Cost Principles for Educational Institutions
OF MANAGEMENT AND BUDGET
Principles for Educational Institutions
Office of Management and Budget.
Final Revision and interim final revision of OMB Circular A-21,
"Cost Principles for Educational Institutions."
The Office of Management and Budget revises Circular A-21,
"Cost Principles for Educational Institutions," by: (1) establishing
review and documentation requirements to assure the reasonableness
of large research facility costs, (2) implementing a new alternative
approach to replace using special cost studies for the recovery
of utility costs and deferring the elimination of special cost studies
for the recovery of library costs, (3) providing additional guidance
on the calculation of depreciation and use allowances on buildings
and equipment, and (4) changing the distribution basis for the facilities
and administrative cost application (from salaries and wages to
modified total direct costs) at universities that use the simplified
(short-form) method to calculate their facilities and administrative
addition, OMB is issuing an interim final revision to allow trustees'
The revision and the interim final revision are effective on June
1, 1998. Comments on the interim final revision must be received
by July 1, 1998.
Comments should be mailed to Gilbert Tran, Financial Standards and
Reporting Branch, Office of Federal Financial Management, Office
of Management and Budget, 725 17th Street, N.W., Room 6025, Washington,
DC 20503. Comments up to three pages in length may be submitted
via facsimile to 202-395-4915. Electronic mail comments may be submitted
via Internet to TRAN_H@A1.EOP.GOV. Please include the full body
of electronic mail comments in the text and not as an attachment.
Please include the name, title, organization, postal address, and
E-mail address in the text of the message.
FURTHER INFORMATION CONTACT: Non-Federal organizations
should contact the organization's cognizant Federal agency. Federal
agencies should contact Gilbert Tran, Financial Standards and Reporting
Branch, Office of Federal Financial Management, Office of Management
and Budget, (202) 395-3993.
Purpose of Circular A-21
of Management and Budget (OMB) Circular A-21, "Cost Principles for
Educational Institutions," establishes principles for determining
costs applicable to Federal grants, contracts, and other sponsored
agreements with educational institutions.
Recent Prior Revisions
February 6, 1995, OMB published two sets of proposed revisions (60
FR 7104 and 60 FR 7105): one for immediate consideration and the
other for future consideration. The first set of proposed revisions
was finalized on May 8, 1996 (61 FR 20880) with the following revisions.
September 10, 1997, OMB proposed the second set of revisions (62
FR 47722) to complete OMB's intention expressed in February 1995.
The proposal included the following:
A-21 is revised to:
Establish a review process to ensure the reasonableness of facility
costs. To increase accountability in the
research component of F&A costs and ensure that the cost of
new research facilities passes a "prudent person" test of reasonableness,
OMB establishes a review and documentation process for large research
facilities. Large facilities are defined as buildings costing more
than $10 million. The new provisions apply to large research facilities
that are included in F&A rate proposals negotiated after January
1, 2000, with design and construction beginning after July 1, 1998.
The revision, which is detailed in a new Section F.2.c, "Large research
facilities," is based on a university proposal and implements the
Implement an alternative approach for the payment of utility costs
and defer the elimination of special cost studies for the recovery
of library costs. For the fiscal year beginning on or after
July 1, 1998, institutions that have included special cost studies
in their most recently submitted F&A proposal (listed in Exhibit
B) may, instead, add a utility cost adjustment (UCA) of 1.3 percentage
points to the university's overall F&A organized research rate
calculated using the standard Circular A-21 allocation methods.
explained below, the 1.3 percentage points represent the weighted
average incremental rate that the Federal Government paid above
the rate calculated using the standard allocation methodology to
the 50 institutions that previously submitted special utility studies
for utility costs related to research activities. OMB will periodically
reassess the UCA.
will also develop criteria and publish them in a Federal Register
notice by which the institutions may be periodically recertified
and by which other institutions could qualify for the UCA by July
1, 2002 and may change the UCA percentage point.
Further, OMB revises the Circular to allow special studies for library costs. Due to the uncertain effects of recent and ongoing changes to university libraries and their services brought about by the increased use of the Internet and on-line research, OMB defers the elimination of special cost studies to support the allocation of library costs until OMB has an opportunity to evaluate the impact of these changes on the costs of library services benefitting organized research.
Provide additional guidelines on depreciation and use allowances.
provide more consistency in the treatment of use allowances and
depreciation among educational institutions and Federal cognizant
agencies, the Circular is revised as follows:
Limit use allowance recovery to the acquisition costs of assets,
or fair market value of donated assets at the time of donation (see
Require institutions that report depreciation on their financial
statements to use the same depreciation method and useful lives
for the F&A proposals (see subsection J.12.b).
Establish guidelines for the calculation of depreciation on buildings
when depreciation is calculated on individual building components
(see subsection J.12.b). This revision establishes general categories
of building components.
Require institutions that record depreciation in their financial
statements to record gains and losses on the disposition of depreciable
assets (see section J.33).
Change the distribution basis for F&A application (from salaries
and wages to modified total direct costs) for institutions that
use the simplified allocation method. This change, detailed
in Section H.3, provides more comparability of F&A rates between
small and large universities.
Allow trustees' travel expenses. This change is issued
as an interim final revision and is made to provide consistency
with recent revisions to Circular A-122, "Cost Principles for Non-Profit
Organizations." OMB requests comments on this change.
A-21, as amended by this revision, consists of the Circular published
in 1979 (44 FR 12368; February 26, 1979), as amended in 1982 (47
FR 33658; July 23, 1982), in 1986 (51 FR 20908; June 9, 1986), in
1986 (51 FR 43487; December 2, 1986), in 1991 (56 FR 50224; October
1, 1991), in 1993 (58 FR 39996), in 1996 (61 FR 20880; May 8, 1996),
and in this notice. The 1996 amendment included a recompilation
of the Circular up to that date (61 FR 20893). A recompilation of
the entire Circular with all its amendments, including this amendment,
is available in electronic form on the OMB Home Page at /OMB.
Comments and Responses
received about 130 comments from universities, Federal agencies,
professional organizations, and accounting and law firms. The comments
received and OMB's responses are summarized below. Several comments
resulted in modifications to OMB's original proposal.
The commenters strongly opposed the proposal to establish benchmark
rates for facility costs, citing the following reasons: (1) benchmarks
are unnecessary given that there is no evidence of abuse and universities
already have rigid internal review and approval processes to assure
reasonable construction costs; (2) benchmarks would compromise scientific
excellence by discouraging universities' investment in modern facilities;
(3) negotiators are not qualified to review justifications of facilities
costs; and (4) the proposed NSF data are not suitable for establishing
Some universities proposed a less rigid approach that relies on university cost management procedures to control the research facility costs.
The objective of the proposed review process based on benchmark
rates was to improve accountability by requiring and reviewing construction
cost justifications of buildings costing more than 125 percent above
the calculated average regional median. However, OMB recognizes
that there may exist review and approval systems at universities
to assure that construction costs are reasonable. Therefore, in
accordance with the universities' suggestion, the Circular is revised
to implement an approach that relies more on a university's internal
review process for facility costs rather than established benchmarks.
The approach requires a review of universities' internal cost management
procedures, combined with additional documentation for large research
facilities that are substantially allocated to Federal programs.
The review of any internal control system for costs charged against
Federal programs should be included as part of the annual audit
of Federal programs required by Circular A-133.
OMB agrees. The review of the university's internal control and
approval process for construction costs, which are indirectly charged
to Federal programs through depreciation/use allowance costs, is
included as part of the annual university A-133 audit. The review
procedures will be included in the A-133 Compliance Supplement.
The National Science Foundation (NSF)survey data for research construction
costs are inadequate for establishing benchmark rates. The data
does not identify costs by project and produces an average rate
based on the total of all construction projects, regardless of size.
Some commenters added that benchmark rates should be based only
on construction cost data for large projects at research-intensive
schools, since these buildings tend to cost more.
OMB has requested NSF to conduct a follow-up survey that would identify
costs by project, and accumulate data for projects costing more
than $10 million. For the revised review process in section F.2.c,
universities shall include these NSF construction cost data for
comparison purposes in their analysis of large research facilities
One of the criteria that triggers a review for construction costs
is that a building is substantially allocated to Federal programs.
Does this criteria apply only when the building is initially put
in service or during the life of the building?
Response: The criteria for Federal participation (use) percentage are based on university's estimation of the building use for its entire life. Therefore, when a university estimates during the planning phase that the space of a particular research building will be substantially allocated to Federal programs during its life (thus, the Federal government will fund a substantial part of the building costs), then the university must comply with requirements of section F.2.c. The Federal cognizant agencies will monitor the actual Federal participation percentage in the building usage versus the universities' estimation, so that OMB may evaluate whether further revisions to the review requirements would be appropriate.
The review process for facility costs should exclude reconstruction
and renovation projects because of the diverse nature of these projects,
and therefore their costs. In addition, the total costs of these
projects are usually not material.
OMB agrees. Reconstruction and renovation projects are not subject
to the requirements of section F.2.c.
The criteria for construction projects subject to benchmark review
should be increased to $25 million in construction costs and 50
percent of space allocated to Federal programs (instead of the proposed
$10 million and 40 percent Federal participation).
The revised requirements consist of two sets of criteria. The first
one (buildings costing more than $10 million and 40 percent Federal
participation) triggers the requirement for an internal review and
approval system for facility construction costs at the institution.
As suggested by some, the second set of criteria (buildings costing
more than $25 million and 50 percent Federal participation) triggers
the documentation requirement for that particular building.
The NSF construction data, which are required to be used as comparison
data in section F.2.c, should be made available publicly and published
as a separate schedule, as an attachment to A-21, or as part of
the NSF biennial report.
OMB agrees. NSF data will be available publicly because this data
must be used by institutions in the comparative analysis for buildings
costing more than $25 million. NSF will publish this data as part
of their biennial report on research facilities.
Do the provisions in section F.2.c apply to buildings on which the
design and construction begins prior to July 1, 1998 (and the buildings
are not completed until fiscal year 2000)?
OMB generally does not apply new provisions retroactively. Therefore,
the new provisions in section F.2.c apply only to construction projects,
on which the design and planning begins after July 1, 1998,
and whose costs are included in the F&A rate proposals negotiated
after January 1, 2000. The design and planning of a particular building
start when the architectural design of the building is first presented
to the institution's board of trustees for consideration.
Some commenters suggested an increase in the utility cost
adjustment (UCA) from 1.3 percent to 1.7 percent based on the weighted
average of negotiated UCA at 11 major research universities.
The UCA remains at 1.3 percent at this time. The 1.3 percent UCA
is the weighted average for 50 universities that have performed
special utility cost studies, as OMB identified at proposal time.
Since the proposal was published, an additional 16 universities
have been identified to be eligible for the UCA because of their
previous submission of the special cost studies. The revised weighted
average UCA for the 66 schools dropped subsequently to 1.2 percent.
Instead of reducing the UCA to 1.2 percent, OMB will finalize the
UCA at 1.3 percent.
The UCA should be allowable to all schools regardless of whether
they have previously performed a special utility cost study, since
it is evident that research space require more utility costs than
other types of space.
OMB allows the universities to conduct special cost studies to support
the utility consumption for research activities under section E.2.d
of the Circular. As a result, 66 universities performed the special
studies that support the allocation of utility costs to their research
activities. OMB does not believe it is appropriate to grant the
UCA at this time to universities that have not demonstrated the
heavier utility consumption for their research activities. In addition,
utility consumption varies greatly depending on the types of research
space. For certain types of research space (e.g., computer laboratory,
agricultural research barn, dry laboratory, and math laboratory),
the standard allocation method (based on square foot) generally
provides the best allocation of utility costs to benefitting activities.
However, OMB will develop criteria by fiscal year 2002 for these
universities to become certified for the UCA.
The UCA number needs to be connected with future actual utility
costs because utility costs can increase astronomically in the future.
OMB will periodically reassess the UCA number. OMB plans to reevaluate
the UCA in fiscal year 2002 with the assistance from Federal agencies
and the universities.
Comment: How is the UCA applied? On a building by building basis or on the total F&A rate?
The UCA is added to the university's overall F&A rate that is
computed using the standard allocation method. For example, a university
computes its total F&A rate of 50 percent (using the square
feet basis to allocate its utility costs); the F&A adjusted
rate with the UCA would be 51.3 percent.
and use allowance
Can a state university, that is not required to record depreciation
for financial statements under generally accepted accounting principles
(GAAP), use depreciation for its F&A proposal?
A state university, which is not currently required under GAAP to
record depreciation on its assets, can either use depreciation or
use allowance for its F&A proposal. When the depreciation method
is selected, the university must comply with the existing provisions
in section J.12.b of the Circular to calculate depreciation costs.
The revision requires that the same depreciation method be used
for financial statements and for a F&A proposal. Can a Federal
negotiator question the useful life of an asset when that useful
life is used for financial statements?
The Federal negotiator can always question the reasonableness of
a particular asset's useful life as part of the F&A proposal
review. However, with this revision, the Federal negotiator should
address his/her concerns to the institution's external auditors,
who are responsible for certifying the adequacy of the institution's
financial statements (including the asset depreciation methods).
For public universities that do not currently record depreciation
on their financial statements, but use depreciation methods on their
F&A proposals, the Federal negotiator can address his/her concerns
to the institution's management and make any necessary adjustments
on the F&A proposal.
The revision suggests the grouping of building components for depreciation
purposes into three general groups: building shell, building services
systems, and fixed equipment. Can a university have more than three
general groups with the authorization from the Federal cognizant
Response: OMB believes that the three general groups are sufficient for grouping building components for depreciation. If, in an exceptional cases, a university believes it should have more than the three general groups for building components, the university may so proceed if it receives authorization from the Federal cognizant agency to do so. Such an exception should rarely be authorized, if ever. The use of the three general groups standardizes the "componentization" process, eases the review of depreciation, and allows better data collection on depreciation costs.
Can each component within a major building group have a separate
Each component within a general building group can have a separate
useful life that takes into consideration such factors as: type
of construction, nature of equipment, technological developments
in the particular area, and the renewal and replacement policies
for the assets. When a general component group has more than one
useful life for its components, a composite useful life for the
entire group must be calculated.
The commenters, particularly the public universities, opposed a
requirement to limit (i.e., cap) the use allowance recovery on assets
to the acquisition costs. They argued that (1) the requirement is
contrary to current policy regarding use allowance;(2) the over-recovery
of use allowance on those assets that have surpassed their useful
life is balanced by the under-recovery of assets that are disposed
of earlier than their useful life; and (3) the new limitation will
lead universities to convert to depreciation, which is costly, will
add accounting burden, and will increase the F&A rate.
OMB disagrees. To allow use allowance for assets in excess of the
assets' acquisition costs can result in over-recovery of costs by
the universities, particularly when the universities can select
either the depreciation or use allowance methods for a particular
class of assets. In many instances, universities use both the depreciation
and use allowance methods for different classes of assets: often
using use allowance for long-lasting assets such as buildings and
laboratory benches, while using depreciation for shorter-life assets
such as computers. In these instances, the under-recovery and over-recovery
of asset costs do not balance each other out, but rather the result
is an over-recovery of costs against Federal programs.
special circumstances, when a university uses the use allowance
method for all its assets, current section J.12.c.(3) allows the
university to claim use allowance recovery in excess of acquisition
costs for certain assets, with approval from Federal cognizant agencies.
issue may soon become moot when the public universities are required,
by the Governmental Accounting Standards Board (GASB), to record
depreciation for financial statements(at this time, this requirement
is projected to be effective for fiscal year 2001).
The conversion to depreciation for old buildings is extremely difficult,
if not impossible, because of the lack of records for older capital
improvement projects. The commenters suggest that capital improvement
projects be excluded from the limitations of use allowance recovery.
For older capital improvement projects, for which records are unavailable,
the university and the Federal cognizant agency may negotiate a
reasonable use allowance amount as long as the buildings are still
in use for the benefit of Federal programs.
The provision on gains and losses on the sale, retirement, or other
disposition of depreciable property should not apply to public universities,
which are not required to depreciate under GAAP, and therefore,
do not maintain depreciation records.
OMB agrees. Section J.33.a (d) provides an exemption for institutions
that claim use allowance in lieu of depreciation for the recovery
of their asset costs.
basis for "short-form" universities
The use of the modified total direct costs (MTDC) basis should be
an option rather than a requirement for the simplified allocation
method since the determination of a MTDC basis can be much more
complicated than the salaries and wages basis. In some cases, universities
have to make major accounting system changes to accommodate this
OMB agrees. OMB encourages universities to use the MTDC as the distribution
basis for the simplified allocation method, as it would improve
the consistency of F&A rate reporting among small and large
universities. However, because of the possible difficulties for
some universities to calculate the MTDC amount, the revision allows
the universities to use either the MTDC or salaries and wages as
of "major projects"
In July 1994, OMB issued a memorandum to the Federal agencies to
clarify its policy on administrative costs for "major project",
referred in subsection F.6.b, "Departmental administration expenses."
OMB should add this clarification to the Circular to provide consistent
definition and treatment of the administrative costs related to
OMB agrees. The OMB memorandum to the Federal agencies (dated July
13, 1994) provided guidance on defining the circumstances under
which administrative and clerical salaries may be charged directly
to Federal sponsored agreements. The definition of "major project",
as provided in OMB's memorandum, is added to section F.6.b. A sample
of examples is listed as new exhibit C.
a standard format for the submission of F&A proposals
proposed in September 1997 to develop a standard format for the
submission of F&A proposals, that would assist universities
in completing their F&A rate proposals more efficiently and
help the Federal cognizant agency review each proposal on a more
consistent basis. OMB, with assistance from Federal agencies and
universities, is in the process of developing this standard format.
When completed, OMB will request comments under the Paperwork Reduction
Act through a separate Federal Register notice. The standard format
will be included as an Appendix to the Circular and be available
Final Revision - Trustees' travel expenses
is making an interim final revision to allow trustees' travel expenses
at educational institutions under the administrative cost component
of the F&A rate. The revision is made to provide consistency
with recent revisions to Circular A-122, "Cost Principles for Non-Profit
Organizations," which retained the allowability of trustees' travel
OMB recently issued final revisions to Circular A-122 to provide consistency across all cost circulars. Based on the comments received from non-profit grantees regarding the proposed disallowance of trustees' travel expenses, OMB determined that trustees' travel expenses are reasonable and necessary business expenses for the operations of non-profit organizations and should remain allowable. In considering this issue for A-122, OMB also decided that trustees' travel expenses are reasonable and necessary for universities. In October 1991, trustee travel was made unallowable in Circular A-21, along with a number of other cost categories (e.g., alcohol and advertising costs). This interim final rule reflects the view that trustee travel, unlike the other unallowable costs, is a reasonable cost of business, and should be allowed. Accordingly, OMB is revising Circular A-21 to allow trustees' travel expenses (see revised section 50). OMB requests comments on this change.
Circular A-21 is revised as follows:
Replace subsection E.2.d.(5) with the following:
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.
Add new subsection F.2.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.
When an institution has a 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:
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.
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,
Add new subsections F.4.c and F.4.d:
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.
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.
Replace subsection F.6.b with the following:
The following guidelines apply to the determination of departmental
administrative costs as direct or F&A costs.
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 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
Items such as office supplies, postage, local telephone costs, and
memberships shall normally be treated as F&A
Replace subsection H.1.a with the following:
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.
Change the title for subsection H.2. to "Simplified Procedure -
Salaries and wages base."
Add a new subsection H.3.
Simplified procedure - Modified total direct cost base.
Establish the total costs incurred by the institution for the base
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:
General administration and general expenses (exclusive of costs
of student administration and services, student activities, student
aid, and scholarships).
Operation and maintenance of physical plant; and depreciation and
use allowances; after appropriate adjustment for costs applicable
to other institutional activities.
Department administration expenses, which will be computed as 20
percent of the salaries and expenses of deans and heads of departments.
those cases where expenditures classified under subsection
(1) have previously been allocated to other institutional
activities, they may be included in the F&A cost
pool. The modified total direct costs amount included in the F&A
cost pool must be separately identified.
Establish a modified total direct cost distribution base, as defined
in Section G.2, that consists of all institution's
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
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.
Replace subsection J.12.b.(2) with the following:
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).
Replace subsection J.12.b.(4) with the following:
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
Replace subsection J.12.c.(1) with the following:
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.
Replace section J.33 with the following:
Profits and losses on disposition of plant equipment or other capital
(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.
Gains and losses on the disposition of depreciable property shall
not be recognized as a separate credit or charge under the following
The gain or loss is processed through a depreciation account and
is reflected in the depreciation allowable under Section
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.
A loss results from the failure to maintain permissible insurance,
except as otherwise provided in Section J.21.d.
Compensation for the use of the property was provided through use
allowances in lieu of depreciation.
Gains or losses of any nature arising from the sale or exchange
of property other than the property covered in subsection
a shall be excluded in computing Federal award costs.
When assets acquired with Federal funds, in part or wholly, are
disposed of, the distribution of the proceeds shall be made in accordance
with Circular A-110, "Uniform Administrative Requirements for Grants
and Agreements with Institutions of Higher Education, Hospitals,
and Other Non-Profit Organizations."
Replace Section 50 with the following:
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.
13. Add Exhibit B - Listing of institutions receiving the UCA and Exhibit C - Examples of "major project" where direct charging of administrative or clerical staff salaries may be appropriate.
of institutions receiving the utility cost adjustment.
of "major project" where direct charging of administrative or clerical
staff salaries may be appropriate.
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.