P.L. 96-517

P.L. 98-620

P.L. 98-622

P.L. 96-480

E.O. 10096

H.R. 3773/S. 1914

FAR

P.L. 98-620

P.L. 96-517Cir. A-124___ _ _ m .••__.~ _

FEDERAL TECHNOLOGY MANAGEMENT POLICY DIVISIONAUTHORITIES RELATED TO THE TECHNOLOGY TRANSFOR PROCESS CHART

"GOVERNMENT RESEARCH ESTABLISHMENTS· -- (GOGOs)

Basic invention ownership and Governmentlicensing policiesRegUlations for licensing Government-ownedpatentsReport on Government use of StatutoryInvention Registration.Section 5 on innovation, including Stevenson/Wydler report and support of Section 11 onFederal laboratories.POlicies and operation of Government employeeinventor programModel agreements for laboratory/industrycollaborationAdvice.on evaluating commercial potential ofinventionsBi-annual report on agency use of provisions

"UNIVERSITIES AND RESEARCH COUNCILS" -- (All Government-fundednon-profit R&D organizations including GOCO contractors)

Basic policiesOMB Implementing regUlations, lead agencyassignmentDOC implementing regUlations, particularlyfor GOCOs, statutory lead agency assignmentGuide FAR implementation of 98-620Guide FAR implementation of Technical Data

"INVENTOR ENTREPRENEVRS" -- (Small business)

P.L. 96-517P.L. 97-219

P.L. 98-620FAR

Basic policiesSmall Business Innovation Research Program,based on patent policies in 96-517DOC regUlations for small businessTechnical data provisions

"CONTRACT RESEARCH AND RAs" -- All other R&D contractors

~MB memo delegating DOC as policy .lead agencyPresidential Patent Policy Memora.ndumFAR -- Uniform provisions for all contractors

including for-profit operators .of GOCOsS.64 -- Coordinate Administration support

"COMPANY LABORATORIES"

P.L. 98-622 -- Study of employeed inventors' rights

"FOREIGN SOURCES" ?

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P.L. 96-517 --

P.L. 98-620

P.L. 98-622

P.L. 96-480

E.O. 10096

H.R. 3773/s. 1914

FAR

P.L. 98-620

P.L. 96-517Cir. A-124

FEDERAL TECHNOLOGY MANAGEMENT POLICY DIVISIONAUTHORITIES RELATED TO THE TECHNOLOGY TRANSFOR PROCESS CHART

"GOVERNMENT RESEARCH ESTABLISHMENTS" -- (GOGOs)

Basic invention ownership and Governmentlicensing policiesRegulations for licensing .Government':'ownedpatentsReport on Government use of StatutoryInvention ~egistration . . ..Section 5 on innovation, including Stevenson/Wydler report and support of Section 11 onFederal laboratories.Policies and operation of Government employeeinventor programModel agreements for laboratory/industrycollaborationAdvice.on evaluating commercial potential ofinventionsBi-annual report on agency use of provisions

"UNIVERSITIES AND RESEARCH COUNCILS" -- (All Government-fundednon-profit R&D organizations including GOCO contractors)

Basic policiesOMB Implementing regulations, lead agencyassignmentDOC implementing regulations, particularlyfor GOCOs, statutory lead agency assignmentGuide FAR implementation of 98-620 .Guide FAR implementation of Tech.nical Data

"INVENTOR ENTREPRENEU~S" -- (Small business)

P.L. 96-517P.L. 97-219

P.L. 98-620FAR

Basic policiesSmall Business Innovation Researc.h Program,based on patent policies in 96-517DOC regulations for small businessTechnical data provisions

"CONTRACT RESEARCH AND RAs" -- All other.R&I> contractors

OMB memo delegating DOc as policy lea.d agencyPresidential Patent Policy MemorandumFAR . -- Uniform provisions for all contractor,s

including for-profit operators .of GOCOsS.64 --Coordinate Administration support

"COMPANY LABORATORIES"

P.L. 98-622 -- Study of employeed inventors' rights

"FOREIGN SOURCES" ?

·."_.~~.,~~~_,n_C._~__ ,~--'".;" .. -,------,-,_._~_ .. ";:'-------'-- ·;_'. ,"'..

TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS

L.:"VI f.1FlHARY

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CIRCULAR NO. A-21Revised

FEB 26 1979

WASHINGTON. D.C. 20503

OFFICE OF MANAGEMENT AND BUDGET ' C;"US SMALL 51JS1NL"

AD~,,11j\jISTnl\T:ON

EXEcutiVE OFFICE bF THE PRESIDENTe

(No. A-21)

SUBJECT: Cost principles for educational institutions

1. Purrose. This Circular establishes principles fordetermlnlng costs applicable to grants, contracts, and otheragreements with educational institutions. The principlesdeal with the subject of cost determination, and make noattempt to identify the circumstances or dictate theiextentof agency and institutional participation in the financingof a particular project. The principles are designed toprovide that the Federal Government bear its fair share oftotal costs, determined in accordance with generallyaccepted accounting principles, except where restricted orprohibited by law. Agencies are not expected to placeadditional restrictions on individual items of cost.Provision for profit or other increment above cost isoutside the scope of this Circular.

2. Supersession~ The Circular supersedes FederalManagement Clrcular 73-8, dated December 19, 1973. FMC 73-8is revised and reissued under its original designation ofOMB Circular No. A-21.

3. Applicability.

a. All Federal agencies that sponsor research anddevelopment, training, and other work at educationalinstitutions shall apply the provisions of this Circular indetermining the costs incurred for such work, Theprinciples shall also be used as a guide in the pricing offixed price or lump sum agreements.

b. In addition, Federally Funded Research andDevelopment Centers associated with educational institutionsshall be required to comply with the Cost AccountingStandards, rules and regulations issued by the CostAccounting Standards Board, and set forth in 4 CFR qh. 111;

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provided that they are subject thereto under defense relatedcontracts.

4. Reseonsibilities. The successful application of costaccount1ng pr1nc1ples requires development of mutualunderstanding between representatives of educationalinstitutions and of the Federal Government as to theirscope, implementation, and interpretation.

5. Attachment. The principles and related policy guidesare set forth in the Attachment,. "Principles for determiningcosts applicable to grants, contracts, and other agreementswith educational institutions."

6. Effective date. The provisions of this Circular shallbe efIect1ve October 1, 1979. The provisions shall beimplemented by institutions as of the start of their firstfiscal year beginning after that date. Earlierimplementation, or a delay in ·implementation of individualprovisions, is permitted by mutual agreement between aninstitution and the cognizant Federal agency.

7. Inquiries. Further information concerning this Circularmay be obtaIned by contacting the Financial ManagementBranch, Budget Review Division, Office of Management andBudget, Washington, D.C. 20503, telephone (202) 395-6823.

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Attachment

(No. A-2l)

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NCIPLES FOR DETERMINING COSTS APPLICABLE TO GRP~TS

CONTRACTS, AND OTHER AGREEMENTS WITH

EDUCATIONAL INSTITUTIONS

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ATTACHMENTCIRCULAR NO.

(No. A-21)

1

C. BASIC CONSIDERATIONS

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Page

GRANTS,

. (No. A-21)

4. Allocable costs------------------------------~- 5

5. Applicable credits----------------------------- 5

6. Costs incurred by State and local governments-- 6

1. Composition of total costs-------------------~- 4

2. Factors affecting allowability of costs-------- 4

3. Reasonable costs--------------------:---------- 4

1. Major functions of an institution-------------- 2

a. Instruction-------------------------------- 2

b. Departmental research---------------------- 2

c. Organizedresearch------------------------- 3

d. Other sponsored activities----------------- 3

e. Other institutional activities------------- 3

2. Sponsored agreement-------------------------~-~ 3

3. Allocation---~--------------------------------- 3

1. Objectives------------------------------------- 1

2. Policy guides---------------------------------- 1

3. Application------------------------------------ 2

TABLE OF CONTENTS

PRINCIPLES FOR DETER}lINING COSTS APPLICABLE TOCONTRACTS, AND OTHER AGREEMENTS WITH

EDUCATIONAL INSTITUTIONS

A. PURPOSE AND SCOPE

B. DEFINITION OF TERMS

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COSTS

Negotiated fixed rates and carry-forwardprovisions------------------------------------- 18

Indirect cost pools---------------------------- 16

The distribution basis------------------------- 17

Negotiated lump sum for indirect costs--------- 18

Predetermined fixed rates for indirect costs--- 18

Depreciation and use allowances---------------­

Operation and maintenance expenses------------­

General administration and general expenses---­

Departmental administration expenses----------­

Sponsored projects administration-------------­

Library expenses------------------------------- 15

Student administration and services------------ 16

3

(No. A-21)

1. General----------------------------------------

2. Criteria for distribution-------------------~-- 7

1. General---------------------------------------- 7

2. Application to sponsored agreements------------ 6

7. Limitations on allowance of costs-------------- 6

H. SIMPLIFIEO METHOD FOR SMALL INSTITUTIONS

Offset for ir.direct expenses oL~erHise providedfor by the Government-------------------------- 16

G. DETERMINATION AND APPLICATION OF INDIRECT COST RATEQR RATES

E. INDIRECT COSTS

F. IDENTIFICATION AND ASSIGNMENT OF INDIRECT COSTS

D. D

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3.

4.

5.

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34

34

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32

31

31

29

29

22

27

27

27

21

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21

22

22

,(No. A-21)

6 Compensation for personal services------------­

7 contingency provisions-------------------------

4. Commencement and convocation costs-------------

3. Civil defense costs----------------------------

2. Bad debts-----------------------~--------------

1. Advertising costs------------------------------

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5. Communication costs----------------------------

1 Genera1-------------------------------~-------- 19

2. Simplified procedure----------~--------------__ 19

20. Maintenance and repair costs-------------------

19. Losses on other sponsored agreements orcontracts--------------------------------------

18. Labor relations costs--------------------------

17. Interest, fund raising, and investmentmanagement costs-------------------------------

15. Fringe benefits--------------------------------

16 Insurance and indemnification--------~---------

13. Equipment and other capital expenditures-------

14. Fines and penalties----------------------------

12. Entertainment costs----------------------------

8. Deans of faculty and graduate schools----------

9. Depreciation and use allowances---------------­

10 Donated services ,and property---------~--------

11. Employee morale, health, and welfare costs andcredits----------------------------------------

J. GENERAL PROVISIONS FOR SELECTED ITEMS OF COST

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41. Taxes------------------------------------------ 41

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37

37

37

42

35

36

34

35

41

35

35

35

5

(No. A-2l)

38. Specialized service facilities-----------------

43. Travel costs-----------------------------------

42. Transportation costs--------------------------- 42

39. Special services costs-----------------..------- 41

40. Student activity costs------------------------- 41

32. Recruiting costs------------------------------- 37

33. Rental cost of buildings and equipment--------- 38

34. Royalties and other costs for use of patents--- 39

35. Sabbatical leave costs------------------------- 39

36. Scholarships and student aid costs------------- 39

37. Severance pay---------------------------------- 40

30. Rearrangement and alteration costs-------------

31. Reconversion costs-----------------------------

27. Profits and losses on disposition of plantequipment or other capital assets--------------

28. Proposal costs---------------------------------

29. Public information services costs--------------

21. Material costs---------------------------------

22. Me~e~ships, subscriptions, and professionalact~v~ty costs-----------------~---------------

23. Patent costs-----------------------------------

'24. Plant security costs---------------------------

25. Preagreement costs-----------------------------

26. Professional services costs--------------------

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44. Termination costs applicable to sponsoredagreements------------------------------------_

K. CERTIFICATION OF CHARGES---------------------------

(No. A-21)

6 1243

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-PRINCIPLES FOR DETERMINING COSTS APPLICABLE TO CRANTS,CONTRACTS, AND OTHER AGREEMENTS WITH

EDUCATIONAL INSTITUTIONS

A. Purpose and scope,

1. Objectives. This Attachment provides principles fordetermin~ng the costs applicable to research anddevelopment, training, and other sponsored work performed byIcolleges and universities under grants, contracts, and otheragreements with the Federal Government. These agreementsare referred to as sponsored agreements.

2. Policy guides. The successful application of thesecost account~ng pr~nciples· requires development of mutualunderstanding between representatives of universities and ofthe Federal Government as to their scope, implementation,and interpretation. It is recognized that--

a. The arrangements for Federal agency andinstitutional participation in the financing of a research,training, or other project are properly subject tonegotiation between the agency and the institutionconcerned, in accordance with such Government-wide criteriaor legal requirements as may be applicable.

b. Each institution, possessing its own uniquecornbinaj:ion of staff, facilities, and experience, should beencouraged to conduct research and educational activities ina manner consonant with its own academic philosophies andinstitutional objectives.

c. The dual role of students engaged in researchand the resulting benefits to sponsored agreements arefundamental to the research effort and shall be recognizedin the application of these principles.

d. Each institution, in the . fulfillment of itsobligations, should employ sound management pract~ces.

e. The application of these cost accountingprinciples should require no significant changes in thegenerally accepted accounting practices of colleges anduniversities. However, the accounting practices ofindividual colleges and' universities must support theaccumulation of costs as required by the principles, andmust provide for adequate documentation to support costscharged to sponsored agreements .

in

(No. A-21)

Federal agencies involvedcost rates and auditing should as

Cognizantindirect

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B. Definition of terms.

1. Major functions of an institution refers toinstruct~on (~ncludes departmental research), organizedresearch, other sponsored activities, and otherinstitutional activities as defined below:

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b. Departmental research means all researchdevelopment act~v~t~es that are not organized researchconsequently, are not separately budgeted and accounted. . /

(No. A-21)

b. capitation awards.

c. Other awards under which the institution is notrequired to account to the Government for actual: costsincurred.

a. Instruction means the teaching and trainingactivities of an ~nst~tution. Except for research trainingas provided in c below, this term includes all teaching andtraining activities, whether they are offered for creditstoward a degree or certificate or on a noncredit basis) andwhether they are offered through regular academicdepartments or separate divisions, such as a summer schooldivision or an extension division.

that institutions are generally applying these costaccounting principles on a consistent basis. Wher~ widevariations exist in the treatment of a given cost item amonginstitutions, the reasonableness and equitableness of suchtreatments should be fully considered during the: ratenegotiations and audit.

3. Application. These principles shall be used indetermin~ng the allowable costs of work perform¢d bycolleges and universities under sponsored agreements. Theprinciples shall also be used in determining the costs ofwork performed by such institutions under subgrants, cost­reimbursement subcontracts, and other awards made to themunder sponsored agreements. They also shall be used as aguide in the pricing of fixed-price contracts andsubcontracts where costs are used in determining theappropriate price. The principles do not apply to:

a. Arrangements under which Federal financing is inthe form of loans, scholarships, fellowships, traineeships,

-or other fixed amounts based on such items as educationallowance or published tuition rates and fees of aninstitution.

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(No. A-21)

d. Other sponsored activities means programs andprojects financed by Federal and non-Federal agencies andorganizations which involve the performance of work otherthan instruction and organized research. Examples of suchprograms and projects are health service projects, andcommunity service programs. However, when any of theseactivities are undertaken by the institution without outsidesupport, they may be classified as other institutionalactivities.

3

is notas a

e. Other institutional activities means allactivities of an institution except: (1) instruction,departmental research, organized research, and othersponsored activities, as defined above; (2) indirect costactivities identified in Section F; and (3) specializedservice facilities described in Section J38. Otherlnstitutional activities include operation of residencehalls, dining halls, hospitals and clinics, student unions,intercollegiate athletics, bookstores, faculty housing,student apartments, guest houses, chapels, theaters, pUblicmuseums, and other similar auxiliary enterprises. Thisdefinition also includes any other categories of activiti¢s,costs of which are "unallowc.ble" 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 theinstitution and the Federal Government.

c. Organized research means all research anddevelopment act.iva t.i e s of an Ins t i tution that are separat.elybudgeted and accounted for. This term includes research andtlevelopment activities that are sponsored by Federal a~dnon-Federal agencies and organizations, as well as thdsethat are separately budgeted by the institution under ,aninternal allocation of institutional funds. It alsoincludes activities involving the training of individuals linresearch techniques (commonly called research training)where such activities utilize the same facilities as otherresearch and development activities, and where suchactivities are not included in the instruction function.The costs of organized research and development activitiesinclude all costs incurred by the institution in performingthe activities.

Departmental research, for purposes of this document,considered as a major function of an institution butpart of the instruction function of the institution.

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3. Allocation means the process of assigning a cost, ora group of costs, to one or more cost objective~ inreasonable and realistic p~oportion to the benefit providedor other equitable relationship. A cost objective may pe amajor function of the institution, a particular service orproject, a sponsored agreement, or an indirect 'cost·activity, as described in Section F. The process may entailassigning a cost(s) directly toa final cost objective orthrough one or more intermediate cost objectives.

C. Basic considerations.

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(No. A-21)

3. Reasonable costs. A cost may be consi4eredreasonable 1f the nature of the goods or services acquiredor applied, and the amount involved therefor, reflect theaction that a prudent person would have taken under thecircumstances prevailing at the time the decision to incurthe cost was made. Major considerations involved in thedetermination of the reasonableness of a cost are: (a)whether or not the cost is of a type generally recognized asnecessary for the operation of the institution ot theperformance of the sponsored agreement; (b) the restraintsor requirements imposed by such factors as arm's-lengthbargaining, Federal and State laws and regulations,. andsponsored agreement terms and conditions; (c) whether ot notthe individuals concerned acted with due, prudence in thecircumstances, considering their responsibilities to theinstitution, its employees, its students, the Government,and the public at large; and (d) the extent to which theactions taken with respect to the incurrence of the cost areconsistent with established institutional policies and

1. ComEosition o~ total costs. The cost of a sponsoredagreement 1S comprISed of the allowable direct Costsincident to its performance, plus the allocable portion ofthe allowable indirect costs of the institution, lessapplicable credits as described in 5 below.

2. Factors affecting'allowabilityof costs. The testsof allowability of costs under these-pr1nc1ples are: (a)they must be reasonable; (b) they must be allocable tosponsored agreements under the principles and methodsprovided herein; (c) they must be given consistent treatmentthrough application of those generally accepted accountingprinciples appropriate to the circumstances; and (d) itheymust conform to any limitations or exclusions set forth inthese principles or in the sponsored agreement as to typesor amounts of cost items. .

(No. A-21)

5. Applicable credits.

5

institutionpractices applicable to the work of thegenerally, including sponsored agreements.

4. Allocable costs.

a. The term applicable credits refers to thosereceipts or negative expenditures that operate to offset orreduce direct or indirect cost items. Typical examples ofsuch transactions are: purchase discounts, rebates, orallowances; recoveries or indemnities on losses; andadjustments of overpayments or erroneous charges. This termalso includes "educational discounts" pn products orservices provided specifically to educational institutions,such' as discounts on computer equipment, except where ,thearrangement is clearly and explicitly identified as a giftby the vendor .

b. Any costs allocable to a partiCUlar sponsoredagreement under the standards provided in this Circular maynot be shifted to other sponsored agreements in order tomeet deficiencies caused by overruns or other fundconsiderations, to avoid restrictions imposed by law or byterms of the sponsored agreement, or for other reasons ofconvenience.

a. A cost is allocable to a particular' costobjective (i.e., a specific function, project, sponsoredlagreement, department, or the like) if the goods or servicesinvolved are chargeable or assignable to such costobjective in accordance with relative benefits received orother equitable relationship. Subject to the foregoing, acost is allocable to a sponsored agreement if (1) it isincurred solely to advance the work under the sponsoredagreement; (2) it benefits both the sponsored agreement andother work of the institution, in proportions that can beapproximated through use of reasonable methods, or (3) it isnecessary to the overall operation of the institution and,in light of the principles provided in this circular, isdeemed to be assignable in part to sponsored projects.Where the purchase of equipment .or other capital items isspecifically authorized under a sponsored agreement, theamounts thus authorized for such purchases are assignable tothe sponsored agreement regardless of the use that maysubsequently be made of the equipment or other capital itemsinvolved.

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1. General. Direct costs are those costs that can beidentified specifically with a particular sponsored project,an instructional activity, or any other institutionalactivity; or that can be directly assigned to suchactivities relatively easily with a high degree of accurpcy. 4f'

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The costs are properly supported byplans in accordance with applicable Federal

principles.

b.allocationaccounting

above.

(No. A-21)

c. The costs are not otherwise borne directly orindirectly by the Federal Government.

7. Limitations on allowance of costs. sponsoredagreements may be subj ect to statutory requirements lt.hat;limit the allowance of costs. When the maximum amount;allowable under a limitation is less than the total amounl.determined in accordance with the principles in thisCircular, the amount not recoverable under a sporisoredagreement may not be charged to other sponsored agreeme~ts.

D. Direct costs.

6

b. In some instances, the amounts received from theFederal Government to finance institutional activitie$ Orservice operations should be treated as applicable cre¢its.Specifically, the concept' of netting such credit itemsagainst related expenditures should be applied by theinstitution in determining the rates or amounts to becharged to sponsored agreements for services renderedwhenever the facilities or other resources used in providingsuch services have been financed directly, in whole or inpart, by Federal funds. (See Sections F8, J9a, and J38 forareas of potential application in the matter of directFederal financing.)

6. Costs incurred Qy State and local governments.Costs incurred or paid by State-or local governments onbehalf of their colleges and universities for fringe benefitprograms such as pension costs and FICA and any other costsspecifically incurred on behalf of, and in direct benefitto; the institutions are allowable costs of suchinstitutions whether or not these costs are recorded in theaccounting records of the institutions, subject to thefollowing:

a. The costs meet the requirements of C1 through 5

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. 2. Application to sponsored agreements. Identificationw~th the sponsored work rather than the nature of the goodsand services involved is the determining factor indistinguishing direct from indirect costs of sponsoredagreements. Typical costs charged directly to a sponsoredagreement are the compensation of employees for performanceof work under the sponsored agreement, including relatedfringe benefit costs to the extent they are consistently

I treated, in like circumstances, by the institution as directrather than indirect costs; the costs of materials consumedor expended in the performance of the work; and other itemsof expense incurred for the sponsored agreement, includingextraordinary utility consumption. The cost of materialssupplied from stock or services rendered by specializedfacilities or other institutional service operations may beincluded as direct costs of sponsored agreements, 'providedsuch items are consistently treated, in like circumstances,by the institution as direct rather than indirect costs, andate charged under a recognized method of computing actualcosts, and conform to generally accepted cost accountingp~actices consistently follow~d by the institution.

E. Indirect costs.

1. General. Indirect costs are those that are incurredfor common or joint objectives and therefore cannot beidentified readily and specifically with a particularsponsored project, an instructional activity, or any otherinstitutional activity. At educational institutions suchcosts normally are classified under the following indirectcost categories: depreciation and use allowances, generaladministration and general expenses, sponsored projectsadministration expenses, operation and maintenance expenses,library expenses, departmental administration expenses, andstudent administration and services.

2. Criteria for distribution.

a. Base period. A base period for distribution ofindirect costs ~s the period during which the costs areincurred. The. base period normally should coincide with thefiscal year established by the institution, but in any eventthe base period should be so selected as to avoid inequitiesin the distribution of costs .

. b .. Need for cost groupings. Th~ overall ?bjectiveof the ~nd~rect cost allocat~on process ~s to d~str~bute theindirect costs described in Section F to the major functionsof the institution in proportions reasonably consistent with

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the nature and extent of their use of the institution'sresources. In order to achieve this objective, it may benecessary to provide for selective distribution byestablishing separate groupings of cost within one or moreof the indirect cost categories referred to in El abovel In­general, the cost groupings established within a categoryshould constitute, in each caSe, a pool of those items ofexpense that are considered to be of like nature in terms oftheir relative contribution to (or degree of remotenessfrom) the particular cost objectives to which distributionis appropriate. Cost groupings should be establishedconsidering the general guides provided in c below. Eachsuch pool or cost grouping should then be distributedindividually to the related cost objectives, using thedistribution base or method most appropriate in the light ofthe guides set forth in d below.

c. General considerations Qg~ groupings .. ~heextent to WhlCh separate cost grouplngs and selectlvedistribution would be appropriate at an institution is amatter of judgment to be determined on a case-by-case basis.Typical situations which may warrant the establishment oftwo or more separate cost groupings (based on accountclassification or analysis) within an indirect cost categoryinclude but are not limited to the following:

(1) Where certain items or categories ofexpense relate solely to one of the major functions of theinstitution or to less than all functions, such expensesshould be set aside as a separate cost grouping for directassignment or selective allocation in accordance with theguides provided in E2b and d.

(2) Where any types of expense ordinarilytreated as general administration or departmentaladministration are charged to sponsored agreements as directcosts, expenses applicable to other activities of. theinstitution when incurred for the same purposes in ,likecircumstances must, through separate cost groupings, beexcluded from the indirect costs allocable to thosesponsored agreements and included in the direct cost ofother activities for cost allocation purposes.

(3) Where it is determined that certainexpenses are for the support of a service unit or facilitywhose output is susceptible of measurement on a workload orother quantitative basis, such expenses should be set asideas a separate cost grouping for distribution on such basis

(No. A-21)

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(2) Where a cost grouping can be identifiedwith the cost objective benefited, it should pe

to that cost objective.directlyassigned

(No. A-21)

d. Selection of distribution method.

(1) Actual conditions must be taken intoaccount in selecting the method or base to be used 'indistributing individual cost groupings. The essenti.alconsideration in selecting a base is that it be the one be~t

suited for assigning the pool of costs to cost objectives inaccordance with benefits derived; a traceable cause andeffect relationship; or logic and reason, where neitherbenefit nor cause and effect relationship is determinable.

(5) Where the institution elects to treatfringe benefits as indirect charges, such costs should beset aside as a separate cost grouping· for selectivedistribution to related cost objectives.

(6) The nuwber of separate cost groupi~gs

within a category should be held within practical limits,after taking into consideration the materiality of theamounts involved and the degree of precision attainablethrough less selective methods of distribution .

(3) Where the expenses in a cost grouplng aremore general in nature, the distribution may be based on acost analysis study which results in an equitab~e

distribution of the costs. Such cost analysis studies m~y

take into consideration weighting factors, population, orspace occupied if appropriate. Cost anal¥sis studies,however, must (a) be app~opriately documented ln sUfficieptdetail for subsequent review by the cognizant Federalagency, (b) distribute the costs to the related costobjectives in accordance with the relative benefits derived,(c) be statistically sound, (d) be performed specifically at

to organized research, instructional, and other activitiesat the institution or within the department.

(4) Where activities provide their ownpurchasing, personnel administration, building maintena~ce

or similar service, the distribution of generaladministration and general expenses, or operation and~aintenance expenses to such activities should beaccomplished through cost groupings which include only t~at

portion of central indirect costs (such as for overallmanagement) which are properly allocable to such activiti~s.

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e. Order of Distribution.

(1) Indirect cost categories consist ofdepreciation and use allowance, operation and maintenance, /~

general administration and general expenses, departmental "1administration, sponsored projects administration, library,and student administration and services, as described inSection F.

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the institution at which the results are to be used, and'(e)be reviewed periodically, but not less frequently than everytwo years, updated if necessary, and used consistently. 'Anyassumptions made in the study must be stated and explai~ed.

The use of cost analysis studies and periodic changes inithemethod 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 distributionof the costs, the distribution shall be made in accordancewi th the appropriate b·ase cited in section F., unless one ofthe following conditions is met: (a) it can be demonstratedthat the use of a different base would result in a moreequitable allocation of the costs, or that a more readilyavailable base would· not increase the costs charge\i tosponsored agreements, or (b) the institution qualifies for,and elects to use, . the simplified method for computingindirect cost rates described in Section H.

(2) Depreciation and use allowances, operationand maintenance expenses, and general administrative] andgeneral expenses should be allocated in that order to theremaining indirect cost categories as well as to the majorfunctions and specialized service facilities of,. theinstitution. Other cost categories may be allocated in theorder determined to be most appropriate by the instituti'ons.When cross allocation of costs is made as provided in (3)below, this order of allocation does not apply.

(3) Normally an indirect cost category will beconsidered closed once it has been allocated to other 'costobjectives, and costs may not be SUbsequently allocated toit. However, a cross allocation of costs between two ormore indirect cost categories may be used if such allocationwill result in a more equitable allocation of costs. If across allocation is used, an appropriate modification to thecomposition of the indirect cost categories described inSection F is required. '

(No. A-21)

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(No. A-21)

(3) Depreciation or use allowances on buildin~s

and capital improvements where space is used jointly, and pnequipment used jointly, shall be allocated to benefitingfunctions in proportion to the total salaries and wag~s

applicable to the joint functions.

use allowances onand equipment used

only incidentally forfunction in which it is

lnbe

(1) Depreciation or use allowances on buildi~gsused exclusively in the conduct of a single function, and ioncapital improvements and equipment used in such buildings,shall be assigned to that function.

(2) Depreciation or use allowances onbuildings, used for more than one function, and on capit~limprovements and equipment used in such buildings, shall beallocated to the individual functions performed in eachbuilding on the basis af usable square feet of spaCe,excluding common areas such as hallways, stairwells, andrestrooms.

(4) Depreciation orbuildings, capital improvements,predominantly for one function andother (s) , may be assigned to theused predominantly.

(5) Depreciation or use allowances on certaincapital improvements to land, such as paved parking areaS,fences, sidewalks, and the like, not included in the cost ofbuildings, shall be allocated to user categories of studentsand employees on a full-time equivalent basis. The amountallocated to the student category shall be' assigned to t.heinstruction function of the institution. The amou~t

allocated to the employee category shall be furtherallocated to the major functions of the institution inproportion to the salaries and wages of all employeesapplicable to those functions.

F. Identification ~ assignment of indirect costs.

1. Depreciation ~ ~allowances.

a. The expenses under this heading are the portionof the costs of the institution's buildings, capitalimprovements to land and buildings, and equipment which are

Icomputed in accordance with Section J9.

b. In the absence of the alternatives provided forSection E2d, the expenses included in this category shallallocated in the following manner:

l··

•

'\\,

inbefor

12

2. Operation and maintenance expenses.

a. The expenses under this heading are those thathave been incurred by a central service organization or atthe departmental level for the administration, supervis~on,

operation, maintenance, preservation, and protection of theinstitution's physical plant. They include expensesnormally incurred for such items as janitorial and utiilityservices; repairs and ordinary or normal alterations ofbuildings, furniture and equipment; and care of grounds' andmaintenance and operation of buildings and other plantfacili ties. The operation and maintenance expense cate'goryshould also include the fringe benefit costs applicable tothe salaries and wages included therein, and depreciationand use allowance.

b. In the absence of the alternatives provided forSection E2d, the expenses included in thls category shallallocated in the same manner as described in Section FIbdepreciation and use allowances.

3. General administration and general expenses.

a. The expenses under this heading are those thathave .. been incurred, for the general executive, andadministrative offices of educational institutions and otherexpenses of a general character which do not relate sqlelyto any major function of the institution; i.e., solely to(1) instruction, (2) organized research, (3) other sponsoredactivities, or (4) other institutional activities. Thegeneral administration and general expense category shouldalso include the fringe benefit costs applicable to thesalaries and wages included therein, an appropriate share ofoperation and maintenance expense, and depreciation and useallowances.

b. In the absence of the alternatives provided. forin Section E2d, the expenses included in this category shallbe grouped first according to common major functions of theinstitution to which. they render services or providebenefits. The aggregate expenses of each group shall ,thenbe allocated to serviced or benefited functions on themodified total cost basis. Modified total costs consist ofsalaries and wages, fringe benefits, materials and supplies,services, travel, and' s~bgrants and subcontracts up to$25,000 each. When an activity included in this indirectcost category provides . a service or product to anotherinstitution or organization, an appropriate adjustment:must

(No. A-2l)

"-';.':-- .

•••••••

.'

•

offices. Salaries andto those attributable to

deans'limited

(No. A-2l)

b. In the absence of the alternatives provided forin Section E2d, the expenses included in this category shallbe allocated as follows:

(3) Other fringe benefit costs applicable tothe salaries and wages included in (1) and (2) above areallowable, as well as an appropriate share of generaladministration and general expenses, operation andmaintenance expenses, and depreciation and/or useallowances. '

(1) Academicoperating expenses areadministrative functions.

(2) Academic departments:

(a) The salaries of the heads of academicdepartments, divisions, and organized research units arelimited to amounts attributable to their administrativeduties. Salaries of professorial or professional staff,whose appointment or assignment require administrative workthat benefits sponsored projects, may also be included tothe extent that the portion so charged is clearly andspecifically supported as required in Section J6.

(b) Other administrative and supportingexpenses incurred within academic departments are allowableprovided they are treated consistently in likecircumstances. This would include expenses such as thesalaries of secretarial and clerical staffs, the salaries ofadministrative officers and assistants, travel, officesupplies, stockrooms, and the like .

,.,_y.l.·O.. ,.

be made to either the expenses or the basis of allocation orboth, to assure a proper allocation of costs.

4. Departmental administration expenses.

a. The expenses under this heading are those thathave been incurred for administrative and supportingIservices that benefit common or joint departmentalactivities or objectives in academic deans' offices,academic departments and divisions, and organized researchunits. Organized research units include such units asinstitutes, study centers, and research centers.Departmental administration expenses are subject to thefollowing limitations.

.'

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'1

l

14 f\(1) The administrative expenses of the dean's

office of each college and school shall be allocated to theacademic departments within' that college or school on themodified total cost basis.

•(2) The administrative expenses of each

academic department, and the department's share of theexpenses allocated in (1) above shall be allocated to the •appropriate functions of the department on the modifiedtotal cost basis.

'1\

t(No. A-2l)

'

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t: 1Illi'.(.~

(No. A-2l)

(1) The student category shall consist of full­time equivalent students enrolled at the institution,regardless of whether they earn credits toward a degree' orcertificate.

15

employee category shalland other professio~al

a full-time equivalent

in the other users categoryother institutional activities

The professionalfaculty membersinstitution, on

Library expenses.6 .

(3) The amountshall be assigned to thefunction of the institution.

(2 )consist of allemployees of thebasis.

b. In the absence of the alternatives provided forin Section E2d, the expenses included in this category shallbe allocated first on the basis of primary categories: ofusers, including students, professional employees, and otherusers.

(1) The amount in the student category shall beassigned to the instruction function of the institution.

(2) The amount in the professional employeecategory shall be assigned to the major functions of theinstitution in proportion to the salaries and wages of allfaculty members and other professional employees applicableto those functions.

(3) The other users category shall consist ofall other users of library facilities.

c. Amounts allocated in b above shall be assig~edfurther as follows:

a. The expenses under this heading are those thathave been incurred for the operation of the librafY,including the cost of books and library materials purchasedfor the library, less any items of library income t1'latqualify as applicable credits under section C5. The library

I expense category should also include the fringe benefitsapplicable to the salaries and wages included therein, ianappropriate share of general administration and generalexpense, operation and maintenance expense, and depreciationand use allowances. Costs incurred in the purchases of rarebooks (museum-type books) with no value to sponsoredagreements should not be allocated to them.

-

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The items in this group shall be treated as athe affected individual indirect cost cateborycategory is allocated to benefiting functions.

b.to

thatcreditbefore

(No. A-2l)

a. Subject to b below, the separate categories ofindirect costs allocated to each major funct~on of theinstitution as prescribed in Section F shall be aggregatedand treated as a common pool for that function. The amountin each pool shall be divided by the distribution basedescribed in G2 below to arrive at a single indirect ~ost

I

1. Indirect cost pools.

G. Determination and application of indirect cost rate orrates.

16 f,

'.

'7. Student administration and services.

a. The expenses under this heading are those thathave been incurred for the admlnistration of student af~airs

and for services to students, including expenses of 'suchactivities as deans of students, admissions, registrar,counseling and placement services, student advisers, stupenthealth and infirmary services, catalogs, and commencem~nts

and convocations. The salaries of members of the academicstaff whose academic appointments or assignments involve! theperformance of such administrative or service work may 'alsobe included to the extent that the portion so charged issupported pursuant to Section J6. This expense categoryalso includes the fringe benefit costs applicable to thesalaries and wages included therein, an appropriate shar~ ofgeneral administration and general expenses, operation' andmaintenance, and use allowances and/or depreciation.

b. In the absence of the alternatives provided forin Section E2d, the expenses in this category shal~ beallocated to the instruction function, and subsequently tosponsored agreements in that function.

8. Offset for indirect expenses otherwise provided for£y the Government.

a. The items to be accumulated under this heapingare the reimbursements and other payments from the FederalGovernment which are made to the institution to supportsolely, specifically, and directly, in whole or in part, anyof the administrative or service activities described in Flthrough 7 above.·

(No. A-21)

2. The distribution basis. Indirect costs shall bedistributed to appl~cable sponsored agreements on the basisof modified total direct costs, consisting of salaries andwages, fringe benefits, materials and supplies, services,travel, and subgrants and subcontracts up to $25,000 each.For this purpose, an indirect cost rate should be determinedfor each of the separate indirect cost pools developedpursuant to Gl, above. The rate in each case should bestated as the percentage which the amount of the particularindirect cost pool is of the modified total direct costsidentified with such pool. Other bases may be used where it

17

b. In some instances a single rate basis for useacross the board on all work within a major function at aninstitution may not be appropriate. A single rate forresearch, for example, might not take into account thosedifferent environmental factors and other conditions whichmay affect substantially the indirect costs applicable to aparticular segment of research at the institution. . Aparticular segment of research may be that performed under as i.nql e sponored agreement or it may consist of researchunder a group of sponsored agreements performed in a commonenvironment. The environmental factors are not limited tothe physical location of the work. Other important factorsare· the level of the administrative support required, thenature of the facilities or other resources employed, thescientific disciplines or technical skills involved, theorganizational arrangements used, or any combinationthereof. Where a particular segment of a sponsoredagreement is performed within an environment which appearsto generate a significantly different level of indirectcosts, provision should be made for a separate indirect costpool applicable to such work. The separate indirect costpool should be developed during the regular course of therate determination process and the separate indirect cOstrate resulting therefrom should be utilized; provided it isdetermined that (1) such indirect cost rate differssignificantly from that which would have been obtained undera. above, and (2) the volume of work to which such ratewould apply is material in relation to other sponsoredagreements at the institution.

rate for each function. The rate for each function is usedto distribute indirect costs to individual sponsoredagreements of that function. Since a common pool .isestablished for each major· function of the institution, aseparate indirect cost rate would be established for each ofthe major functions described in Section Bl under whichsponsored agreements are carried out.

I

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can be demonstrated that they produce more equitableresults.

(No. A-21)

3. Negotiated lump sum for indirect costs. Anegotiated flxed amount -rn lIeU of lndlrect costs may beappropriate for self-contained, off-campus, or primarily

1 subcontracted activities where the benefits derived from aninstitution's indirect services cannot be readilydetermined. Such negotiated indirect costs will be treatedas an offset before allocation to instruction, organizedresearch, other sponsored activities, and otherinstitutional activities. The base on which such remainingexpenses are allocated should be appropriately adjusted.

4. Predetermined fixed rates for indirect costs.Public Law 87-638 (76 Stat. 437)--authorlzes the use!ofpredetermined fixed rates in determining the indirect costsapplicable under research agreements with educationalinstitutions. The stated objectives of the law are tosimplify the administration of cost-type research anddevelopment contracts (including grants) with educationalinstitutions, to facilitate the preparation of theirbudgets, and to permit more expeditious closeout of suchcontracts when the work is completed. In view of thepotential advantages offered by this procedure,consideration should be given to the negotiation ofpredetermined fixed rates for indirect costs in thosesituations where the cost experience and other pertinentfacts available are deemed sufficient to enable the partiesinvolved to reach an informed judgment as to the probablelevel of indirect costs during the ensuing accountingperiod.

5. Negotiated fixed rates and CarrY-fOrward provisions.When a flxed rate is negotiated-rn a vance for a flscal y~ar(or other time period), the over- or under-recovery for thatyear may be included as an adjustment to the indirect costfor the next rate negotiation. When the rate is negotiatedbefore the carry-forward adjustment is determined, thecarry-forward amount may be applied to the next subsequentrate negotiation. When such adjustments are to be made,each fixed rate negotiated in advance for a given periodwill be computed by applying the expected indirect costsallocable to sponsored agreements for the' forecast periodplus or minus the carry-forward adjustment (over- or under­recovery) from the prior period, to the forecastdistribution base. Unrecovered amounts under lump-sumagreements or cost-Sharing provisions of prior years shallnot be carried forward for consideration in the new rate

..~

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19

negotiation. There must, however, be an advanceunderstanding in each case between the institution and thecognizant Federal agency as to whether these differenceswill be considered in the rate negotiation rather thanmaking the determination after the differences are kno'wn.Further, institutions electing to use this carry-forwardprovision may not subsequently change without prior approyal

lof the cognizant Federal agency.. In the event that aninstitution returns to a postdetermined rate, any over- orunder-recovery during the period in which negotiated f ilxedrates and carry-forward provisions were followed will beincluded in the subsequent postdetermined rates. Wheremultiple rates are used, the same procedure will beapplicable for determining each rate.

H. Simplified method for small institutions.

1. General.

a. Where the total direct cost of work covered' bythis Circular at an institution does not exceed $3,000,1000In a fiscal year, the use of the simplified proceduredescribed in 2, below, may be used in determining allowableindirect costs. Under this simplified procedure, theinstitution's most recent annual financial report andimmediately available supporting information with salariesand wages segregated from other costs, will be utilized as abasis for determining the indirect cost rate applicable toall sponsored agreements.

b. The simplified procedure should not be usedwhere it produces results which appear inequitable to itheGovernment or the institution. In any such case, indirectcosts should be determined through use of the regularprocedure.

2. Simplified procedure

a. Establish the total amount of salaries and wagespaid to all employees of the institution.

b. Establish an indirect cost pool consisting ofthe expenditures (exclusive of capital items and other costsspecifically identified as unallowable) which customarilyare classified under the following titles or theirequivalents:

(No. A-21)

20

>

~

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-base,wageswages

and maintenance of phys~cal

and use allowances; afterCosts applicable to other

(3) Library.

(4) Department administration expenses, whichcomputed as 20 percent of the salaries and expensesand heads of departments.

J. General provisions for selected items of cost.

Sections 1 through 44 below provide principles to be ap~liedin establishing the allowability of certain items involvedin determining cost. These principles should applyirrespective of whether a particular item of cost isproperly treated as direct cost or indirect cost. Failureto mention a particular item of cost is not intended toimply that it is either allowable or unallowable; ratherdetermination as to allowability in each case should bebased on the treatment provided for similar or relateditems of cost. In case of a discrepancy between theprovisions of a specific sponsored agreement and theprovisions below, the agreement should govern.

c. Establish a salary and wage distributiondetermined by deducting from the total of salaries andas established in a above the amount of salaries andincluded under b above.·

d. Establish the indirect cost rate, determined bydividing the amount in the indirect cost pool, b above, bythe amount of the distribution base, c above.

--,-

(No. A-21)

will beof deans

In those cases where expenditures classified under (1) abovehave previously been allocated to other institutionalactivities, they may be included in the indirect cost pool.The total amount of salaries and wages included in theindirect cost pool must be separately identified.

(1) General administration and general expebses(exclusive of costs of student administration and services,student activities, student.aid, and scholarships). .

(2) Operationplant; and depreciationappropriate adjustment forinstitutional activities.

e. Apply the indirect cost rate to direct salariesand wages for individual agreements to determine the amount

·of indirect costs allocable to such agreements.

(No. A-21)

21

Advertising costs.1.

3. Civil defense costs. civil defense costs are thoseincurred ~n plann~ng for, and the protection of life andproperty against, the possible effects of enemy attack.Reasonable costs of civil defense measures (including costsin excess of normal plant protection costs, first~aidtraining and supplies, firefighting training, posting ofadditional exit notices and directions, and other approvedcivil defense measures) undertaken on the institution'spremises ·pursuant to suggestions or requirements of civildefense authorities are allowable when distributed tolallactivities of the institution. Capital expenditures forcivil defense purposes will not be allowed, but a'useallowance or depreciation may be permitted in accordancewith provisions set forth in Section 39. Costs of localcivil defense projects not on the institution's premisesiareunallowable .

a. The term advertising costs means the costs ofadvertising media and corollary administrative costs.Advertising media include magazines, newspapers, radio andtelevision programs, direct mail, eXhibits, and the like.

b. The only advertising costs allowable are thosewhich are solely for (1) the recruitment of perso~nelrequired for the performance by the institution ofobligations arising under the sponsored agreement, whenconsidered in conj unction with all other recruitment coslt.s ,as set forth in Section 332; (2) the procurement of gopdsand services for the performance of the sponsored agreement;(3) the disposal of scrap or surplus materials acquired inthe performance of the sponsored agreement except wheninstitutions are reimbursed for disposal costs at apredetermined amount in accordance with Attachment N, 'OMBCircular No. A-llO; or (4) other specific purposes necessaryto meet the requirements of the sponsored agreement.

c. Costs of this nature, if incurred for more thanone sponsored agreement or for both sponsored work and otherwork of the institution, are allowable to the extent thatthe principles in Sections D and Eare observed.

2. Bad debts. Any losses, whether actual or estima~ed,arising -rrom uncollectible accounts and other claims,related collections costs, and related legal costs, rareunallowable.

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(No. A-21)

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b. Payroll distribution. For each organizationalunit of an lnstltutlon, the distribution of salaries andwages of professorial or professional staff (whether chargeddirect 'or required to be distributed to more than oneactivity for purposes of allocating indirect costs) will bebased on either a system of monitored workload or a systemof personnel activity reports. The latter system will beused for nonprofessional employees whose costs are chargeddirect or are required to be distributed to more than oneactivity for purposes of allocating indirect costs. In theuse of either method, it is recognized that, because of thenature of work involved in academic institutions, the ~"

various and often interrelated activities of professorial .,

4. Commencement and convocation costs. Costs incurredfor commencements ana-convocatlons are unallowable, exceptas provided for in Section F7.

5. Communication costs. Costs incurred for telephoneservices, local and long distance telephone calls,telegrams, radiograms, postage and the like, are allowable.

6. Compensation for personal services

a. General. compensation for personal servicescovers all amounts paid currently or accrued by theinstitution for services of employees rendered during the

. period of performance under sponsored agreements. Suchamounts include salaries, wages, and fringe benefits (Seesection J15.). These costs are allowable to the extent thatthe total compensation to individual employees conforms tothe established policies of the institution, consistentlyapplied, and provided that the charges for work performeddirectly on sponsored agreements and for other workallocable as indirect costs are determined and supported asprovided belOW. Charges to sponsored agreements may inclUdereasonable amounts for activities contributing and ..intimately related to work under the agreements, such as ,.,delivering special lectures about specific aspects of theongoing activity, writing reports and articles,participating in appropriate seminars, consulting withcolleagues and graduate students, and attending meetings andconferences. Incidental work (that in excess of normal forthe individual), for which supplemental compensation is paidby an institution under institutional policy, need not beincluded in the payroll distribution systems desCribedbelow, provided such work and compensation are separatelyidentified and documented in the financial management systemof the institution.

23

and professional employees frequently cannot be measuredwith a high degree of precision, that reliance must'beplaced on reasonably accurate approximations, and thatacceptance of a degree of tolerance in measurement!isappropriate.

c. Monitored workload. Under this method theIdistribution of salanes and wages applicable to sponsoredagreements is based on budgeted or assigned workload,updated to reflect any significant changes in workloaddistributions. A monitored workload system used forsalaries and wages ch~rged directly or indirectly tosponsored agreements will meet the following standards:

(1) A system of budgeted or assigned workloadwill be incorporated into the official records of theinstitution and encompass both sponsored and all otheractivities on an integrated basis. The system may includethe use of subsidiary records.

(2) The system will reasonably reflect workloadof employees, accounting for 100 percent of the work forwhich the employee is compensated and which is required I infulfillment of the employee's obligations to theinstitution. Because practices vary among institutions andwithin institutions as to the total activity constitutingfull workload -- when expressed in measurable units, such ascontact hours in teaching -- the system will be based on adetermination for each individual, reflecting the ratio ofeach of the activities which comprise the total workload! ofthe individual. (But see Section H for treatment 'ofindirect costs under the simplified method for smallinstitutions.)

(3) The system will provide for modification' of,an individual's salary or salary distribution commensurate.with any significant change in the employee's workload or.the ratio of activities comprising the total workload. A,significant change in an employee's workload shall beconsidered to include the following as a minimum: when workbegins or ends on a sponsored agreement, when a teachingload is materially modified, when additional unanticipatedassignments are received or taken away, when. an individualbegins or ends a sabbatical leave, prolonged sick leave,' orleave without pay, etc. Short-term (such as one or two:months) fluctuation between workload categories need notlbeconsidered as long as the distribution of salaries and wagesis reasonable over the longer term such as an academic'period. .Whenever it is apparent that a change in workload;

(No. A-21)

~

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(7) In the use of this method an institution ashall not be required to provide additional support or ..,documentation for the effort actually performed, but isresponsible for assuring that the system meets the abovestandards.

fJ'" ., '>'f).

-categories

sponsoredeach major

independentis wor~ing

this systemsupported by

will provide forlnsure that it

Personnel activity reports will reflect:theactivity expended by each employee covered

. d. Personnel activi~ reports. Underthe distributlon of salarles and wages will bepersonnel activity reports as prescribed below.

(No. A-21)

( 1 )distribution ofby the system.

(2) The reports will reflect an after-the-factreporting of the percentage of activity of each employee.Charges may be made initally on the basis of estimates madebefore the services are performed, provided that suchcharges are promptly adjusted if significant differences'areindicated by activity reports.

24

(5) At least annually a statement will! besigned by the employee, principal investlgator, orresponsible official, having first hand knowledge of thework stating that salaries and wages charged to sponsoredagreements as direct charges, or that salaries and wagescharged to both direct and indirect cost categories, ot tomore than one indirect cost category are reasonable.

will occur or has occurred, the change will be documentedover the signature of a responsible official and, ifsignificant, entered in~othe system.

(3) Each report will account for 100 percent ofthe activity for which the employee is compensated and whichis required in fulfillment of the employee's obligations: tothe institution. The report will reasonably reflectithepercentage of activity applicable to each sponsoredagreement, each indirect cost category, and each majorfunction of the institution.

(6) The systeminternal evaluations toe~fectively.

(4) The system will utilize workloadreflecting activity which is applicable to eachagreement, each indirect cost ,activity, 'and

I function of the institution.

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.

,e

25

. (4) To confirm that the distribution ofactivity represents a reasonable estimate of the workperformed by the employee during the period, each reportwill be signed by the employee or by a responsible officialhaving first hand knowledge of the work performed.

(5) For professorial and professional staff,the reports will be prepared each academic term, but no lessfrequently than every six months. For other individuals,the reports will be prepared no less frequently than monthlyand will coincide with one or more pay periods.

(6) Where the institution uses time cards orother forms of after-the-fact payroll documents as originaldocumentation for payroll and payroll charges, suchdocuments shall qualify as a personnel activity reportprovided that they are meet the requirements in (1) through(5) above.

e. Salary rates for faculty members.

(1) Salary rates for academic year. Chargesfor work performed on sponsored agreements by facultymembers during the academic year will be based on theindividual faculty member's regular compensation for thecontinuous period which, under the policy of the institutionconcerned, constitutes the basis of his salary. Charges forwork performed on sponsored agreements during all or anyportion of such period are allowable at the base salaryrate. In no event will charges to sponsored agreements,irrespective of the basis of computation, exceed theproportionate share of the base salary for that period.This principle applies to all members of the faculty at aninstitution. Since intra-university consulting is assumedto be. undertaken as a university obligation requiring nocompensation in addition to full-time base salary, theprinciple also applies to faculty members who function asconsultants or otherwise contribute to a sponsored agreementconducted by another faculty member of the same institution.However, in unusual cases where consultation is acrossdepartmental lines or involves a separate or remoteoperation, and the work performed by the consultant is inaddition to his regular departmental load, any charges forsuch work representing extra compensation 'above the basesalary are allowable provided that such consultingarrangements are specifically provided for in the agreementor approved in writing by the sponsoring agency.

(No. A-2l)

(No. A-21)

•

26 ~ ..•." /"

j

Periods outside the academic year.(2 )

f. Noninstitutional professional activities.Unless an arrangement 1S spec1f1cally author1zed by aFederal sponsoring agency, an institution must follow itsinstitution-wide policies and practices concerning thepermissible extent of professional services that can beprovided outside the institution for noninstitutionalcompensation. Where such institution-wide policies do notexist or do not adequately define the permissible extent ofconsulting or other noninstitutional activities undertakenfor extra outside pay, the Government may ~equire that theeffort of professional staff working on sponsored agreementsbe allocated between (1) institutional activities, and (2)noninstitutional professional activities. If the spon90ringagency considers the extent of noninstitutional profes$ionaleffort excessive, appropriate arrangements gov~.rning~.compensation will be negotiated on a case-by-case basis. .,

(a) Except as otherwise specified forteaching activity in (b) below, charges for work performedby faculty members on sponsored agreements during the summermonths or other period not included in the base salaryperiod will be determined for "each faculty member at a ratenot in excess of the base salary divided by the period towhich the base salary relates, and will be limited tocharges made in accordance with other parts of this section.The base salary period used in computing charges for workperformed during the summer months will be the number ofmonths covered by the faculty member's official academicyear appointment.

(b) Charges for teaching activitiesperformed by faculty members on sponsored agreements duringthe summer months or other periods not included in the! basesalary period will be based on the normal policy of theinstitution governing compensation to faculty members for"teaching assignments during such periods.

(3) Part-time faculty. Charges for. workperformed on sponsorea-agreements by faculty members havingonly part-time appointments will be determined at a rate notin excess of that regularly paid for the part-timeassignments; e.g., an institution pays $5,000 to a facultymember for half-time teaching during the academic year., Hedevoted one-half of his remaining time to a sponsoredagreement. Thus, his additional compensation, chargeable bythe institution to the agreement, would be one-half of$5,000, or $2,500.

,

(No. A-21)

a. The computation of depreciation or 'useallowances shall be based on the acquisition cost of theassets involved. For this purpose, the acquisition Costwill exclude (1) the cost of land; (2) any portion of:thecost of buildings and equipment borne by or donated by 'theGovernment, irrespective of where tiUe was originallyvested or where it is·presently located; and (3) any portionof the cost of buildings and equipment contributed by oriforthe 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 beconsidered as the acquisition cost.

b. In the use of the depreciation method, thefollowing shall be observed:

(1) The period of useful service or useful lifeestablished in each case for usable capital assets must takeinto consideration such factors as type of construction,nature of the equipment, technological developments in theparticular area, and the renewal and replacement poli~ies

followed for the individual items or classes of assetsinvolved.

7. Contingency provisions. Contributions to acontingency reserve or any similar provision made forevents, the occurrence of which cannot be foretold withcertainty as to time, intensity, or with an assuranceioftheir happening, are unallowable. (But see also sectionJ16c.)

27

8. Deans of facult¥ and rraduate schools. The salariesI and expenses or-deans 0 facu ty and graduate schools, or

their equivalents, and their staffs, are allowable.

9. Depreciation and use allowances. Institutions maybe compensated for ~e--Use of their buildings, capitalimprovements, and equipment; provided that they are used,needed in the institutions' activities, and prope~ly

allocable to sponsored agreements. Such compensation shallbe made by computing either depreciation or use allowance.Use allowances are the means of providing such compensationwhen depreciation or other equivalent costs are notcomputed. The allocation for depreciation or use allowanceshall be made in accordance with Section Fl. Depreciationand use allowances are computed applying the following

'rules:

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(No. A-21)

(2) In contrast to the depreciation method, theentire building must be treated as a single asset withoutseparating its "shell" from other building components underthe use allowance method. The ,entire building must betreated as a single asset, and the two-percent use allowancelimitation must be. applied to all parts of the building.The two-percent limitation, however, need not be applied to

28

(2) The depreciation method used to charge thecost of an asset (or group of assets) to accounting periodsshall reflect the pattern of consumption of the asset duringits useful life. In the absence of clear evidenceindicating that the expected consumption of the asset willbe significantly greater in the early portions than in the •later portions of its useful life, the straight-line methodshall be presumed to be the appropriate method.

I Depreciation methods once used shall not be changed unless'approved in advance by the cognizant Federal agency.

(3) Where the depreciation method is introducedfor application to assets for which use allowance waspreviously charged, the aggregate amount of use allowancesand depreciation appllcable to such assets must not exceedthe total acquisition cost of the assets.

(4) When the depreciation method is used forbuildings, a building "shell" may be treated separately fromother building components, such as plumbing system andheating and air conditioning system. Each component itemmay then be depreciated over its estimated useful life. Onthe other hand, the entire building, LncLud.i.nq the shell and '"all components, may be treated as a single asset anddepreciated over a single useful life.

(5) Where the depreciation method is used for aparticular class of assets, no depreciation may .be allowedon any such assets that have outlived their depreciablelives. (But see also c(3), below.)

c. Under the use allowance method, the followingshall be observed:

(1) The use allowance for buildings andimprovements (including improvements such as paved parkingareas, fences, and sidewalks) will be computed at an annualrate not exceeding two percent of acquisition cost. Theuseallowance for equipment will be computed at an annual ratenot exceeding six and two-thirds percent of acquisitioncost.

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29

equipment or other assets that are merely attached orfastened to the building but not permanently fixed and areused as furnishings, decorations or for specialized purposes(e.g., dentist chairs and dental treatment units, couhters,laboratory benches bolted to the floor, dishwashers, andcarpeting). Such equipment and assets will be considered asnot being permanently fixed to the building if they can beIremoved without the need for costly or extensive alterationsor repairs to the building to make the space usable forother purposes. Equipment and assets which meet thesecriteria will be subject to the six and two-thirds percentequipment use allowance.

(3) A reasonable use allowance may benegotiated for any assets that are considered to be fullydepreciated, after taking into consideration the amount ofdepreciation previously charged to the Government, theestimated useful life remaining at the time of negotiation,the effect of any increased maintenance charges, decreasedefficiency due to age, and any other factors pertinent tothe utilization of the asset for the purpose contemplated.

d. Except as otherwise provided in band c above, acombination of the depreciation and use allowance methodsmay not be used, in like circumstances, for a single classof assets (e.g., buildings, office equipment, and computerequipment) .

e. Charges for use allowances or depreciation mustbe supported by adequate property records, and physicalinventories must be taken at least once every two years toensure that the assets exist and are usable, used, andneeded. .Statistical sampling techniques may be used intaking these inventories. In addition, when thedepreciation method is used, adequate depreciation recordsshowing the amount of depreciation taken each period mustalso be maintained .

10. Donated services and property. The value of donatedservices and property are not allowable either as a director indirect cost, except that depreciation or use allowanceson donated assets are permitted in accordance with SectionJ9a. The value of donated serv i ces and property may be usedto meet cost sharing or matching requirements, in accordancewith OMB Circular No. A-IIO.

11. Employee morale, health, and welfare costs andcredits. The costs of house publicatlons, health or first­ald cllnics and/or infirmaries, recreational activities,

(No. A-2l)

employees' counseling services, and other expenses incurredin accordance with the institution's established practice orcustom for the improvement of working conditions, employer­employee relations, employee morale, and employeeperformance, are allowable. Income generated from any ofthese activities will be credited to the cost thereof unlesssuch income has been irrevocably set over to employeewelfare organizations.

12. Entertainment costs. Costs incurred for amusement,social actIvItIes, entertainment, and any items relatingthereto, such as meals, lodging, rentals, transportation,and gratuities, are unallowable. .

13. Equipment and other capital expenditures.

a. For purposes of this paragraph, the followingdefinitions apply:

(1) Equipment means an article of nonexpendabletangible personal property having a useful life of more thantwo years, and an acquisition cost of $500 or more per unit.However, consistent with institutional policy, lower limits ..may be established. ~

(2) ~ital expenditure means the cost of theasset including t e cost to put it in place. capitalexpenditure for equipment, for example, means the netinvoice price of the equipment, including the cost of anymodifications, attachments, accessories, or auxiliaryapparatus necessary to make it usable for the purpose forwhich it is acquired. Ancillary charges, such as taxes,duty, protective intransit insurance, freight, andinstallation may be included in, or excluded from, capitalexpenditure cost in accordance with the institution'sregular accounting practices.

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Special purpose equipment means equipmentonly for research, medIcal, scientific, or

activities.

(3 )is used

technical

(No. A-21)

(4) General purpose equipment means equipment,the use of which IS not lImIted only to research, medical,scientific or other technical activities. Examples ofgeneral purpose equipment include office equipment andfurnishings, air conditioning equipment, reproduction andprinting equipment, motor vehicles, and automatic dataprocessing equipment.

whichother

apply

(No. A-21)

31

a. Fringe benefits in the form of regularcompensation paid to employees during periods of authorizedabsences from the job, such as for annual leave, sick leaVe,military leave, and the like, are allowable, provided suchcosts are distributed to all institutional activities !inproportion to the relative amount of time or effort actuallydevoted by the employees. See Section J35 fpr treatment ofsabbatical leave.

b. Fringe benefits in the form of employercontributions or expenses for social security, employeeinsurance, workmen's compensation insurance, tuition orremission· of tuition for individual employees or their

(4) Capital expenditures are unallowable asindirect costs. But see Section J9 for allowability ofdepreciation or use allowance on buildings, capi t.a limprovements, and equipment. Also see section J33 forallowability of rental costs on land, buildings, andeq':lipment.

14. Fines and penalties. Costs resulting fromviolations of, or-tailure of the institution to comply with,Federal, State, and local laws and regulations areunallowable, except when incurred as a result of compliancewith specific provisions of the sponsored agreement, orinstructions in writing from the contracting officer orequivalent.

IS. Fringe benefits.

(2) Capital expenditures for special purposeequipment are allowable as direct charges, provided that theacquisition of items having a unit cost of $1,000 or more isapproved in advance by the sponsoring agency.

(3) Capital expenditures for improvements toland, buildings, or equipment which materially increasetheir value or useful life are unallowable as directcharges, except where approved in advance by the sponsoringagency.

b. The following rules of allowability shallto equipment and other capital expenditures:

(1) Capital expenditures for general purposeequipment, buildings, and land are unallowable as directcharges, except where approved in advance by the sponsoringagency.I

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(No. A-21)

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(2) The amount of pension cost assigned to eachfiscal year shall be determined in accordance with gene~ally

accepted accounting principles. Institutions may elec..t to ~"follow the "Cost Accounting Standard for Composition and VMeasurement of PensionCost l1 (4 CFR Part 412).

(3) Premiums paid for pension plan terminationinsurance pursuant to the Employee Retirement I'ncomeSecurity Act of 1974 (Public Law 93-406) are allowable.Late payment charges on such premiums are unallowable.Excise taxes on accumulated funding deficiencies andprohibited transactions of pension plan fiduciaries imposedunder the Employee Retirement Income Security Act are alsounallowable.

d. Fringe benefits may be assigned to costobjectives by identifying specific benefits to specificindividual employees or by allocating on the basis of thesalaries and wages of the employees receiving the benefits.When the allocation method is used, separate allocationsmust be made' to selective groupings of employees, if thecosts in relationship to salaries and wages differsignificantly for different groups of employees. Alsofringe benefits related to institutional salaries and wagestreated as direct costs may be treated as direct costs.

16. Insurance and indemnification.

32

families and the like are allowable, provided such benefitsare granted in accordance with established institutionalpolicies, and are distributed to all instituqonalactivities on an equitable basis. See Section 336b fortreatment of tuition remission provided to students.

c. Rules for pension plan costs are as follows:

(I) Costs of the institution's pension planwhich are incurred in accordance with the establishedpolicies of the institution are allowable, provided (a}!suchpolicies meet the test of reasonableness;· (b) the methods ofcost allocation are equitable for all activities; (c) theamount of pension cost assigned to each fiscal year isdetermined in accordance with (2) below; and (d) the costassigned to a given fiscal year is paid or funded for allplan participants within six months after the end of thatyear.

(No. A-21)

33

andare

"'"''''';';':y'''

approved,agreement,

Costs of insurance required orpursuant to the sponsored

a. Costs incurred for interest on borrowed capita~

or temporary use 0 f endowment funds, however zepreserrted,are unallowable.

d. Actual losses which could have been covered bYpermissible insurance (whether through purchased insuranqeor self-insurance) are unallowable, unless expresslyprovided for in the sponsored agreement, except that costsincurred because of losses not covered under existingdeductible clauses for insurance coverage provided inkeeping with sound management practice as well as minorlosses not covered by insurance, such as spoilage, breakageand disappearance of small hand tools, which occur in theordinary course of operations, are allowable.

e. Indemnification includes securing theinstitution against liabilities to third persons and otherlosses not compensated by insurance or otherwise. TheGovernment is obligated to indemnify the institution only ~o

the extent expressly provided for in the sponsoredagreement, 'except as provided in d above.

17. Interest, fund raising, and investment managemenitcosts.

a.maintained,allowable.

b. Costs of other insurance maintained by theinstitution in connection with the general conduct of itsactivities, are allowable subject to the followinglimitations: (1) types and extent and cost of coverage mu~t

be in accordance with sound institutional practice; (~)

costs of insurance or of any contributions to any reservecovering the risk of loss of or damage to Government-ownedproperty are unallowable, except to the extent that theGovernment has specifically required or approved such costs;and (3) costs of insurance on the lives of officers ortrustees are unallowable except where such insurance is partof an employee plan which is not unduly restricted.

c. Contributions to a reserve for a self-insuranceprogram are allowable, to the extent that the types d.fcoverage, extent of coverage, and the rates and premiumswould have been allowed had insurance been purchased tocover the risks.

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(No. A-21)

19. Losses on other sponsored agreements or contracts.Any excess of costs over lncome under any other sponsored

'agreement or contract of any nature is unallowable., Thisincludes, but is not limited to, the institution's f"contributed portion by reason of cost-sharing agreemen~s or .any under-recoveries through negotiation of flat amounts forindirect costs.

"

f'34

18. Labor relations costs. Costs incurred inmaintainlng satlsfactory relatlons between the institutionand its employees, including costs of labor managementcommittees, employees' publications, and other relatedactivlties, are allowable.

d. Costs related to the physical cus t.cdy] andcontrol of monies and securities are allowable. '

b. Costs of organized fund raising, includingfinancial campaigns, endowment drives, solicitation of giftsand bequests, and similar expenses incurred solely to raisecapital or obtain contributions, are unallowable.

c. Costs of investment counsel and staff andsimilar expenses incurred solely to enhance income frominvestments are unallowable.

20. Maintenance and repair costs. Costs incurred fornecessary malntenance, repalr or upkeep of property(including Government property unless otherwise providedfor) which neither add to the permanent value of theproperty nor appreciably prolong its intended life but keepit in an efficient operating condition, are allowable.

21. Material costs. Costs incurred for purchasedmaterials, supplles, and fabricated parts directly orindirectly related to the sponsored agreement, areallowable. Purchases made specifically for the sponsoredagreement should be charged thereto at their actual pricesafter deducting all cash discounts, trade discounts,rebates, and allowances received by the institution.Withdrawals from general stores or stockrooms should becharged at their cost under any recognized method of p~icing

stores withdrawals conforming to sound accounting practicesconsistently followed by the institution. Incomingtransportatlon charges are a proper part of material cost.Direct material cost should include only the materials andsupplies actually used for the performance of the spopsored r'agreement, and due credit should be given for any excess 'f'materials retained, or returned to vendors. Due credit

Costs of the institution's membership in civic,technical, and professional organizations are

26. Professional services costs.

35

a.business,allowable.

should be given for all proceeds or value received for anyscrap resulting from work under the sponsored agreement.Where Government-donated or furnished material is used inperforming the sponsored agreement, such material will beused without charge. .

22. Memberships, subscriptions and professional activitycosts.

I

b. Costs of the institution's subscriptions tocivic, business, professional, and technical periodicals areallowable.

~

c. Costs pf meetings and conferences, when theprimary purpose is the dissemination of technicalinformation, are allOWable. This includes costs of meals,transportation, rental of facilities, and other itemsincidental to such meetings or conferences.

23. Patent costs. Costs of preparing disclosures,reports, and other documents required by the sponsoredagreement, and of searching the art to the extent necess~ry

to make such invention disclosures, are allowable. Inaccordance with the clauses of the sponsored agreementrelating to patents, costs of preparing documents and anyother patent costs, in connection with the filing of apatent application where title is conveyed to theGovernment, are allowable. (See also Section J34.) ,

24. Plant security costs. Necessary expenses incurredto comply with secur~ty requirements, including wages,uniforms and equipment of personnel engaged in plantprotection, are allOWable.

" 25. Preagreement costs. Costs incurred prior to theeffective . date of the sponsored agreement, whether or notthey would have been allowable thereunder if incurred aftersuch date, are unallowable unless approved by the sponsoringagency.

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(i)a. Costs of professional services rendered by the

members of a particular profession who are not employees: ofthe institution are allowable, subject to band c below, I ~!

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(No. A-21)

36

28. pro~osal costs. Proposal costs are the costs ofpreparinglds ·or proposals on potential Government andnongovernment sponsored agreements or projects, includingthe development of data necessary to support theinstitution's bids or proposals. Proposal costs of thecurrent accounting period of both successful andunsuccessful bids and proposals normally should be treatedas indirect costs and allocated currently to all activitiesof the institution, and no proposal costs of past accountingperiods will be allocable to the current period. However,the institution's established practices may be to! treatproposal costs by some other reco9nized method. Regardless

(No. A-21)

when reasonable in relation to the services rendered andwhen not contingent upon recovery of the costs from theGovernment. Retainer fees to be allowable must bereasonably supported by evidence of services rendered.!

b. Factors to be considered in determining theallowability of costs in a particular case include (1) thepast pattern of such costs, particularly in the years priorto the award of sponsored agreements; (2) the impact ofsponsored agreements on the institution's total activity;(3) the nature and scope of managerial services expected ofthe institution's own organizations; and (4) whether theproportion of Government work to the institution's! totalactivity is such as to influence the institution in favor ofincurring the cost, particularly where the services repderedare not of a continuing nature and have little relatipnshipto work under sponsored agreements.

c. Costs of legal, accounting, and cons~lting

services, and related costs, incurred in connection with the.prosecution of claims against the Government; areunallowable. Costs of legal, accounting and consultingservices, and related costs, incurred in connection withpatent infringement litigation, are unallowable unlessotherwise provided for in the sponsored agreements.

27. Profits and losses on disposition of plant e1¥ipmentor other ~hltal-assets. Proflts or losseS-arlslng ~pm thesale or exc ange of plant, facilities, equipment or ,othercapital assets, including sale or exchange of either short­term or long-term investments, shall not be considered incomputing the. costs of sponsored agreements except forpension plans as provided in section J15c. When assetsacquired with Federal funds, in part or wholly, are disposedof, the distribution of the proceeds shall be made inaccordance with Attachment N, OMB Circular No. A-IIO.

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Cost of newsor scientificresult from

37

b. In pUblications, costs of help wantedadvertising that includes color, includes advertisingmaterial for other than recruitment purposes, or isexcessive in size (taking into consideration recruitmentpurposes for which intended and normal institutionalpractices in this respect), are unallowable"

c. Costs of help wanted advertising, specialemoluments, fringe benefits, and salary allowances incurredto attract professional personnel from other institutionsthat do not meet the test of reasonableness or do not

(No. A-21,l

31. Reconversion costs. Costs incurred in therestoratlon or rehabllltation of the institution'sfacilities to approximately the same condition existingimmediately prior to commencement of a sponsored agreement,fair wear and tear excepted, are allowable.

32. Recruiting costs.

a. Subject to p, c, and d below, and provided thatthe size of the staff recruited and maintained is in keepingwith workload requirements, costs of "help wanted"advertising, operating costs of an employment officenecessary to secure and maintain an adequate staff, costs ofoperating an aptitude and educational testing program,travel costs of employees while engaged in recruitingpersonnel, travel costs of applicants for interviews forprospective employment, and relocation costs incurredincident to recruitment of new employees, are allowable tothe extent that such costs are incurred pursuant to a wellmanaged recruitment program. Where the institution usesemployment agencies, costs not in excess of standardcommercial rates for such services are allowable.

29. Public information services costs.releases pertainlng to speciflc researchaccomplishment are' allowable, when theyperformance of sponsored agreements.

30. Rearrangement and alteration costs. Cost incurredfor ordlnary or normal rearrangement and alteration offacilities are allowable. Special arrangement andalteration costs incurred specifically for the project areallowable when such work has been approved in advance by thesponsoring agency.

of the method used, the results obtained may be acceptedonly if found to be reasonable and equitable.

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(1) is noncancelable or is cancelable only uponthe occurrence of some remote contingency, and

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of buildings or equipment arethat the decision to rent or leaseC-3. Rental arrangements shouldto determine if circumstances haveare available.

(No. A-21)

(a) Title to the property' passes to theinstitution at some time during or after the lease period.

(b) The term of the lease correspondssubstantially to the estimated useful life of the property

(2) has onecharacteristics:

38

b. Rental costs under "sale and lease, back"arrangements are allowable only up to the amount that wouldbe allowed if the institution continued to own the property.

c. Rental costs under "less-than-arms-length" "leases ~re al~owable ,only up to the amount that would ~e ~allowed 1f the 1nst1tut10n owned the property. For th1spurpose, a less-than-arms-length lease is one under whichone party to the lease agreement is able to control orsubstantially influence the actions of the other.

d. Where significant rental costs are incurredunder leases which create a material equity in the leasedproperty, they are allowable only up to the amount thatwould be allowed if the institution purchased the propertyon the date the lease agreement was executed. For thispurpose, a material equity in the property exists when thelease:

a. Rental costsallowable to the extentis =.n accord with sectionbe reviewed periodicallychanged and other options

d. Where relocation' costs incurred incident torecruitment of a new employee have been allowed either as anallocable direct or indirect cost, and the newly hiredemployee resigns for reasons within his control within~welve months after hire, the institution will be requiredto refund or credit such relocation costs to the Government.

33. Rental cost of buildings and equipment.

conform with the established practices of the institution,are unallowable.

39

owner

property was acquired by theneeds of the institution and will

for that purpose and only by the

(No. A-21)

(d) Theleasor to meet the specialprobably be usable onlyinstitution.

(c) The initial term is less than theuseful life of the property and the institution has the'option to renew the lease for the remaining useful life atsubstantially less than fair rental value.

(e) The institution has the right, duringor at the expiration of the lease, to purchase the propertyat a price which at the inception of the lease appears to besubstantially less than the probable fair market value atthe time it is permitted to purchase the property (commonlycalled a lease with a bargain purchase option), except forany discount normally given to educational institutions.

34. Royalties and other costs for use of patents.Royalties on a patent or amortlzatlon -or tEe cost ofacquiring a patent or invention or rights thereto, necessaryfor the proper performance of the sponsored agreement andapplicable to. tasks or processes thereunder, are allowableunless the Government has a license or the right to free useof the patent, the patent has been adjudicated to be invalidor has been administratively determined to be invalid, thepatent is considered to be unenforceable, or the patent haSexpired.

35. Sabbatical leave costs. Costs of leave of absenceby employees for performance of graduate work or sabbaticalstudy, travel, or research are allowable provided theinstitution has a uniform policy on sabbatical leave forpersons engaged in instruction and persons engaged inresearch. Such costs will be allocated on an equitablebasis among all related activities of the institution.Where sabbatical leave is included in fringe benefits forwhich a cost is determined for assessment as a directcharge, the aggregate amount of such assessments applicableto all work of the institution during the base period mustbe reasonable in relation to the institution's actualexperience under its sabbatical leave policy.

36. Scholarships and student aid costs.

(i.e., the period of economic usefulness to the legalof the property).

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40

a. Costs of scholarships, fellowships, and otherprograms of student aid are allowable only when the purposeof the sponsored agreement. is to provide training toselected participants and the charge is approved by thesponsoring agency. However, tuition remission and otherforms of compensation paid as, or in lieu of, wages tostudents performing necessary work are allowable providedrthat; (1) there is a bonafide employer-employee relationshipbetween the student and the institution for the workperformed, (2) the tuition or other payments are reasonab~e

compensation for the work performed and are conditionedexpllcitly upon the performance of necessary work, and (3)it is the institution's. practice to similarly compensatestudents in nonsponsored as well as sponsored activities.

b. Charges for tuition remission and other forms 'ofcompensation paid to students as, or in lieu of, salariesand wages shall be subject to the reporting requirementsstipulated in Section J6, and shall be treated as direct orindirect cost in accordance with the actual work beingperformed. Tuition remission may be charged on an averagerate basis.

37. Severance ~.

a. Severance pay is compensation in addition toregular salary and wages which is paid by an institution toemployees whose services are being terminated. Costs ofseverance pay are allowable only to the extent that suchpayments are required by law, by employer-employeeagreement, by established policy that constitutes in effectan implied agreement on the institution's part, or bycircumstances of the particular employment.

b. Severance payments that are due to normalrecurrlng turnover and which otherwise meet the conditionsof a above may be allowed provided the actual costs of suchseverance payments are regarded as expenses applicable itothe current fiscal year and are equitably distributed amongthe institution's activities during that period.

c. Severance payments that are due to abnormal ormass terminations are of such conjectural nature thatallowability must be determined on a case~by-case basis.However, the Government recognizes its obligation toparticipate, to the extent of its fair share, in anyspecific payment.

(No. A-21)

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for

Specialized service facilities.38

(No. A-21)

b. The cost of each service normally shall consistof both its direct costs and its allocable share of indirectcosts with deductions for appropriate income or Federalfinancing as described in Section C5.

c. The cost of such institutional services whenmaterial in amount will be charged directly to users,including sponsored agreements based on actual use of theservices and a schedule of rates that does not discriminatebetween federally and nonfederally supported activities ofthe institution, including use by the institution forinternal purposes. Charges for the use of specializedfacilities should be designed to recover not more than theaggregate cost of the services over a long-term periodagreed to by the institution and the congnizant Federalagency. Accordingly, it is not necessary that the ratescharged for services be equal to the cost of providing thoseservices durin~ anyone fiscal year as long as rates arereviewed periodlcally for consistency with the long-termplan and adjusted if necessary.

d. Where the costs incurred for suchservices are not material, they may be allocatedcosts. Such arrangements must be agreedinstitution and the cognizant Federal agency.

e. Where it is in the best interest of theGovernment and the institution to establishcosting arrangements, such arrangements may be worked outwith the cognizant Federal agency.

39. Special services costs. Costs incurred forpublic relatlons actlvltles, alumni activities, andservices, are unallowable.

40. Student activity costs. Costs' incurredintramural activltles, student pUblications, studentand other student activities, are unallowable,specifically provided for in the sponsored agreements.

a. The costs of institutional services involvingthe use of highly complex or specialized facilities such: aselectronic computers, wind tunnels, and reactors areallowable, provided the charge for the service meets theconditions of b through d below.

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(NO. A-21)

. a. Travel costs are the expenses fortransportation, lodging, subsistence, and related itemsincurred by employees who are in travel status on officialbusiness of the institution. Such costs may be charged onan actual basis, on a per diem or mileage basis in lieu of ~

actual costs incurred, or on a combination of the two, "

41. Taxes.

43. Travel costs .

42

a. In general, taxes which the institution 1$required to pay and which are paid or accrued in accordancewith generally accepted account1ng principles are allowable.Payments made to local governments in lieu of taxes whichare commensurate with the local government services receivedare allowable, except for (1) taxes from which exemptionsare available to the institution directly or which areavailable to the institution based on an exemption affordedthe Government, and in the latter case when the sponsoringagency makes available the necessary exemption certi!icates;and (2) special assessments on land which represent capitalimprovements.

b. Any refund of taxes, interest, or penalties, andany payment to the institution of interest thereon,attributable to taxes, interest, or penalties which wereallowed as sponsored agreement costs, will be credited orpaid to the Government in the manner directed by theGovernment. However, any interest actually paid or creditedto an institution incident to a refund of tax, interest, andpenalty will be paid or credited to the Government only tothe extent that such interest accrued over the period duringwhich the institution had been reimbursed by the Governmentfor the taxes, interest, and penalties.

42. Transportation costs. Costs incurred for freight,express, cartage, postage, and other transportation servicesrelating either to goods purchased, in process, ordelivered, are allowable. When such costs can readily beidentified with the items involved, they may be .chargeddirectly as transportation costs or added to the cost ofsuch items. Where identification with the materialsreceived cannot readily be made, inbound transportationcosts may be charged to the appropriate indirect costaccounts if the institution follows a consistent, equitableprocedure in this respect. Outbound freight, ifreimbursable under the terms of the sponsored agreement,should be· treated as a direct cost.

43

a. Termination of sponsored agreements generallygives rise to the incurrence of costs or to the need'for

sponsored

special oror approvedauthorized

to

entire trip andresults in chargesthe institution in

applicable

(No. A-21)

costs

2;'

44. Terminationagreements.

f. Domestic travel costs are allowable whenpermitted by the sponsored agreement. Expenditures for suchtravel will not be allowed if they exceed the amountspecified by more than 25% or $500, whichever is greater,except with an advanced approval of the sponsoring agency.

c. The difference in cost between first-class airaccorrunodations and less than first-class air accorrunodationsis unallowable except when less than first-class airaccorrunodations are not reasonably available to meetnecessary mission requirements, such as where less thanfirst-class accorrunodations would (1) require circuitousrouting, (2) require travel during unreasonable hours, .'(3 )greatly increase the duration of the flight, (4) result inadditional costs which would offset the transportationsavings, or (5) offer accorrunodations which are notreasonably adequate for the medical needs of the traveler .

d. Costs of personnel movements of amass nature are allowable only when authorizedin writing by the sponsoring agency or itsrepresentative.

e. Foreign travel costs are allowable only when 'thetravel has received specific prior approval. Each separateforeign trip must be specifically approved. For purposes ofthis provision, foreign travel is defined as any traveloutside of Canada and the United States and its territoriesand possessions. However, for an organization locatedoutside Canada and the united states and its territories 'andpossessions, foreign travel means travel outside thatcountry.

provided the method used is applied to annot to selected days of the trip, andconsistent with those normally allowed byits regular operations.

b. Travel costs are allowable subject to c, d, e,and fbelow, when they are directly attributable to specific

I work under a sponsored agreement or are incurred in :thenormal course of administration of the institution or adepartment or program thereof.

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44

special treatment of costs, which would not have arisen hadthe agreement not been terminated. Items peculiar totermination are set forth below. They are to be used inconjunction with all other provisions of this Circular inthe case of termination.

b. The cost of common items of material reasonablvusable on the institution's other work will not be allowableunless the institution submits evidence that it could!notretain such items at cost without sustaining a loss. Indeciding whether such items are reasonably usable on otherwork of the institution, consideration should be given totile institution's plans and orders for current and scheduledwork. Contemporaneous purchases of common items by!theinstitution will be regarded as evidence that such items ,arereasonably usable on the institution's other work. Anyacceptance of common items as allowable to the terminatedportion of the agreement should be limited to the extentthat the quantities of such items on hand, in transit, [andon order are in excess of the reasonable quantitativerequirements of other work.

c. If in a particular case, despite all reasonableefforts by the institution, certain costs cannot bediscontinued immediately after the effective date oftermination, such costs are generally allowable within 'thelimi tations set forth in this Circular, except that any suchcosts continuing after termination due to the negligent. orwillful failure of the institution to discontinue such costswill be considered unacceptable.

d. Loss of useful value of special tooling, 'andspecia.l machinery and equipment is generally allowab~e,provided (1) such special tooling, machinery, or equipm~nt

is not reasonably capable of use in the other work of ~he

institution; (2) the interest of the Government is protectedby transfer of title or by other means deemed appropriate, bythe contracting officer or equivalent; and (3) the loss ofuseful value as to anyone terminated agreement is limitedto that portion of the acquisition cost which bears the sameratio to the total acquisition cost as the terminatedportion of the agreement bears to the entire terminatedagreement and other Government agreements for which thespecial tooling, special machinery, or equipment wasacquired.

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leases areto have been

the terminated

(No. A-21)

Rental costs under unexpiredallowable where clearly shown

necessary for the performance of

e.generallyreasonably

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45

(No. A-21)

g. Claims under sub agreements , including theallocable portion of claims which are common to theagreement and to other work of the institution, aregenerally allowable.

K. Certification of charges. To assure that expendituresfor sponsored agreements are proper and in accordance withthe agreement documents and approved project budgets, theannual and/or final fiscal reports or vouchers requestingpayment under the agreements will include a certification,signed by an authorized official of the university, whichreads essentially as follows: "I certify that allexpenditures reported (or payment requested) areappropriate purposes and in accordance with the provis1onsof the application and award documents."

agreement, less the residual value of such leases, if (1)the amount of such rental claimed does not exceed thereasonable use value of the property leased for the periodof the agreement and such further period as may bereasonable; and (2) the institution makes all reasonableefforts to terminate, assign, settle, or otherwsie reducethe cost of such lease. There also may be included the costlof alterations of such leased property, provided suchalterations were necessary for the performance of theagreement, and of reasonable restoration required by theprovisions of the lease.

f. Settlement expenses including the following aregenerally allowable: (1) accounting, legal, clerical, andsimilar costs reasonably necessary for the preparation andpresentation to contracting officers or equivalent ofsettlement claims and supporting data with respect to theterminated portion of the agreement, and the termination andsettlement of subagreements; and (2) reasonable costs forthe storage, transportation, protection, and disposition ofproperty provided by the Government or acquired or producedby the institution for the agreement, except when theinstitution 1S reimbursed for d1sposals at a predeterminedamount in accorandance with the provisions of Circular No.A-llO.

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