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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.
a. 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.
b. 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, and 65 FR 48566). The provisions shall be implemented by institutions as
of the start of their first fiscal year beginning after that date. 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
10. Consistency in estimating, accumulating and reporting costs
11. Consistency in allocating costs incurred for the same purpose
12. Accounting for unallowable costs
13. Cost accounting period
14. Disclosure statement
D. Direct costs
1. General
2. Application to sponsored agreements
E. F&A costs
1. General
2. Criteria for distribution
F. Identification and assignment of F&A costs
1. Definition of Facilities and Administration.
2. Depreciation and use allowances
3. Interest
4. Operation and maintenance expenses
5. General administration and general expenses
6. Departmental administration expenses
7. Sponsored projects administration
8. Library expenses
9. Student administration and services
10. Offset for F&A expenses otherwise provided for by the Federal
Government
G. Determination and application of F&A cost rate or rates
1. F&A cost pools
2. The distribution basis
3. Negotiated lump sum for F&A costs
4. Predetermined rates for F&A costs
5. Negotiated fixed rates and carry-forward provisions
6. Provisional and final rates for F&A costs
7. Fixed rates for the life of the sponsored agreement
8. Limitation on reimbursement of administrative costs
9. Alternative method for administrative costs
10. Individual rate components
11. Negotiation and approval of F&A rate
12. Standard format for submission
H. Simplified method for small institutions
1. General
2. Simplified procedure
I. Reserved
J. General provisions for selected items of cost
1. Advertising and public relations costs
2. Alcoholic beverages
3. Alumni/ae activities
4. Bad debts
5. Civil defense costs
6. Commencement and convocation costs
7. Communication costs
8. Compensation for personal services
9. Contingency provisions
10. Deans of faculty and graduate schools
11. Defense and prosecution of criminal and civil proceedings, claims, appeals and
patent infringement
12. Depreciation and use allowances
13. Donations and contributions
14. Employee morale, health, and welfare costs and credits
15. Entertainment costs
16. Equipment and other capital expenditures
17. Executive lobbying costs
18. Fines and penalties
19. Goods or services for personal use
20. Housing and personal living expenses
21. Insurance and indemnification
22. Interest, fund raising, and investment management costs
23. Labor relations costs
24. Lobbying
25. Losses on other sponsored agreements or contracts
26. Maintenance and repair costs
27. Material costs
28. Memberships, subscriptions and professional activity costs
29. Patent costs
30. Plant security costs
31. Preagreement costs
32. Professional services costs
33. Profits and losses on disposition of plant equipment or other capital assets
34. Proposal costs
35. Rearrangement and alteration costs
36. Reconversion costs
37. Recruiting costs
38. Rental cost of buildings and equipment
39. Royalties and other costs for use of patents
40. Sabbatical leave costs
41. Scholarships and student aid costs
42. Selling and marketing
43. Severance pay
44. Specialized service facilities
45. Student activity costs
46. Taxes
47. Transportation costs
48. Travel costs
49. Termination costs applicable to sponsored agreements
50. Trustees
K. Certification of charges
Exhibit A - List of Colleges and Universities Subject to Section J.12.f
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 --
a. The arrangements for Federal agency and institutional participation in the financing
of a
research, training, or other project are properly subject to negotiation between the agency and the
institution concerned, in accordance with such governmentwide criteria or legal requirements as
may be applicable.
b. Each institution, possessing its own unique combination of staff, facilities, and
experience,
should be encouraged to conduct research and educational activities in a manner consonant with
its own academic philosophies and institutional objectives.
c. The dual role of students engaged in research and the resulting benefits to
sponsored
agreements are fundamental to the research effort and shall be recognized in the application of
these principles.
d. Each institution, in the fulfillment of its obligations, should employ sound
management
practices.
e. The application of these cost accounting principles should require no significant
changes in the generally accepted accounting practices of colleges and universities. However, the
accounting practices of individual colleges and universities must support the accumulation of
costs as required by the principles, and must provide for adequate documentation to support costs
charged to sponsored agreements.
f. Cognizant Federal agencies involved in negotiating facilities and administrative
(F&A) cost rates and auditing should assure that institutions are generally applying these
cost accounting principles on a consistent basis. Where wide variations exist in the treatment of a
given cost item among institutions, the reasonableness and equitableness of such treatments
should be fully considered during the rate negotiations and audit.
3. Application. These principles shall be used in determining the allowable costs of
work
performed by colleges and universities under sponsored agreements. The principles shall also be
used in determining the costs of work performed by such institutions under subgrants,
cost-reimbursement subcontracts, and other awards made to them under sponsored agreements.
They also shall be used as a guide in the pricing of fixed-price contracts and subcontracts where
costs are used in determining the appropriate price. The principles do not apply to:
a. Arrangements under which Federal financing is in the form of loans, scholarships,
fellowships, traineeships, or other fixed amounts based on such items as education allowance or
published tuition rates and fees of an institution.
b. Capitation awards.
c. Other awards under which the institution is not required to account to the Federal
Government for actual costs incurred.
d. Conditional exemptions.
(1) OMB authorizes conditional exemption from OMB administrative
requirements and cost
principles 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:
a. Instruction means the teaching and training activities of an institution. Except
for research training as provided in subsection b, this term includes all teaching and
training activities, whether they are offered for credits toward a degree or certificate or on a
non-credit basis, and whether they are offered through regular academic departments or separate
divisions, such as a summer school division or an extension division. Also considered part of this
major function are departmental research, and, where agreed to, university research.
(1) Sponsored instruction and training means specific
instructional or training activity established
by grant, contract, or cooperative agreement. For purposes of the cost principles, this activity
may be considered a major function even though an institution's accounting treatment may
include it in the instruction function.
(2) Departmental research means research, development and
scholarly activities that are not
organized research and, consequently, are not separately budgeted and accounted for.
Departmental research, for purposes of this document, is not considered as a major function, but
as a part of the instruction function of the institution.
b. Organized research means all research and development activities of an
institution that are separately budgeted and accounted for. It includes:
(1) Sponsored research means all research and development
activities that are sponsored by
Federal and non-Federal agencies and organizations . This term includes activities involving the
training of individuals in research techniques (commonly called research training) where such
activities utilize the same facilities as other research and development activities and where such
activities are not included in the instruction function.
(2) University research means all research and development
activities that are separately
budgeted and accounted for by the institution under an internal application of institutional funds.
University research, for purposes of this document, shall be combined with sponsored research
under the function of organized research.
c. Other sponsored activities means programs and projects financed by Federal
and non-Federal
agencies and organizations which involve the performance of work other than instruction and
organized research. Examples of such programs and projects are health service projects, and
community service programs. However, when any of these activities are undertaken by the
institution without outside support, they may be classified as other institutional activities.
d. Other institutional activities means all activities of an institution except:
(1) instruction, departmental research, organized research, and other
sponsored activities, as defined above;
(2) F&A cost activities identified in Section F; and
(3) specialized service facilities described in Section J.44. 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 therefor, 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.
a. A cost is allocable to a particular cost objective (i.e., a specific function, project,
sponsored
agreement, department, or the like) if the goods or services involved are chargeable or assignable
to such cost objective in accordance with relative benefits received or other equitable
relationship. Subject to the foregoing, a cost is allocable to a sponsored agreement if (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.
b. 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.
c. Any costs allocable to activities sponsored by industry, foreign governments or other
sponsors may not be shifted to federally-sponsored agreements.
d. Allocation and documentation standard.
(1) Cost principles. The recipient institution is responsible for
ensuring that costs charged to a
sponsored agreement are allowable, allocable, and reasonable under these cost principles.
(2) Internal controls. The institution's financial management
system shall ensure that no one person has complete control over all aspects of a financial
transaction.
(3) Direct cost allocation principles. If a cost benefits two or
more projects or activities in
proportions that can be determined without undue effort or cost, the cost should be allocated to
the projects based on the proportional benefit. If a cost benefits two or more projects or activities
in proportions that cannot be determined because of the interrelationship of the work involved,
then, notwithstanding subsection b, the costs may be allocated or transferred
to benefited projects on any reasonable basis, consistent with subsections 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.
a. The term "applicable credits" refers to those receipts or negative expenditures that
operate to
offset or reduce direct or F&A cost items. Typical examples of such
transactions are: purchase
discounts, rebates, or allowances; recoveries or indemnities on losses; and adjustments of
overpayments or erroneous charges. This term also includes "educational discounts" on products
or services provided specifically to educational institutions, such as discounts on computer
equipment, except where the arrangement is clearly and explicitly identified as a gift by the
vendor.
b. In some instances, the amounts received from the Federal Government to finance
institutional
activities or service operations should be treated as applicable credits. Specifically, the concept of
netting such credit items against related expenditures should be applied by the institution in
determining the rates or amounts to be charged to sponsored agreements for services rendered
whenever the facilities or other resources used in providing such services have been financed
directly, in whole or in part, by Federal funds. (See Sections F.10, J.12.a, and J.44 for areas of
potential application in the matter of direct Federal financing.)
6. Costs incurred by State and local governments. Costs incurred or paid by State or
local
governments on behalf of their colleges and universities for fringe benefit programs, such as
pension costs and FICA and any other costs specifically incurred on behalf of, and in direct
benefit to, the institutions, are allowable costs of such institutions whether or not these costs are
recorded in the accounting records of the institutions, subject to the following:
a. The costs meet the requirements of subsections 1 through 5.
b. The costs are properly supported by cost allocation plans in accordance with
applicable Federal cost accounting principles.
c. The costs are not otherwise borne directly or indirectly by the Federal Government.
7. Limitations on allowance of costs. Sponsored agreements may be subject to
statutory
requirements that limit the allowance of costs. When the maximum amount allowable under a
limitation is less than the total amount determined in accordance with the principles in this
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:
a. Costs specifically identified as unallowable in Section J, either directly
or indirectly, and charged to the Federal Government.
b. Excess costs due to failure by the educational institution to comply with the cost
policies in this Circular.
c. Increased costs due to a noncompliant cost accounting practice used to estimate,
accumulate, or report costs.
d. Increased costs resulting from a change in accounting practice.
9. Adjustment of previously negotiated F&A cost rates containing unallowable
costs. Negotiated F&A cost rates based on a proposal later found to have included costs
that (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).
a. For rates covering a future fiscal year of the institution, the unallowable costs will be
removed from the F&A cost pools and the rates appropriately adjusted.
b. For rates covering a past period, the Federal share of the unallowable costs will be
computed for each year involved and a cash refund (including interest chargeable in accordance
with
applicable regulations) will be made to the Federal Government. If cash refunds are made for
past periods covered by provisional or fixed rates, appropriate adjustments will be made when
the rates are finalized to avoid duplicate recovery of the unallowable costs by the Federal
Government.
c. For rates covering the current period, either a rate adjustment or a refund, as
described in subsections a and b, shall be required by the cognizant agency. The choice of
method shall be at the discretion of the cognizant agency, based on its judgment as to which
method would be most practical.
d. The amount or proportion of unallowable costs included in each year's rate will be
assumed to be the same as the amount or proportion of unallowable costs included in the base
year proposal used to establish the rate.
10. Consistency in estimating, accumulating and reporting costs.
a. An educational institution's practices used in estimating costs in pricing a proposal
shall be
consistent with the educational institution's cost accounting practices used in accumulating and
reporting costs.
b. An educational institution's cost accounting practices used in accumulating and
reporting
actual costs for a sponsored agreement shall be consistent with the educational institution's
practices used in estimating costs in pricing the related proposal or application.
c. The grouping of homogeneous costs in estimates prepared for proposal purposes shall
not per se be deemed an inconsistent application of cost accounting practices under
subsection a when such costs are accumulated and reported in greater detail on an actual cost
basis during performance of the sponsored agreement.
d. 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.
a. All costs incurred for the same purpose, in like circumstances, are either direct costs
only or F&A costs only with respect to final cost objectives. No final cost objective shall
have allocated to it as a cost any cost, if other costs incurred for the same purpose, in like
circumstances, have been included as a direct cost of that or any other final cost objective.
Further, no final cost objective shall have allocated to it as a direct cost any cost, if other costs
incurred for the same purpose, in like circumstances, have been included in any F&A cost
pool to be allocated to that or any other final cost objective.
b. Appendix A reflects this requirement along with its purpose, definitions, techniques
for application, illustrations and interpretations, all of which are authoritative.
12. Accounting for unallowable costs.
a. Costs expressly unallowable or mutually agreed to be unallowable, including costs
mutually agreed to be unallowable directly associated costs, shall be identified and excluded
from any billing, claim, application, or proposal applicable to a sponsored agreement.
b. Costs which specifically become designated as unallowable as a result of a written
decision
furnished by a Federal official pursuant to sponsored agreement disputes procedures shall be
identified if included in or used in the computation of any billing, claim, or proposal applicable
to a sponsored agreement. This identification requirement applies also to any costs incurred for
the same purpose under like circumstances as the costs specifically identified as unallowable
under either this subsection or subsection a.
c. Costs which, in a Federal official's written decision furnished pursuant to sponsored
agreement disputes procedures, are designated as unallowable directly associated costs of
unallowable costs covered by either subsection a or b shall be accorded the identification
required by subsection b.
d. The costs of any work project not contractually authorized by a sponsored agreement,
whether
or not related to performance of a proposed or existing sponsored agreement, shall be accounted
for, to the extent appropriate, in a manner which permits ready separation from the costs of
authorized work projects.
e. All unallowable costs covered by subsections a through d shall be subject to the same
cost accounting principles governing cost allocability as allowable costs. In circumstances where
these unallowable costs normally would be part of a regular F&A cost allocation base or
bases, they shall remain in such base or bases. Where a directly associated cost is part of a
category of costs normally included in a F&A cost pool that shall be allocated over a
base containing the unallowable cost with which it is associated, such a directly associated cost
shall be retained in the F&A cost pool and be allocated through the regular allocation
process.
f. Where the total of the allocable and otherwise allowable costs exceeds a
limitation-of-cost or ceiling-price provision in a sponsored agreement, full direct and F&A
cost allocation shall be
made to the sponsored agreement cost objective, in accordance with established cost accounting
practices and standards which regularly govern a given entity's allocations to sponsored
agreement cost objectives. In any determination of a cost overrun, the amount thereof shall be
identified in terms of the excess of allowable costs over the ceiling amount, rather than through
specific identification of particular cost items or cost elements.
g. 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.
a. Educational institutions shall use their fiscal year as their cost accounting period,
except that:
(1) Costs of a F&A function which exists for only a part of a cost
accounting period may be
allocated to cost objectives of that same part of the period on the basis of data for that part of the
cost accounting period if the cost is: (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.
b. An educational institution shall follow consistent practices in the selection of the cost
accounting period or periods in which any types of expense and any types of adjustment to
expense (including prior-period adjustments) are accumulated and allocated.
c. The same cost accounting period shall be used for accumulating costs in a
F&A cost pool as
for establishing its allocation base, except that the Federal Government and educational
institution may agree to use a different period for establishing an allocation base, provided:
(1) The practice is necessary to obtain significant administrative
convenience,
(2) The practice is consistently followed by the educational institution,
(3) The annual period used is representative of the activity of the cost
accounting period for which the F&A costs to be allocated are accumulated, and
(4) The practice can reasonably be estimated to provide a distribution to
cost objectives of the cost accounting period not materially different from that which otherwise
would be obtained.
d. Appendix A reflects this requirement, along with its purpose, definitions, techniques
for application and illustrations, all of which are authoritative.
14. Disclosure Statement.
a. Educational institutions that received aggregate sponsored agreements totaling $25
million or more subject to this 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.
b. The DS-2 shall be submitted to the cognizant agency with a copy to the educational
institution's audit cognizant office.
c. Educational institutions receiving $25 million or more in sponsored agreements that
are not required to file a DS-2 pursuant to 48 CFR 9903.202-1 shall file a DS-2 covering the first
fiscal year beginning after the publication date of this revision, within six months after the end of
that fiscal year. Extensions beyond the above due date may be granted by the cognizant agency
on a case-by-case basis.
d. Educational institutions are responsible for maintaining an accurate DS-2 and
complying with
disclosed cost accounting practices. Educational institutions must file amendments to the DS-2
when disclosed practices are changed to comply with a new or modified standard, or when
practices are changed for other reasons. Amendments of a DS-2 may be submitted at any time. If
the change is expected to have a material impact on the educational institution's negotiated
F&A
cost rates, the revision shall be approved by the cognizant agency before it is implemented.
Resubmission of a complete, updated DS-2 is discouraged except when there are extensive
changes to disclosed practices.
e. Cost and funding adjustments. Cost adjustments shall be made by the cognizant
agency if an
educational institution fails to comply with the cost policies in this 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.
f. Overpayments. Excess amounts paid in the aggregate by the Federal Government
under sponsored agreements due to a noncompliant cost accounting practice used to estimate,
accumulate, or report costs shall be credited or refunded, as deemed appropriate by the cognizant
agency. Interest applicable to the excess amounts paid in the aggregate during the period of
noncompliance shall also be determined and collected in accordance with applicable Federal
agency regulations.
g. Compliant cost accounting practice changes. Changes from one compliant cost
accounting
practice to another compliant practice that are approved by the cognizant agency may require
cost adjustments if the change has a material effect on sponsored agreements and the changes are
deemed appropriate by the cognizant agency.
h. Responsibilities. The cognizant agency shall:
(1) Determine cost adjustments for all sponsored agreements in the
aggregate on behalf of the Federal Government. Actions of the cognizant agency official in
making cost adjustment determinations shall be coordinated with all affected Federal agencies to
the extent necessary.
(2) Prescribe guidelines and establish internal procedures to promptly
determine on behalf of the
Federal Government that a DS-2 adequately discloses the educational institution's cost
accounting practices and that the disclosed practices are compliant with applicable CAS and the
requirements of 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.
a. Base period. A base period for distribution of F&A costs
is the period during which the costs
are incurred. The base period normally should coincide with the fiscal year established by the
institution, but in any event the base period should be so selected as to avoid inequities in the
distribution of costs.
b. Need for cost groupings. The overall objective of the F&A cost
allocation process is to distribute the F&A costs described in Section F 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.
c. General considerations on cost groupings. The extent to which separate cost
groupings and
selective distribution would be appropriate at an institution is a matter of judgment to be
determined on a case-by-case basis. Typical situations which may warrant the establishment of
two or more separate cost groupings (based on account classification or analysis) within a
F&A
cost category include but are not limited to the following:
(1) Where certain items or categories of expense relate solely to one of
the major functions of the
institution or to less than all functions, such expenses should be set aside as a separate cost
grouping for direct assignment or selective allocation in accordance with the guides provided in
subsections b and d.
(2) Where any types of expense ordinarily treated as general
administration or departmental administration are charged to sponsored agreements as direct
costs, expenses applicable to other activities of the institution when incurred for the same
purposes in like circumstances must, through separate cost groupings, be excluded from the
F&A costs allocable to those sponsored agreements and included in the direct cost of other
activities for cost allocation purposes.
(3) Where it is determined that certain expenses are for the support of a
service unit or facility
whose output is susceptible of measurement on a workload or other quantitative basis, such
expenses should be set aside as a separate cost grouping for distribution on such basis to
organized research, instructional, and other activities at the institution or within the department.
(4) Where activities provide their own purchasing, personnel
administration, building maintenance or similar service, the distribution of general administration
and general expenses, or operation and maintenance expenses to such activities should be
accomplished through cost groupings which include only that portion of central F&A costs
(such as for overall management) which are properly allocable to such activities.
(5) Where the institution elects to treat fringe benefits as F&A
charges, such costs should be set
aside as a separate cost grouping for selective distribution to related cost objectives.
(6) The number of separate cost groupings within a category should be
held within practical
limits, after taking into consideration the materiality of the amounts involved and the degree of
precision attainable through less selective methods of distribution.
d. Selection of distribution method.
(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.
e. 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 a 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.
a. The expenses under this heading are the portion of the costs of the institution's
buildings, capital improvements to land and buildings, and equipment which are computed in
accordance with Section J.12.
b. 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.
c. Large research facilities. The following provisions apply to large research
facilities, that are included in F&A rate proposals negotiated after January 1, 2000, and on
which the design and construction begin after July 1, 1998. Large facilities, for this provision, are
defined as buildings with construction costs of more than $10 million. The determination of the
Federal participation (use) percentage in a building is based on institution's estimates of building
use over its life, and is made during the planning phase for the building.
(1) When an institution has large research facilities, of which 40 percent
or more of total assignable space is expected for Federal use, the institution must maintain an
adequate review and approval process to ensure that construction costs are reasonable. 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.22.e and f, shall be classified as an expenditure under
the category Facilities. These costs shall be allocated in the same manner as the depreciation or
use allowances on the buildings, equipment and capital improvements to which the interest
relates.
4. Operation and maintenance expenses.
a. The expenses under this heading are those that have been incurred for the
administration,
supervision, operation, maintenance, preservation, and protection of the institution's physical
plant. They include expenses normally incurred for such items as janitorial and utility services;
repairs and ordinary or normal alterations of buildings, furniture and equipment; care of grounds;
maintenance and operation of buildings and other plant facilities; security; earthquake and
disaster preparedness; environmental safety; hazardous waste disposal; property, liability and all
other insurance relating to property; space and capital leasing; facility planning and management;
and, central receiving. The operation and maintenance expense category should also include its
allocable share of fringe benefit costs, depreciation and use allowances, and interest costs.
b. In the absence of the alternatives provided for in Section E.2.d, the expenses included
in this category shall be allocated in the same manner as described in subsection 2.b for
depreciation and use allowances.
c. For F&A rates negotiated on or after July 1, 1998, an institution that previously
employed a utility special cost study in its most recently negotiated F&A rate proposal in
accordance with Section E.2.d, 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 benefitting 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.
d. Beginning on July 1, 2002, Federal agencies may receive applications for utilization
of the UCA from institutions not subject to the provisions of subsection F.4.c.
5. General administration and general expenses.
a. The expenses under this heading are those that have been incurred for the general
executive
and administrative offices of educational institutions and other expense of a general character
which do not relate solely to any major function of the institution; i.e., solely to (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.)
b. 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 benefitted 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.
a. The expenses under this heading are those that have been incurred for administrative
and
supporting services that benefit common or joint departmental activities or objectives in
academic deans' offices, academic departments and divisions, and organized research units.
Organized research units include such units as institutes, study centers, and research centers.
Departmental administration expenses are subject to the following limitations.
(1) Academic deans' offices. Salaries and operating expenses are limited
to those attributable to administrative functions.
(2) Academic departments:
(a) Salaries and fringe benefits attributable to the administrative work
(including bid and
proposal preparation) of faculty (including department heads), and other professional personnel
conducting research and/or instruction, shall be allowed at a rate of 3.6 percent of modified total
direct costs. This category does not include professional business or professional administrative
officers. This allowance shall be added to the computation of the F&A
cost rate for major functions in Section G; 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.
b. The following guidelines apply to the determination of departmental administrative
costs as direct or F&A costs.
(1) In developing the departmental administration cost pool, special care
should be exercised to
ensure that costs incurred for the same purpose in like circumstances are treated consistently as
either direct or F&A costs. For example, salaries of technical staff,
laboratory supplies (e.g.,
chemicals), telephone toll charges, animals, animal care costs, computer costs, travel costs, and
specialized shop costs shall be treated as direct cost wherever identifiable to a particular cost
objective. Direct charging of these costs may be accomplished through specific identification of
individual costs to benefiting cost objectives, or through recharge centers or specialized service
facilities, as appropriate under the circumstances.
(2) The salaries of administrative and clerical staff should normally be
treated as F&A costs.
Direct charging of these costs may be appropriate where a major project or activity explicitly
budgets for administrative or clerical services and individuals involved can be specifically
identified with the project or activity. "Major project" is defined as a project that requires an
extensive amount of administrative or clerical support, which is significantly greater than the
routine level of such services provided by academic departments. Some examples of major
projects are described in Exhibit C.
(3) Items such as office supplies, postage, local telephone costs, and
memberships shall normally be treated as F&A costs.
c. In the absence of the alternatives provided for in Section E.2.d, 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.
a. The expenses under this heading are limited to those incurred by a separate
organization(s)
established primarily to administer sponsored projects, including such functions as grant and
contract administration (Federal and non-Federal), special security, purchasing, personnel,
administration, and editing and publishing of research and other reports. They include the
salaries and expenses of the head of such organization, assistants, and immediate staff, together
with the salaries and expenses of personnel engaged in supporting activities maintained by the
organization, such as stock rooms, stenographic pools and the like. This category also includes
an allocable share of fringe benefit costs, general administration and general expenses, operation
and maintenance expenses, depreciation/use allowances. Appropriate adjustments will be made
for services provided to other functions or organizations.
b. In the absence of the alternatives provided for in Section E.2.d, the
expenses included in this
category shall be allocated to the major functions of the institution under which the sponsored
projects are conducted on the basis of the modified total cost of sponsored projects.
c. An appropriate adjustment shall be made to eliminate any duplicate charges to
sponsored agreements when this category includes similar or identical activities as those included
in the general administration and general expense category or other F&A cost items, such as
accounting, procurement, or personnel administration.
8. Library expenses.
a. The expenses under this heading are those that have been incurred for the operation
of the
library, including the cost of books and library materials purchased for the library, less any items
of library income that qualify as applicable credits under Section C.5. The
library expense
category should also include the fringe benefits applicable to the salaries and wages included
therein, an appropriate share of general administration and general expense, operation and
maintenance expense, and depreciation and use allowances. Costs incurred in the purchases of
rare books (museum-type books) with no value to sponsored agreements should not be allocated
to them.
b. In the absence of the alternatives provided for in Section E.2.d, the
expenses included in this
category shall be allocated first on the basis of primary categories of users, including students,
professional employees, and other users.
(1) The student category shall consist of full-time equivalent students
enrolled at the institution, regardless of whether they earn credits toward a degree or certificate.
(2) The professional employee category shall consist of all faculty
members and other professional employees of the institution, on a full-time equivalent basis.
(3) The other users category shall consist of all other users of library
facilities.
c. Amount allocated in subsection 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.
a. The expenses under this heading are those that have been incurred for the
administration of student affairs and for services to students, including expenses of such
activities as deans of
students, admissions, registrar, counseling and placement services, student advisers, student
health and infirmary services, catalogs, and commencements and convocations. The salaries of
members of the academic staff whose responsibilities to the institution require administrative
work that benefits sponsored projects may also be included to the extent that the portion charged
to student administration is determined in accordance with Section J.8. This
expense category also includes the fringe benefit costs applicable to the salaries and wages
included therein, an appropriate share of general administration and general expenses, operation
and maintenance, and use allowances and/or depreciation.
b. In the absence of the alternatives provided for in Section E.2.d, the expenses in this
category shall be allocated to the instruction function, and subsequently to sponsored agreements
in that function.
10. Offset for F&A expenses otherwise provided for by the Federal
Government.
a. The items to be accumulated under this heading are the reimbursements and other
payments from the Federal Government which 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.
b. The items in this group shall be treated as a credit to the affected individual
F&A cost category before that category is allocated to benefiting functions.
G. Determination and application of F&A cost rate or rates.
1. F&A cost pools.
a. (1) Subject to subsection b, the separate categories of F&A costs allocated to
each major function of the institution as prescribed in Section F shall be aggregated and
treated as a common pool for that function. The amount in each pool shall be divided by the
distribution base described in subsection 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 which utilize the F&A costs allocated to that major function. At the time a
F&A cost proposal is submitted to a cognizant
Federal agency, each institution must describe the process it uses to ensure that Federal funds are
not used to subsidize industry and foreign government funded programs.
b. In some instances a single rate basis for use across the board on all work within a
major function at an institution may not be appropriate. A single rate for research, for example,
might not take into account those different environmental factors and other conditions which
may affect substantially the F&A costs applicable to a particular segment of research
at the institution. A particular segment of research may be that performed under a single
sponsored agreement or it may consist of research under a group of sponsored agreements
performed in a common
environment. The environmental factors are not limited to the physical location of the work.
Other important factors are the level of the administrative support required, the nature of the
facilities or other resources employed, the scientific disciplines or technical skills involved, the
organizational arrangements used, or any combination thereof. Where a particular segment of a
sponsored agreement is performed within an environment which appears to generate a
significantly different level of F&A costs, provisions should be made for a separate
F&A cost pool applicable to such work. The separate F&A cost pool should be
developed during the regular course of the rate determination process and the separate F&A
cost rate resulting therefrom should be utilized; provided it is determined that (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 which 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.
a. Federal agencies shall use the negotiated rates for F&A costs in
effect at the time of the initial
award throughout the life of the sponsored agreement. "Life" for the purpose of this subsection
means each competitive segment of a project. A competitive segment is a period of years
approved by the Federal funding agency at the time of the award. If negotiated rate agreements
do not extend through the life of the sponsored agreement at the time of the initial award, then
the negotiated rate for the last year of the sponsored agreement shall be extended through the end
of the life of the sponsored agreement. Award levels for sponsored agreements may not be
adjusted in future years as a result of changes in negotiated rates.
b. When an educational institution does not have a negotiated rate with the Federal
Government
at the time of the award (because the educational institution is a new grantee or the parties cannot
reach agreement on a rate), the provisional rate used at the time of the award shall be adjusted
once a rate is negotiated and approved by the cognizant agency.
8. Limitation on reimbursement of administrative costs.
a. Notwithstanding the provisions of subsection 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.
b. Existing F&A cost rates that affect institutions' fiscal years which
begin on or after October 1,
1991, shall be unilaterally amended by the cognizant Federal agency to reflect the cost limitation
in subsection a.
c. Permanent rates established prior to this revision which 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.
d. 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.
a. Notwithstanding the provisions of subsection 1.a, an institution may elect to claim
fixed allowance for the "Administration" portion of F&A costs. The allowance
could be either 24% of modified total direct costs or a percentage equal to 95% of the most
recently negotiated fixed or
predetermined rate for the cost pools included under "Administration" as defined in
Section F.1,
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.
b. In negotiations of rates for subsequent periods, an institution that has elected the
option of
subsection a may continue to exercise it at the same rate
without further identification or
documentation of costs, provided that no accounting or cost allocation changes with the effects
described in subsection 8.d have occurred.
c. If an institution elects to accept a threshold rate, it is not required to perform a
detailed analysis
of its administrative costs. However, in order to compute the facilities components of its
F&A
cost rate, the institution must reconcile its F&A cost proposal to its
financial statements and
make appropriate adjustments and reclassifications to identify the costs of each major function as
defined in Section B.1, 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.12.f 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.
a. Cognizant agency assignments. "A cognizant agency" means the Federal
agency responsible for negotiating and approving F&A rates for an educational institution
on behalf of all Federal agencies.
(1) Cost negotiation cognizance is assigned to the Department of Health
and Human Services
(HHS) or the Department of Defense's Office of Naval Research (DOD), normally depending on
which of the two agencies (HHS or DOD) provides more funds to the educational institution for
the most recent three years. Information on funding shall be derived from relevant data gathered
by the National Science Foundation. In cases where neither HHS nor DOD provides Federal
funding to an educational institution, the cognizant agency assignment shall default to HHS.
Notwithstanding the method for cognizance determination described above, other arrangements
for cognizance of a particular educational institution may also be based in part on the types of
research performed at the educational institution and shall be decided based on mutual agreement
between HHS and DOD.
(2) Cognizant assignments as of December 31, 1995, shall continue in
effect through educational
institutions' fiscal years ending during 1997, or the period covered by negotiated agreements in
effect on December 31, 1995, whichever is later, except for those educational institutions with
cognizant agencies other than HHS or DOD. Cognizance for these educational institutions shall
transfer to HHS or DOD at the end of the period covered by the current negotiated rate
agreement. After cognizance is established, it shall continue for a five-year period.
b. Acceptance of rates. The negotiated rates shall be accepted by all Federal
agencies. Only under
special circumstances, when required by law or regulation, may an agency use a rate different
from the negotiated rate for a class of sponsored agreements or a single sponsored agreement.
c. Correcting deficiencies. The cognizant agency shall negotiate changes needed
to correct
systems deficiencies relating to accountability for sponsored agreements. Cognizant agencies
shall address the concerns of other affected agencies, as appropriate.
d. Resolving questioned costs. The cognizant agency shall conduct any
necessary negotiations
with an educational institution regarding amounts questioned by audit that are due the Federal
Government related to costs covered by a negotiated agreement.
e. Reimbursement. Reimbursement to cognizant agencies for work performed
under Circular A-21 may be made by reimbursement billing under the Economy Act, 31 U.S.C.
1535.
f. Procedure for establishing facilities and administrative rates. The cognizant
agency shall
arrange with the educational institution to provide copies of rate proposals to all interested
agencies. Agencies wanting such copies should notify the cognizant agency. Rates shall be
established by one of the following methods:
(1) Formal negotiation. The cognizant agency is responsible for
negotiating and approving rates
for an educational institution on behalf of all Federal agencies. Non-cognizant Federal agencies,
which award sponsored agreements to an educational institution, shall notify the cognizant
agency of specific concerns (i.e., a need to establish special cost rates) which 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.
g. Formalizing determinations and agreements. The cognizant agency shall
formalize all
determinations or agreements reached with an educational institution and provide copies to other
agencies having an interest.
h. Disputes and disagreements. Where the cognizant agency is unable to reach
agreement with an
educational institution with regard to rates or audit resolution, the appeal system of the cognizant
agency shall be followed for resolution of the disagreement.
12. Standard Format for Submission. For facilities and administrative (F&A) rate proposals submitted on or after July 1, 2001, educational institutions shall use the standard format, shown in 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 which use the simplified method
for calculating F&A rates, as described in Section H.
H. Simplified method for small institutions.
1. General.
a. 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.
b. The simplified procedure should not be used where it produces results which appear
inequitable to the Federal Government or the institution. In any such case, F&A costs
should be determined through use of the regular procedure.
2. Simplified procedure - Salaries and wages base.
a. Establish the total amount of salaries and wages paid to all employees of the
institution.
b. Establish a F&A cost pool consisting of the expenditures
(exclusive of capital items and other
costs specifically identified as unallowable) which 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.
c. Establish a salary and wage distribution base, determined by deducting from the total
of salaries and wages as established in subsection a the amount of salaries and wages included
under subsection b.
d. Establish the F&A cost rate, determined by dividing the amount in
the F&A cost pool, subsection b, by the amount of the distribution base, subsection c.
e. Apply the F&A cost rate to direct salaries and wages for individual
agreements to determine the amount of F&A costs allocable to such agreements.
3. Simplified procedure - Modified total direct cost base.
a. Establish the total costs incurred by the institution for the base period.
b. Establish a F&A cost pool consisting of the expenditures (exclusive of capital
items and other costs specifically identified as unallowable) which 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.
c. Establish a modified total direct cost distribution base, as defined in Section G.2, that
consists of all institution's direct functions.
d. Establish the F&A cost rate, determined by dividing the amount in the
F&A cost pool, subsection b, by the amount of the distribution base, subsection c.
e. Apply the F&A cost rate to the modified total direct costs for individual
agreements to determine the amount of F&A costs allocable to such agreements.
J. General provisions for selected items of cost.
Sections 1 through 50 provide principles to be applied in establishing the allowability of
certain items involved in determining cost. These principles should apply irrespective of whether
a particular item of cost is properly treated as direct cost or F&A cost. Failure to mention a
particular item of cost is not intended to imply that it is either allowable or unallowable; rather,
determination as to allowability in each case should be based on the treatment provided for
similar or related items of cost. In case of a discrepancy between the provisions of a specific
sponsored agreement and the provisions below, the agreement should govern.
1. Advertising and public relations costs.
a. The term advertising costs means the costs of advertising media and corollary
administrative costs. Advertising media include magazines, newspapers, radio and television
programs, direct mail, exhibits, and the like.
b. The term public relations includes community relations and means those activities
dedicated to maintaining the image of the institution or maintaining or promoting understanding
and favorable relations with the community or public at large or any segment of the public.
c. The only allowable advertising costs are those which are solely for:
(1) The recruitment of personnel required for the performance by the
institution of obligations arising under the sponsored agreement, when considered in conjunction
with all other recruitment costs, as set forth in Section J.37;
(2) The procurement of goods and services for the performance of the
sponsored agreement;
(3) The disposal of scrap or surplus materials acquired in the
performance of the sponsored agreement except when institutions are reimbursed for disposal
costs at a predetermined amount in accordance with Circular A-110; or
(4) Other specific purposes necessary to meet the requirements of the
sponsored agreement.
d. The only allowable public relations costs are:
(1) Costs specifically required by sponsored agreements;
(2) Costs of communicating with the public and press pertaining to
specific activities or accomplishments which result from performance of sponsored agreements;
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 to
keep the public informed on matters of public concern, such as notices of contract/grant awards,
financial matters, etc.
e. Costs identified in subsections c and d if incurred for more than one
sponsored agreement or for both sponsored work and other work of the institution, are allowable
to the extent that the principles in Sections D and E are observed.
f. Unallowable advertising and public relations costs include the following:
(1) All advertising and public relations costs other than as specified in
subsections c, d, and e;
(2) Costs of convocations or other events related to instruction or other
institutional activities including:
(i) Costs of displays, demonstrations, and exhibits;
(ii) Costs of meeting rooms, hospitality suites, and other special facilities
used in conjunction
with shows and other special events; and
(iii) 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. Alcoholic beverages. Costs of alcoholic beverages are unallowable.
3. Alumni/ae activities. Costs incurred for, or in support of, alumni/ae activities and
similar services are unallowable.
4. Bad debts. Any losses, whether actual or estimated, arising from uncollectible
accounts and other claims, related collections costs, and related legal costs, are unallowable.
5. Civil defense costs. Civil defense costs are those incurred in planning for, and the
protection of
life and property against, the possible effects of enemy attack. Reasonable costs of civil defense
measures (including costs in excess of normal plant protection costs, first-aid training and
supplies, firefighting training, posting of additional exit notices and directions, and other
approved civil defense measures) undertaken on the institution's premises pursuant to
suggestions or requirements of civil defense authorities are allowable when distributed to all
activities of the institution. Capital expenditures for civil defense purposes will not be allowed,
but a use allowance or depreciation may be permitted in accordance with provisions set forth in
Section J.12. Costs of local civil defense projects not on the institution's premises are
unallowable.
6. Commencement and convocation costs. Costs incurred for commencements and
convocations are unallowable, except as provided for in Section F.9.
7. Communication costs. Costs incurred for telephone services, local and long
distance telephone calls, telegrams, radiograms, postage and the like, are allowable.
8. Compensation for personal services.
a. General. Compensation for personal services covers all amounts paid
currently or accrued by
the institution for services of employees rendered during the period of performance under
sponsored agreements. Such amounts include salaries, wages, and fringe benefits (see
subsection 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.
b. Payroll distribution.
(1) General Principles.
(a) The distribution of salaries and wages, whether treated as direct or
F&A costs, will be based
on payrolls documented in accordance with the generally accepted practices of colleges and
universities. Institutions may include in a residual category all activities that are not directly
charged to sponsored agreements, and that need not be distributed to more than one activity for
purposes of identifying F&A costs and the functions to which they are allocable. The
components of the residual category are not required to be separately documented.
(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 which 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
Section J.8.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.
c. Examples of Acceptable Methods for Payroll Distribution:
(1) Plan-Confirmation: Under this method, the distribution of
salaries and wages of professorial
and professional staff applicable to sponsored agreements is based on budgeted, planned, or
assigned work activity, updated to reflect any significant changes in work distribution. A
plan-confirmation system used for salaries and wages charged directly or indirectly to sponsored
agreements will meet the following standards:
(a) A system of budgeted, planned, or assigned work activity will be
incorporated into the
official records of the institution and encompass both sponsored and all other activities on an
integrated basis. The system may include the use of subsidiary records.
(b) The system will reasonably reflect only the activity for which the
employee is compensated
by the institution (compensation for incidental work described in subsection a
need not be
included). Practices vary among institutions and within institutions as to the activity constituting
a full workload. Hence, the system will reflect categories of activities expressed as a percentage
distribution of total activities. (See Section H 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 which 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: (i) 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,
(ii) 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).
d. 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.
e. 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.
f. 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 Section J.40 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.41.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) 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.
g. 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.
9. 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. (See also Section J.21.c.)
10. 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.
11. Defense and prosecution of criminal and civil proceedings, claims, appeals and
patent infringement.
a. 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 (i) acts of fraud or corruption or attempts to defraud the
Federal
Government or to corrupt its agents, (ii) acts that constitute a cause for debarment or suspension
(as specified in agency regulations), and (iii) 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.
b. (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.
c. 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.
d. 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.
e. 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.
f. 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.
g. 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.
h. 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.
i. 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.
12. 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:
a. The computation of depreciation or use allowances shall be based on the acquisition
cost of the assets involved. 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 prohibit recovery. For an asset donated to the institution by a third party, its fair
market value at the time of the donation shall be considered as the acquisition cost.
b. In the use of the depreciation method, the following shall be observed:
(1) The period of useful service or 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 institutions
(e.g., public institutions) 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, fumehoods, cold rooms and glassware/washers). In exceptional cases, a Federal
cognizant agency may authorize an institution to use more than these three groupings. When an
institution elects to depreciate its buildings by its components, the same depreciation methods
must be used for F&A purposes and financial statements purposes, as
described in subsection (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 c.(3))
c. 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 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, 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 which meet these criteria will be subject to the six and two-thirds 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(3), once an educational 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(3).
d. Except as otherwise provided in subsections b and c, 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).
e. 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.
f. This section applies to the largest college and university recipients of Federal research
and development funds as displayed in Exhibit A.
(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.
13. Donations and contributions.
a. The value of donated services and property are not allowable either as a direct or
F&A cost, except that depreciation or use allowances on donated assets are permitted in
accordance with Section J.12.a. The value of donated services and property may be used to
meet cost sharing or matching requirements, in accordance with Circular A-110.
b. Donations or contributions made by the institution, regardless of the recipient, are
unallowable.
14. Employee morale, health, and welfare costs and credits. The costs of house
publications,
health or first-aid clinics and/or infirmaries, recreational activities, food services, employees'
counseling services, and 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.
15. 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.
16. Equipment and other capital expenditures.
a. For purposes of this subsection, the following definitions apply:
(1) "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 organization for financial statement purposes, or $5000.
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.
(2) "Capital expenditures" means the cost of the asset including the cost
to put it in place. Capital
expenditure 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,
capital expenditure cost in accordance with the institution's regular accounting practices.
(3) "Special purpose equipment" means equipment which is used only
for research, medical, scientific, or other technical activities.
(4) "General purpose equipment" means equipment, the use of which is
not limited only to
research, medical, scientific or other technical activities. Examples of general purpose equipment
include office equipment and furnishings, air conditioning equipment, reproduction and printing
equipment, motor vehicles, and automatic data processing equipment.
b. 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 sponsoring agency.
(2) Expenditures for special purpose equipment are allowable as direct
charges with the approval of the sponsoring agency.
(3) Capital expenditures for improvements to land, buildings, or
equipment which materially
increase their value or useful life are unallowable as direct charges, except where approved in
advance by the sponsoring agency.
(4) Capital expenditures are unallowable as F&A costs. See
Section J.12 for allowability of depreciation or use allowances on buildings, capital
improvements, and equipment. Also see Section J.38 for allowability of rental costs on land,
buildings, and equipment.
17. 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.
18. 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.
19. 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.
20. Housing and personal living expenses.
a. 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.
b. The term "officers" includes current and past officers.
21. Insurance and indemnification.
a. Costs of insurance required or approved, and maintained, pursuant to the sponsored
agreement, are allowable.
b. 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.
c. 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.
d. 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.
e. 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.
f. Insurance against defects. Costs of insurance with respect to any costs incurred to
correct defects in the institution's materials or workmanship are unallowable.
g. 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.
22. Interest, fund raising, and investment management costs.
a. Costs incurred for interest on borrowed capital or temporary use of endowment
funds, however represented, are unallowable, except as indicated in subsection e.
b. 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.
c. Costs of investment counsel and staff and similar expenses incurred solely to enhance
income from investments are unallowable.
d. Costs related to the physical custody and control of monies and securities are
allowable.
e. The cost of interest paid to an external party is allowable where associated with the
following
assets, provided the assets are used in support of sponsored agreements, and the total cost
(including depreciation or use allowance, operation and maintenance costs, interest, etc.) does
not exceed the rental cost of comparable assets in the same locality.
(1) Buildings acquired or completed on or after July 1, 1982.
(2) Major reconstruction and remodeling of existing buildings completed
on or after July 1, 1982.
(3) Acquisition or fabrication of capital equipment (as defined in Section
J.16, Equipment and
other capital expenditures) completed on or after July 1, 1982, costing $10,000 or more, if agreed
to by the Federal Government.
f. Interest on debt incurred after the effective date of this revision to
acquire, replace or renovate
capital assets (including renovations, alterations, equipment, land, and capital assets acquired
through capital leases), acquired after the effective date of this revision and used in support of
sponsored agreements is subject to the following conditions:
(1) For facilities costing over $500,000, the educational institution shall
prepare, prior to the
acquisition or replacement of the facility, a lease-purchase analysis in accordance with
§___.44 of OMB Circular A-110, which shows that a financed purchase, including a capital
lease is less costly to the educational institution than other operating lease alternatives, on a net
present value basis. Discount rates used shall be equal to the educational institution's anticipated
interest rates and shall be no higher than the fair market rate available to the educational
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 educational 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 educational 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 educational 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) Educational institutions are also subject to the following conditions:
(a) For debt arrangements over $1 million, unless the educational
institution makes an initial
equity contribution to the asset purchase of 25 percent or more, educational institutions shall
reduce claims for interest cost by an amount equal to imputed interest earnings on excess cash
flow, which is to be calculated as follows. Annually, educational institutions 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.
(b) 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.
(c) The allowable costs to acquire facilities and equipment are limited to
a fair market value
available to the educational institution from an unrelated (arm's length) third party.
(6) The following definitions are to be used for purposes of this section:
(a) "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.
(b) "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).
23. 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.
24. 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:
a. 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.
b. 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.
c. 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.
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.
e. 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.
f. 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.
g. 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.
25. 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.
26. Maintenance and repair costs. Costs incurred for necessary maintenance, repair
or upkeep of property (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.
27. Material costs. Costs incurred for purchased materials, supplies, and fabricated
parts directly
or indirectly related to the sponsored agreement, are allowable. Purchases made specifically for
the sponsored agreement should be charged thereto at their actual prices after deducting all cash
discounts, trade discounts, rebates, and allowances received by the institution. Withdrawals from
general stores or stockrooms should be charged at their cost under any recognized method of
pricing stores withdrawals conforming to sound accounting practices consistently followed by
the institution. Incoming transportation charges are a proper part of material cost. Direct material
cost should include only the materials and supplies actually used for the performance of the
sponsored agreement, and due credit should be given for any excess materials retained, or
returned to vendors. Due credit should be given for all proceeds or value received for any scrap
resulting from work under the sponsored agreement. Where federally donated or furnished
materials is used in performing the sponsored agreement, such material will be used without
charge.
28. Memberships, subscriptions and professional activity costs.
a. Costs of the institution's membership in business, technical, and professional
organizations are allowable.
b. Costs of the institution's subscriptions to business, professional, and technical
periodicals are allowable.
c. Costs of meetings and conferences, when the primary purpose is the dissemination of
technical
information, are allowable. This includes costs of meals, transportation, rental of facilities, and
other items incidental such meetings or conferences.
d. Costs of membership in any civic or community organization are unallowable.
e. Costs of membership in any country club or social or dining club or organization are
unallowable.
29. Patent costs. Costs of preparing disclosures, reports, and other documents
required by the
sponsored agreement, and of searching the art to the extent necessary to make such invention
disclosures, are allowable. In accordance with the clauses of the sponsored agreement relating to
patents, costs of preparing documents and any other patent costs, in connection with the filing of
a patent application where title is conveyed to the Federal Government, are allowable. (See also
Section J.39.)
30. Plant security costs. Necessary expenses incurred to comply with security
requirements,
including wages, uniforms and equipment of personnel engaged in plant protection, are
allowable.
31. 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.
32. Professional services costs.
a. Costs of professional and consulting services, including legal services rendered by
the
members of a particular profession who are not employees of the institution, are allowable,
subject to subsection b and Section J.11 when reasonable in relation to the
services rendered
and when not contingent upon recovery of the costs from the Federal Government. Retainer fees,
to be allowable, must be reasonably supported by evidence of services rendered.
b. Factors to be considered in determining the allowability of costs in a particular case
include
(1) the past pattern of such costs, particularly in the years prior to the award of sponsored
agreements; (2) the impact of sponsored agreements on the institution's total activity; (3) the
nature and scope of managerial services expected of the institution's own organizations; and (4)
whether the proportion of Federal Government work to the institution's total activity 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 sponsored agreements.
33. Profits and losses on disposition of plant equipment or other capital assets.
a. (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.12.
(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.21.d.
(d) Compensation for the use of the property was provided through use
allowances in lieu of depreciation.
b. 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 Federal award costs.
c. 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."
34. Proposal costs. Proposal costs are the costs of preparing bids or proposals on
potential
federally and non-federally-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.
35. 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 when such work has been approved in advance by the
sponsoring agency.
36. 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.
37. Recruiting costs.
a. 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.
b. 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.
c. 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.
d. 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.
38. Rental cost of buildings and equipment.
a. Rental costs of buildings or equipment are allowable to the extent that the decision to
rent or lease is in accordance with Section C.3. Rental arrangements should be reviewed
periodically to determine if circumstances have changed and other options are available.
b. Rental costs under "sale and lease back" arrangements are allowable only up to the
amount that would be allowed if the institution continued to own the property.
c. Rental costs under "less-than-arms-length" leases are allowable only up to the
amount that
would be allowed if the institution owned the property. 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.
d. Where significant rental costs are incurred under leases which create a material
equity in the
leased property, they are allowable only up to the amount that would be allowed if the institution
purchased the property on the date the lease agreement was executed. For this purpose, a material
equity in the property exists when the lease:
(1) Is noncancelable or is cancelable only upon the occurrence of some
remote contingency, and
(2) Has one or more of the following characteristics:
(a) Title to the property passes to the institution at some time during or
after the lease period.
(b) The term of the lease corresponds substantially to the estimated
useful life of the property
(i.e., the period of economic usefulness to the legal owner of the property).
(c) The initial term is less than the useful life of the property and the
institution has the option to
renew the lease for the remaining useful life at substantially less than fair rental value.
(d) The property was acquired by the leaser to meet the special needs of
the institution and will
probably be usable only for that purpose and only by the institution.
(e) The institution has the right, during or at the expiration of the lease,
to purchase the
property
at a price which at the inception of the lease appears to be substantially less than the probable fair
market value at the time it is permitted to purchase the property (commonly called a lease with a
bargain purchase option), except for any discount normally given to educational institutions.
39. Royalties and other costs for use of patents. Royalties on a patent or
amortization of the cost
of acquiring a patent or invention or rights thereto, necessary for the proper performance of the
sponsored agreement and applicable to tasks or processes thereunder, are allowable unless the
Federal Government has a license or the right to free use of the patent, the patent has been
adjudicated to be invalid or has been administratively determined to be invalid, the patent is
considered to be unenforceable, or the patent has expired.
40. Sabbatical leave costs. 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.
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.
41. Scholarships and student aid costs.
a. 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) there is a bona fide employer-employee relationship between the student and
the institution for the work performed, (2) the tuition or other payments are reasonable
compensation for the work performed and are conditioned explicitly upon the performance of
necessary work, and (3) it is the institution's practice to similarly compensate students in
nonsponsored as well as sponsored activities.
b. 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.8, 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.
42. Selling and marketing. Costs of selling and marketing any products or services
of the institution (unless allowed under Section J.1.c. or J.34) are unallowable.
43. Severance pay.
a. 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.
b. Severance payments that are due to normal recurring turnover and which otherwise
meet the
conditions of subsection a 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.
c. 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.
d. 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.
44. Specialized service facilities.
a. The costs of institutional services involving the use of highly complex or specialized
facilities
such as electronic computers, wind tunnels, and reactors are allowable, provided the charge for
the service meets the conditions of subsections b through d.
b. The cost of each service normally shall consist of both its direct costs and its
allocable share of F&A costs with deductions for appropriate income of Federal financing
as described in Section C.5.
c. The cost of such institutional services when material in amount will be charged
directly to
users, including sponsored agreements based on actual use of the services and a schedule of rates
that does not discriminate between federally and non-federally supported activities of the
institution, including use by the institution for internal purposes. Charges for the use of
specialized facilities should be designed to recover not more than the aggregate cost of the
services over a long-term period agreed to by the institution and the cognizant Federal agency.
Accordingly, it is not necessary that the rates charged for services be equal to the cost of
providing those services during any one fiscal year as long as rates are reviewed periodically for
consistency with the long-term plan and adjusted if necessary.
d. Where the costs incurred for such institutional services are not material, they may be
allocated
as F&A costs. Such arrangements must be agreed to by the institution
and the cognizant Federal
agency.
e. 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.
45. 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.
46. Taxes.
a. 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.
b. 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.
47. 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.
48. Travel costs.
a. 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 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, results in reasonable charges, and is in accordance with the
institution's travel policy and practices consistently applied to all institutional travel activities.
b. 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 a result of an institutional policy and the amounts claimed under
sponsored agreements represent reasonable and allocable costs. In the absence of an acceptable
institutional policy regarding travel costs, the rates and amounts established under subchapter I of
Chapter 57 of Title 5, United States Code, or by the Administrator of General Services, or the
President (or his or her designee) pursuant to any provisions of such subchapter shall apply to
sponsored agreements (41 U.S.C. 420).
c. Commercial air travel. Airfare costs in excess of the lowest available
commercial discount
airfare, Federal Government contract airfare (where authorized and available), or customary
standard (coach or equivalent) airfare, are unallowable except when such accommodations
would: require circuitous routing; require travel during unreasonable hours; excessively prolong
travel; greatly increase the duration of the flight; result in increased costs that would offset
transportation savings; or offer accommodations not reasonably adequate for the medical needs
of the traveler. Where an institution can reasonably demonstrate to the sponsoring agency either
the nonavailability of discount airfare or Federal contract airfare for individual trips or, on an
overall basis, that it is the institution's practice to make routine use of such airfare, specific
determinations of nonavailability will generally not be questioned by the Federal Government,
unless a pattern of avoidance is detected. However, in order for airfare costs in excess of the
customary standard commercial airfare to be allowable, e.g., use of first-class airfare, the
institution must justify and document on a case-by-case basis the applicable condition(s) set forth
above.
d. Air travel by other than commercial carrier. "Cost of travel by
institution-owned, -leased, or
-chartered aircraft," as used in this subsection, includes the cost of lease, charter, operation
(including personnel costs), maintenance, depreciation, insurance, and other related costs. Costs
of travel via institution-owned, -leased, or -chartered aircraft shall not exceed the cost of
allowable commercial air travel, as provided for in subsection c.
49. Termination costs applicable to sponsored agreement.
a. Termination of sponsored agreements generally gives rise to the incurrence of costs
or to the
need for special treatment of costs, which would not have arisen had the agreement not been
terminated. Items peculiar to termination are set forth below. They are to be used in conjunction
with all other provisions of this Circular in the case of termination.
b. The cost of common items of material reasonably usable on the institution's other
work will
not be allowable unless the institution submits evidence that it could not retain such items at cost
without sustaining a loss. In deciding whether such items are reasonably usable on other work of
the institution, consideration should be given to the institution's plans and orders for current and
scheduled work. Contemporaneous purchases of common items by the institution will be
regarded as evidence that such items are reasonably usable on the institution's other work. Any
acceptance of common items as allowable to the terminated portion of the agreement should 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.
c. If in a particular case, despite all reasonable efforts by the institution, certain costs
cannot be
discontinued immediately after the effective date of the 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
will be considered unacceptable.
d. Loss of useful value of special tooling, and special machinery and equipment is
generally
allowable, provided (1) such special tooling, 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 contracting officer or equivalent;
and (3) the loss of useful value as to any one terminated 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 agreement bears to the entire terminated agreement and other Federal agreements
for which the special tooling, special machinery, or equipment was acquired.
e. Rental costs under unexpired leases are generally allowable where clearly shown to
have been
reasonably necessary for the performance of the terminated 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 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 alternations were necessary for the performance of the agreement, and of
reasonable restoration required by the provisions of the lease.
f. Settlement expenses including the following are generally allowable: (1) accounting,
legal,
clerical, and similar costs reasonably necessary for the preparation and presentation to
contracting officers or equivalent of settlement claims and supporting data with respect to the
terminated portion of the agreement, and the termination and settlement of subagreements; and
(2) reasonable costs for the storage, transportation, protection, and disposition of property
provided by the Federal Government or acquired or produced by the institution for the
agreement, except when the institution is reimbursed for disposals at a predetermined amount in
accordance with the provisions of Circular A-110.
g. Claims under subagreements, including the allocable portion of claims which are
common to the agreement and to other work of the institution, are generally allowable.
50. 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 48.
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.
a. 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.
b. 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.
Date of Execution: ______________________________________
Exhibit A -- List of Colleges and Universities Subject to Section
J.12.f of Circular A-21.
1. Johns Hopkins University
2. Stanford University
3. Massachusetts Institute of Technology
4. University of Washington
5. University of California-Los Angeles
6. University of Michigan
7. University of California-San Diego
8. University of California-San Francisco
9. University of Wisconsin-Madison
10. Columbia University
11. Yale University
12. Harvard University
13. Cornell University
14. University of Pennsylvania
15. University of California-Berkeley
16. University of Minnesota
17. Pennsylvania State University
18. University of Southern California
19. Duke University
20. Washington University
21. University of Colorado
22. University of Illinois-Urbana
23. University of Rochester
24. University of North Carolina-Chapel Hill
25. University of Pittsburgh
26. University of Chicago
27. University of Texas-Austin
28. University of Arizona
29. New York University
30. University of Iowa
31. Ohio State University
32. University of Alabama-Birmingham
33. Case Western Reserve
34. Baylor College of Medicine
35. California Institute of Technology
36. Yeshiva University
37. University of Massachusetts
38. Vanderbilt University
39. Purdue University
40. University of Utah
41. Georgia Institute of Technology
42. University of Maryland-College Park
43. University of Miami
44. University of California-Davis
45. Boston University
46. University of Florida
47. Carnegie-Mellon University
48. Northwestern University
49. Indiana University
50. Michigan State University
51. University of Virginia
52. University of Texas-SW Medical Center
53. University of California-Irvine
54. Princeton University
55. Tulane University of Louisiana
56. Emory University
57. University of Georgia
58. Texas A&M University-all campuses
59. New Mexico State University
60. North Carolina State University-Raleigh
61. University of Illinois-Chicago
62. Utah State University
63. Virginia Commonwealth University
64. Oregon State University
65. SUNY-Stony Brook
66. University of Cincinnati
67. CUNY-Mount Sinai School of Medicine
68. University of Connecticut
69. Louisiana State University
70. Tufts University
71. University of California-Santa Barbara
72. University of Hawaii-Manoa
73. Rutgers State University of New Jersey
74. Colorado State University
75. Rockefeller University
76. University of Maryland-Baltimore
77. Virginia Polytechnic Institute & State University
78. SUNY-Buffalo
79. Brown University
80. University of Medicine & Dentistry of New Jersey
81. University of Texas-Health Science Center San Antonio
82. University of Vermont
83. University of Texas-Health Science Center Houston
84. Florida State University
85. University of Texas-MD Anderson Cancer Center
86. University of Kentucky
87. Wake Forest University
88. Wayne State University
89. Iowa State University of Science & Technology
90. University of New Mexico
91. Georgetown University
92. Dartmouth College
93. University of Kansas
94. Oregon Health Sciences University
95. University of Texas-Medical Branch-Galveston
96. University of Missouri-Columbia
97. Temple University
98. George Washington University
99. University of Dayton
Exhibit B -- Listing of institutions that are eligible for the utility
cost adjustment.
1. Baylor University
2. Boston College
3. Boston University
4. California Institute of Technology
5. Carnegie-Mellon University
6. Case Western University
7. Columbia University
8. Cornell University (Endowed)
9. Cornell University (Statutory)
10. Cornell University (Medical)
11. Dayton University
12. Emory University
13. George Washington University (Medical)
14. Georgetown University
15. Harvard Medical School
16. Harvard University (Main Campus)
17. Harvard University (School of Public Health)
18. Johns Hopkins University
19. Massachusetts Institute of Technology
20. Medical University of South Carolina
21. Mount Sinai School of Medicine
22. New York University (except New York University Medical Center)
23. New York University Medical Center
24. North Carolina State University
25. Northeastern University
26. Northwestern University
27. Oregon Health Sciences University
28. Oregon State University
29. Rice University
30. Rockefeller University
31. Stanford University
32. Tufts University
33. Tulane University
34. Vanderbilt University
35. Virginia Commonwealth University
36. Virginia Polytechnic Institute and State University
37. University of Arizona
38. University of CA, Berkeley
39. University of CA, Irvine
40. University of CA, Los Angeles
41. University of CA, San Diego
42. University of CA, San Francisco
43. University of Chicago
44. University of Cincinnati
45. University of Colorado, Health Sciences Center
46. University of Connecticut, Health Sciences Center
47. University of Health Science and The Chicago Medical School
48. University of Illinois, Urbana
49. University of Massachusetts, Medical Center
50. University of Medicine & Dentistry of New Jersey
51. University of Michigan
52. University of Pennsylvania
53. University of Pittsburgh
54. University of Rochester
55. University of Southern California
56. University of Tennessee, Knoxville
57. University of Texas, Galveston
58. University of Texas, Austin
60. University of Texas Southwestern Medical Center
61. University of Virginia
62. University of Vermont & State Agriculture College
63. University of Washington
64. Washington University
65. Yale University
66. 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.