TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
FROM: Alice M. Rivlin, Director
SUBJECT: Cost Principles for State, Local, and Indian Tribal Governments
1. Purpose. This Circular establishes principles and standards for
determining costs for Federal awards carried out through grants, cost
reimbursement contracts, and other agreements with State and local governments
and federally-recognized Indian tribal governments (governmental units).
2. Authority. This Circular is issued under the authority of the
Budget and Accounting Act of 1921, as amended; the Budget and Accounting
Procedures Act of 1950, as amended; the Chief Financial Officers Act of 1990;
Reorganization Plan No. 2 of 1970; and Executive Order No. 11541 ("Prescribing
the Duties of the Office of Management and Budget and the Domestic Policy
Council in the Executive Office of the President").
3. Background. An interagency task force was established in 1987 to
review existing cost principles for Federal awards to State, local, and Indian
tribal governments. The task force studied Inspector General reports and
recommendations, solicited suggestions for changes to the Circular from
governmental units, and compared for consistency the provisions of other OMB
cost principles circulars covering non-profit organizations and universities.
A proposed revised Circular reflecting the results of those efforts was issued
on October 12, 1988, and August 19, 1993. Extensive comments on the proposed
revisions, discussions with interest groups, and related developments were
considered in developing this revision.
4. Rescissions. This Circular rescinds and supersedes Circular A-87,
issued January 15, 1981.
5. Policy. This Circular establishes principles and standards to
provide a uniform approach for determining costs and to promote effective
program delivery, efficiency, and better relationships between governmental
units and the Federal Government. The principles are for determining allowable
costs only. They are not intended to identify the circumstances or to dictate
the extent of Federal and governmental unit participation in the financing of a
particular Federal award. Provision for profit or other increment above cost
is outside the scope of this Circular.
6. Definitions. Definitions of key terms used in this Circular are
contained in Attachment A, Section B.
7. Required Action. Agencies responsible for administering programs
that involve cost reimbursement contracts, grants, and other agreements with
governmental units shall issue codified regulations to implement the provisions
of this Circular and its Attachments by September 1, 1995.
8. OMB Responsibilities. The Office of Management and Budget
(OMB) will review agency regulations and implementation of this Circular,
and will provide policy interpretations and assistance to insure
effective and efficient implementation. Any exceptions will be subject
to approval by OMB. Exceptions will only be made in particular cases
where adequate justification is presented.
9. Information Contact. Further information concerning this Circular
may be obtained by contacting the Office of Federal Financial Management,
Financial Standards and Reporting Branch, Office of Management and Budget,
Washington, DC 20503, telephone 202-395-3993.
10. Policy Review Date. OMB Circular A-87 will have a policy review
three years from the date of issuance.
11. Effective Date. This Circular is effective as follows:
-For costs charged indirectly or otherwise covered by the cost allocation
plans described in Attachments C, D and E, this revision shall be applied to
cost allocation plans and indirect cost proposals submitted or prepared for a
governmental unit's fiscal year that begins on or after September 1, 1995.
-For other costs, this revision shall be applied to all awards or amendments,
including continuation or renewal awards, made on or after September 1, 1995.