,
prior to acquisition or replacement of the facility, a lease-purchase
analysis in accordance with the provisions of Sec___.30 through____.37
of OMB Circular A-110, which shows that a financed purchase, including
a capital lease is less costly to the institution than other operating
lease alternatives, on a net present value basis. Discount rates used
shall be equal to the institution's anticipated interest rates and shall
be no higher than the fair market rate available to the institution
from an unrelated ("arm's length") third-party. The lease-purchase
analysis shall include a comparison of the net present value of the
projected total cost comparisons of both alternatives over the period
the asset is expected to be used by the institution. The cost comparisons
associated with purchasing the facility shall include the estimated
purchase price, anticipated operating and maintenance costs (including
property taxes, if applicable) not included in the debt financing, less
any estimated asset salvage value at the end of the defined period.
The cost comparison for a capital lease shall include the estimated
total lease payments, any estimated bargain purchase option, operating
and maintenance costs, and taxes not included in the capital leasing
arrangement, less any estimated credits due under the lease at the end
of the defined period. Projected operating lease costs shall be based
on the anticipated cost of leasing comparable facilities at fair market
rates under rental agreements that would be renewed or reestablished
over the period defined above, and any expected maintenance costs and
allowable property taxes to be borne by the institution directly or
as part of the lease arrangement.
(2) The actual interest cost claimed is predicated upon interest rates
that are no higher than the fair market rate available to the institution
from an unrelated (arm's length) third party.
(3) Investment earnings, including interest income on bond or loan principal,
pending payment of the construction or acquisition costs, are used to
offset allowable interest cost. Arbitrage earnings reportable to the
Internal Revenue Service are not required to be offset against allowable
interest costs.
(4) Reimbursements are limited to the least costly alternative based
on the total cost analysis required under subsection (1). For example,
if an operating lease is determined to be less costly than purchasing
through debt financing, then reimbursement is limited to the amount
determined if leasing had been used. In all cases where a lease-purchase
analysis is required to be performed, Federal reimbursement shall be
based upon the least expensive alternative.
(5) For debt arrangements over $1 million, unless the institution makes
an initial equity contribution to the asset purchase of 25 percent or
more, the institution shall reduce claims for interest expense by an
amount equal to imputed interest earnings on excess cash flow, which
is to be calculated as follows. Annually, non-Federal entities shall
prepare a cumulative (from the inception of the project) report of monthly
cash flows that includes inflows and outflows, regardless of the funding
source. Inflows consist of depreciation expense, amortization of capitalized
construction interest, and annual interest cost. For cash flow calculations,
the annual inflow figures shall be divided by the number of months in
the year (i.e., usually 12) that the building is in service for monthly
amounts. Outflows consist of initial equity contributions, debt principal
payments (less the pro rata share attributable to the unallowable costs
of land) and interest payments. Where cumulative inflows exceed cumulative
outflows, interest shall be calculated on the excess inflows for that
period and be treated as a reduction to allowable interest cost. The
rate of interest to be used to compute earnings on excess cash flows
shall be the three-month Treasury bill closing rate as of the last business
day of that month.
(6) Substantial relocation of federally sponsored activities from a
facility financed by indebtedness, the cost of which was funded in whole
or part through Federal reimbursements, to another facility prior to
the expiration of a period of 20 years requires notice to the cognizant
agency. The extent of the relocation, the amount of the Federal participation
in the financing, and the depreciation and interest charged to date
may require negotiation and/or downward adjustments of replacement space
charged to Federal programs in the future.
(7) The allowable costs to acquire facilities and equipment are limited
to a fair market value available to the institution from an unrelated
(arm's length) third party.
- Institutions are also subject to the following conditions:
(1) Interest on debt incurred to finance or refinance assets re-acquired
after the applicable effective dates stipulated above is unallowable.
(2) Interest attributable to fully depreciated assets is unallowable.
- The following definitions are to be used for purposes of this section:
(1) “Re-acquired” assets means assets held by the institution
prior to the applicable effective dates stipulated above that have again
come to be held by the institution, whether through repurchase or refinancing.
It does not include assets acquired to replace older assets.
(2) "Initial equity contribution" means the amount or value
of contributions made by non-Federal entities for the acquisition of
the asset prior to occupancy of facilities.
(3) "Asset costs" means the capitalizable costs of an asset,
including construction costs, acquisition costs, and other such costs
capitalized in accordance with Generally Accepted Accounting Principles
(GAAP).
27. Labor relations costs.
Costs incurred
in maintaining satisfactory relations between the institution and its
employees, including costs of labor management committees, employees'
publications, and other related activities, are allowable.
28. Lobbying.
Reference
is made to the common rule published at 55 FR 6736 (2/26/90), and OMB's
governmentwide guidance, amendments to OMB's governmentwide guidance,
and OMB's clarification notices published at 54 FR 52306 (12/20/89), 61
FR 1412 (1/19/96), 55 FR 24540 (6/15/90) and 57 FR 1772 (1/15/92), respectively.
In addition, the following restrictions shall apply:
- Notwithstanding other provisions of this Circular, costs associated
with the following activities are unallowable:
(1) Attempts to influence the outcomes of any Federal, State, or local
election, referendum, initiative, or similar procedure, through in kind
or cash contributions, endorsements, publicity, or similar activity;
(2) Establishing, administering, contributing to, or paying the expenses
of a political party, campaign, political action committee, or other
organization established for the purpose of influencing the outcomes
of elections;
(3) Any attempt to influence –
(i) the introduction of Federal or State legislation;
(ii) the enactment or modification of any pending Federal or State legislation
through communication with any member or employee of the Congress or
State legislature, including efforts to influence State or local officials
to engage in similar lobbying activity; or
(iii) any government official or employee in connection with a decision
to sign or veto enrolled legislation;
(4) Any attempt to influence –
(i) the introduction of Federal or State legislation; or
(ii) the enactment or modification of any pending Federal or State legislation
by preparing, distributing, or using publicity or propaganda, or by
urging members of the general public, or any segment thereof, to contribute
to or participate in any mass demonstration, march, rally, fund raising
drive, lobbying campaign or letter writing or telephone campaign; or
(5) Legislative liaison activities, including attendance at legislative
sessions or committee hearings, gathering information regarding legislation,
and analyzing the effect of legislation, when such activities are carried
on in support of or in knowing preparation for an effort to engage in
unallowable lobbying.
- The following activities are excepted from the coverage of subsection
a:
(1) Technical and factual presentations on topics directly related to
the performance of a grant, contract, or other agreement (through hearing
testimony, statements, or letters to the Congress or a State legislature,
or subdivision, member, or cognizant staff member thereof), in response
to a documented request (including a Congressional Record notice requesting
testimony or statements for the record at a regularly scheduled hearing)
made by the recipient member, legislative body or subdivision, or a
cognizant staff member thereof, provided such information is readily
obtainable and can be readily put in deliverable form, and further provided
that costs under this section for travel, lodging or meals are unallowable
unless incurred to offer testimony at a regularly scheduled Congressional
hearing pursuant to a written request for such presentation made by
the Chairman or Ranking Minority Member of the Committee or Subcommittee
conducting such hearings;
(2) Any lobbying made unallowable by subsection a.(3) to influence State
legislation in order to directly reduce the cost, or to avoid material
impairment of the institution's authority to perform the grant, contract,
or other agreement; or
(3) Any activity specifically authorized by statute to be undertaken
with funds from the grant, contract, or other agreement.
- When an institution seeks reimbursement for F&A costs, total
lobbying costs shall be separately identified in the F&A cost rate
proposal, and thereafter treated as other unallowable activity costs
in accordance with the procedures of Section B.1.d.
- Institutions shall submit as part of their annual F&A cost rate
proposal a certification that the requirements and standards of this
section have been complied with.
- Institutions shall maintain adequate records to demonstrate that the
determination of costs as being allowable or unallowable pursuant to
this section complies with the requirements of this Circular.
- Time logs, calendars, or similar records shall not be required to
be created for purposes of complying with this section during any particular
calendar month when:
(1) the employee engages in lobbying (as defined in subsections a and
b) 25 percent or less of the employee's compensated hours of employment
during that calendar month; and
(2) within the preceding five year period, the institution has not materially
misstated allowable or unallowable costs of any nature, including legislative
lobbying costs. When conditions (1) and (2) are met, institutions are
not required to establish records to support the allowability of claimed
costs in addition to records already required or maintained. Also, when
conditions (1) and (2) are met, the absence of time logs, calendars,
or similar records will not serve as a basis for disallowing costs by
contesting estimates of lobbying time spent by employees during a calendar
month.
- Agencies shall establish procedures for resolving in advance, in
consultation with OMB, any significant questions or disagreements concerning
the interpretation or application of this section. Any such advance
resolutions shall be binding in any subsequent settlements, audits,
or investigations with respect to that grant or contract for purposes
of interpretation of this Circular, provided, however, that this shall
not be construed to prevent a contractor or grantee from contesting
the lawfulness of such a determination.
- Executive lobbying costs.
Costs incurred in attempting to improperly influence either directly
or indirectly, an employee or officer of the Executive Branch of the
Federal Government to give consideration or to act regarding a sponsored
agreement or a regulatory matter are unallowable. Improper influence
means any influence that induces or tends to induce a Federal employee
or officer to give consideration or to act regarding a federally sponsored
agreement or regulatory matter on any basis other than the merits of
the matter.
29. Losses on other sponsored agreements or contracts.
Any excess
of costs over income under any other sponsored agreement or contract of
any nature is unallowable. This includes, but is not limited to, the institution's
contributed portion by reason of cost sharing agreements or any under
recoveries through negotiation of flat amounts for F&A costs.
30. Maintenance
and repair costs.
Costs incurred
for necessary maintenance, repair, or upkeep of buildings and equipment
(including Federal property unless otherwise provided for) which neither
add to the permanent value of the property nor appreciably prolong its
intended life, but keep it in an efficient operating condition, are allowable.
Costs incurred for improvements which add to the permanent value of the
buildings and equipment or appreciably prolong their intended life shall
be treated as capital expenditures (see section 18.a(1)).
31. Material
and supplies costs.
- Costs incurred for materials, supplies, and fabricated parts necessary
to carry out a sponsored agreement are allowable.
- Purchased materials and supplies shall be charged at their actual
prices, net of applicable credits. Withdrawals from general stores or
stockrooms should be charged at their actual net cost under any recognized
method of pricing inventory withdrawals, consistently applied. Incoming
transportation charges are a proper part of materials and supplies costs.
- Only materials and supplies actually used for the performance of
a sponsored agreement may be charged as direct costs.
- Where federally donated or furnished materials are used in performing
the sponsored agreement, such materials will be used without charge.
32. Meetings and Conferences.
Costs of
meetings and conferences, the primary purpose of which is the dissemination
of technical information, are allowable. This includes costs of meals,
transportation, rental of facilities, speakers' fees, and other items
incidental to such meetings or conferences. But see section J.17, Entertainment
costs.
33. Memberships,
subscriptions and professional activity costs.
- Costs of the institution’s membership in business, technical,
and professional organizations are allowable.
- Costs of the institution’s subscriptions to business, professional,
and technical periodicals are allowable.
- Costs of membership in any civic or community organization are unallowable.
- Costs of membership in any country club or social or dining club
or organization are unallowable.
34. Patent costs.
- The following costs relating to patent and copyright matters are
allowable:
(1) cost of preparing disclosures, reports, and other documents required
by the sponsored agreement and of searching the art to the extent necessary
to make such disclosures;
(2) cost of preparing documents and any other patent costs in connection
with the filing and prosecution of a United States patent application
where title or royalty-free license is required by the Federal Government
to be conveyed to the Federal Government; and
(3) general counseling services relating to patent and copyright matters,
such as advice on patent and copyright laws, regulations, clauses, and
employee agreements (but see sections J.37, Professional service costs,
and J.44, Royalties and other costs for use of patents).
- The following costs related to patent and copyright matter are unallowable:
(i) Cost of preparing disclosures, reports, and other documents and
of searching the art to the extent necessary to make disclosures not
required by the award
(ii) Costs in connection with filing and prosecuting any foreign patent
application, or any United States patent application, where the sponsored
agreement award does not require conveying title or a royalty-free license
to the Federal Government, (but see section J.44, Royalties and other
costs for use of patents).
35. Plant and homeland security costs.
Necessary
and reasonable expenses incurred for routine and homeland security to
protect facilities, personnel, and work products are allowable. Such costs
include, but are not limited to, wages and uniforms of personnel engaged
in security activities; equipment; barriers; contractual security services;
consultants; etc. Capital expenditures for homeland and plant security
purposes are subject to section J.18, Equipment and other capital expenditures,
of this Circular.
36. Preagreement
costs.
Costs incurred
prior to the effective date of the sponsored agreement, whether or not
they would have been allowable thereunder if incurred after such date,
are unallowable unless approved by the sponsoring agency.
37. Professional
service costs.
- Costs of professional and consultant services rendered by persons
who are members of a particular profession or possess a special skill,
and who are not officers or employees of the institution, are allowable,
subject to subparagraphs b and c when reasonable in relation to the
services rendered and when not contingent upon recovery of the costs
from the Federal Government. In addition, legal and related services
are limited under section J.13.
- In determining the allowability of costs in a particular case, no
single factor or any special combination of factors is necessarily determinative.
However, the following factors are relevant:
(1) The nature and scope of the service rendered in relation to the
service required.
(2) The necessity of contracting for the service, considering the institution's
capability in the particular area.
(3) The past pattern of such costs, particularly in the years prior
to sponsored agreements.
(4) The impact on the institution's business (i.e., what new problems
have arisen).
(5) Whether the proportion of Federal work to the institution's total
business is such as to influence the institution in favor of incurring
the cost, particularly where the services rendered are not of a continuing
nature and have little relationship to work under Federal grants and
contracts.
(6) Whether the service can be performed more economically by direct
employment rather than contracting.
(7) The qualifications of the individual or concern rendering the service
and the customary fees charged, especially on non-sponsored agreements.
(8) Adequacy of the contractual agreement for the service (e.g., description
of the service, estimate of time required, rate of compensation, and
termination provisions).
- In addition to the factors in subparagraph b, retainer fees to be
allowable must be supported by evidence of bona fide services available
or rendered.
38. Proposal costs.
Proposal
costs are the costs of preparing bids or proposals on potential federally
and non federally funded sponsored agreements or projects, including the
development of data necessary to support the institution's bids or proposals.
Proposal costs of the current accounting period of both successful and
unsuccessful bids and proposals normally should be treated as F&A
costs and allocated currently to all activities of the institution, and
no proposal costs of past accounting periods will be allocable to the
current period. However, the institution's established practices may be
to treat proposal costs by some other recognized method. Regardless of
the method used, the results obtained may be accepted only if found to
be reasonable and equitable.
39.
Publication and printing costs.
- Publication costs include the costs of printing (including the processes
of composition, plate-making, press work, binding, and the end products
produced by such processes), distribution, promotion, mailing, and general
handling. Publication costs also include page charges in professional
publications.
- If these costs are not identifiable with a particular cost objective,
they should be allocated as indirect costs to all benefiting activities
of the institution.
- Page charges for professional journal publications are allowable
as a necessary part of research costs where:
(1) The research papers report work supported by the Federal Government:
and
(2) The charges are levied impartially on all research papers published
by the journal, whether or not by federally sponsored authors.
40. Rearrangement and alteration costs.
Costs incurred
for ordinary or normal rearrangement and alteration of facilities are
allowable. Special arrangement and alteration costs incurred specifically
for the project are allowable with the prior approval of the sponsoring
agency.
41. Reconversion
costs.
Costs incurred
in the restoration or rehabilitation of the institution's facilities to
approximately the same condition existing immediately prior to commencement
of a sponsored agreement, fair wear and tear excepted, are allowable.
42. Recruiting
costs.
- Subject to subsections b, c, and d, and provided that the size of
the staff recruited and maintained is in keeping with workload requirements,
costs of "help wanted" advertising, operating costs of an
employment office necessary to secure and maintain an adequate staff,
costs of operating an aptitude and educational testing program, travel
costs of employees while engaged in recruiting personnel, travel costs
of applicants for interviews for prospective employment, and relocation
costs incurred incident to recruitment of new employees, are allowable
to the extent that such costs are incurred pursuant to a well managed
recruitment program. Where the institution uses employment agencies,
costs not in excess of standard commercial rates for such services are
allowable.
- In publications, costs of help wanted advertising that includes color,
includes advertising material for other than recruitment purposes, or
is excessive in size (taking into consideration recruitment purposes
for which intended and normal institutional practices in this respect),
are unallowable.
- Costs of help wanted advertising, special emoluments, fringe benefits,
and salary allowances incurred to attract professional personnel from
other institutions that do not meet the test of reasonableness or do
not conform with the established practices of the institution, are unallowable.
- Where relocation costs incurred incident to recruitment of a new employee
have been allowed either as an allocable direct or F&A cost, and
the newly hired employee resigns for reasons within his control within
12 months after hire, the institution will be required to refund or
credit such relocation costs to the Federal Government.
43. Rental costs of buildings and equipment.
- Subject to the limitations described in subsections b. through d.
of this section, rental costs are allowable to the extent that the rates
are reasonable in light of such factors as: rental costs of comparable
property, if any; market conditions in the area; alternatives available;
and, the type, life expectancy, condition, and value of the property
leased. Rental arrangements should be reviewed periodically to determine
if circumstances have changed and other options are available.
- Rental costs under “sale and lease back” arrangements
are allowable only up to the amount that would be allowed had the institution
continued to own the property. This amount would include expenses such
as depreciation or use allowance, maintenance, taxes, and insurance.
- Rental costs under "less-than-arms-length" leases are allowable
only up to the amount (as explained in subsection b) that would be allowed
had title to the property vested in the institution. For this purpose,
a less-than-arms-length lease is one under which one party to the lease
agreement is able to control or substantially influence the actions
of the other. Such leases include, but are not limited to those between
-–
(1) divisions of a institution;
(2) non-Federal entities under common control through common officers,
directors, or members; and
(3) a institution and a director, trustee, officer, or key employee
of the institution or his immediate family, either directly or through
corporations, trusts, or similar arrangements in which they hold a controlling
interest. For example, a institution may establish a separate corporation
for the sole purpose of owning property and leasing it back to the institution.
- Rental costs under leases which are required to be treated as capital
leases under GAAP are allowable only up to the amount (as explained
in subsection b) that would be allowed had the institution purchased
the property on the date the lease agreement was executed. The provisions
of Financial Accounting Standards Board Statement 13, Accounting for
Leases, shall be used to determine whether a lease is a capital lease.
Interest costs related to capital leases are allowable to the extent
they meet the criteria in section J.26. Unallowable costs include amounts
paid for profit, management fees, and taxes that would not have been
incurred had the institution purchased the facility.
44. Royalties and other costs for use of patents.
- Royalties on a patent or copyright or amortization of the cost of
acquiring by purchase a copyright, patent, or rights thereto, necessary
for the proper performance of the award are allowable unless:
(1) The Federal Government has a license or the right to free use of
the patent or copyright.
(2) The patent or copyright has been adjudicated to be invalid, or has
been administratively determined to be invalid.
(3) The patent or copyright is considered to be unenforceable.
(4) The patent or copyright is expired.
- Special care should be exercised in determining reasonableness where
the royalties may have been arrived at as a result of less-than-arm's-length
bargaining, e.g.:
(1) Royalties paid to persons, including corporations, affiliated with
the institution.
(2) Royalties paid to unaffiliated parties, including corporations,
under an agreement entered into in contemplation that a sponsored agreement
award would be made.
(3) Royalties paid under an agreement entered into after an award is
made to a institution.
- In any case involving a patent or copyright formerly owned by the
institution, the amount of royalty allowed should not exceed the cost
which would have been allowed had the institution retained title thereto.
45. Scholarships and student aid costs.
- Costs of scholarships, fellowships, and other programs of student
aid are allowable only when the purpose of the sponsored agreement is
to provide training to selected participants and the charge is approved
by the sponsoring agency. However, tuition remission and other forms
of compensation paid as, or in lieu of, wages to students performing
necessary work are allowable provided that --
(1) The individual is conducting activities necessary to the sponsored
agreement;
(2) Tuition remission and other support are provided in accordance with
established educational institutional policy and consistently provided
in a like manner to students in return for similar activities conducted
in nonsponsored as well as sponsored activities; and
(3) During the academic period, the student is enrolled in an advanced
degree program at the institution or affiliated institution and the
activities of the student in relation to the Federally sponsored research
project are related to the degree program;
(4) the tuition or other payments are reasonable compensation for the
work performed and are conditioned explicitly upon the performance of
necessary work; and
(5) it is the institution's practice to similarly compensate students
in nonsponsored as well as sponsored activities.
- Charges for tuition remission and other forms of compensation paid
to students as, or in lieu of, salaries and wages shall be subject to
the reporting requirements stipulated in Section J.10, and shall be
treated as direct or F&A cost in accordance with the actual work
being performed. Tuition remission may be charged on an average rate
basis.
46. Selling and marketing.
Costs of
selling and marketing any products or services of the institution are
unallowable (unless allowed under subsection J.1 as allowable public relations
costs or under subsection J.38 as allowable proposal costs).
47. Specialized
service facilities.
- The costs of services provided by highly complex or specialized facilities
operated by the institution, such as computers, wind tunnels, and reactors
are allowable, provided the charges for the services meet the conditions
of either subsection 47.b. or 47.c. and, in addition, take into account
any items of income or Federal financing that qualify as applicable
credits under subsection C.5. of this Circular.
- The costs of such services, when material, must be charged directly
to applicable awards based on actual usage of the services on the basis
of a schedule of rates or established methodology that
(1) does not discriminate against federally supported activities of
the institution, including usage by the institution for internal purposes,
and
(2) is designed to recover only the aggregate costs of the services.
The costs of each service shall consist normally of both its direct
costs and its allocable share of all F&A costs. Rates shall be adjusted
at least biennially, and shall take into consideration over/under applied
costs of the previous period(s).
- Where the costs incurred for a service are not material, they may
be allocated as F&A costs.
- Under some extraordinary circumstances, where it is in the best interest
of the Federal Government and the institution to establish alternative
costing arrangements, such arrangements may be worked out with the cognizant
Federal agency.
48. Student activity costs.
Costs incurred
for intramural activities, student publications, student clubs, and other
student activities, are unallowable, unless specifically provided for
in the sponsored agreements.
49. Taxes.
- In general, taxes which the institution is required to pay and which
are paid or accrued in accordance with generally accepted accounting
principles are allowable. Payments made to local governments in lieu
of taxes which are commensurate with the local government services received
are allowable, except for--
(1) taxes from which exemptions are available to the institution directly
or which are available to the institution based on an exemption afforded
the Federal Government, and in the latter case when the sponsoring agency
makes available the necessary exemption certificates; and
(2) special assessments on land which represent capital improvements.
- Any refund of taxes, interest, or penalties, and any payment to the
institution of interest thereon, attributable to taxes, interest, or
penalties which were allowed as sponsored agreement costs, will be credited
or paid to the Federal Government in the manner directed by the Federal
Government. However, any interest actually paid or credited to an institution
incident to a refund of tax, interest, and penalty will be paid or credited
to the Federal Government only to the extent that such interest accrued
over the period during which the institution has been reimbursed by
the Federal Government for the taxes, interest, and penalties.
50. Termination costs applicable to sponsored agreements.
Termination
of awards generally gives rise to the incurrence of costs, or the need
for special treatment of costs, which would not have arisen had the sponsored
agreement not been terminated. Cost principles covering these items are
set forth below. They are to be used in conjunction with the other provisions
of this Circular in termination situations.
- The cost of items reasonably usable on the institution's other work
shall not be allowable unless the institution submits evidence that
it would not retain such items at cost without sustaining a loss. In
deciding whether such items are reasonably usable on other work of the
institution, the awarding agency should consider the institution's plans
and orders for current and scheduled activity.
Contemporaneous purchases of common items by the institution shall be
regarded as evidence that such items are reasonably usable on the institution's
other work. Any acceptance of common items as allocable to the terminated
portion of the sponsored agreement shall be limited to the extent that
the quantities of such items on hand, in transit, and on order are in
excess of the reasonable quantitative requirements of other work.
- If in a particular case, despite all reasonable efforts by the institution,
certain costs cannot be discontinued immediately after the effective
date of termination, such costs are generally allowable within the limitations
set forth in this Circular, except that any such costs continuing after
termination due to the negligent or willful failure of the institution
to discontinue such costs shall be unallowable.
- Loss of useful value of special tooling, machinery, and equipment
is generally allowable if:
(1) Such special tooling, special machinery, or equipment is not reasonably
capable of use in the other work of the institution,
(2) The interest of the Federal Government is protected by transfer
of title or by other means deemed appropriate by the awarding agency,
and
(3) The loss of useful value for any one terminated sponsored agreement
is limited to that portion of the acquisition cost which bears the same
ratio to the total acquisition cost as the terminated portion of the
sponsored agreement bears to the entire terminated sponsored agreement
award and other sponsored agreements for which the special tooling,
machinery, or equipment was acquired.
- Rental costs under unexpired leases are generally allowable where
clearly shown to have been reasonably necessary for the performance
of the terminated sponsored agreement less the residual value of such
leases, if:
(1) the amount of such rental claimed does not exceed the reasonable
use value of the property leased for the period of the sponsored agreement
and such further period as may be reasonable, and
(2) the institution makes all reasonable efforts to terminate, assign,
settle, or otherwise reduce the cost of such lease. There also may be
included the cost of alterations of such leased property, provided such
alterations were necessary for the performance of the sponsored agreement,
and of reasonable restoration required by the provisions of the lease.
- Settlement expenses including the following are generally allowable:
(1) Accounting, legal, clerical, and similar costs reasonably necessary
for:
(a) The preparation and presentation to the awarding agency of
settlement claims and supporting data with respect to the terminated
portion of the sponsored agreement, unless the termination is for default
(see Subpart. __.61 of Circular A-110); and
(b) The termination and settlement of subawards.
(2) Reasonable costs for the storage, transportation, protection, and
disposition of property provided by the Federal Government or acquired
or produced for the sponsord agreement, except when institutions are
reimbursed for disposals at a predetermined amount in accordance with
Subparts ___.32 through ___.37 of Circular A-110.
(3) F&A costs related to salaries and wages incurred as settlement
expenses in subsections b.(1) and (2). Normally, such F&A costs
shall be limited to fringe benefits, occupancy cost, and immediate supervision.
- Claims under subawards, including the allocable portion of claims
which are common to the sponsored agreement and to other work of the
institution, are generally allowable.
An appropriate share of the institution's F&A costs may be allocated
to the amount of settlements with subcontractors and/or subgrantees,
provided that the amount allocated is otherwise consistent with the
basic guidelines contained in section E, F&A costs. The F&A
costs so allocated shall exclude the same and similar costs claimed
directly or indirectly as settlement expenses.
51. Training costs.
The cost
of training provided for employee development is allowable.
52. Transportation
costs.
Costs incurred
for freight, express, cartage, postage, and other transportation services
relating either to goods purchased, in process, or delivered, are allowable.
When such costs can readily be identified with the items involved, they
may be charged directly as transportation costs or added to the cost of
such items. Where identification with the materials received cannot readily
be made, inbound transportation cost may be charged to the appropriate
F&A cost accounts if the institution follows a consistent, equitable
procedure in this respect. Outbound freight, if reimbursable under the
terms of the sponsored agreement, should be treated as a direct cost.
53. Travel
costs.
- General.
Travel costs are the expenses for transportation, lodging, subsistence,
and related items incurred by employees who are in travel status on
official business of the institution. Such costs may be charged on an
actual cost basis, on a per diem or mileage basis in lieu of actual
costs incurred, or on a combination of the two, provided the method
used is applied to an entire trip and not to selected days of the trip,
and results in charges consistent with those normally allowed in like
circumstances in the institution’s non-federally sponsored activities.
- Lodging and subsistence.
Costs incurred by employees and officers for travel, including costs
of lodging, other subsistence, and incidental expenses, shall be considered
reasonable and allowable only to the extent such costs do not exceed
charges normally allowed by the institution in its regular operations
as the result of the institution’s written travel policy. In the
absence of an acceptable, written institution policy regarding travel
costs, the rates and amounts established under subchapter I of Chapter
57, Title 5, United States Code (“Travel and Subsistence Expenses;
Mileage Allowances”), or by the Administrator of General Services,
or by the President (or his or her designee) pursuant to any provisions
of such subchapter shall apply to travel under sponsored agreements
(48 CFR 31.205-46(a)).
- Commercial air travel.
(1) Airfare costs in excess of the customary standard commercial airfare
(coach or equivalent), Federal Government contract airfare (where authorized
and available), or the lowest commercial discount airfare are unallowable
except when such accommodations would:
(a) require circuitous routing;
(b) require travel during unreasonable hours; (c) excessively prolong
travel;
(d) result in additional costs that would offset the transportation
savings; or
(e) offer accommodations not reasonably adequate for the traveler’s
medical needs. The institution must justify and document these conditions
on a case-by-case basis in order for the use of first-class airfare
to be allowable in such cases.
(2) Unless a pattern of avoidance is detected, the Federal Government
will generally not question a institution's determinations that customary
standard airfare or other discount airfare is unavailable for specific
trips if the institution can demonstrate either of the following:
(a) that such airfare was not available in the specific case; or
(b) that it is the institution’s overall practice to make routine
use of such airfare.
- Air travel by other than commercial carrier.
Costs of travel by institution-owned, -leased, or -chartered aircraft
include the cost of lease, charter, operation (including personnel costs),
maintenance, depreciation, insurance, and other related costs. The portion
of such costs that exceeds the cost of allowable commercial air travel,
as provided for in subsection 53.c., is unallowable.
54. Trustees.
Travel and
subsistence costs of trustees (or directors) are allowable. The costs
are subject to restrictions regarding lodging, subsistence and air travel
costs provided in Section 53.
K. Certification
of charges.
1. To assure
that expenditures for sponsored agreements are proper and in accordance
with the agreement documents and approved project budgets, the annual
and/or final fiscal reports or vouchers requesting payment under the agreements
will include a certification, signed by an authorized official of the
university, which reads essentially as follows: "I certify that all
expenditures reported (or payment requested) are for appropriate purposes
and in accordance with the provisions of the application and award documents."
2. Certification
of F&A costs.
- Policy.
(1) No proposal to establish F&A cost rates shall be acceptable
unless such costs have been certified by the educational institution
using the Certificate of F&A Costs set forth in subsection b. The
certificate must be signed on behalf of the institution by an individual
at a level no lower than vice president or chief financial officer of
the institution that submits the proposal.
(2) No F&A cost rate shall be binding upon the Federal Government
if the most recent required proposal from the institution has not been
certified. Where it is necessary to establish F&A cost rates, and
the institution has not submitted a certified proposal for establishing
such rates in accordance with the requirements of this section, the
Federal Government shall unilaterally establish such rates. Such rates
may be based upon audited historical data or such other data that have
been furnished to the cognizant Federal agency and for which it can
be demonstrated that all unallowable costs have been excluded. When
F&A cost rates are unilaterally established by the Federal Government
because of failure of the institution to submit a certified proposal
for establishing such rates in accordance with this section, the rates
established will be set at a level low enough to ensure that potentially
unallowable costs will not be reimbursed.
- Certificate. The certificate required by this section shall be in
the following form:
Certificate of F&A Costs
This is to certify that to the best of my knowledge and belief:
(1) I have reviewed the F&A cost proposal submitted herewith;
(2) All costs included in this proposal [identify date] to establish
billing or final F&A costs rate for [identify period covered by
rate] are allowable in accordance with the requirements of the Federal
agreement(s) to which they apply and with the cost principles applicable
to those agreements.
(3) This proposal does not include any costs which are unallowable under
applicable cost principles such as (without limitation): advertising
and public relations costs, contributions and donations, entertainment
costs, fines and penalties, lobbying costs, and defense of fraud proceedings;
and
(4) All costs included in this proposal are properly allocable to Federal
agreements on the basis of a beneficial or causal relationship between
the expenses incurred and the agreements to which they are allocated
in accordance with applicable requirements.
For educational institutions that are required to file a DS-2 in accordance
with Section C.14, the following statement shall be added to the "Certificate
of F&A Costs":
(5) The rate proposal is prepared using the same cost accounting practices
that are disclosed in the DS-2, including its amendments and revisions,
filed with and approved by the cognizant agency.
I declare under penalty of perjury that the foregoing is true and correct.
Institution: ____________________________________________
Signature: _____________________________________________
Name of Official: ________________________________________
Title: _________________________________________________
Date of Execution: ______________________________________
Exhibit A -- List of Colleges and Universities
Subject to Section J.12.h of Circular A-21.
- Johns Hopkins University
- Stanford University
- Massachusetts Institute of Technology
- University of Washington
- University of California-Los Angeles
- University of Michigan
- University of California-San Diego
- University of California-San Francisco
- University of Wisconsin-Madison
- Columbia University
- Yale University
- Harvard University
- Cornell University
- University of Pennsylvania
- University of California-Berkeley
- University of Minnesota
- Pennsylvania State University
- University of Southern California
- Duke University
- Washington University
- University of Colorado
- University of Illinois-Urbana
- University of Rochester
- University of North Carolina-Chapel Hill
- University of Pittsburgh
- University of Chicago
- University of Texas-Austin
- University of Arizona
- New York University
- University of Iowa
- Ohio State University
- University of Alabama-Birmingham
- Case Western Reserve
- Baylor College of Medicine
- California Institute of Technology
- Yeshiva University
- University of Massachusetts
- Vanderbilt University
- Purdue University
- University of Utah
- Georgia Institute of Technology
- University of Maryland-College Park
- University of Miami
- University of California-Davis
- Boston University
- University of Florida
- Carnegie-Mellon University
- Northwestern University
- Indiana University
- Michigan State University
- University of Virginia
- University of Texas-SW Medical Center
- University of California-Irvine
- Princeton University
- Tulane University of Louisiana
- Emory University
- University of Georgia
- Texas A&M University-all campuses
- New Mexico State University
- North Carolina State University-Raleigh
- University of Illinois-Chicago
- Utah State University
- Virginia Commonwealth University
- Oregon State University
- SUNY-Stony Brook
- University of Cincinnati
- CUNY-Mount Sinai School of Medicine
- University of Connecticut
- Louisiana State University
- Tufts University
- University of California-Santa Barbara
- University of Hawaii-Manoa
- Rutgers State University of New Jersey
- Colorado State University
- Rockefeller University
- University of Maryland-Baltimore
- Virginia Polytechnic Institute & State University
- SUNY-Buffalo
- Brown University
- University of Medicine & Dentistry of New Jersey
- University of Texas-Health Science Center San Antonio
- University of Vermont
- University of Texas-Health Science Center Houston
- Florida State University
- University of Texas-MD Anderson Cancer Center
- University of Kentucky
- Wake Forest University
- Wayne State University
- Iowa State University of Science & Technology
- University of New Mexico
- Georgetown University
- Dartmouth College
- University of Kansas
- Oregon Health Sciences University
- University of Texas-Medical Branch-Galveston
- University of Missouri-Columbia
- Temple University
- George Washington University
- University of Dayton
Exhibit B -- Listing of institutions that are eligible
for the utility cost adjustment.
- Baylor University
- Boston College
- Boston University
- California Institute of Technology
- Carnegie-Mellon University
- Case Western University
- Columbia University
- Cornell University (Endowed)
- Cornell University (Statutory)
- Cornell University (Medical)
- Dayton University
- Emory University
- George Washington University (Medical)
- Georgetown University
- Harvard Medical School
- Harvard University (Main Campus)
- Harvard University (School of Public Health)
- Johns Hopkins University
- Massachusetts Institute of Technology
- Medical University of South Carolina
- Mount Sinai School of Medicine
- New York University (except New York University Medical Center)
- New York University Medical Center
- North Carolina State University
- Northeastern University
- Northwestern University
- Oregon Health Sciences University
- Oregon State University
- Rice University
- Rockefeller University
- Stanford University
- Tufts University
- Tulane University
- Vanderbilt University
- Virginia Commonwealth University
- Virginia Polytechnic Institute and State University
- University of Arizona
- University of CA, Berkeley
- University of CA, Irvine
- University of CA, Los Angeles
- University of CA, San Diego
- University of CA, San Francisco
- University of Chicago
- University of Cincinnati
- University of Colorado, Health Sciences Center
- University of Connecticut, Health Sciences Center
- University of Health Science and The Chicago Medical School
- University of Illinois, Urbana
- University of Massachusetts, Medical Center
- University of Medicine & Dentistry of New Jersey
- University of Michigan
- University of Pennsylvania
- University of Pittsburgh
- University of Rochester
- University of Southern California
- University of Tennessee, Knoxville
- University of Texas, Galveston
- University of Texas, Austin
- University of Texas Southwestern Medical Center
- University of Virginia
- University of Vermont & State Agriculture College
- University of Washington
- Washington University
- Yale University
- Yeshiva University
Exhibit C -- Examples of "major project" where
direct charging of administrative or clerical staff salaries may be appropriate.
* Large,
complex programs such as General Clinical Research Centers, Primate Centers,
Program Projects, environmental research centers, engineering research
centers, and other grants and contracts that entail assembling and managing
teams of investigators from a number of institutions.
* Projects
which involve extensive data accumulation, analysis and entry, surveying,
tabulation, cataloging, searching literature, and reporting (such as epidemiological
studies, clinical trials, and retrospective clinical records studies).
* Projects
that require making travel and meeting arrangements for large numbers
of participants, such as conferences and seminars.
* Projects
whose principal focus is the preparation and production of manuals and
large reports, books and monographs (excluding routine progress and technical
reports).
* Projects
that are geographically inaccessible to normal departmental administrative
services, such as research vessels, radio astronomy projects, and other
research fields sites that are remote from campus.
* Individual
projects requiring project-specific database management; individualized
graphics or manuscript preparation; human or animal protocols; and multiple
project-related investigator coordination and communications.
These examples
are not exhaustive nor are they intended to imply that direct charging
of administrative or clerical salaries would always be appropriate for
the situations illustrated in the examples. For instance, the examples
would be appropriate when the costs of such activities are incurred in
unlike circumstances, i.e., the actual activities charged direct are not
the same as the actual activities normally included in the institution's
facilities and administrative (F&A) cost pools or, if the same, the
indirect activity costs are immaterial in amount. It would be inappropriate
to charge the cost of such activities directly to specific sponsored agreements
if, in similar circumstances, the costs of performing the same type of
activity for other sponsored agreements were included as allocable costs
in the institution's F&A cost pools. Application of negotiated predetermined
F&A cost rates may also be inappropriate if such activity costs charged
directly were not provided for in the allocation base that was used to
determine the predetermined F&A cost rates.
Appendix
A Part 99005 -- Cost Accounting Standards for Educational
Institutions.
CAS 9905.501
-- Consistency in estimating, accumulating and reporting costs by educational
institutions.
Purpose
The purpose
of this standard is to ensure that each educational institution's practices
used in estimating costs for a proposal are consistent with cost accounting
practices used by the educational institution in accumulating and reporting
costs. Consistency in the application of cost accounting practices is
necessary to enhance the likelihood that comparable transactions are treated
alike. With respect to individual sponsored agreements, the consistent
application of cost accounting practices will facilitate the preparation
of reliable cost estimates used in pricing a proposal and their comparison
with the costs of performance of the resulting sponsored agreement. Such
comparisons provide one important basis for financial control over costs
during sponsored agreement performance and aid in establishing accountability
for costs in the manner agreed to by both parties at the time of agreement.
The comparisons also provide an improved basis for evaluating estimating
capabilities.
Definitions
(a) The
following are definitions of terms which are prominent in this standard.
(1)
Accumulating costs means the collecting of cost data in an organized manner,
such as through a system of accounts.
(2) Actual
cost means an amount determined on the basis of cost incurred (as distinguished
from forecasted cost), including standard cost properly adjusted for applicable
variance.
(3) Estimating
costs means the process of forecasting a future result in terms of cost,
based upon information available at the time.
(4) Indirect
cost pool means a grouping of incurred costs identified with two or more
objectives but not identified specifically with any final cost objective.
(5) Pricing
means the process of establishing the amount or amounts to be paid in
return for goods or services.
(6) Proposal
means any offer or other submission used as a basis for pricing a sponsored
agreement, sponsored agreement modification or termination settlement
or for securing payments thereunder.
(7) Reporting
costs means the providing of cost information to others.
Fundamental
Requirement
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.
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 the related proposal
or application.
The grouping
of homogeneous costs in estimates prepared for proposal purposes shall
not per se be deemed an inconsistent application of cost accounting practices
of this paragraph when such costs are accumulated in reported in greater
detail on an actual costs basis during performance of the sponsored agreement.
Techniques
for application
(a) The standard
allows grouping of homogeneous costs in order to cover those cases where
it is not practicable to estimate sponsored agreement costs by individual
cost element. However, costs estimated for proposal purposes shall be
presented in such a manner and in such detail that any significant cost
can be compared with the actual cost accumulated and reported therefor.
In any event, the cost accounting practices used in estimating costs in
pricing a proposal and in accumulating and reporting costs on the resulting
sponsored agreement shall be consistent with respect to:
(1) The
classification of elements of cost as direct or indirect; (2) the indirect
cost pools to which each element of cost is charged or proposed to be charged;
and (3) the methods of allocating indirect costs to the sponsored agreement.(b)
Adherence to the requirement of this standard shall be determined as of
the date of award of the sponsored agreement, unless the sponsored agreement
has submitted cost or pricing data pursuant to 10 U.S.C. 2306(a) or 41 U.S.C.
254(d) (Pub. L. 87-653), in which case adherence to the requirement of this
standard shall be determined as of the date of final agreement on price,
as shown on the signed certificate of current cost or pricing data. Notwithstanding
9905.501-40(b), changes in established cost accounting practices during
sponsored agreement performance may be made in accordance with Part 9903
(48 CFR 9903).
(c) The standard
does not prescribe the amount of detail required in accumulating and reporting
costs. The basic requirement which must be met, however, is that for any
significant amount of estimated cost, the sponsored agreement must be able
to accumulate and report actual cost at a level which permits sufficient
and meaningful comparison with its estimates. The amount of detail required
may vary considerably depending on how the proposed costs were estimated,
the data presented in justification or lack thereof, and the significance
of each situation. Accordingly, it is neither appropriate nor practical
to prescribe a single set of accounting practices which would be consistent
in all situations with the practices of estimating costs. Therefore, the
amount of accounting and statistical detail to be required and maintained
in accounting for estimated costs has been and continues to be a matter
to be decided by Government procurement authorities on the basis of the
individual facts and circumstances.
CAS 9905.502
-- Consistency in allocating costs incurred for the same purpose by educational
institutions.
Purpose
The purpose
of this standard is to require that each type of cost is allocated only
once and on only one basis to any sponsored agreement or other cost objective.
The criteria for determining the allocation of costs to a sponsored agreement
or other cost objective should be the same for all similar objectives.
Adherence to these cost accounting concepts is necessary to guard against
the overcharging of some cost objectives and to prevent double counting.
Double counting occurs most commonly when cost items are allocated directly
to a cost objective without eliminating like cost items from indirect
cost pools which are allocated to that cost objective.
Definitions
(a) The
following are definitions of terms which are prominent in this standard.
(1) Allocate
means to assign an item of cost, or a group of items of cost, to one or
more cost objectives. This term includes both direct assignment of cost
and the reassignment of a share from an indirect cost pool.
(2) Cost
objective means a function, organizational subdivision, sponsored agreement,
or other work unit for which cost data are desired and for which provision
is made to accumulate and measure the cost of processes, products, jobs,
capitalized projects, etc.
(3) Direct
cost means any cost which is identified specifically with a particular
final cost objective. Direct costs are not limited to items which are
incorporated in the end product as material or labor. Costs identified
specifically with a sponsored agreement are direct costs of that sponsored
agreement. All costs identified specifically with other final cost objectives
of the educational institution are direct costs of those cost objectives.
(4) Final
cost objective means a cost objective which has allocated to it both direct
and indirect costs, and in the educational institution's accumulation
system, is one of the final accumulation points.
(5) Indirect
cost means any cost not directly identified with a single final cost objective,
but identified with two or more final cost objectives or with at least
one intermediate cost objective.
(6) Indirect
cost pool means a grouping of incurred costs identified with two or more
cost objectives but not identified with any final cost objective.
(7) Intermediate
cost objective means a cost objective that is used to accumulate indirect
costs or service center costs that are subsequently allocated to one or
more indirect cost pools and/or final cost objectives.
Fundamental
Requirement
All costs
incurred for the same purpose, in like circumstances, are either direct
costs only or indirect costs only with respect to final cost objectives.
No final cost objective shall have allocated to it as an indirect 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 indirect cost pool to be allocated to that or
any other final cost objective.
Techniques
for application
(a) The
Fundamental Requirement is stated in terms of cost incurred and is equally
applicable to estimates of costs to be incurred as used in sponsored agreement
proposals.
(b) The
Disclosure Statement to be submitted by the educational institution will
require that the educational institution set forth its cost accounting
practices with regard to the distinction between direct and indirect costs.
In addition, for those types of cost which are sometimes accounted for
as direct and sometimes accounted for as indirect, the educational institution
will set forth in its Disclosure Statement the specific criteria and circumstances
for making such distinctions. In essence, the Disclosure Statement submitted
by the educational institution, by distinguishing between direct and indirect
costs, and by describing the criteria and circumstances for allocating
those items which are sometimes direct and sometimes indirect, will be
determinative as to whether or not costs are incurred for the same purpose.
Disclosure Statement as used herein refers to the statement required to
be submitted by educational institutions in Section C.14.
(c) In the
event that an educational institution has not submitted a Disclosure Statement,
the determination of whether specific costs are directly allocable to
sponsored agreements shall be based upon the educational institution's
cost accounting practices used at the time of sponsored agreement proposal.
(d) Whenever
costs which serve the same purpose cannot equitably be indirectly allocated
to one or more final cost objectives in accordance with the educational
institution's disclosed accounting practices, the educational institution
may either (1) use a method for reassigning all such costs which would
provide an equitable distribution to all final cost objectives, or (2)
directly assign all such costs to final cost objectives with which they
are specifically identified. In the event the educational institution
decides to make a change for either purpose, the Disclosure Statement
shall be amended to reflect the revised accounting practices involved.
(e) Any
direct cost of minor dollar amount may be treated as an indirect cost
for reasons of practicality where the accounting treatment for such cost
is consistently applied to all final cost objectives, provided that such
treatment produces results which are substantially the same as the results
which would have been obtained if such cost had been treated as a direct
cost.
Illustrations
(a) Illustrations
of costs which are incurred for the same purpose:
(1) An
educational institution normally allocates all travel as an indirect cost
and previously disclosed this accounting practice to the Government. For
purposes of a new proposal, the educational institution intends to allocate
the travel costs of personnel whose time is accounted for as direct labor
directly to the sponsored agreement. Since travel costs of personnel whose
time is accounted for as direct labor working on other sponsored agreements
are costs which are incurred for the same purpose, these costs may no longer
be included within indirect cost pools for purposes of allocation to any
covered Government sponsored agreement. The educational institution's Disclosure
Statement must be amended for the proposed changes in accounting practices.
(2) An educational
institution normally allocates purchasing activity costs indirectly and
allocates this cost to instruction and research on the basis of modified
total costs. A proposal for a new sponsored agreement requires a disproportionate
amount of subcontract administration to be performed by the purchasing
activity. The educational institution prefers to continue to allocate
purchasing activity costs indirectly. In order to equitably allocate the
total purchasing activity costs, the educational institution may use a
method for allocating all such costs which would provide an equitable
distribution to all applicable indirect cost pools. For example, the educational
institution may use the number of transactions processed rather than its
former allocation base of modified total costs. The educational institution's
Disclosure Statement must be amended for the proposed changes in accounting
practices.
(b) Illustrations
of costs which are not incurred for the same purpose:
(1) An
educational institution normally allocates special test equipment costs
directly to sponsored agreements. The costs of general purpose test equipment
are normally included in the indirect cost pool which is allocated to sponsored
agreements. Both of these accounting practices were previously disclosed
to the Government. Since both types of costs involved were not incurred
for the same purpose in accordance with the criteria set forth in the educational
institution's Disclosure Statement, the allocation of general purpose test
equipment costs from the indirect cost pool to the sponsored agreement,
in addition to the directly allocated special test equipment costs, is not
considered a violation of the standard.
(2) An educational
institution proposes to perform a sponsored agreement which will require
three firemen on 24-hour duty at a fixed-post to provide protection against
damage to highly inflammable materials used on the sponsored agreement.
The educational institution presently has a firefighting force of 10 employees
for general protection of its facilities. The educational institution's
costs for these latter firemen are treated as indirect costs and allocated
to all sponsored agreements; however, it wants to allocate the three fixed-post
firemen directly to the particular sponsored agreement requiring them
and also allocate a portion of the cost of the general firefighting force
to the same sponsored agreement. The educational institution may do so
but only on condition that its disclosed practices indicate that the costs
of the separate classes of firemen serve different purposes and that it
is the educational institution's practice to allocate the general firefighting
force indirectly and to allocate fixed-post firemen directly.
Interpretation
(a) Consistency
in Allocating Costs Incurred for the Same Purpose by Educational Institutions,
provides, in this standard, that " * * * 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
indirect cost pool to be allocated to that or any other final cost objective."
(b) This
interpretation deals with the way this standard applies to the treatment
of costs incurred in preparing, submitting, and supporting proposals.
In essence, it is addressed to whether or not, under the standard, all
such costs are incurred for the same purpose, in like circumstances.
(c) Under
this standard, costs incurred in preparing, submitting, and supporting
proposals pursuant to a specific requirement of an existing sponsored
agreement are considered to have been incurred in different circumstances
from the circumstances under which costs are incurred in preparing proposals
which do not result from such specific requirement. The circumstances
are different because the costs of preparing proposals specifically required
by the provisions of an existing sponsored agreement relate only to that
sponsored agreement while other proposal costs relate to all work of the
educational institution.
(d) This
interpretation does not preclude the allocation, as indirect costs, of
costs incurred in preparing all proposals. The cost accounting practices
used by the educational institution, however, must be followed consistently
and the method used to reallocate such costs, of course, must provide
an equitable distribution to all final cost objectives.
CAS 9905.505
-- Accounting for unallowable costs -- Educational institutions.
Purpose
(a) The
purpose of this standard is to facilitate the negotiation, audit, administration
and settlement of sponsored agreements by establishing guidelines covering
(1) identification of costs specifically described as unallowable, at
the time such costs first become defined or authoritatively designated
as unallowable, and (2) the cost accounting treatment to be accorded such
identified unallowable costs in order to promote the consistent application
of sound cost accounting principles covering all incurred costs. The standard
is predicated on the proposition that costs incurred in carrying on the
activities of an educational institution -- regardless of the allowability
of such costs under Government sponsored agreements -- are allocable to
the cost objectives with which they are identified on the basis of their
beneficial or causal relationships.
(b) This
standard does not govern the allowability of costs. This is a function
of the appropriate procurement or reviewing authority.
Definitions
(a) The
following are definitions of terms which are prominent in this standard.
(1) Directly
associated cost means any cost which is generated solely as a result of
the incurrence of another cost, and which would not have been incurred had
the other cost not been incurred.
(2) Expressly
unallowable cost means a particular item or type of cost which, under
the express provisions of an applicable law, regulation, or sponsored
agreement, is specifically named and stated to be unallowable.
(3) Indirect
cost means any cost not directly identified with a single final cost objective,
but identified with two or more final cost objectives or with at least
one intermediate cost objective.
(4) Unallowable
cost means any cost which, under the provisions of any pertinent law,
regulation, or sponsored agreement, cannot be included in prices, cost
reimbursements, or settlements under a Government sponsored agreement
to which it is allocable.
Fundamental
requirement
(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 Government 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 paragraph or paragraph (a)
of this subsection.
(c) Costs
which, in a Federal official's written decision furnished pursuant to
disputes procedures, are designated as unallowable directly associated
costs of unallowable costs covered by either paragraph (a) or (b) of this
subsection shall be accorded the identification required by paragraph
b. of this subsection.
(d) The
costs of any work project not contractually authorized, whether or not
related to performance of a proposed or existing contract, 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 paragraphs (a) through (d) of this subsection
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 indirect-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 an indirect-cost
pool that will be allocated over a base containing the unallowable cost
with which it is associated, such a directly associated cost shall be
retained in the indirect-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 indirect
cost allocation shall be made to the cost objective, in accordance with
established cost accounting practices and Standards which regularly govern
a given entity's allocations to Government sponsored agreement cost objectives.
In any determination of unallowable 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.
Techniques
for application
(a) The
detail and depth of records required as backup support for proposals,
billings, or claims shall be that which is adequate to establish and maintain
visibility of identified unallowable costs (including directly associated
costs), their accounting status in terms of their allocability to sponsored
agreement cost objectives, and the cost accounting treatment which has
been accorded such costs. Adherence to this cost accounting principle
does not require that allocation of unallowable costs to final cost objectives
be made in the detailed cost accounting records. It does require that
unallowable costs be given appropriate consideration in any cost accounting
determinations governing the content of allocation bases used for distributing
indirect costs to cost objectives. Unallowable costs involved in the determination
of rates used for standard costs, or for indirect-cost bidding or billing,
need be identified only at the time rates are proposed, established, revised
or adjusted.
(b) The
visibility requirement of paragraph (a) of this subsection, may be satisfied
by any form of cost identification which is adequate for purposes of sponsored
agreement cost determination and verification. The standard does not require
such cost identification for purposes which are not relevant to the determination
of Government sponsored agreement cost. Thus, to provide visibility for
incurred costs, acceptable alternative practices would include (1) the
segregation of unallowable costs in separate accounts maintained for this
purpose in the regular books of account, (2) the development and maintenance
of separate accounting records or workpapers, or (3) the use of any less
formal cost accounting techniques which establishes and maintains adequate
cost identification to permit audit verification of the accounting recognition
given unallowable costs. Educational institutions may satisfy the visibility
requirements for estimated costs either (1) by designation and description
(in backup data, workpapers, etc.) of the amounts and types of any unallowable
costs which have specifically been identified and recognized in making
the estimates, or (2) by description of any other estimating technique
employed to provide appropriate recognition of any unallowable costs pertinent
to the estimates.
(c) Specific
identification of unallowable costs is not required in circumstances where,
based upon considerations of materiality, the Government and the educational
institution reach agreement on an alternate method that satisfies the
purpose of the standard.
Illustrations
(a) An auditor
recommends disallowance of certain direct labor and direct material costs,
for which a billing has been submitted under a sponsored agreement, on
the basis that these particular costs were not required for performance
and were not authorized by the sponsored agreement. The Federal officer
issues a written decision which supports the auditor's position that the
questioned costs are unallowable. Following receipt of the Federal officer's
decision, the educational institution must clearly identify the disallowed
direct labor and direct material costs in the educational institution's
accounting records and reports covering any subsequent submission which
includes such costs. Also, if the educational institution's base for allocation
of any indirect cost pool relevant to the subject sponsored agreement
consists of direct labor, direct material, total prime cost, total cost
input, etc., the educational institution must include the disallowed direct
labor and material costs in its allocation base for such pool. Had the
Federal officer's decision been against the auditor, the educational institution
would not, of course, have been required to account separately for the
costs questioned by the auditor.
(b) An educational
institution incurs, and separately identifies, as a part of a service
center or expense pool, certain costs which are expressly unallowable
under the existing and currently effective regulations. If the costs of
the service center or indirect expense pool are regularly a part of the
educational institution's base for allocation of general administration
and general expenses (GA&GE) or other indirect expenses, the educational
institution must allocate the GA&GE or other indirect expenses to
sponsored agreements and other final cost objectives by means of a base
which includes the identified unallowable indirect costs.
(c) An auditor
recommends disallowance of certain indirect costs. The educational institution
claims that the costs in question are allowable under the provisions of
Office Of Management and Budget Circular A-21, Cost Principles For Educational
Institutions; the auditor disagrees. The issue is referred to the Federal
officer for resolution pursuant to the sponsored agreement disputes clause.
The Federal officer issues a written decision supporting the auditor's
position that the total costs questioned are unallowable under the Circular.
Following receipt of the Federal officer's decision, the educational institution
must identify the disallowed costs and specific other costs incurred for
the same purpose in like circumstances in any subsequent estimating, cost
accumulation or reporting for Government sponsored agreements, in which
such costs are included. If the Federal officer's decision had supported
the educational institution's contention, the costs questioned by the
auditor would have been allowable and the educational institution would
not have been required to provide special identification.
(d) An educational
institution incurred certain unallowable costs that were charged indirectly
as general administration and general expenses (GA&GE). In the educational
institution's proposals for final indirect cost rates to be applied in
determining allowable sponsored agreement costs, the educational institution
identified and excluded the expressly unallowable costs. In addition,
during the course of negotiation of indirect cost rates to be used for
bidding and billing purposes, the educational institution agreed to classify
as unallowable cost, various directly associated costs of the identifiable
unallowable costs. On the basis of negotiations and agreements between
the educational institution and the Federal officer's authorized representatives,
indirect cost rates were established, based on the net balance of allowable
GA&GE. Application of the rates negotiated to proposals, and to billings,
for covered sponsored agreements constitutes compliance with the standard.
(e) An employee,
whose salary, travel, and subsistence expenses are charged regularly to
the general administration and general expenses (GA&GE) pool, takes
several business associates on what is clearly a business entertainment
trip. The entertainment costs of such trips is expressly unallowable because
it constitutes entertainment expense prohibited by OMB Circular A-21,
and is separately identified by the educational institution. The educational
institution does not regularly include its GA&GE in any indirect-expense
allocation base. In these circumstances, the employee's travel and subsistence
expenses would be directly associated costs for identification with the
unallowable entertainment expense. However, unless this type of activity
constituted a significant part of the employee's regular duties and responsibilities
on which his salary was based, no part of the employee's salary would
be required to be identified as a directly associated cost of the unallowable
entertainment expense.
CAS 9905.506
-- Cost accounting period -- Educational institutions.
Purpose
The purpose
of this standard is to provide criteria for the selection of the time
periods to be used as cost accounting periods for sponsored agreement
cost estimating, accumulating, and reporting. This standard will reduce
the effects of variations in the flow of costs within each cost accounting
period. It will also enhance objectivity, consistency, and verifiability,
and promote uniformity and comparability in sponsored agreement cost measurements.
Definitions
(a) The
following are definitions of terms which are prominent in this standard.
(1) Allocate
means to assign an item of cost, or a group of items of cost, to one or
more cost objectives. This term includes both direct assignment of cost
and the reassignment of a share from an indirect cost pool.
(2) Cost
Objective means a function, organizational subdivision, sponsored agreement,
or other work unit for which cost data are desired and for which provision
is made to accumulate and measure the cost of processes, products, jobs,
capitalized projects, etc.
(3) Fiscal
year means the accounting period for which annual financial statements
are regularly prepared, generally a period of 12 months, 52 weeks, or
53 weeks.
(4) Indirect
cost pool means a grouping of incurred costs identified with two or more
cost objectives but not identified specifically with any final cost objective.
Fundamental
requirement
Educational
institutions shall use their fiscal year as their cost accounting period,
except that:
Costs of
an indirect 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.
An annual
period other than the fiscal year may be used as the cost accounting period
if its use is an established practice of the educational institution.
A transitional
cost accounting period other than a year shall be used whenever a change
of fiscal year occurs.
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.
The same
cost accounting period shall be used for accumulating costs in an indirect
cost pool as for establishing its allocation base, except that the contracting
parties may agree to use a different period for establishing an allocation
base.
Techniques
for application
(a) The
cost of an indirect function which exists for only a part of a cost accounting
period may be allocated on the basis of data for that part of the cost
accounting period if the cost is (1) material in amount, (2) accumulated
in a separate indirect cost pool or expense pool, and (3) allocated on
the basis of an appropriate direct measure of the activity or output of
the function during that part of the period.
(b) The
practices required by this standard shall include appropriate practices
for deferrals, accruals, and other adjustments to be used in identifying
the cost accounting periods among which any types of expense and any types
of adjustment to expense are distributed. If an expense, such as insurance
or employee leave, is identified with a fixed, recurring, annual period
which is different from the educational institution's cost accounting
period, the standard permits continued use of that different period. Such
expenses shall be distributed to cost accounting periods in accordance
with the educational institution's established practices for accruals,
deferrals, and other adjustments.
(c) Indirect
cost allocation rates, based on estimates, which are used for the purpose
of expediting the closing of sponsored agreements which are terminated
or completed prior to the end of a cost accounting period need not be
those finally determined or negotiated for that cost accounting period.
They shall, however, be developed to represent a full cost accounting
period, except as provided in paragraph (a) of this subsection.
(d) An educational
institution may, upon mutual agreement with the Government, use as its
cost accounting period a fixed annual period other than its fiscal year,
if the use of such a 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.
(e) The
parties may agree to use an annual period which does not coincide precisely
with the cost accounting period for developing the data used in 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 indirect 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.
(f) When
a transitional cost accounting period is required, educational institution
may select any one of the following: (1) the period, less than a year
in length, extending from the end of its previous cost accounting period
to the beginning of its next regular cost accounting period, (2) a period
in excess of a year, but not longer than 15 months, obtained by combining
the period described in subparagraph (f)(1) of this subsection with the
previous cost accounting period, or (3) a period in excess of a year,
but not longer than 15 months, obtained by combining the period described
in subparagraph (f)(1) of this subsection with the next regular cost accounting
period. A change in the educational institution's cost accounting period
is a change in accounting practices for which an adjustment in the sponsored
agreement price may be required.
Illustrations
(a) An educational
institution allocates indirect expenses for Organized Research on the
basis of a modified total direct cost base. In a proposal for a sponsored
agreement, it estimates the allocable expenses based solely on the estimated
amount of indirect costs allocated to Organized Research and the amount
of the modified total direct cost base estimated to be incurred during
the 8 months in which performance is scheduled to be commenced and completed.
Such a proposal would be in violation of the requirements of this standard
that the calculation of the amounts of both the indirect cost pools and
the allocation bases be based on the educational institution's cost accounting
period.
(b) An educational
institution whose cost accounting period is the calendar year, installs
a computer service center to begin operations on May 1. The operating
expense related to the new service center is expected to be material in
amount, will be accumulated in an intermediate cost objective, and will
be allocated to the benefitting cost objectives on the basis of measured
usage. The total operating expenses of the computer service center for
the 8-month part of the cost accounting period may be allocated to the
benefitting cost objectives of that same 8-month period.
(c) An educational
institution changes its fiscal year from a calendar year to the 12-month
period ending May 31. For financial reporting purposes, it has a 5-month
transitional "fiscal year." The same 5-month period must be
used as the transitional cost accounting period; it may not be combined,
because the transitional period would be longer than 15 months. The new
fiscal year must be adopted thereafter as its regular cost accounting
period. The change in its cost accounting period is a change in accounting
practices; adjustments of the sponsored agreement prices may thereafter
be required.
(d) Financial
reports are prepared on a calendar year basis on a university-wide basis.
However, the contracting segment does all internal financial planning,
budgeting, and internal reporting on the basis of a twelve month period
ended June 30. The contracting parties agree to use the period ended June 30
and they agree to overhead rates on the June 30 basis. They also agree
on a technique for prorating fiscal year assignment of the university's
central system office expenses between such June 30 periods. This practice
is permitted by the standard.
(e) Most
financial accounts and sponsored agreement cost records are maintained
on the basis of a fiscal year which ends November 30 each year. However,
employee vacation allowances are regularly managed on the basis of a "vacation
year" which ends September 30 each year. Vacation expenses are estimated
uniformly during each "vacation year." Adjustments are made
each October to adjust the accrued liability to actual, and the estimating
rates are modified to the extent deemed appropriate. This use of a separate
annual period for determining the amounts of vacation expense is permitted.
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