OFFICE OF MANAGEMENT AND BUDGET
Cost Principles for Educational Institutions
AGENCY: Office of Management and Budget.
ACTION: Final Revision and interim final revision of OMB Circular A-21, "Cost Principles for
SUMMARY: The Office of Management and Budget revises Circular A-21, "Cost Principles for
Educational Institutions," by: (1) establishing review and documentation requirements to assure
the reasonableness of large research facility costs, (2) implementing a new alternative approach to
replace using special cost studies for the recovery of utility costs and deferring the elimination of
special cost studies for the recovery of library costs, (3) providing additional guidance on the
calculation of depreciation and use allowances on buildings and equipment, and (4) changing the
distribution basis for the facilities and administrative cost application (from salaries and wages to
modified total direct costs) at universities that use the simplified (short-form) method to calculate
their facilities and administrative rate.
In addition, OMB is issuing an interim final revision to allow trustees' travel expenses.
DATES: The revision and the interim final revision are effective on June 1, 1998. Comments on
the interim final revision must be received by July 1, 1998.
ADDRESSES: Comments should be mailed to Gilbert Tran, Financial Standards and Reporting
Branch, Office of Federal Financial Management, Office of Management and Budget, 725 17th
Street, N.W., Room 6025, Washington, DC 20503. Comments up to three pages in length may be
submitted via facsimile to 202-395-4915. Electronic mail comments may be submitted via
Internet to TRAN_H@A1.EOP.GOV. Please include the full body of electronic mail comments
in the text and not as an attachment. Please include the name, title, organization, postal address,
and E-mail address in the text of the message.
FOR FURTHER INFORMATION CONTACT: Non-Federal organizations should contact the
organization's cognizant Federal agency. Federal agencies should contact Gilbert Tran, Financial
Standards and Reporting Branch, Office of Federal Financial Management, Office of Management
and Budget, (202) 395-3993.
A. Purpose of Circular A-21
Office of Management and Budget (OMB) Circular A-21, "Cost Principles for Educational
Institutions," establishes principles for determining costs applicable to Federal grants, contracts,
and other sponsored agreements with educational institutions.
B. Recent Prior Revisions
On February 6, 1995, OMB published two sets of proposed revisions (60 FR 7104 and 60 FR
7105): one for immediate consideration and the other for future consideration. The first set of
proposed revisions was finalized on May 8, 1996 (61 FR 20880) with the following revisions.
C. Current Revisions
On September 10, 1997, OMB proposed the second set of revisions (62 FR 47722) to complete
OMB's intention expressed in February 1995. The proposal included the following:
Circular A-21 is revised to:
1. Establish a review process to ensure the reasonableness of facility costs. To increase
accountability in the research component of F&A costs and ensure that the cost of new research
facilities passes a "prudent person" test of reasonableness, OMB establishes a review and
documentation process for large research facilities. Large facilities are defined as buildings
costing more than $10 million. The new provisions apply to large research facilities that are
included in F&A rate proposals negotiated after January 1, 2000, with design and construction
beginning after July 1, 1998. The revision, which is detailed in a new Section F.2.c, "Large
research facilities," is based on a university proposal and implements the following requirements:
2. Implement an alternative approach for the payment of utility costs and defer the
elimination of special cost studies for the recovery of library costs. For the fiscal year
beginning on or after July 1, 1998, institutions that have included special cost studies in their most
recently submitted F&A proposal (listed in Exhibit B) may, instead, add a utility cost adjustment
(UCA) of 1.3 percentage points to the university's overall F&A organized research rate calculated
using the standard Circular A-21 allocation methods.
As explained below, the 1.3 percentage points represent the weighted average incremental rate
that the Federal Government paid above the rate calculated using the standard allocation
methodology to the 50 institutions that previously submitted special utility studies for utility costs
related to research activities. OMB will periodically reassess the UCA.
OMB will also develop criteria and publish them in a Federal Register notice by which the
institutions may be periodically recertified and by which other institutions could qualify for the
UCA by July 1, 2002 and may change the UCA percentage point.
Further, OMB revises the Circular to allow special studies for library costs. Due to the uncertain effects of recent and ongoing changes to university libraries and their services brought about by the increased use of the Internet and on-line research, OMB defers the elimination of special cost studies to support the allocation of library costs until OMB has an opportunity to evaluate the impact of these changes on the costs of library services benefitting organized research.
3. Provide additional guidelines on depreciation and use allowances.
To provide more consistency in the treatment of use allowances and depreciation among
educational institutions and Federal cognizant agencies, the Circular is revised as follows:
(a) Limit use allowance recovery to the acquisition costs of assets, or fair market value of donated
assets at the time of donation (see subsection J.12.c).
(b) Require institutions that report depreciation on their financial statements to use the same
depreciation method and useful lives for the F&A proposals (see subsection J.12.b).
(c) Establish guidelines for the calculation of depreciation on buildings when depreciation is
calculated on individual building components (see subsection J.12.b). This revision establishes
general categories of building components.
(d) Require institutions that record depreciation in their financial statements to record gains and
losses on the disposition of depreciable assets (see section J.33).
4. Change the distribution basis for F&A application (from salaries and wages to modified
total direct costs) for institutions that use the simplified allocation method. This change,
detailed in Section H.3, provides more comparability of F&A rates between small and large
5. Allow trustees' travel expenses. This change is issued as an interim final revision and is made
to provide consistency with recent revisions to Circular A-122, "Cost Principles for Non-Profit
Organizations." OMB requests comments on this change.
Circular A-21, as amended by this revision, consists of the Circular published in 1979 (44 FR
12368; February 26, 1979), as amended in 1982 (47 FR 33658; July 23, 1982), in 1986 (51 FR
20908; June 9, 1986), in 1986 (51 FR 43487; December 2, 1986), in 1991 (56 FR 50224;
October 1, 1991), in 1993 (58 FR 39996), in 1996 (61 FR 20880; May 8, 1996), and in this
notice. The 1996 amendment included a recompilation of the Circular up to that date (61 FR
20893). A recompilation of the entire Circular with all its amendments, including this amendment,
is available in electronic form on the OMB Home Page at
D. Comments and Responses
OMB received about 130 comments from universities, Federal agencies, professional
organizations, and accounting and law firms. The comments received and OMB's responses are
summarized below. Several comments resulted in modifications to OMB's original proposal.
Comment: The commenters strongly opposed the proposal to establish benchmark rates for
facility costs, citing the following reasons: (1) benchmarks are unnecessary given that there is no
evidence of abuse and universities already have rigid internal review and approval processes to
assure reasonable construction costs; (2) benchmarks would compromise scientific excellence by
discouraging universities' investment in modern facilities; (3) negotiators are not qualified to
review justifications of facilities costs; and (4) the proposed NSF data are not suitable for
establishing benchmark rates.
Some universities proposed a less rigid approach that relies on university cost management procedures to control the research facility costs.
Response: The objective of the proposed review process based on benchmark rates was to
improve accountability by requiring and reviewing construction cost justifications of buildings
costing more than 125 percent above the calculated average regional median. However, OMB
recognizes that there may exist review and approval systems at universities to assure that
construction costs are reasonable. Therefore, in accordance with the universities' suggestion, the
Circular is revised to implement an approach that relies more on a university's internal review
process for facility costs rather than established benchmarks. The approach requires a review of
universities' internal cost management procedures, combined with additional documentation for
large research facilities that are substantially allocated to Federal programs.
Comment: The review of any internal control system for costs charged against Federal programs
should be included as part of the annual audit of Federal programs required by Circular A-133.
Response: OMB agrees. The review of the university's internal control and approval process for
construction costs, which are indirectly charged to Federal programs through depreciation/use
allowance costs, is included as part of the annual university A-133 audit. The review procedures
will be included in the A-133 Compliance Supplement.
Comment: The National Science Foundation (NSF)survey data for research construction costs
are inadequate for establishing benchmark rates. The data does not identify costs by project and
produces an average rate based on the total of all construction projects, regardless of size. Some
commenters added that benchmark rates should be based only on construction cost data for large
projects at research-intensive schools, since these buildings tend to cost more.
Response: OMB has requested NSF to conduct a follow-up survey that would identify costs by
project, and accumulate data for projects costing more than $10 million. For the revised review
process in section F.2.c, universities shall include these NSF construction cost data for
comparison purposes in their analysis of large research facilities costs.
Comment: One of the criteria that triggers a review for construction costs is that a building is
substantially allocated to Federal programs. Does this criteria apply only when the building is
initially put in service or during the life of the building?
Response: The criteria for Federal participation (use) percentage are based on university's estimation of the building use for its entire life. Therefore, when a university estimates during the planning phase that the space of a particular research building will be substantially allocated to Federal programs during its life (thus, the Federal government will fund a substantial part of the building costs), then the university must comply with requirements of section F.2.c. The Federal cognizant agencies will monitor the actual Federal participation percentage in the building usage versus the universities' estimation, so that OMB may evaluate whether further revisions to the review requirements would be appropriate.
Comment: The review process for facility costs should exclude reconstruction and renovation
projects because of the diverse nature of these projects, and therefore their costs. In addition, the
total costs of these projects are usually not material.
Response: OMB agrees. Reconstruction and renovation projects are not subject to the
requirements of section F.2.c.
Comment: The criteria for construction projects subject to benchmark review should be increased
to $25 million in construction costs and 50 percent of space allocated to Federal programs
(instead of the proposed $10 million and 40 percent Federal participation).
Response: The revised requirements consist of two sets of criteria. The first one (buildings
costing more than $10 million and 40 percent Federal participation) triggers the requirement for
an internal review and approval system for facility construction costs at the institution. As
suggested by some, the second set of criteria (buildings costing more than $25 million and 50
percent Federal participation) triggers the documentation requirement for that particular building.
Comment: The NSF construction data, which are required to be used as comparison data in
section F.2.c, should be made available publicly and published as a separate schedule, as an
attachment to A-21, or as part of the NSF biennial report.
Response: OMB agrees. NSF data will be available publicly because this data must be used by
institutions in the comparative analysis for buildings costing more than $25 million. NSF will
publish this data as part of their biennial report on research facilities.
Comment: Do the provisions in section F.2.c apply to buildings on which the design and
construction begins prior to July 1, 1998 (and the buildings are not completed until fiscal year
Response: OMB generally does not apply new provisions retroactively. Therefore, the new
provisions in section F.2.c apply only to construction projects, on which the design and planning
begins after July 1, 1998, and whose costs are included in the F&A rate proposals negotiated after
January 1, 2000. The design and planning of a particular building start when the architectural
design of the building is first presented to the institution's board of trustees for consideration.
Utility cost adjustment
Comment: Some commenters suggested an increase in the utility cost adjustment (UCA) from
1.3 percent to 1.7 percent based on the weighted average of negotiated UCA at 11 major research
Response: The UCA remains at 1.3 percent at this time. The 1.3 percent UCA is the weighted
average for 50 universities that have performed special utility cost studies, as OMB identified at
proposal time. Since the proposal was published, an additional 16 universities have been
identified to be eligible for the UCA because of their previous submission of the special cost
studies. The revised weighted average UCA for the 66 schools dropped subsequently to 1.2
percent. Instead of reducing the UCA to 1.2 percent, OMB will finalize the UCA at 1.3 percent.
Comment: The UCA should be allowable to all schools regardless of whether they have
previously performed a special utility cost study, since it is evident that research space require
more utility costs than other types of space.
Response: OMB allows the universities to conduct special cost studies to support the utility
consumption for research activities under section E.2.d of the Circular. As a result, 66
universities performed the special studies that support the allocation of utility costs to their
research activities. OMB does not believe it is appropriate to grant the UCA at this time to
universities that have not demonstrated the heavier utility consumption for their research
activities. In addition, utility consumption varies greatly depending on the types of research
space. For certain types of research space (e.g., computer laboratory, agricultural research barn,
dry laboratory, and math laboratory), the standard allocation method (based on square foot)
generally provides the best allocation of utility costs to benefitting activities. However, OMB will
develop criteria by fiscal year 2002 for these universities to become certified for the UCA.
Comment: The UCA number needs to be connected with future actual utility costs because utility
costs can increase astronomically in the future.
Response: OMB will periodically reassess the UCA number. OMB plans to reevaluate the UCA
in fiscal year 2002 with the assistance from Federal agencies and the universities.
Comment: How is the UCA applied? On a building by building basis or on the total F&A rate?
Response: The UCA is added to the university's overall F&A rate that is computed using the
standard allocation method. For example, a university computes its total F&A rate of 50 percent
(using the square feet basis to allocate its utility costs); the F&A adjusted rate with the UCA
would be 51.3 percent.
Depreciation and use allowance
Comment: Can a state university, that is not required to record depreciation for financial
statements under generally accepted accounting principles (GAAP), use depreciation for its F&A
Response: A state university, which is not currently required under GAAP to record depreciation
on its assets, can either use depreciation or use allowance for its F&A proposal. When the
depreciation method is selected, the university must comply with the existing provisions in section
J.12.b of the Circular to calculate depreciation costs.
Comment: The revision requires that the same depreciation method be used for financial
statements and for a F&A proposal. Can a Federal negotiator question the useful life of an asset
when that useful life is used for financial statements?
Response: The Federal negotiator can always question the reasonableness of a particular asset's
useful life as part of the F&A proposal review. However, with this revision, the Federal
negotiator should address his/her concerns to the institution's external auditors, who are
responsible for certifying the adequacy of the institution's financial statements (including the asset
depreciation methods). For public universities that do not currently record depreciation on their
financial statements, but use depreciation methods on their F&A proposals, the Federal negotiator
can address his/her concerns to the institution's management and make any necessary adjustments
on the F&A proposal.
Comment: The revision suggests the grouping of building components for depreciation purposes
into three general groups: building shell, building services systems, and fixed equipment. Can a
university have more than three general groups with the authorization from the Federal cognizant
Response: OMB believes that the three general groups are sufficient for grouping building components for depreciation. If, in an exceptional cases, a university believes it should have more than the three general groups for building components, the university may so proceed if it receives authorization from the Federal cognizant agency to do so. Such an exception should rarely be authorized, if ever. The use of the three general groups standardizes the "componentization" process, eases the review of depreciation, and allows better data collection on depreciation costs.
Comment: Can each component within a major building group have a separate useful life?
Response: Each component within a general building group can have a separate useful life that
takes into consideration such factors as: type of construction, nature of equipment, technological
developments in the particular area, and the renewal and replacement policies for the assets.
When a general component group has more than one useful life for its components, a composite
useful life for the entire group must be calculated.
Comment: The commenters, particularly the public universities, opposed a requirement to limit
(i.e., cap) the use allowance recovery on assets to the acquisition costs. They argued that (1) the
requirement is contrary to current policy regarding use allowance;(2) the over-recovery of use
allowance on those assets that have surpassed their useful life is balanced by the under-recovery
of assets that are disposed of earlier than their useful life; and (3) the new limitation will lead
universities to convert to depreciation, which is costly, will add accounting burden, and will
increase the F&A rate.
Response: OMB disagrees. To allow use allowance for assets in excess of the assets' acquisition
costs can result in over-recovery of costs by the universities, particularly when the universities can
select either the depreciation or use allowance methods for a particular class of assets. In many
instances, universities use both the depreciation and use allowance methods for different classes of
assets: often using use allowance for long-lasting assets such as buildings and laboratory benches,
while using depreciation for shorter-life assets such as computers. In these instances, the
under-recovery and over-recovery of asset costs do not balance each other out, but rather the
result is an over-recovery of costs against Federal programs.
Under special circumstances, when a university uses the use allowance method for all its assets,
current section J.12.c.(3) allows the university to claim use allowance recovery in excess of
acquisition costs for certain assets, with approval from Federal cognizant agencies.
This issue may soon become moot when the public universities are required, by the Governmental
Accounting Standards Board (GASB), to record depreciation for financial statements(at this time,
this requirement is projected to be effective for fiscal year 2001).
Comment: The conversion to depreciation for old buildings is extremely difficult, if not
impossible, because of the lack of records for older capital improvement projects. The
commenters suggest that capital improvement projects be excluded from the limitations of use
Response: For older capital improvement projects, for which records are unavailable, the
university and the Federal cognizant agency may negotiate a reasonable use allowance amount as
long as the buildings are still in use for the benefit of Federal programs.
Comment: The provision on gains and losses on the sale, retirement, or other disposition of
depreciable property should not apply to public universities, which are not required to depreciate
under GAAP, and therefore, do not maintain depreciation records.
Response: OMB agrees. Section J.33.a (d) provides an exemption for institutions that claim use
allowance in lieu of depreciation for the recovery of their asset costs.
Distribution basis for "short-form" universities
Comment: The use of the modified total direct costs (MTDC) basis should be an option rather
than a requirement for the simplified allocation method since the determination of a MTDC basis
can be much more complicated than the salaries and wages basis. In some cases, universities have
to make major accounting system changes to accommodate this requirement.
Response: OMB agrees. OMB encourages universities to use the MTDC as the distribution basis
for the simplified allocation method, as it would improve the consistency of F&A rate reporting
among small and large universities. However, because of the possible difficulties for some
universities to calculate the MTDC amount, the revision allows the universities to use either the
MTDC or salaries and wages as distribution basis.
Definition of "major projects"
Comment: In July 1994, OMB issued a memorandum to the Federal agencies to clarify its policy
on administrative costs for "major project", referred in subsection F.6.b, "Departmental
administration expenses." OMB should add this clarification to the Circular to provide consistent
definition and treatment of the administrative costs related to "major project."
Response: OMB agrees. The OMB memorandum to the Federal agencies (dated July 13, 1994)
provided guidance on defining the circumstances under which administrative and clerical salaries
may be charged directly to Federal sponsored agreements. The definition of "major project", as
provided in OMB's memorandum, is added to section F.6.b. A sample of examples is listed as
new exhibit C.
E. Other Items
Develop a standard format for the submission of F&A proposals
OMB proposed in September 1997 to develop a standard format for the submission of F&A
proposals, that would assist universities in completing their F&A rate proposals more efficiently
and help the Federal cognizant agency review each proposal on a more consistent basis. OMB,
with assistance from Federal agencies and universities, is in the process of developing this
standard format. When completed, OMB will request comments under the Paperwork Reduction
Act through a separate Federal Register notice. The standard format will be included as an
Appendix to the Circular and be available electronically.
Interim Final Revision - Trustees' travel expenses
OMB is making an interim final revision to allow trustees' travel expenses at educational
institutions under the administrative cost component of the F&A rate. The revision is made to
provide consistency with recent revisions to Circular A-122, "Cost Principles for Non-Profit
Organizations," which retained the allowability of trustees' travel expenses.
OMB recently issued final revisions to Circular A-122 to provide consistency across all cost circulars. Based on the comments received from non-profit grantees regarding the proposed disallowance of trustees' travel expenses, OMB determined that trustees' travel expenses are reasonable and necessary business expenses for the operations of non-profit organizations and should remain allowable. In considering this issue for A-122, OMB also decided that trustees' travel expenses are reasonable and necessary for universities. In October 1991, trustee travel was made unallowable in Circular A-21, along with a number of other cost categories (e.g., alcohol and advertising costs). This interim final rule reflects the view that trustee travel, unlike the other unallowable costs, is a reasonable cost of business, and should be allowed. Accordingly, OMB is revising Circular A-21 to allow trustees' travel expenses (see revised section 50). OMB requests comments on this change.
Franklin D. Raines
Circular A-21 is revised as follows:
1. Replace subsection E.2.d.(5) with the following:
(5) Notwithstanding subsection (3), effective July 1, 1998, a cost analysis or base other than that
in Section F shall not be used to distribute utility or student services costs. Instead, subsections
F.4.c and F.4.d may be used in the recovery of utility costs.
2. Add new subsection F.2.c:
c. Large research facilities. The following provisions apply to large research facilities, that are
included in F&A rate proposals negotiated after January 1, 2000, and on which the design and
construction begin after July 1, 1998. Large facilities, for this provision, are defined as buildings
with construction costs of more than $10 million. The determination of the Federal participation
(use) percentage in a building is based on institution's estimates of building use over its life, and is
made during the planning phase for the building.
(1) When an institution has a large research facilities, of which 40 percent or more of total
assignable space is expected for Federal use, the institution must maintain an adequate review and
approval process to ensure that construction costs are reasonable. The review process shall
address and document relevant factors affecting construction costs, such as:
- Life cycle costs
The approval process shall include review and approval of the projects by the institution's Board
of Trustees (which can also be called Board of Directors, Governors or Regents) or other
(2) For research facilities costing more than $25 million, of which 50 percent or more of total
assignable space is expected for Federal use, the institution must document the review steps
performed to assure that construction costs are reasonable. The review should include an analysis
of construction costs and a comparison of these costs with relevant construction data, including
the National Science Foundation data for research facilities based on its biennial survey, "Science
and Engineering Facilities at Colleges and Universities." The documentation must be made
available for review by Federal negotiators, when requested.
3. Add new subsections F.4.c and F.4.d:
c. For F&A rates negotiated on or after July 1, 1998, an institution that previously employed a
utility special cost study in its most recently negotiated F&A rate proposal in accordance with
Section E.2.d, may add a utility cost adjustment (UCA) of 1.3 percentage points to its negotiated
overall F&A rate for organized research. Exhibit B displays the list of eligible institutions. The
allocation of utility costs to the benefitting functions shall otherwise be made in the same manner
as described in subsection F.4.b. Beginning on July 1, 2002, Federal agencies shall reassess
periodically the eligibility of institutions to receive the UCA.
d. Beginning on July 1, 2002, Federal agencies may receive applications for utilization of the
UCA from institutions not subject to the provisions of subsection F.4.c.
4. Replace subsection F.6.b with the following:
b. The following guidelines apply to the determination of departmental administrative costs as
direct or F&A costs.
(1) In developing the departmental administration cost pool, special care should be exercised to
ensure that costs incurred for the same purpose in like circumstances are treated consistently as
either direct or F&A costs. For example, salaries of technical staff, laboratory supplies (e.g.,
chemicals), telephone toll charges, animals, animal care costs, computer costs, travel costs, and
specialized shop costs shall be treated as direct cost wherever identifiable to a particular cost
objective. Direct charging of these costs may be accomplished through specific identification of
individual costs to benefiting cost objectives, or through recharge centers or specialized service
facilities, as appropriate under the circumstances.
(2) The salaries of administrative and clerical staff should normally be treated as F&A costs.
Direct charging of these costs may be appropriate where a major project or activity explicitly
budgets for administrative or clerical services and individuals involved can be specifically
identified with the project or activity. "Major project" is defined as a project that requires an
extensive amount of administrative or clerical support, which is significantly greater than the
routine level of such services provided by academic departments. Some examples of major
projects are described in Exhibit C.
(3) Items such as office supplies, postage, local telephone costs, and memberships shall normally
be treated as F&A costs.
5. Replace subsection H.1.a with the following:
a. Where the total direct cost of work covered by Circular A-21 at an institution does not exceed
$10 million in a fiscal year, the use of the simplified procedure described in subsections 2 or 3,
may be used in determining allowable F&A costs. Under this simplified procedure, the
institution's most recent annual financial report and immediately available supporting information
shall be utilized as basis for determining the F&A cost rate applicable to all sponsored agreements.
The institution may use either the salaries and wages (see subsection 2) or modified total direct
costs (see subsection 3) as distribution basis.
6. Change the title for subsection H.2. to "Simplified Procedure - Salaries and wages base."
7. Add a new subsection H.3.
3. Simplified procedure - Modified total direct cost base.
a. Establish the total costs incurred by the institution for the base period.
b. Establish a F&A cost pool consisting of the expenditures (exclusive of capital items and other
costs specifically identified as unallowable) which customarily are classified under the following
titles or their equivalents:
(1) General administration and general expenses (exclusive of costs of student administration and
services, student activities, student aid, and scholarships).
(2) Operation and maintenance of physical plant; and depreciation and use allowances; after
appropriate adjustment for costs applicable to other institutional activities.
(4) Department administration expenses, which will be computed as 20 percent of the salaries and
expenses of deans and heads of departments.
In those cases where expenditures classified under subsection (1) have previously been allocated
to other institutional activities, they may be included in the F&A cost pool. The modified total
direct costs amount included in the F&A cost pool must be separately identified.
c. Establish a modified total direct cost distribution base, as defined in Section G.2, that consists
of all institution's direct functions.
d. Establish the F&A cost rate, determined by dividing the amount in the F&A cost pool,
subsection b, by the amount of the distribution base, subsection c.
e. Apply the F&A cost rate to the modified total direct costs for individual agreements to
determine the amount of F&A costs allocable to such agreements.
8. Replace subsection J.12.b.(2) with the following:
(2) The depreciation method used to charge the cost of an asset (or group of assets) to
accounting periods shall reflect the pattern of consumption of the asset during its useful life. In
the absence of clear evidence indicating that the expected consumption of the asset will be
significantly greater in the early portions than in the later portions of its useful life, the
straight-line method shall be presumed to be the appropriate method. Depreciation methods once
used shall not be changed unless approved in advance by the cognizant Federal agency. The
depreciation methods used to calculate the depreciation amounts for F&A rate purposes shall be
the same methods used by the institution for its financial statements. This requirement does not
apply to institutions (e.g., public institutions) which are not required to record depreciation by
applicable generally accepted accounting principles (GAAP).
9. Replace subsection J.12.b.(4) with the following:
(4) The entire building, including the shell and all components, may be treated as a single asset
and depreciated over a single useful life. A building may also be divided into multiple
components. Each component item may then be depreciated over its estimated useful life. The
building components shall be grouped into three general components of a building: building shell
(including construction and design costs), building services systems (e.g., elevators, HVAC,
plumbing system and heating and air-conditioning system) and fixed equipment (e.g., sterilizers,
casework, fumehoods, cold rooms and glassware/washers). In exceptional cases, a Federal
cognizant agency may authorize an institution to use more than these three groupings. When an
institution elects to depreciate its buildings by its components, the same depreciation methods
must be used for F&A purposes and financial statements purposes, as described in subsection (2).
10. Replace subsection J.12.c.(1) with the following:
(1) The use allowance for buildings and improvements (including improvements such as paved
parking areas, fences, and sidewalks) shall be computed at an annual rate not exceeding two
percent of acquisition cost. The use allowance for equipment shall be computed at an annual rate
not exceeding six and two-thirds percent of acquisition cost. Use allowance recovery is limited to
the acquisition cost of the assets. For donated assets, use allowance is limited to the fair market
value of the assets at the time of donation.
11. Replace section J.33 with the following:
33. Profits and losses on disposition of plant equipment or other capital assets.
a. (1) Gains and losses on the sale, retirement, or other disposition of depreciable property shall
be included in the year in which they occur as credits or charges to the asset cost grouping(s) in
which the property was included. The amount of the gain or loss to be included as a credit or
charge to the appropriate asset cost grouping(s) shall be the difference between the amount
realized on the property and the undepreciated basis of the property.
(2) Gains and losses on the disposition of depreciable property shall not be recognized as a
separate credit or charge under the following conditions:
(a) The gain or loss is processed through a depreciation account and is reflected in the
depreciation allowable under Section J.12.
(b) The property is given in exchange as part of the purchase price of a similar item and the gain
or loss is taken into account in determining the depreciation cost basis of the new item.
(c) A loss results from the failure to maintain permissible insurance, except as otherwise provided
in Section J.21.d.
(d) Compensation for the use of the property was provided through use allowances in lieu of
b. Gains or losses of any nature arising from the sale or exchange of property other than the
property covered in subsection a shall be excluded in computing Federal award costs.
c. When assets acquired with Federal funds, in part or wholly, are disposed of, the distribution of
the proceeds shall be made in accordance with Circular A-110, "Uniform Administrative
Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and
Other Non-Profit Organizations."
12. Replace Section 50 with the following:
50. Trustees. Travel and subsistence costs of trustees (or directors) are allowable. The costs are
subject to restrictions regarding lodging, subsistence and air travel costs provided in Section 48.
13. Add Exhibit B - Listing of institutions receiving the UCA and Exhibit C - Examples of "major project" where direct charging of administrative or clerical staff salaries may be appropriate.
Listing of institutions receiving the utility cost adjustment.
1. Baylor University
Examples of "major project" where direct charging of administrative or clerical staff salaries may
These examples are not exhaustive nor are they intended to imply that direct charging of
administrative or clerical salaries would always be appropriate for the situations illustrated in the
examples. For instance, the examples would be appropriate when the costs of such activities are
incurred in unlike circumstances, i.e., the actual activities charged direct are not the same as the
actual activities normally included in the institution's facilities and administrative (F&A)cost pools
or, if the same, the indirect activity costs are immaterial in amount. It would be inappropriate to
charge the cost of such activities directly to specific sponsored agreements if, in similar
circumstances, the costs of performing the same type of activity for other sponsored agreements
were included as allocable costs in the institution's F&A cost pools. Application of negotiated
predetermined F&A cost rates may also be inappropriate if such activity costs charged directly
were not provided for in the allocation base that was used to determine the predetermined F&A
Billing Code 3110-01
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