COST PRINCIPLES FOR EDUCATIONAL INSTITUITIONS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88G01332R000901080029-3
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 16
• Document Creation Date: December 27, 2016
• Document Release Date: January 12, 2012
• Sequence Number: 29
• Publication Date: June 4, 1986
• Content Type: MEMO

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ROUTING AND RECORD SHEET P
SUBJECT: (Optional)
Office of Management and Budget Circular No. A-21
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EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON. D.C. 20603
.JUN 0 4 1986
Execatin Regist2
86.2614x
CIRCULAR NO. A-21, Revised
Transmittal Memorandum No. 2
TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
SUBJECT: Cost Principles for Educational Institutions
This transmittal memorandum revises OMB Circular No. A-21,
"Cost Principles for Educational Institutions," to establish a 3
percent allowance to cover the administrative work of department
heads and faculty.
Effective on grants and contracts awarded on or after
July 1, 1987, Circular A-21 is revised as follows:
Departmental administration expenses.
Revise F.4;.a.(2)(a):
(2) Academic departments
(a) Salaries and fringe benefits attributable to
the administrative work of department heads,
directors of divisions and organized research
units, faculty and professional staff shall
be allowed at a rate of 3 percent of modified
total direct costs. This allowance shall be
added to the computation of the indirect cost
rate for major functions in section G.; the
expenses covered by the allowance shall be
excluded from the development and allocation
of the departmental administration cost
pool. No documentation is required to
support this allowance.
General A'lministration and General Expenses
Add the following sentence to F.3.a.:
General administration and general expenses shall
not include expenses incurred within dean's
offices, academic departments, organized research
units, or similar organizational units (see
`section F.4., departmental administration
expenses).
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Sponsored Projects Administration
Revise.F.5.a. as follows:.
(a) The expenses under this heading are limited to
those incurred by a separate organization(s)
established primarily to administer sponsored
projects, including such functions as grant and
contract administration (Federal and non-Federal),
special security, purchasing, personnel
administration, and editing and publishing of
research and other reports. They include the
salaries and expenses of the head of such
organization, assistants, and immediate staff,
together with the salaries and expenses of
personnel engaged in supporting activities
maintained by the organization, such as stock
rooms, stenographic pools and the like. This
category also includes an allocable share of
fringe benefit costs, general administration and
general expenses, operation and maintenance
expenses, and depreciation/use allowances.
Appropriate adjustments will be made for-services
provided to other functions or organizations.
Federal agencies may authorize reimbursement of additional
costs for department.-heads and faculty only in exceptional cases
where an institution can demonstrate undue hardship or detriment
to project performance.
Federal agencies are authorized to implement these changes
earlier if they choose.
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EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON. D.C. 20503
OFFICE OF MANAGEMENT AND BUDGET
Revision of OMB Circular A-21, "Cost Principles for Educational
Institutions"
AGENCY: OFFICE OF MANAGEMENT AND BUDGET
ACTION: Notice of revision to CRIB Circular A-21, "Cost Principles
for Educational Institutions"
Summary:
This notice revises OMB Circular A-21, "Cost Principles for
Educational Institutions." This revision is based on the
numerous thoughtful comments received in response to the proposed
revision published for comment in the February 12, 1986 Federal
Register.
Effective July 1, 1987, Circular A-21 is revised to set a fixed
overhead allowance for the administration of federally sponsored
grants and contracts by department heads and faculty. The fixed
allowance will equal 3 percent of modified total direct costs.
No faculty reporting will be required to support the allowance.
University indirect cost rates will be the sum of the rate
negotiated for departmental administration, the negotiated rates
for the remaining six cost pools, plus the 3 percent fixed
allowance. The revision takes effect on July 1, 1987.
Individual Federal agencies may elect to utilize the fixed
allowance prior to July 1, 1987.
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We agree with many of the comments received during the 3 month
consultation with the university and scientific community begun
with the February 12, 1986 Federal Register notice. We have
refined the February 12th proposal accordingly. The final
revision focuses on the narrow area of departmental
administration. This area is costly to document and subject to
considerable audit controversy.
A fixed allowance for the salaries of faculty and department
heads engaged in administrative activities which support
federally-funded research will eliminate any Federal requirement
for faculty reporting to document overhead allocations. The
elimination of this requirement will greatly reduce the
controversy among individual researchers, their institutions, and
the Federal funding and audit agencies. In addition, the
allowance will restore, a more appropriate balance between direct
Federal research support and overhead payments.
When additional data become available, we will consider an
adjustment to the 3 percent fixed rate for departmental
administration by department heads and faculty. We are also
willing to consult further with universities on ways to improve
the conduct of research.
Background
Prior to 1966, the Federal Government used a fixed, national rate
to establish the amount of Federal payments for overhead
allocated to federally sponsored research. After the Federal
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Government adopted the current policy of negotiating individual
cost-based reimbursement rates with individual universities,
Federal overhead payments increased from 22 percent of total
Federal research support to universities in 1970 to 24 percent in
1974 and 31 percent in 1985.
The disproportionate growth of overhead payments has been
recognized as a threat to maintaining appropriate levels of
research support. This growing share of overhead payments has
provoked tensions within universities, between scientists and
administrators, and between universities and Federal funding and
audit agencies.
The discussion of increasing overhead payments resulted in a
consensus among Congress, the General Accounting Office, the
Inspector General of the Department of Health and Human Services
(HHS), the Office of Science and Technology Policy, and the White
House Science Council on the need for a government-wide policy to
address the share of Federal university research spending
expended on allocated overhead.
- Congressional directives The FY82 Senate Labor/HHS
Appropriation report stated, "Should indirect costs continue to
increase as a percentage of total costs, the amount of money
appropriated by the. Congress will finance less and less actual
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research." (Report 97-268, p. 48) The House Appropriations
subcommittee on Labor/HHS, expressing itself in its FY85 report
(House Report 98-911, p. 31), held that allocated overhead should
be addressed through a government-wide plan. In the conference
report for the FY86 Labor/HHS appropriation bill (House Report
99-402, p. 28), Congress stated that containing research costs
and payments for allocated overhead should be a high priority of
all executive branch' agencies.
- General Accounting Office In the 1984 report, "Assuring
Reasonableness of Rising Indirect Costs on NIH Research Grants -
A Difficult Problem," (GAO/HRD-84-3) the General Accounting
office found that university allocations of departmental
administration overhead to federally sponsored research are
subjective and difficult to verify. The General Accounting
Office also found that: first, current A-21 allocation criteria
give universities broad discretion in allocation of overhead to
Federal research grants and, second, universities' overhead
allocations are rarely audited by HHS, which sets overhead
payment rates for 98 percent of the universities receiving
Federal research grants.
The General Accounting office recommended that CMB revise A-21 to
limit overhead allocations to a fixed percentage of departmental
administration expenses, thus ensuring reasonable reimbursement
for overhead and a reduction of universities' accounting and
reporting burden.
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-- HHS Inspector General In December, 1985, the HHS Inspector
General published the report, "The Impact of Indirect Costs on
.
Research Sponsored by the Federal Government at Universities and
Colleges." The report recommended a 7 percent fixed allowance
for all departmental administration overhead allocated to
federally sponsored research. The 7 percent fixed allowance
applied to the entire departmental administration pool -- deans,
department heads, faculty,
overhead.
clerical support, and miscellaneous
In a sample of 13 research universities, the HHS Inspector
General found that faculty administration (and the associated
salaries) tends primarily to benefit instruction and not
federally sponsored research -- and recommended that no
allowance be made for, such salaries. The HHS Inspector General
also found that clerical support which ought properly to be
allocated to instruction and other institutional activities is
being charged to federally sponsored research -- and recommended
that a fixed allowance be established for such support
activities. In the view of the HHS Inspector General, (MB
Circular A-21 lacks clear criteria for allocation of departmental
administration overhead to federally sponsored research,
particularly with respect to the allocation guidelines for
faculty salaries.
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-- Office of Science and Technology Policy The Office of Science
18
and Technology recommended last fall that a single fixed rate for
all allocated administrative overhead, based on a five year
average, be phased in over two years. In addition to restoring
the balance between direct Federal research support and overhead
payments, the office of Science and Technology Policy argued that
the plan would eliminate the need for faculty activity reporting
to document university allocations of faculty and department
heads salaries to federally sponsored research.
- Packard-Bromley Panel On May 13, 1986, the White House
Science Council released the report of the Panel on the Health of
U.S. Colleges and Universities. Among its numerous recommenda-
tions, the Panel recommended a fixed, national rate for allocated
administrative overhead. The Panel proposed to phase-in the
national rates over two years. The Panel also proposed: 1)
elimination of faculty reporting to document overhead
allocations, 2) peer review of allocated overhead as well as
direct costs, 3) increases in use allowances for facilities and
equipment, and 4) reductions of Federal administrative burdens.
Proposed Revision of February 12, 1986
Cln February 12, 1986, CMB proposed to phase-in a fixed rate for
administrative allocated overhead to: first, reduce the
controversy among researchers, their institutions, and Federal
funding and auditing agencies and, second, restore an
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appropriate balance between direct Federal research support and
overhead payments. This proposal followed up on Congress'
.directive to address the growth of overhead payments, and was
based on recommendations of the General Accounting Office, the
HITS Inspector General, and the Office of Science and Technology
Policy to set a fixed rate for a subset of the overhead
categories. The proposal also adopted the HITS Inspector General's
specific recommendation to reduce administrative overhead rates
from the current national average.
Comments on the February 12th Proposal
Over 300 comments were received in response to the February 12th
publication. The major comments were:
Comment: Due to organizational differences, some universities
charge clerical support as allocated overhead while others charge
it as a direct cost. The February 12th proposed revision would
impact more heavily on universities which charge clerical support
as allocated overhead.
Response: We agree. In light of these legitimate organizational
differences, a more selective approach is preferable to the
February 12th proposal. We have accordingly focused the fixed
allowance on salaries of faculty and department heads. This will
avoid disruption to the organizational arrangements of
universities and will not restrict the allocation of clerical
support costs.
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Comment: Set payments for faculty administrative efforts at a
fixed percentage of faculty salaries.
Response: We agree conceptually with this approach. The revision
applies this concept against the base of modified total direct
costs of federally sponsored research.
Comment: Focus the revision on departmental administration,
excluding non-controversial administrative overhead from the
fixed rate.
Response: We agree.
Comment: Allocated overhead as well as direct costs should be
reviewed during scientific peer review of funding applications.
Response: We agree.
Comment: Universities should be permitted to charge more of
allocated overhead as direct costs.
Response: We agree. Charging more of existing allocated overhead
as direct costs would subject these charges to proper scientific
peer review and improve the allocation and management of scarce
research funds. ,
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Comment: Federal administrative burdens, such as effort
reporting, application requirements, and funding controls should
be reduced to a minimum.
Response: We agree. The three percent fixed allowance for
research administration by faculty and department heads will
result in the elimination of Federal requirements for faculty
reporting to document overhead allocations. CI4B encourages the
research community to identify areas where federally-imposed
administrative burdens could be reduced. In addition, CMB will
conduct a thorough review of all paperwork requirements
associated with Circular A-21.
Comment: Universities would not have time to adjust to reduced
payments for allocated overhead.
Response: We agree that the February 12th notice did not clearly
indicate that the fixed rate would be phased-in gradually by
being applied to only new grants. We have corrected this, and
believe most universities are able to adjust to the revision.
Those facing a severe hardship will, under the current notice, be
able to apply for a waiver.
Comment: Freeze overhead payment rates at 90 percent of current
rates for one year rather than changing A-21.
Response: An arbitrary reduction would affect all universities
regardless of their current overhead payment rate, and would run
counter to specific Congressional guidance. In addition, a rate
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freeze would not permit the elimination of Federal requirements
for faculty reporting to document overhead allocations.
Oomments OMB proposed the revision without consulting the
affected parties.
tenses The February 12th proposal was published to initiate
the consultation process. We believe that consultation is best
achieved when all affected parties have a specific proposal to
discuss and analyze, thus permitting the presentation of
alternatives. We believe in fostering the university-government
partnership by opening the debate on issues to all affected
parties. Since the February 12th proposal, we have heard from
and consulted with numerous affected parties.
Comment: The proposal, departs from the White House Science
Council report.
Response: The report, released in early May, is currently being
reviewed by the Executive Branch. Based on a preliminary review,
we believe that the report's recommendations regarding overhead
deserve considerable attention. We believe the 3 percent fixed
allowance is consistent with the report's recommendations. We
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note that the formal requirement for cost sharing has already
been eliminated. Further, we note that the Department of Health
and Human Services` (IIRS) intends to adopt the National Science
Fbuidation's practices for the award and payment of overhead
allocated by universities to federally sponsored research. HHS
also intends to institute peer review of allocated overhead
associated with proposed grant budgets. Together, these .
initiatives will respond to a significant number of the report's
recommendations.
Comments Circular A-21 should be revised to change the use
allowances for buildings and equipment.
Responses While use allowances are beyond the scope of the
February 12, 1986 notice, we will consider any proposals advanced
as part of future discussions on improving the administration of
research. Until a further revision of Circular A-21,
institutions may find it profitable to use the current A-21
provisions which allow depreciation of facilities.
Revision of Circular A-21
We continue to share Congress' concern that the growth of
allocated overhead threatens the continued productivity of the
Federal/university research partnership.
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Consistent with the reports of the General Accounting Office, the
HHS Inspector General, and the Office of Science and Technology
Policy, we believe that Circular A-21 should be revised to reduce
the controversy among scientists, their institutions, and the
various Federal funding and auditing agencies. In addition, the
revision should restore an appropriate balance between direct
Federal research spending and overhead payments.
Responding to the numerous thoughtful insights of commenters, a
fixed 3 percent allowance for the research administration efforts
of faculty and department heads is established, effective July 1,
1987. The revision will greatly reduce the current friction among
researchers, universities, and Federal funding and auditing
agencies. The allowance focuses on the area of greatest concern,
salaries of department heads and faculty in departmental
administration, but adopts the thrust of numerous suggestions
that the revision recognize the organizational diversity of
educational institutions.
Overhead payments for salaries of faculty and department heads
will be calculated as 3 percent of modified total direct costs.
University indirect cost rates will be the sum of the rate
negotiated for departmental administration, the negotiated rates
for the remaining six pools, plus the 3 percent fixed allowance.
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Faculty reporting `wi 11 not be required to support the 3 percent
Implementation
The revision is effective July 1, 1987. Individual Federal
agencies may implement the revision on publication.
Billing code 3110-01-M
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