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The Office of Management and Budget recently published its final consolidated guidance on grant reforms. The "Super Circular" streamlines requirements, supersedes eight existing OMB Circulars, and concludes a two-year effort by OMB and the Council on Financial Assistance Reform (COFAR).

This article, the third in a four-part series, focuses on the significant reforms to the cost principles (formerly circulars A-21, A-87, and A-122) in Subpart E of the uniform guidance. The first article provided an overview of the new uniform guidance, and the second covered administrative requirements. A future article will explain audit requirements.

Dual Role of Students

In the recently published guidance, OMB notes that the dual role of students-as both trainees and employees contributing to the completion of federal awards for research-must be recognized in the application of the cost principles.

Direct Costs

The final guidance more clearly allows administrative costs to be charged directly when they are specifically allocated to one award, if the entity has prior approval from the awarding agency. To allow for flexibility in implementation, this approval may be obtained after the initial budget approval.

Administrative and clerical staff salaries are normally treated as indirect costs. Direct charging of these costs may be appropriate if all of the following conditions are met:

  1. The services are integral to a project or activity.
  2. Individuals involved can be specifically identified with the project or activity.
  3. Such costs are explicitly included in the budget (or have prior written approval of the awarding agency).
  4. The costs are not also recovered as indirect costs.

Indirect Costs Rates

Institutions have complained in the past about agencies refusing to accept their indirect cost rates for some types of awards, instead imposing an arbitrary lower rate. Under the new guidance, federal agencies must accept a negotiated indirect cost rate unless a statute or regulation requires an exception or if the head of the agency approves it based on publicly documented justification.

For the first time, the uniform guidance provides that nonfederal entities which have never had a negotiated indirect cost rate may use a de minimis rate of 10 percent of modified total direct costs. In addition, entities with an approved federally negotiated indirect cost rate can now apply for a one-time extension without further negotiation, subject to the approval of the federal agency. The extension can last up to four years.


The final guidance provides alternatives to the current reporting requirements for salaries and wages to prevent duplicating effort where entities have good internal controls. Auditors must test these internal controls.

Additionally, federal agencies can approve alternative accounting methods for salaries and wages based on the achievement of performance outcomes. This includes areas that blend funding from multiple programs to achieve a more efficient combined outcome.

Idle Facilities

The costs of idle facilities are generally unallowable. The final guidance allows for these costs only when they are necessary to meet fluctuations in workload or if they were necessary when acquired and are now idle because of changes in program requirements, efforts to achieve more economical operations, reorganization, termination, or other causes which could not have been foreseen.

Cost Accounting Standards and Disclosure Statement

Currently, when institutions' awards total $25 million or more, they must comply with the Federal Acquisition Regulation (FAR) Cost Accounting Standards (CAS) and file a disclosure statement. OMB sees these requirements as crucial in mitigating waste, fraud, and abuse. Understanding that the burden on higher education institutions likely occurs when the institution crosses the threshold for the first time, OMB has set the new threshold at $50 million, consistent with FAR requirements.

Materials and Supplies

Generally, materials and supplies used for the performance of a federal award may be charged as direct costs. Under the new guidance, in the specific case of computing devices, charging as direct costs is allowable for devices that are essential and allocable, but not solely dedicated, to the performance of a federal award.

Along those same lines, the definition of "supplies" in the final guidance clarifies that computing devices will be classified as supplies if the acquisition cost is less than the lesser of the capitalization level established by the institution for financial statement purposes or $5,000, regardless of the length of the device's useful life.

Utility Cost Adjustment

All higher education institutions will be able to avail themselves of provisions-previously available to only a few institutions-that allow for the recovery of utility costs associated with research. The adjustment can be up to 1.3 percent. Where space is devoted to a single function and metering allows for unambiguous measurement of usage, costs must be assigned to the function located in that particular space.

If the space is allocated to different functions with no way to accurately meter usage, OMB provides a method to calculate the cost. Utility costs should be assigned like depreciation, "based on the calculated difference between the site or building actual square footage for monitored research laboratory space" and a separate calculation prepared by the institution using "effective square footage"-the actual square footage multiplied by the relative energy utilization index posted on OMB's website.


COFAR offered online training sessions on the Administrative Requirements, Cost Principles, and Audit Requirements on January 27. Archived video of the sessions are available on COFAR's website.



Bryan Dickson

Director, Student Financial Services and Educational Programs


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