GIM 22
Attachment A
A Primer on Facilities and Administrative Costs
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.
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