GIM 13 - Facilities and Administrative (F&A) Rates

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GIM 13 Supplement: A Primer on Facilities and Administrative Costs

UNIVERSITY OF WASHINGTON

Office of Research

Office of Sponsored Programs

GRANTS INFORMATION MEMORANDUM 13

November 17, 2011

Primer Index

2. How have the terms of Circular A-21 changed over time?

Circular A-21 was revised six times between 1961 and 1976. In 1979, protracted negotiations among federal agencies, universities and OMB (Office of Management and Budget, formerly the Bureau of the Budget), led to a major revision of Circular A-21. The government had been dissatisfied with the lack of uniformity in costing methods and with documentation of salary charges. The universities hoped to get a clearer definition of allowable costs to protect themselves from unreasonable interpretation of the guidelines by government officials and the threat of future audit disallowances. The 1979 revision increased reporting requirements and reduced institutional flexibility. It also introduced the concept of Modified Total Direct Costs (MTDC) as the standard basis for determining allowable F&A costs (see Question 4).

From the mid-1960's and through the 1970's, revisions to OMB Circular A-21 were negotiated between government cost accounting experts and their university counterparts. During the 1980's, the Administration budget requests attempted to use regulatory language to modify cost principles. In 1983 the Department of Health and Human Services (DHHS, the new name for DHEW after the Department of Education had been established separately) proposed a ceiling for F&A costs. In 1985 DHHS requested that F&A cost rates be frozen at their 1985 levels. In 1986 the Assistant Secretary for Management and Budget at OMB and the Deputy Associate Director for Health Programs at DHHS teamed up to propose a limit of 20% for recovery of administrative costs. While none of these attempts were allowed by Congress, the December 1986 revision of Circular A-21 did set a 3.6% fixed allowance for faculty administrative costs, establishing a precedent for capping a portion of F&A costs.

Increasing budget pressures, demands from the research community for increased funding, revelations of serious cost-accounting errors, and the recognition that the federal guidelines were ambiguous breathed new life into earlier efforts to limit F&A costs, and resulted in increased federal scrutiny of F&A costs at universities. This led in 1991 to new restrictions and revisions of Circular A-21, including a 26% cap on the administrative cost component, which includes General Administration, Departmental Administration, and Sponsored Projects (Grants and Contracts) Administration. Circular A-21 changes in 1993 included restrictions on administrative and clerical salaries and a formal grouping of F&A cost pools into two broad categories--"facilities" and "administrative" costs.

Changes to Circular A-21 in 1996 included consistency requirements when charging costs, the requirement to file a detailed Cost Accounting Standards (CAS) disclosure statement, an increase in the equipment threshold, fixed F&A cost rates for the "competitive segment" of an award (e.g., the rate in effect during the first year applies for all five years of a five-year award), and a replacement of the term indirect costs with the term Facilities and Administrative (F&A) costs. Recent changes implemented a standard format for F&A rate submissions.