TO THE HEADS OF
EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
FROM: Alice M. Rivlin,
SUBJECT: Cost Principles
for State, Local, and Indian Tribal Governments
This Circular establishes principles and standards for determining costs
for Federal awards carried out through grants, cost reimbursement contracts,
and other agreements with State and local governments and federally-recognized
Indian tribal governments (governmental units).
This Circular is issued under the authority of the Budget and Accounting
Act of 1921, as amended; the Budget and Accounting Procedures Act of 1950,
as amended; the Chief Financial Officers Act of 1990; Reorganization Plan
No. 2 of 1970; and Executive Order No. 11541 ("Prescribing the Duties of
the Office of Management and Budget and the Domestic Policy Council in the
Executive Office of the President").
An interagency task force was established in 1987 to review existing cost
principles for Federal awards to State, local, and Indian tribal governments.
The task force studied Inspector General reports and recommendations, solicited
suggestions for changes to the Circular from governmental units, and compared
for consistency the provisions of other OMB cost principles circulars covering
non-profit organizations and universities. A proposed revised Circular reflecting
the results of those efforts was issued on October 12, 1988, and August
19, 1993. Extensive comments on the proposed revisions, discussions with
interest groups, and related developments were considered in developing
This Circular rescinds and supersedes Circular A-87, issued January 15,
5. Policy. This
Circular establishes principles and standards to provide a uniform approach
for determining costs and to promote effective program delivery, efficiency,
and better relationships between governmental units and the Federal Government.
The principles are for determining allowable costs only. They are not intended
to identify the circumstances or to dictate the extent of Federal and governmental
unit participation in the financing of a particular Federal award. Provision
for profit or other increment above cost is outside the scope of this Circular.
Definitions of key terms used in this Circular are contained in Attachment
A, Section B.
7. Required Action.
Agencies responsible for administering programs that involve cost reimbursement
contracts, grants, and other agreements with governmental units shall issue
codified regulations to implement the provisions of this Circular and its
Attachments by September 1, 1995.
8. OMB Responsibilities.
The Office of Management and Budget (OMB) will review agency regulations
and implementation of this Circular, and will provide policy interpretations
and assistance to insure effective and efficient implementation. Any exceptions
will be subject to approval by OMB. Exceptions will only be made in particular
cases where adequate justification is presented.
9. Information Contact.
Further information concerning this Circular may be obtained by contacting
the Office of Federal Financial Management, Financial Standards and Reporting
Branch, Office of Management and Budget, Washington, DC 20503, telephone
10. Policy Review
Date. OMB Circular A-87 will have a policy review three years from the
date of issuance.
11. Effective Date.
This Circular is effective as follows:
-For costs charged
indirectly or otherwise covered by the cost allocation plans described
in Attachments C, D and E, this revision shall be applied to cost allocation
plans and indirect cost proposals submitted or prepared for a governmental
unit's fiscal year that begins on or after September 1, 1995.
-For other costs,
this revision shall be applied to all awards or amendments, including
continuation or renewal awards, made on or after September 1, 1995.