Chart

A-21 A-87 A-122 Proposed Change







Cost items in all three circulars

1. Advertising and public 2. Advertising and public 1. Advertising and public Advertising and public

relations costs. relations costs. relations costs. relations costs.



All three circulars would

be amended to add

"electronic or computer

transmittals" to the list

of examples of

advertising media.



a. The term advertising a. The term "advertising a. The term advertising a. The term advertising

costs means the costs of costs" means the costs of costs means the costs of costs means the costs of

advertising media and advertising media and advertising media and advertising media and

corollary administrative corollary administrative corollary administrative corollary administrative

costs. costs. costs. costs.



Advertising media include Advertising media include Advertising media include Advertising media include

magazines, newspapers, magazines, newspapers, magazines, newspapers, magazines, newspapers,

radio and television radio and television radio and television radio and television,

programs, direct mail, programs, direct mail, programs, direct mail, direct mail, exhibits,

exhibits, and the like. exhibits, and the like. exhibits, and the like. electronic or computer

transmittals and the

like.



b. The term public b. The term "public b. The term public b. The term public

relations includes relations" includes relations includes relations includes

community relations and community relations and community relations and community relations and

means those activities means those activities means those activities means those activities

dedicated to maintaining dedicated to maintaining dedicated to maintaining dedicated to maintaining

the image of the the image of the the image of the the image of the non-

institution or governmental unit or organization or Federal entity or

maintaining or promoting maintaining or promoting maintaining or promoting maintaining or promoting

understanding and understanding and understanding and understanding and

favorable relations with favorable relations with favorable relations with favorable relations with

the community or public the community or public at the community or public the community or public

at large or any segment large or any segment of at large or any segment at large or any segment

of the public. the public. of the public. of the public.







11

A-21 A-87 A-122 Proposed Change



Circular A-87



The lead-in to paragraph

c. for A-87 would be

revised to conform to the

language in the other two

circulars, to read as

follows:



c. The only allowable c. Advertising costs are c. The only allowable c. The only allowable

advertising costs are allowable only when advertising costs are advertising costs are

those which are solely incurred for those which are solely those which are solely

for: for: for:



All three circulars would

be revised to use

standard language for

recruitment advertising.



(1) The recruitment of the recruitment of (1) The recruitment of (1) The recruitment of

personnel required for personnel, personnel required for personnel required for

the performance by the the performance by the the performance by the

institution of organization of entity of obligations

obligations arising under obligations arising under arising under a Federal

the sponsored agreement, a sponsored award, when award;

when considered in considered in conjunction

conjunction with all with all other

other recruitment costs, recruitment costs, as set

as set forth in Section forth in paragraph 44

J.37; ("Recruiting costs");



All three circulars would

be revised to use the

same standard language.



(2) The procurement of the procurement of goods (2) The procurement of (2) The procurement of

goods and services for and services, goods and services for goods and services for

the performance of the the performance of a the performance of a

sponsored agreement; sponsored award; Federal award;



All three circulars would





12

A-21 A-87 A-122 Proposed Change



be revised to use the

same standard language.



(3) The disposal of the disposal of surplus (3) The disposal of (3) The disposal of

scrap or surplus materials, and any other scrap or surplus scrap or surplus

materials acquired in the specific purposes materials acquired in the materials acquired in

performance of the necessary to meet the performance of a the performance of a

sponsored agreement requirements of the sponsored award except Federal award except

except when institutions Federal award. Advertising when organizations are when entities are

are reimbursed for costs associated with the reimbursed for disposal reimbursed for disposal

disposal costs at a disposal of surplus costs at a predetermined costs at a predetermined

predetermined amount in materials are not amount in accordance with amount; or

accordance with Circular allowable where all OMB Circular A-110,

A-110; or disposal costs are Sec.___.34, "Equipment";

reimbursed based on a or

standard rate as specified

in the grants management

common rule.

The general provision

would be added to A-87,

to read as follows:



(4) Other specific (4) Other specific (4) Other specific

purposes necessary to purposes necessary to purposes necessary to

meet the requirements of meet the requirements of meet the requirements of

the sponsored agreement. the sponsored award. the Federal award.



All three circulars would

be revised to use the

same standard language.



d. The only allowable d. Public relations costs d. The only allowable d. The only allowable

public relations costs are allowable when: public relations costs public relations costs

are: are: are:

(1) Costs specifically

(1) Costs specifically (1) Costs specifically required by the Federal

Specifically required by

required by sponsored required by sponsored award;

the Federal award and then

agreements; awards;

only as a direct cost;

All three circulars

would be revised to use

the same standard



13

A-21 A-87 A-122 Proposed Change



language.

(2) Costs of (2) Incurred to (2) Costs of (2) Costs of

communicating with the communicate with the communicating with the communicating with the

public and press public and press public and press public and press

pertaining to specific pertaining to specific pertaining to specific pertaining to specific

activities or activities or activities or activities or

accomplishments which accomplishments that accomplishments which accomplishments which

result from performance result from performance of result from performance result from performance

of sponsored agreements; the Federal award and then of sponsored awards of Federal awards (these

or only as a direct cost; or (these costs are costs are considered

considered necessary as necessary as part of the

part of the outreach outreach effort for the

effort for the sponsored Federal award); or

awards); or

All three circulars

would be revised to use

the same standard

language.

(3) Costs of conducting (3) Necessary to conduct (3) Costs of conducting (3) Costs of conducting

general liaison with news general liaison with news general liaison with news general liaison with

media and government media and government media and government news media and

public relations public relations officers, public relations government public

officers, to the extent to the extent that such officers, to the extent relations officers, to

that such activities are activities are limited to that such activities are the extent that such

limited to communication communication and liaison limited to communication activities are limited

and liaison necessary to necessary to keep the and liaison necessary to to communication and

keep the public informed public informed on matters keep the public informed liaison necessary to

on matters of public of public concern, such as on matters of public keep the public informed

concern, such as notices notices of Federal concern, such as notices on matters of public

of contract/grant awards, contract/grant awards, of contract/grant awards, concern, such as notices

financial matters, etc. financial matters, etc. financial matters, etc. of Federal

contract/grant awards,

financial matters, etc.

All three circulars would

be revised to use the

same standard language.



e. Costs identified in e. Costs identified in e. Costs identified in

subsections c and d if subparagraphs c and d if subsections c and d if

incurred for more than incurred for more than incurred for more than

one Federal award or for



14

A-21 A-87 A-122 Proposed Change



one sponsored agreement one sponsored award or both sponsored work and

or for both sponsored for both sponsored work other work of the entity,

work and other work of and other work of the are allowable to the

the institution, are organization, are extent that the

allowable to the extent allowable to the extent principles in Sections b.

that the principles in that the principles in ("Direct Costs") and c.

Sections D and E are paragraphs B ("Direct ("Indirect Costs") of

observed. Costs") and C ("Indirect Attachment A are

Costs") of Attachment A observed.

are observed.

All three circulars would

use the same standard

language.

f. Unallowable e. Unallowable f. Unallowable f. Unallowable

advertising and public advertising and public advertising and public advertising and public

relations costs include relations costs include relations costs include relations costs include

the following: the following: the following: the following:

(1) All advertising and

(1) All advertising and (1) All advertising and (1) All advertising and

public relations costs

public relations costs public relations costs public relations costs

other than as specified

other than as specified other than as specified in other than as specified

in [subsections]

in subsections c, d, and subsections c. and d.; in subparagraphs c, d,

[subparagraphs] c, d, and

e; and e;

e;

All three circulars would

be revised to use the

same standard language.



(2) Costs of (2) Except as otherwise (2) Costs of meetings or (2) Costs of meetings,

convocations or other permitted by these cost other events related to conventions,

events related to principles, costs of fund raising or other convocations or other

instruction or other conventions, meetings, or organizational activities events related to other

institutional activities other events related to including: activities of the non-

including: other activities of the Federal entity

governmental unit including:

including:



(i) Costs of displays, (a) Costs of displays, (i) Costs of displays, (a) Costs of displays,

demonstrations, and demonstrations, and demonstrations, and demonstrations, and

exhibits; exhibits; exhibits; exhibits;







15

A-21 A-87 A-122 Proposed Change



(ii) Costs of meeting (b) Costs of meeting (ii) Costs of meeting (b) Costs of meeting

rooms, hospitality rooms, hospitality suites, rooms, hospitality rooms, hospitality

suites, and other special and other special suites, and other special suites, and other

facilities used in facilities used in facilities used in special facilities used

conjunction with shows conjunction with shows and conjunction with shows in conjunction with

and other special events; other special events; and and other special events; shows and other special

and and events; and



(iii) Salaries and wages (c) Salaries and wages of (iii) Salaries and wages (c) Salaries and wages

of employees engaged in employees engaged in of employees or cost of of employees engaged in

setting up and displaying setting up and displaying services engaged in setting up and

exhibits, making exhibits, making setting up and displaying displaying exhibits,

demonstrations, and demonstrations, and exhibits, making making demonstrations,

providing briefings; providing briefings; demonstrations, and and providing briefings;

providing briefings;



(3) Costs of promotional (3) Costs of promotional (3) Costs of promotional (3) Costs of

items and memorabilia, items and memorabilia, items and memorabilia, promotional items and

including models, gifts, including models, gifts, including models, gifts, memorabilia, including

and souvenirs; and souvenirs; and and souvenirs; models, gifts, and

souvenirs;

(4) Costs of advertising (4) Costs of advertising (4) Costs of advertising (4) Costs of

and public relations and public relations and public relations advertising and public

designed solely to designed solely to promote designed solely to relations designed

promote the institution. the governmental unit. promote the organization. solely to promote the

non-Federal entity.

2. Alcoholic beverages. 4. Alcoholic beverages. 2. Alcoholic beverages. 2. Alcoholic beverages.

Costs of alcoholic Costs of alcoholic Costs of alcoholic

beverages are beverages are unallowable. beverages are

unallowable. unallowable.

No Change.



4. Bad debts. 7. Bad debts. 3. Bad debts. Bad debts.



All three circulars would

be revised to use the

same standard language.

The A-87 version would

contain added language

providing an exception



16

A-21 A-87 A-122 Proposed Change



[as set out in brackets],

to read as follows:

Any losses, whether Any losses arising from Bad debts, including Bad debts, including

actual or estimated, uncollectable accounts and losses (whether actual or losses (whether actual or

arising from other claims, and related estimated) arising from estimated) arising from

uncollectable accounts costs, are unallowable uncollectable accounts uncollectable accounts

and other claims, related unless provided for in and other claims, related and other claims, related

collections costs, and Federal program award collection costs, and collection costs, and

related legal costs, are regulations. related legal costs, are related legal costs, are

unallowable. unallowable. unallowable [A-87 only:

unless provided for in

Federal program award

regulations].

7. Communication costs. 10. Communications. 6. Communication costs. Communication costs.

All three circulars would

be revised to use the

same standard language.

A new item has been added

to reflect recent

technological

developments, adding

"electronic or computer

transmittal services" to

all three circulars, to

read as follows:

Costs incurred for Costs of telephone, mail, Costs incurred for Costs incurred for

telephone services, local messenger, and similar telephone services, local telephone services, local

and long distance communication services are and long distance and long distance

telephone calls, allowable. telephone calls, telephone calls,

telegrams, radiograms, telegrams, radiograms, telegrams, radiograms,

postage and the like, are postage and the like are postage, messenger,

allowable. allowable. electronic or computer

transmittal services and

the like are allowable.

8. Compensation for 11. Compensation for 7. Compensation for 7. Compensation for

personal services. personnel services. personal services. personal services.

All three circulars would

be unchanged, based on

significant differences.





17

A-21 A-87 A-122 Proposed Change



To the extent the

circulars have similar

provisions, those

provisions are generally

displayed together for

comparison. A few

paragraphs would be

revised to the extent

that they have the same

substantive outcomes

General. Compensation General. Compensation for a. Definition.

for personal services personnel services Compensation for personal

covers all amounts paid includes all remuneration, services includes all

currently or accrued by paid currently or accrued, compensation paid

the institution for for services rendered currently or accrued by

services of employees during the period of the organization for

rendered during the performance under Federal services of employees

period of performance awards, rendered during the

under sponsored period of the award

agreements. (except as otherwise

provided in subparagraph

h).



Such amounts include including but not It includes, but is not

salaries, wages, and necessarily limited to limited to, salaries,

fringe benefits (see wages, salaries, and wages, director's and

subsection f). These fringe benefits. The costs executive committee

costs are allowable to of such compensation are member's fees, incentive

the extent that the total allowable to the extent awards, fringe benefits,

compensation to that they satisfy the pension plan costs,

individual employees specific requirements of allowances for off-site

conforms to the this Circular, and that pay, incentive pay,

established policies of the total compensation for location allowances,

the institution, individual employees: hardship pay, and cost of

consistently applied, and living differentials.

provided that the charges

for work performed b. Allowability. Except

directly on sponsored as otherwise specifically

agreements and for other provided in this

work allocable as F&A paragraph, the costs of

costs are determined and such compensation are

supported as provided allowable to the extent



18

A-21 A-87 A-122 Proposed Change



below. that:







(1) Total compensation

to individual employees

is



Charges to sponsored 1) Is reasonable for the reasonable for the

agreements may include services rendered and services rendered and

reasonable amounts for conforms to the conforms to the

activities contributing established policy of the established policy of the

and intimately related to governmental unit organization consistently

work under the consistently applied to applied to both Federal

agreements, such as both Federal and non- and non-Federal

delivering special Federal activities; activities; and

lectures about specific

aspects of the ongoing

activity, writing reports

and articles,

participating in

appropriate seminars,

consulting with

colleagues and graduate

students, and attending

meetings and conferences.

Incidental work (that in

excess of normal for the

individual), for which

supplemental compensation

is paid by an institution

under institutional

policy, need not be

included in the payroll

distribution systems

described below, provided

such work and

compensation are

separately identified and

documented in the

financial management

system of the





19

A-21 A-87 A-122 Proposed Change



institution.



(2) Follows an appointment

made in accordance with a

governmental unit's laws

and rules and meets merit

system or other

requirements required by

Federal law, where

applicable; and



(3) Is determined and (2) Charges to awards

supported as provided in whether treated as direct

subsection h. or indirect costs are

determined and supported

as required in this

paragraph.



b. Reasonableness. c. Reasonableness.



Compensation for (1) When the

employees engaged in work organization is

on Federal awards will be predominantly engaged in

considered reasonable to activities other than

the extent that it is those sponsored by the

consistent with that paid Federal Government,

for similar work in other compensation for

activities of the employees on federally-

governmental unit. In sponsored work will be

cases where the kinds of considered reasonable to

employees required for the extent that it is

Federal awards are not consistent with that paid

found in the other for similar work in the

activities of the organization's other

governmental unit, activities.

compensation will be

considered reasonable to (2) When the

the extent that it is organization is

comparable to that paid predominantly engaged in

for similar work in the federally-sponsored

labor market in which the activities and in cases

employing government where the kind of





20

A-21 A-87 A-122 Proposed Change



competes for the kind of employees required for

employees involved. the Federal activities

Compensation surveys are not found in the

providing data organization's other

representative of the activities, compensation

labor market involved will for employees on

be an acceptable basis for federally-sponsored work

evaluating reasonableness. will be considered

reasonable to the extent

that it is comparable to

that paid for similar

work in the labor markets

in which the organization

competes for the kind of

employees involved.



d. Special

considerations in

determining allowability.

Certain conditions

require special

consideration and

possible limitations in

determining costs under

Federal awards where

amounts or types of

compensation appear

unreasonable. Among such

conditions are the

following:



(1) Compensation to

members of non-profit

organizations, trustees,

directors, associates,

officers, or the

immediate families

thereof. Determination

should be made that such

compensation is

reasonable for the actual

personal services

rendered rather than a



21

A-21 A-87 A-122 Proposed Change



distribution of earnings

in excess of costs.



(2) Any change in an

organization's

compensation policy

resulting in a

substantial increase in

the organization's level

of compensation,

particularly when it was

concurrent with an

increase in the ratio of

Federal awards to other

activities of the

organization or any

change in the treatment

of allowability of

specific types of

compensation due to

changes in Federal

policy.



c. Unallowable costs. e. Unallowable costs.

Costs which are Costs which are

unallowable under other unallowable under other

sections of these paragraphs of this

principles shall not be Attachment shall not be

allowable under this allowable under this

section solely on the paragraph solely on the

basis that they constitute basis that they

personnel compensation. constitute personal

compensation.



d. Salary rates for

faculty members.



(1) Salary rates for

academic year. Charges

for work performed on

sponsored agreements by

faculty members during





22

A-21 A-87 A-122 Proposed Change



the academic year will be

based on the individual

faculty member's regular

compensation for the

continuous period which,

under the policy of the

institution concerned,

constitutes the basis of

his salary. Charges for

work performed on

sponsored agreements

during all or any portion

of such period are

allowable at the base

salary rate. In no event

will charges to sponsored

agreements, irrespective

of the basis of

computation, exceed the

proportionate share of

the base salary for that

period. This principle

applies to all members of

the faculty at an

institution. Since intra-

university consulting is

assumed to be undertaken

as a university

obligation requiring no

compensation in addition

to full-time base salary,

the principle also

applies to faculty

members who function as

consultants or otherwise

contribute to a sponsored

agreement conducted by

another faculty member of

the same institution.

However, in unusual cases

where consultation is

across departmental lines

or involves a separate or



23

A-21 A-87 A-122 Proposed Change



remote operation, and the

work performed by the

consultant is in addition

to his regular

departmental load, any

charges for such work

representing extra

compensation above the

base salary are allowable

provided that such

consulting arrangements

are specifically provided

for in the agreement or

approved in writing by

the sponsoring agency.



(2) Periods outside the

academic year.



(a) Except as otherwise

specified for teaching

activity in subsection

(b), charges for work

performed by faculty

members on sponsored

agreements during the

summer months or other

period not included in

the base salary period

will be determined for

each faculty member at a

rate not in excess of the

base salary divided by

the period to which the

base salary relates, and

will be limited to

charges made in

accordance with other

parts of this section.

The base salary period

used in computing charges

for work performed during

the summer months will be



24

A-21 A-87 A-122 Proposed Change



the number of months

covered by the faculty

member's official

academic year

appointment.



(b) Charges for teaching

activities performed by

faculty members on

sponsored agreements

during the summer months

or other periods not

included in the base

salary period will be

based on the normal

policy of the institution

governing compensation to

faculty members for

teaching assignments

during such periods.



(3) Part-time faculty.

Charges for work

performed on sponsored

agreements by faculty

members having only part-

time appointments will be

determined at a rate not

in excess of that

regularly paid for the

part-time assignments.

For example, an

institution pays $5000 to

a faculty member for

half-time teaching during

the academic year. He

devoted one-half of his

remaining time to a

sponsored agreement.

Thus, his additional

compensation, chargeable

by the institution to the

agreement, would be one-



25

A-21 A-87 A-122 Proposed Change



half of $5000, or $2500.



e. Noninstitutional

professional activities.



Unless an arrangement is

specifically authorized

by a Federal sponsoring

agency, an institution

must follow its

institution-wide policies

and practices concerning

the permissible extent of

professional services

that can be provided

outside the institution

for noninstitutional

compensation. Where such

institution-wide policies

do not exist or do not

adequately define the

permissible extent of

consulting or other

noninstitutional

activities undertaken for

extra outside pay, the

Federal Government may

require that the effort

of professional staff

working on sponsored

agreements be allocated

between (1) institutional

activities, and (2)

noninstitutional

professional activities.

If the sponsoring agency

considers the extent of

noninstitutional

professional effort

excessive, appropriate

arrangements governing

compensation will be

negotiated on a case-by-



26

A-21 A-87 A-122 Proposed Change



case basis.



f. Fringe benefits. d. Fringe benefits. f. Fringe benefits. Fringe Benefits.



Paragraph (f)(1)of the

current A-21 would be

amended by removing the

cross reference to

Sabbatical leave, which

appears at the end of

that section. Sabbatical

leave would be moved from

its current location at

section 40 of A-21 and

added to fringe benefits

as new sub-sections (a)

and (b) at the end of

section f.(1). The

treatment of sabbatical

leave would not be

applied to A-87 or A-122.

the revised section f.(1)

would read as follows:

(1) Fringe benefits in (1) Fringe benefits are (1) Fringe benefits in (1) Fringe benefits in

the form of regular allowances and services the form of regular the form of regular

compensation paid to provided by employers to compensation paid to compensation paid to

employees during periods their employees as employees during periods employees during periods

of authorized absences compensation in addition of authorized absences of authorized absences

from the job, such as for to regular salaries and from the job, such as from the job, such as for

annual leave, sick leave, wages. Fringe benefits vacation leave, sick annual leave, sick leave,

military leave, and the include, but are not leave, military leave, military leave, and the

like, are allowable, limited to, the costs of and the like, are like, are allowable,

provided such costs are leave, employee insurance, allowable, provided such provided such costs are

distributed to all pensions, and unemployment costs are absorbed by all distributed to all

institutional activities benefit plans. Except as organization activities institutional activities

in proportion to the provided elsewhere in in proportion to the in proportion to the

relative amount of time these principles, the relative amount of time relative amount of time

or effort actually costs of fringe benefits or effort actually or effort actually

devoted by the employees. are allowable to the devoted to each. devoted by the employees.

See Section J.40 for extent that the benefits (a) Costs of leave of

treatment of sabbatical are reasonable and are absences by employees for

required by law, performance of graduate



27

A-21 A-87 A-122 Proposed Change



leave. governmental unit-employee work or sabbatical study,

agreement, or an travel, or research are

established policy of the allowable provided the

governmental unit. non-Federal entity has a

uniform policy on

(2) The cost of fringe sabbatical leave for

benefits in the form of persons engaged in

regular compensation paid instruction and persons

to employees during engaged in research. Such

periods of authorized costs will be allocated

absences from the job, on an equitable basis

such as for annual leave, among all related

sick leave, holidays, activities of the non-

court leave, military Federal entity.

leave, and other similar (b) If sabbatical leave

benefits, are allowable is included in fringe

if: (a) they are provided benefits for which a cost

under established written is determined for

leave policies; (b) the assessment as a direct

costs are equitably charge, the aggregate

allocated to all related amount of such

activities, including assessments applicable to

Federal awards; and, (c) all work of the non-

the accounting basis (cash Federal entity during the

or accrual) selected for base period must be

costing each type of leave reasonable in relation to

is consistently followed the non-Federal entity's

by the governmental unit. actual experience under

its sabbatical leave

(3) When a governmental policy.

unit uses the cash basis

of accounting, the cost of

leave is recognized in the

period that the leave is

taken and paid for.

Payments for unused leave

when an employee retires

or terminates employment

are allowable in the year

of payment provided they

are allocated as a general

administrative expense to

all activities of the



28

A-21 A-87 A-122 Proposed Change



governmental unit or

component.



(4) The accrual basis may

be only used for those

types of leave for which a

liability as defined by

Generally Accepted

Accounting Principles

(GAAP) exists when the

leave is earned. When a

governmental unit uses the

accrual basis of

accounting, in accordance

with GAAP, allowable leave

costs are the lesser of

the amount accrued or

funded.



(5) The cost of fringe

benefits in the form of

employer contributions or

expenses for social

security; employee life,

health, unemployment, and

worker's compensation

insurance (except as

indicated in section 25,

Insurance and

indemnification); pension

plan costs (see subsection

e.); and other similar

benefits are allowable,

provided such benefits are

granted under established

written policies. Such

benefits, whether treated

as indirect costs or as

direct costs, shall be

allocated to Federal

awards and all other

activities in a manner

consistent with the



29

A-21 A-87 A-122 Proposed Change



pattern of benefits

attributable to the

individuals or group(s) of

employees whose salaries

and wages are chargeable

to such Federal awards and

other activities.









(3) (a) Provisions for a



30

A-21 A-87 A-122 Proposed Change



reserve under a self-

insurance program for

unemployment compensation

or workers' compensation

are allowable to the

extent that the

provisions represent

reasonable estimates of

the liabilities for such

compensation, and the

types of coverage, extent

of coverage, and rates

and premiums would have

been allowable had

insurance been purchased

to cover the risks.

However, provisions for

self-insured liabilities

which do not become

payable for more than one

year after the provision

is made shall not exceed

the present value of the

liability.



(b) Where an

organization follows a

consistent policy of

expensing actual payments

to, or on behalf of,

employees or former

employees for

unemployment compensation

or workers' compensation,

such payments are

allowable in the year of

payment with the prior

approval of the awarding

agency, provided they are

allocated to all

activities of the

organization.





31

A-21 A-87 A-122 Proposed Change



(4) Costs of insurance

on the lives of trustees,

officers, or other

employees holding

positions of similar

responsibility are

allowable only to the

extent that the insurance

represents additional

compensation. The costs

of such insurance when

the organization is named

as beneficiary are

unallowable.



(2) Fringe benefits in (2) Fringe benefits in

the form of employer the form of employer

contributions or expenses contributions or expenses

for social security, for social security,

employee insurance, employee insurance,

workmen's compensation workmen's compensation

insurance, tuition or insurance, pension plan

remission of tuition for costs (see subparagraph

individual employees are h), and the like, are

allowable, provided such allowable, provided such

benefits are granted in benefits are granted in

accordance with accordance with

established educational established written

institutional policies, organization policies.

and are distributed to Such benefits whether

all institutional treated as indirect costs

activities on an or as direct costs, shall

equitable basis. Tuition be distributed to

benefits for family particular awards and

members other than the other activities in a

employee are unallowable manner consistent with

for fiscal years the pattern of benefits

beginning after September accruing to the

30, 1998. See Section individuals or group of

J.41.b, Scholarships and employees whose salaries

student aid costs, for and wages are chargeable

treatment of tuition to such awards and other



32

A-21 A-87 A-122 Proposed Change



remission provided to activities.

students.



(3) Rules for pension e. Pension plan costs. h. Pension plan costs.

plan costs are as

follows:



(a) Costs of the Pension plan costs may be (1) Costs of the

institution's pension computed using a pay-as- organization's pension

plan which are incurred you-go method or an plan which are incurred

in accordance with the acceptable actuarial cost in accordance with the

established policies of method in accordance with established policies of

the institution are established written the organization are

allowable, provided: policies of the allowable, provided:

governmental unit.



(i) such policies meet (a) Such policies meet

the test of the test of

reasonableness, reasonableness;



(ii) the methods of cost (b) The methods of cost

allocation are equitable allocation are not

for all activities, discriminatory;



(iii) the amount of (c) The cost assigned to

pension cost assigned to each fiscal year is

each fiscal year is determined in accordance

determined in accordance with generally accepted

with subsection (b), and accounting principles

(GAAP), as prescribed in

Accounting Principles

Board Opinion No. 8

issued by the American

Institute of Certified

Public Accountants; and



(iv) the cost assigned to (d) The costs assigned

a given fiscal year is to a given fiscal year

paid or funded for all are funded for all plan

plan participants within participants within six

six months after the end months after the end of

of that year. However, that year. However,



33

A-21 A-87 A-122 Proposed Change



increases to normal and increases to normal and

past service pension past service pension

costs caused by a delay costs caused by a delay

in funding the actuarial in funding the actuarial

liability beyond 30 days liability beyond 30 days

after each quarter of the after each quarter of the

year to which such costs year to which such costs

are assignable are are assignable are

unallowable. unallowable.



(b) The amount of pension

cost assigned to each

fiscal year shall be

determined in accordance

with generally accepted

accounting principles.

Institutions may elect to

follow the "Cost

Accounting Standard for

Composition and

Measurement of Pension

Cost" (48 Part 9904-412).



(c) Premiums paid for (2) Pension plan

pension plan termination termination insurance

insurance pursuant to the premiums paid pursuant to

Employee Retirement the Employee Retirement

Income Security Act Income Security Act

(ERISA) of 1974 (Pub. L. (ERISA) of 1974 (Pub. L.

93-406) are allowable. 93-406) are allowable.

Late payment charges on Late payment charges on

such premiums are such premiums are

unallowable. unallowable.



Excise taxes on (3) Excise taxes on

accumulated funding accumulated funding

deficiencies and deficiencies and other

prohibited transactions penalties imposed under

of pension plan ERISA are unallowable.

fiduciaries imposed under

ERISA are also

unallowable.





34

A-21 A-87 A-122 Proposed Change



(1) For pension plans

financed on a pay-as-you-

go method, allowable costs

will be limited to those

representing actual

payments to retirees or

their beneficiaries.



(2) Pension costs

calculated using an

actuarial cost- based

method recognized by GAAP

are allowable for a given

fiscal year if they are

funded for that year

within six months after

the end of that year.

Costs funded after the six

month period (or a later

period agreed to by the

cognizant agency) are

allowable in the year

funded. The cognizant

agency may agree to an

extension of the six month

period if an appropriate

adjustment is made to

compensate for the timing

of the charges to the

Federal Government and

related Federal

reimbursement and the

governmental unit's

contribution to the

pension fund. Adjustments

may be made by cash refund

or other equitable

procedures to compensate

the Federal Government for

the time value of Federal

reimbursements in excess

of contributions to the



35

A-21 A-87 A-122 Proposed Change



pension fund.



3) Amounts funded by the

governmental unit in

excess of the actuarially

determined amount for a

fiscal year may be used as

the governmental unit's

contribution in future

periods.



(4) When a governmental

unit converts to an

acceptable actuarial cost

method, as defined by

GAAP, and funds pension

costs in accordance with

this method, the unfunded

liability at the time of

conversion shall be

allowable if amortized

over a period of years in

accordance with GAAP.



(5) The Federal Government

shall receive an equitable

share of any previously

allowed pension costs

(including earnings

thereon) which revert or

inure to the governmental

unit in the form of a

refund, withdrawal, or

other credit.



f. Post-retirement health

benefits. Post-retirement

health benefits (PRHB)

refers to costs of health

insurance or health

services not included in a

pension plan covered by





36

A-21 A-87 A-122 Proposed Change



subsection e. for retirees

and their spouses,

dependents, and survivors.

PRHB costs may be computed

using a pay-as-you-go

method or an acceptable

actuarial cost method in

accordance with

established written

polices of the

governmental unit.



(1) For PRHB financed on a

pay as-you-go method,

allowable costs will be

limited to those

representing actual

payments to retirees or

their beneficiaries.



2) PRHB costs calculated

using an actuarial cost

method recognized by GAAP

are allowable if they are

funded for that year

within six months after

the end of that year.

Costs funded after the six

month period (or a later

period agreed to by the

cognizant agency) are

allowable in the year

funded. The cognizant

agency may agree to an

extension of the six month

period if an appropriate

adjustment is made to

compensate for the timing

of the charges to the

Federal Government and

related Federal

reimbursements and the

governmental unit's



37

A-21 A-87 A-122 Proposed Change



contributions to the PRHB

fund. Adjustments may be

made by cash refund,

reduction in current

year's PRHB costs, or

other equitable procedures

to compensate the Federal

Government for the time

value of Federal

reimbursements in excess

of contributions to the

PRHB fund.



(3) Amounts funded in

excess of the actuarially

determined amount for a

fiscal year may be used as

the government's

contribution in a future

period.



(4) When a governmental

unit converts to an

acceptable actuarial cost

method and funds PRHB

costs in accordance with

this method, the initial

unfunded liability

attributable to prior

years shall be allowable

if amortized over a period

of years in accordance

with GAAP, or, if no such

GAAP period exists, over a

period negotiated with the

cognizant agency.



(5) To be allowable in the

current year, the PRHB

costs must be paid either

to:







38

A-21 A-87 A-122 Proposed Change



(a) An insurer or other

benefit provider as

current year costs or

premiums, or



(b) An insurer or trustee

to maintain a trust fund

or reserve for the sole

purpose of providing post-

retirement benefits to

retirees and other

beneficiaries.



(6) The Federal Government

shall receive an equitable

share of any amounts of

previously allowed post-

retirement benefit costs

(including earnings

thereon) which revert or

inure to the governmental

unit in the form of a

refund, withdrawal, or

other credit.



(4) Fringe benefits may

be assigned to cost

objectives by identifying

specific benefits to

specific individual

employees or by

allocating on the basis

of institution-wide

salaries and wages of the

employees receiving the

benefits. When the

allocation method is

used, separate

allocations must be made

to selective groupings of

employees, unless the

institution demonstrates



39

A-21 A-87 A-122 Proposed Change



that costs in

relationship to salaries

and wages do not differ

significantly for

different groups of

employees. Fringe

benefits shall be treated

in the same manner as the

salaries and wages of the

employees receiving the

benefits. The benefits

related to salaries and

wages treated as direct

costs shall also be

treated as direct costs;

the benefits related to

salaries and wages

treated as F&A costs

shall be treated as F&A

costs.

Severance pay.

43. Severance pay. g. Severance pay. k. Severance pay. See

paragraph 49.



The cross reference in A-

122 would be removed and

the treatments of

severance pay in both A-

21 and A-122 would be

moved to this part of the

circular to be consistent

with A-87 and among other

treatments relating to

compensation for personal

services. For purposes of

comparison, the severance

pay provisions of all

three circulars are

presented here.

a. Severance pay is (1)

a. Severance pay, also

commonly referred to as





40

A-21 A-87 A-122 Proposed Change



dismissal wages, is a

payment in addition to

compensation in addition regular salaries and

to regular salary and wages, by organizations

wages which is paid by an Payments in addition to to

institution to employees regular salaries and wages workers whose employment

whose services are being made to is being terminated.

terminated. Costs of Costs of severance pay

severance pay are are allowable only to the

allowable only to the workers whose employment extent that in each case,

extent that such payments is being terminated are it is required

are required allowable to the extent

by (i) law,

that, in each case, they

by law, by are required (ii) employer-employee

agreement,

employer-employee

agreement, by (iii) established policy

by (a) law, (b) that constitutes, in

established policy that effect, an implied

constitutes in effect an employer-employee agreement on the

implied agreement on the agreement, or organization's part, or

institution's part, or by

(c) established written (iv) circumstances of the

policy. particular employment.

circumstances of the

b. Costs of severance

particular employment.

payments are divided into

two categories as

follows:



(1) Actual normal

turnover severance

payments

b. Severance payments

that are due to normal

recurring turnover and shall be allocated to all

which otherwise meet the activities; or, where the

conditions of subsection organization provides for

a may be allowed provided a reserve for normal

severances, such method

will be acceptable if

(2) Severance payments

the charge to current



41

A-21 A-87 A-122 Proposed Change



(but not accruals) operations is reasonable

associated with normal in light of payments

the actual costs of such turnover are allowable. actually made for normal

severance payments are Such payments shall be severances over a

regarded as expenses allocated to all representative past

applicable to the current activities of the period, and if amounts

fiscal year and are governmental unit as an charged are allocated to

equitably distributed indirect cost. all activities of the

among the institution's organization.

activities during that

period. (2) Abnormal or mass

severance pay is of





c. Severance payments

that are due to abnormal

or mass terminations are

of

such a conjectural

nature that measurement

of costs by means of an

accrual will not achieve

(3) Abnormal or mass equity to both parties.

such conjectural nature Thus, accruals for this

severance pay will be

that allowability must be purpose are not

considered on a case-by-

determined on a case-by- allowable.

case basis and is

case basis.

allowable only if approved

by the cognizant Federal However, the Federal

agency. Government recognizes its

obligation to

participate, to the

extent of its fair share,

in any specific payment.

However, the Federal Thus, allowability will

Government recognizes its be considered on a case-

obligation to by-case basis in the

event or occurrence.

participate, to the

extent of its fair share, c. Costs incurred in

in any specific payment. certain severance pay

packages (commonly known

as "a golden parachute"

payment) which are in an



42

A-21 A-87 A-122 Proposed Change



amount



d. Costs incurred in excess of the normal

severance pay paid by the

organization to an

employee upon termination

of employment and are

paid to the employee

contingent upon a change

in management control

in excess of the

over, or ownership of,

institution's normal

the organization's assets

severance pay policy

are unallowable.

applicable to all persons

d. Severance payments to

employed by the

foreign nationals

institution upon

employed by the

termination of employment

organization outside the

are unallowable.

United States, to the

extent that the amount

exceeds the customary or

prevailing practices for

the organization in the

United States are

unallowable, unless they

are necessary for the

performance of Federal

programs and approved by

awarding agencies.

e. Severance payments to

foreign nationals

employed by the

organization outside the

United States due to the

termination of the

foreign national as a

result of the closing of,

or curtailment of

activities by, the

organization in that

country, are unallowable,

unless they are necessary

for the performance of



43

A-21 A-87 A-122 Proposed Change



Federal programs and

approved by awarding

agencies.



i. Incentive Incentive compensation.

compensation.

No change.

Incentive compensation to

employees based on cost

reduction, or efficient

performance, suggestion

awards, safety awards,

etc., are allowable to

the extent that the

overall compensation is

determined to be

reasonable and such costs

are paid or accrued

pursuant to an agreement

entered into in good

faith between the

organization and the

employees before the

services were rendered,

or pursuant to an

established plan followed

by the organization so

consistently as to imply,

in effect, an agreement

to make such payment.

Overtime, extra-pay

shift, and multi-shift

premiums.



The cross reference in A-

122, paragraph j. would

be removed and replaced

j. Overtime, extra-pay by the provisions in

shift, and multi-shift paragraph 32. These

premiums. See paragraph provisions are edited and

32. added to circulars A-21

and A-87. See the third



44

A-21 A-87 A-122 Proposed Change



part of this table

regarding provisions only

in one circular.

g. Institution-furnished g. Organization-furnished

automobiles. That portion automobiles. That portion

of the cost of of the cost of

institution-furnished organization-furnished

automobiles that relates automobiles that relates

to personal use by to personal use by

employees (including employees (including

transportation to and transportation to and

from work) is unallowable from work) is unallowable

regardless of whether the as fringe benefit or

cost is reported as indirect costs regardless

taxable income to the of whether the cost is

employees. reported as taxable

income to the employees.

These costs are allowable

as direct costs to

sponsored award when

necessary for the

performance of the

sponsored award and

approved by awarding

agencies.



l. Training and Training and education

education costs. See costs.

paragraph 53.

This cross reference

would be removed.

b. Payroll distribution. h. Support of salaries and m. Support of salaries

wages. These standards and wages.

(1) General Principles. regarding time

distribution are in

addition to the standards

for payroll documentation.



(a) The distribution of (1) Charges to Federal (1) Charges to awards

salaries and wages, awards for salaries and for salaries and wages,

whether treated as direct wages, whether treated as whether treated as direct





45

A-21 A-87 A-122 Proposed Change



or F&A costs, will be direct or indirect costs, costs or indirect costs,

based on payrolls will be based on payrolls will be based on

documented in accordance documented in accordance documented payrolls

with the generally with generally accepted approved by a responsible

accepted practices of practice of the official(s) of the

colleges and governmental unit and organization. The

universities. approved by a responsible distribution of salaries

Institutions may include official(s) of the and wages to awards must

in a residual category governmental unit. be supported by personnel

all activities that are activity reports, as

not directly charged to prescribed in

sponsored agreements, and subparagraph (2), except

that need not be when a substitute system

distributed to more than has been approved in

one activity for purposes writing by the cognizant

of identifying F&A costs agency. (See subparagraph

and the functions to E.2 of Attachment A.)

which they are allocable.

The components of the

residual category are not

required to be separately

documented.



(2) No further

documentation is required

for the salaries and wages

of employees who work in a

single indirect cost

activity.



(b) The apportionment of (2) Reports reflecting

employees' salaries and the distribution of

wages which are activity of each employee

chargeable to more than must be maintained for

one sponsored agreement all staff members

or other cost objective (professionals and

will be accomplished by nonprofessionals) whose

methods which will (1) be compensation is charged,

in accordance with in whole or in part,

Sections A.2 and C, (2) directly to awards. In

produce an equitable addition, in order to

distribution of charges support the allocation of





46

A-21 A-87 A-122 Proposed Change



for employee's indirect costs, such

activities, and (3) reports must also be

distinguish the maintained for other

employees' direct employees whose work

activities from their F&A involves two or more

activities. functions or activities

if a distribution of

(c) In the use of any their compensation

methods for apportioning between such functions or

salaries, it is activities is needed in

recognized that, in an the determination of the

academic setting, organization's indirect

teaching, research, cost rate(s) (e.g., an

service, and employee engaged part-

administration are often time in indirect cost

inextricably activities and part-time

intermingled. A precise in a direct function).

assessment of factors

that contribute to costs

is not always feasible,

nor is it expected.

Reliance, therefore, is

placed on estimates in

which a degree of

tolerance is appropriate.



(d) There is no single

best method for

documenting the

distribution of charges

for personal services.

Methods for apportioning

salaries and wages,

however, must meet the

criteria specified in

subsection b.(2).

Examples of acceptable

methods are contained in

subsection c. Other

methods which meet the

criteria specified in

subsection b.(2) also

shall be deemed



47

A-21 A-87 A-122 Proposed Change



acceptable, if a mutually

satisfactory alternative

agreement is reached.



(3) Where employees are

expected to work solely on

a single Federal award or

cost objective, charges

for their salaries and

wages will be supported by

periodic certifications

that the employees worked

solely on that program for

the period covered by the

certification. These

certifications will be

prepared at least semi-

annually and will be

signed by the employee or

supervisory official

having first hand

knowledge of the work

performed by the employee.



(4) Where employees work

on multiple activities or

cost objectives, a

distribution of their

salaries or wages will be

supported by personnel

activity reports or

equivalent documentation

which meets the standards

in subsection (5) unless a

statistical sampling

system (see subsection

(6)) or other substitute

system has been approved

by the cognizant Federal

agency.



(2) Criteria for Reports maintained by





48

A-21 A-87 A-122 Proposed Change



Acceptable Methods. non-profit organizations

to satisfy these

(a) The payroll requirements must meet

distribution system will the following standards:



(i) be incorporated into

the official records of

the institution,



Such documentary support

will be required where

employees work on:



(a) More than one Federal

award,



(b) A Federal award and a

non-Federal award,



(c) An indirect cost

activity and a direct cost

activity,



(d) Two or more indirect

activities which are

allocated using different

allocation bases, or



(e) An unallowable

activity and a direct or

indirect cost activity.



(5) Personnel activity

reports or equivalent

documentation must meet

the following standards:



(ii) reasonably reflect

the activity for which

the employee is

compensated by the





49

A-21 A-87 A-122 Proposed Change



institution, and



(iii) encompass both

sponsored and all other

activities on an

integrated basis, but may

include the use of

subsidiary records.

(Compensation for

incidental work described

in Section J.8.a need not

be included.)



(b) The method must (a) They must reflect an (a) The reports must

recognize the principle after-the-fact reflect an after-the-fact

of after-the-fact distribution of the actual determination of the

confirmation or activity of each employee, actual activity of each

determination so that employee. Budget

costs distributed estimates (i.e.,

represent actual costs, estimates determined

unless a mutually before the services are

satisfactory alternative performed) do not qualify

agreement is reached. as support for charges to

Direct cost activities awards.

and F&A cost activities

may be confirmed by

responsible persons with

suitable means of

verification that the

work was performed.

Confirmation by the

employee is not a

requirement for either

direct or F&A cost

activities if other

responsible persons make

appropriate

confirmations.



(c) The payroll (b) They must account for (b) Each report must

distribution system will the total activity for account for the total

allow confirmation of which each employee is activity for which





50

A-21 A-87 A-122 Proposed Change



activity allocable to compensated, employees are compensated

each sponsored agreement and which is required in

and each of the fulfillment of their

categories of activity obligations to the

needed to identify F&A organization.

costs and the functions

to which they are

allocable. The activities

chargeable to F&A cost

categories or the major

functions of the

institution for employees

whose salaries must be

apportioned (see

subsection b.(1)(b)), if

not initially identified

as separate categories,

may be subsequently

distributed by any

reasonable method

mutually agreed to,

including, but not

limited to, suitably

conducted surveys,

statistical sampling

procedures, or the

application of negotiated

fixed rates.



(d) Practices vary among

institutions and within

institutions as to the

activity constituting a

full workload. Therefore,

the payroll distribution

system may reflect

categories of activities

expressed as a percentage

distribution of total

activities.



(e) Direct and F&A





51

A-21 A-87 A-122 Proposed Change



charges may be made

initially to sponsored

agreements on the basis

of estimates made before

services are performed.

When such estimates are

used, significant changes

in the corresponding work

activity must be

identified and entered

into the payroll

distribution system.

Short-term (such as one

or two months)

fluctuation between

workload categories need

not be considered as long

as the distribution of

salaries and wages is

reasonable over the

longer term, such as an

academic period.



(c) They must be prepared (d) The reports must be

at least monthly and must prepared at least monthly

coincide with one or more and must coincide with

pay periods, and one or more pay periods.



(d) They must be signed by (c) The reports must be

the employee. signed by the individual

employee, or by a

responsible supervisory

official having first

hand knowledge of the

activities performed by

the employee, that the

distribution of activity

represents a reasonable

estimate of the actual

work performed by the

employee during the

periods covered by the





52

A-21 A-87 A-122 Proposed Change



reports.



(3) Charges for the

salaries and wages of

nonprofessional

employees, in addition to

the supporting

documentation described

in subparagraphs (1) and

(2), must also be

supported by records

indicating the total

number of hours worked

each day maintained in

conformance with

Department of Labor

regulations implementing

the Fair Labor Standards

Act (FLSA) (29 CFR Part

516). For this purpose,

the term "nonprofessional

employee" shall have the

same meaning as

"nonexempt employee,"

under FLSA.



(f) The system will (e) Budget estimates or

provide for independent other distribution

internal evaluations to percentages determined

ensure the system's before the services are

effectiveness and performed do not qualify

compliance with the above as support for charges to

standards. Federal awards but may be

used for interim

(g) For systems which accounting purposes,

meet these standards, the provided that:

institution will not be

required to provide (i) The governmental

additional support or unit's system for

documentation for the establishing the estimates

effort actually produces reasonable

performed. approximations of the





53

A-21 A-87 A-122 Proposed Change



activity actually

c. Examples of Acceptable

performed;

Methods for Payroll

Distribution:

(ii) At least quarterly,

comparisons of actual

(1) Plan-Confirmation:

costs to budgeted

Under this method, the

distributions based on the

distribution of salaries

monthly activity reports

and wages of professorial

are made. Costs charged to

and professional staff

Federal awards to reflect

applicable to sponsored

adjustments made as a

agreements is based on

result of the activity

budgeted, planned, or

actually performed may be

assigned work activity,

recorded annually if the

updated to reflect any

quarterly comparisons show

significant changes in

the differences between

work distribution. A

budgeted and actual costs

plan-confirmation system

are less than ten percent;

used for salaries and

and

wages charged directly or

indirectly to sponsored

(iii) The budget estimates

agreements will meet the

or other distribution

following standards:

percentages are revised at

least quarterly, if

(a) A system of budgeted,

necessary, to reflect

planned, or assigned work

changed circumstances.

activity will be

incorporated into the

(6) Substitute systems for

official records of the

allocating salaries and

institution and encompass

wages to Federal awards

both sponsored and all

may be used in place of

other activities on an

activity reports. These

integrated basis. The

systems are subject to

system may include the

approval if required by

use of subsidiary

the cognizant agency. Such

records.

systems may include, but

are not limited to, random

(b) The system will

moment sampling, case

reasonably reflect only

counts, or other

the activity for which

quantifiable measures of

the employee is

employee effort.

compensated by the

institution (compensation



54

A-21 A-87 A-122 Proposed Change



for incidental work

(a) Substitute systems

described in subsection a

which use sampling methods

need not be included).

(primarily for Aid to

Practices vary among

Families with Dependent

institutions and within

Children (AFDC), Medicaid,

institutions as to the

and other public

activity constituting a

assistance programs) must

full workload. Hence, the

meet acceptable

system will reflect

statistical sampling

categories of activities

standards including:

expressed as a percentage

distribution of total

activities. (See Section (i) The sampling universe

H for treatment of F&A must include all of the

costs under the employees whose salaries

simplified method for and wages are to be

small institutions.) allocated based on sample

results except as provided

in subsection (c);

(c) The system will

reflect activity

applicable to each (ii) The entire time

sponsored agreement and period involved must be

to each category needed covered by the sample; and

to identify F&A costs and

the functions to which (iii) The results must be

they are allocable. The statistically valid and

system may treat F&A cost applied to the period

activities initially being sampled.

within a residual

category and subsequently (b) Allocating charges for

determine them by the sampled employees'

alternate methods as supervisors, clerical and

discussed in subsection support staffs, based on

b.(2)(c). the results of the sampled

employees, will be

(d) The system will acceptable.

provide for modification

of an individual's salary (c) Less than full

or salary distribution compliance with the

commensurate with a statistical sampling

significant change in the standards noted in

employee's work activity. subsection (a) may be

Short-term (such as one accepted by the cognizant



55

A-21 A-87 A-122 Proposed Change



or two months) agency if it concludes

fluctuation between that the amounts to be

workload categories need allocated to Federal

not be considered as long awards will be minimal, or

as the distribution of if it concludes that the

salaries and wages is system proposed by the

reasonable over the governmental unit will

longer term, such as an result in lower costs to

academic period. Whenever Federal awards than a

it is apparent that a system which complies with

significant change in the standards.

work activity which is

directly or indirectly

charged to sponsored

agreements will occur or

has occurred, the change

will be documented over

the signature of a

responsible official and

entered into the system.



(e) At least annually a

statement will be signed

by the employee,

principal investigator,

or responsible

official(s) using

suitable means of

verification that the

work was performed,

stating that salaries and

wages charged to

sponsored agreements as

direct charges, and to

residual, F&A cost or

other categories are

reasonable in relation to

work performed.



(f) The system will

provide for independent

internal evaluation to

ensure the system's



56

A-21 A-87 A-122 Proposed Change



integrity and compliance

with the above standards.



(g) In the use of this

method, an institution

shall not be required to

provide additional

support or documentation

for the effort actually

performed.



(2) After-the-fact

Activity Records: Under

this system the

distribution of salaries

and wages by the

institution will be

supported by activity

reports as prescribed

below.



(a) Activity reports will

reflect the distribution

of activity expended by

employees covered by the

system (compensation for

incidental work as

described in subsection a

need not be included).



(b) These reports will

reflect an after-the-fact

reporting of the

percentage distribution

of activity of employees.

Charges may be made

initially on the basis of

estimates made before the

services are performed,

provided that such

charges are promptly

adjusted if significant





57

A-21 A-87 A-122 Proposed Change



differences are indicated

by activity records.



(c) Reports will

reasonably reflect the

activities for which

employees are compensated

by the institution. To

confirm that the

distribution of activity

represents a reasonable

estimate of the work

performed by the employee

during the period, the

reports will be signed by

the employee, principal

investigator, or

responsible official(s)

using suitable means of

verification that the

work was performed.



(d) The system will

reflect activity

applicable to each

sponsored agreement and

to each category needed

to identify F&A costs and

the functions to which

they are allocable. The

system may treat F&A cost

activities initially

within a residual

category and subsequently

determine them by

alternate methods as

discussed in subsection

b.(2)(c).



(e) For professorial and

professional staff, the

reports will be prepared





58

A-21 A-87 A-122 Proposed Change



each academic term, but

no less frequently than

every six months. For

other employees, unless

alternate arrangements

are agreed to, the

reports will be prepared

no less frequently than

monthly and will coincide

with one or more pay

periods.



(f) Where the institution

uses time cards or other

forms of after-the-fact

payroll documents as

original documentation

for payroll and payroll

charges, such documents

shall qualify as records

for this purpose,

provided that they meet

the requirements in

subsections (a) through

(e).



(3) Multiple Confirmation

Records: Under this

system, the distribution

of salaries and wages of

professorial and

professional staff will

be supported by records

which certify separately

for direct and F&A cost

activities as prescribed

below.



(a) For employees covered

by the system, there will

be direct cost records to

reflect the distribution





59

A-21 A-87 A-122 Proposed Change



of that activity expended

which is to be allocable

as direct cost to each

sponsored agreement.

There will also be F&A

cost records to reflect

the distribution of that

activity to F&A costs.

These records may be kept

jointly or separately

(but are to be certified

separately, see below).



(b) Salary and wage

charges may be made

initially on the basis of

estimates made before the

services are performed,

provided that such

charges are promptly

adjusted if significant

differences occur.



(c) Institutional records

will reasonably reflect

only the activity for

which employees are

compensated by the

institution (compensation

for incidental work as

described in subsection a

need not be included).



(d) The system will

reflect activity

applicable to each

sponsored agreement and

to each category needed

to identify F&A costs and

the functions to which

they are allocable.







60

A-21 A-87 A-122 Proposed Change



(e) To confirm that

distribution of activity

represents a reasonable

estimate of the work

performed by the employee

during the period, the

record for each employee

will include: (i) the

signature of the employee

or of a person having

direct knowledge of the

work, confirming that the

record of activities

allocable as direct costs

of each sponsored

agreement is appropriate;

and, (ii) the record of

F&A costs will include

the signature of

responsible person(s) who

use suitable means of

verification that the

work was performed and is

consistent with the

overall distribution of

the employee's

compensated activities.

These signatures may all

be on the same document.



(f) The reports will be

prepared each academic

term, but no less

frequently than every six

months.



(g) Where the institution

uses time cards or other

forms of after-the-fact

payroll documents as

original documentation

for payroll and payroll



61

A-21 A-87 A-122 Proposed Change



charges, such documents

shall qualify as records

for this purposes,

provided they meet the

requirements in

subsections (a) through

(f).



(7) Salaries and wages of (4) Salaries and wages

employees used in meeting of employees used in

cost sharing or matching meeting cost sharing or

requirements of Federal matching requirements on

awards must be supported awards must be supported

in the same manner as in the same manner as

those claimed as allowable salaries and wages

costs under Federal claimed for reimbursement

awards. from awarding agencies.



9. Contingency 2. Contingencies. 8. Contingency Contingency provisions.

provisions. provisions.



The first sentence of

this paragraph would be

the same for all three

circulars, to read as

follows.



Contributions to a Contributions to a Contributions to a Contributions to a

contingency reserve or contingency reserve or any contingency reserve or contingency reserve or

any similar provision similar provision made for any similar provision any similar provision

made for events, the events the occurrence of made for events the made for events the

occurrence of which which cannot be foretold occurrence of which occurrence of which

cannot be foretold with with certainty as to time, cannot be foretold with cannot be foretold with

certainty as to time, or intensity, or with an certainty as to time, certainty as to time,

intensity, or with an assurance of their intensity, or with an intensity, or with an

assurance of their happening, are assurance of their assurance of their

happening, are unallowable. The term happening, are happening, are

unallowable. (See also "contingency reserve" unallowable. The term unallowable[.]

Section J.21.c.) excludes self-insurance "contingency reserve"

reserves (see subsection excludes self-insurance Note: A second sentence

25.c.), pension plan reserves (see would be added to A-21 to

reserves (see subsection subparagraphs 7.f (3) and conform to A-87 and A-

11.e.), and post- 22.a(2)(d); pension funds 122, however, the cross



62

A-21 A-87 A-122 Proposed Change



retirement health and (see subparagraph 7.h); references are kept

other benefit reserves and reserves for normal general. The other two

(see subsection 11.f.) severance pay (see circulars maintain the

computed using acceptable subparagraph 49.b(1)). specific citations. The

actuarial cost methods. remaining text for each

follows:



A-21: … unallowable,

except as noted in the

cost principles in this

circular regarding self

insurance, pensions,

severance and post-

retirement health costs.



A-87: The term

"contingency reserve"

excludes self-insurance

reserves (see subsection

25.c.), pension plan

reserves (see subsection

11.e.), and post-

retirement health and

other benefit reserves

(see subsection 11.f.)

computed using acceptable

actuarial cost methods.



A-122: The term

“contingency reserve”

excludes self-insurance

reserves (see

subparagraphs 7.f (3) and

22.a(2)(d); pension funds

(see subparagraph 7.h):

and reserves for normal

severance pay (see

subparagraph 49.b (1)).

13. Donations and 13. Contributions and 9. Contributions. Contributions and

contributions. donations. donations.









63

A-21 A-87 A-122 Proposed Change



This treatment would be

revised in all three

circulars to bring

uniformity where

possible. Paragraph a and

b.(1) would be identical

for all three circulars,

except for differences in

terminology.

a. Contributions or

Donations rendered.

Contributions and Contributions or

donations by the donations, including

a. The value of donated Contributions and cash, property, and

organization to others

services and property are donations, including cash, services, made by the

are unallowable.

not allowable either as a property, and services, by non-Federal entity,

direct or F&A cost, governmental units to regardless of the

except that depreciation others, regardless of the recipient, are

or use allowances on recipient, are unallowable.

donated assets are unallowable.

permitted in accordance b. Donated services

with Section J.12.a. The received.

value of donated services [A-87 & 122:(1)]

and property may be used [All three:] Donated or

to meet cost sharing or volunteer services may be

matching requirements, in furnished to an non-

accordance with Circular Federal entity by

A-110. professional and

technical personnel,

b. Donations or consultants, and other

contributions made by the skilled and unskilled

institution, regardless labor. The value of these

of the recipient, are services is not

unallowable. reimbursable either as a

direct or [A-21: F&A] [A-

87 & A-122: indirect]

cost. However, the value

of donated services may

be used to meet cost

sharing or matching

requirements in

accordance with [A-21 &



64

A-21 A-87 A-122 Proposed Change



122: Circular A-110] [A-

87: the Common Rule].



The following provisions

apply only to A-87 & A-

122.



(2) The value of donated

services utilized in the

performance of a direct

cost activity shall, when

material in amount, be

considered in the

determination of the non-

Federal entity's

indirect costs or rate(s)

and, accordingly, shall

be allocated a

proportionate share of

applicable indirect costs

[A-87: .

(3) To the extent

feasible, donated

services will be

supported by the same

methods used by the non-

Federal entity to support

the allocability of

regular personnel

services.]

[A-122: when the

following exist:



(a) The aggregate value

of the services is

material;



(b) The services are

supported by a

significant amount of the

indirect costs incurred

by the non-Federal



65

A-21 A-87 A-122 Proposed Change



entity; and

(c) The direct cost

activity is not pursued

primarily for the benefit

of the Federal

Government.



(3) In those instances

where there is no basis

for determining the fair

market value of the

services rendered, the

recipient and the

cognizant agency shall

negotiate an appropriate

allocation of indirect

cost to the services.

(4) Where donated

services directly benefit

a project supported by an

award, the indirect costs

allocated to the services

will be considered as a

part of the total costs

of the project. Such

indirect costs may be

reimbursed under the

award or used to meet

cost sharing or matching

requirements.



(5) The value of the

donated services may be

used to meet cost sharing

or matching requirements

under conditions

described in Sec.__.23 of

Circular A-110. Where

donated services are

treated as indirect

costs, indirect cost





66

A-21 A-87 A-122 Proposed Change



rates will separate the

value of the donations so

that reimbursement will

not be made.]



[A-21: c. Donated

property.



The value of donated

property is not

reimbursable either as a

direct or F&A cost,

except that depreciation

or use allowances on

donated assets are

permitted in accordance

with Section J.12.a. The

value of donated

property may be used to

meet cost sharing or

matching requirements, in

accordance with Circular

A-110.]



[A-122: c. Donated goods

or space.



(1) Donated goods; i.e.,

expendable personal

property/supplies, and

donated use of space may

be furnished to an non-

Federal entity. The value

of the goods and space is

not reimbursable either

as a direct or indirect

cost.

(2) The value of the

donations may be used to

meet cost sharing or

matching share

requirements under the

conditions described in



67

A-21 A-87 A-122 Proposed Change



Circular A-110. Where

donations are treated as

indirect costs, indirect

cost rates will separate

the value of the

donations so that

reimbursement will not be

made.



10. Defense and Defense and prosecution

11. Defense and 14. Defense and

prosecution of criminal of criminal and civil

prosecution of criminal prosecution of criminal

and civil proceedings, proceedings, and claims.

and civil proceedings, and civil proceedings, and

claims, appeals and claims. claims, appeals and

patent infringement. patent infringement.

No Change.



a. Definitions. a. The following costs are a. Definitions.

unallowable for contracts

"Conviction," as used covered by 10 U.S.C. (1) Conviction, as used

herein, means a judgment 2324(k), "Allowable costs herein, means a judgment

or conviction of a under defense contracts." or a conviction of a

criminal offense by any criminal offense by any

court of competent court of competent

jurisdiction, whether jurisdiction, whether

entered upon verdict or a (1) Costs incurred in entered upon as a verdict

plea, including a defense of any civil or or a plea, including a

conviction due to a plea criminal fraud proceeding conviction due to a plea

of nolo contendere. or similar proceeding of nolo contendere.

(including filing of false

certification brought by

the United States where

the contractor is found

liable or has pleaded nolo

contendere to a charge of

fraud or similar

proceeding (including

filing of a false (2) Costs include, but

certification). are not limited to,

administrative and

(2) Costs incurred by a clerical expenses; the

"Costs," include, but are

contractor in connection cost of legal services,

not limited to,

with any criminal, civil whether performed by in-



68

A-21 A-87 A-122 Proposed Change



administrative and or administrative house or private counsel;

clerical expenses; the proceedings commenced by and the costs of the

cost of legal services, the United States or a services of accountants,

whether performed by in- State to the extent consultants, or others

house or private counsel; provided in 10 U.S.C. retained by the

the costs of the services 2324(k). organization to assist

of accountants, it; costs of employees,

consultants, or others b. Legal expenses required officers and trustees,

retained by the in the administration of and any similar costs

institution to assist it; Federal programs are incurred before, during,

costs of employees, allowable. Legal expenses and after commencement of

officers and trustees, for prosecution of claims a judicial or

and any similar costs against the Federal administrative

incurred before, during, Government are proceeding that bears a

and after commencement of unallowable. direct relationship to

a judicial or the proceedings.

administrative proceeding

that bears a direct (3) Fraud, as used

relationship to the herein, means (i) acts of

proceedings. fraud corruption or

attempts to defraud the

"Fraud," as used herein, Federal Government or to

means (i) acts of fraud corrupt its agents, (ii)

or corruption or attempts acts that constitute a

to defraud the Federal cause for debarment or

Government or to corrupt suspension (as specified

its agents, (ii) acts in agency regulations),

that constitute a cause and (iii) acts which

for debarment or violate the False Claims

suspension (as specified Act, 31 U.S.C., sections

in agency regulations), 3729-3731, or the Anti-

and (iii) acts which Kickback Act, 41 U.S.C.,

violate the False Claims sections 51 and 54.

Act, 31 U.S.C., sections (4) Penalty does not

3729-3731, or the Anti- include restitution,

kickback Act, 41 U.S.C., reimbursement, or

sections 51 and 54. compensatory damages.



"Penalty," does not (5) Proceeding includes

include restitution, an investigation.

reimbursement, or

compensatory damages. b. (1) Except as

otherwise described



69

A-21 A-87 A-122 Proposed Change



herein, costs incurred in

"Proceeding," includes an

connection with any

investigation.

criminal, civil or

administrative proceeding

b. (1) Except as (including filing of a

otherwise described false certification)

herein, costs incurred in commenced by the Federal

connection with any Government, or a State,

criminal, civil or local or foreign

administrative proceeding government, are not

(including filing of a allowable if the

false certification) proceeding:

commenced by the Federal

Government, or a State, (1) relates to a

local or foreign violation of, or failure

government, are not to comply with, a

allowable if the Federal, State, local or

proceeding foreign statute or

regulation by the

(a) relates to a organization (including

violation of, or failure its agents and

to comply with, a employees), and

Federal, State, local or (2) results in any of the

foreign statute or following dispositions:

regulation, by the

institution (including (a) In a criminal

its agents and proceeding, a conviction.

employees); and

(b) In a civil or

(b) results in any of the administrative proceeding

following dispositions: involving an allegation

of fraud or similar

misconduct, a

determination of

(i) In a criminal organizational liability.

proceeding, a conviction.

(c) In the case of any

(ii) In a civil or civil or administrative

administrative proceeding proceeding, the

involving an allegation imposition of a monetary

of fraud or similar penalty.

misconduct, a

determination of (d) A final decision by



70

A-21 A-87 A-122 Proposed Change



institutional liability. an appropriate Federal

official to debar or

(iii) In the case of any suspend the organization,

civil or administrative to rescind or void an

proceeding, the award, or to terminate an

imposition of a monetary award for default by

penalty. reason of a violation or

failure to comply with a

(iv) A final decision by law or regulation.

an appropriate Federal

official to debar or (e) A disposition by

suspend the institution, consent or compromise, if

to rescind or void an the action could have

award, or to terminate an resulted in any of the

award for default by dispositions described in

reason of a violation or (a), (b), (c) or (d).

failure to comply with a

law or regulation. (2) If more than one

proceeding involves the

same alleged misconduct,

the costs of all such

(v) A disposition by proceedings shall be

consent or compromise, if unallowable if any one of

the action could have them results in one of

resulted in any of the the dispositions shown in

dispositions described in subparagraph b.(1).

subsections (i) through

(iv). c. If a proceeding

referred to in

(2) If more than one subparagraph b is

proceeding involves the commenced by the Federal

same alleged misconduct, Government and is

the costs of all such resolved by consent or

proceedings shall be compromise pursuant to an

unallowable if any one of agreement entered into by

them results in one of the organization and the

the dispositions shown in Federal Government, then

subsection b. the costs incurred by the

organization in

c. If a proceeding connection with such

referred to in subsection proceedings that are

b is commenced by the otherwise not allowable





71

A-21 A-87 A-122 Proposed Change



Federal Government and is under subparagraph b may

resolved by consent or be allowed to the extent

compromise pursuant to an specifically provided in

agreement entered into by such agreement.

the institution and the

Federal Government, then d. If a proceeding

the costs incurred by the referred to in

institution in connection subparagraph b is

with such proceedings commenced by a State,

that are otherwise not local or foreign

allowable under government, the

subsection b may be authorized Federal

allowed to the extent official may allow the

specifically provided in costs incurred by the

such agreement. organization for such

proceedings, if such

authorized official

determines that the costs

d. If a proceeding were incurred as a result

referred to in subsection of (1) a specific term or

b is commenced by a condition of a federally-

State, local or foreign sponsored award, or (2)

government, the specific written

authorized Federal direction of an

official may allow the authorized official of

costs incurred by the the sponsoring agency.

institution for such e. Costs incurred in

proceedings, if such connection with

authorized official proceedings described in

determines that the costs subparagraph b, but which

were incurred as a result are not made unallowable

of (1) a specific term or by that subparagraph, may

condition of a federally- be allowed by the Federal

sponsored agreement, or Government, but only to

(2) specific written the extent that:

direction of an

authorized official of (1) The costs are

the sponsoring agency. reasonable in relation to

the activities required

e. Costs incurred in to deal with the

connection with proceeding and the

proceedings described in underlying cause of

action;



72

A-21 A-87 A-122 Proposed Change



subsection b, but which

are not made unallowable (2) Payment of the costs

by that subsection, may incurred, as allowable

be allowed by the Federal and allocable costs, is

Government, but only to not prohibited by any

the extent that: other provision(s) of the

sponsored award;



(3) The costs are not

(1) The costs are

otherwise recovered from

reasonable in relation to

the Federal Government or

the activities required

a third party, either

to deal with the

directly as a result of

proceeding and the

the proceeding or

underlying cause of

otherwise; and,

action;

(4) The percentage of

(2) Payment of the costs costs allowed does not

incurred, as allowable exceed the percentage

and allocable costs, is determined by an

not prohibited by any authorized Federal

other provision(s) of the official to be

sponsored agreement; appropriate, considering

the complexity of the

(3) The costs are not litigation, generally

otherwise recovered from accepted principles

the Federal Government or governing the award of

a third party, either legal fees in civil

directly as a result of actions involving the

the proceeding or United States as a party,

otherwise; and, and such other factors as

may be appropriate. Such

(4) The percentage of percentage shall not

costs allowed does not exceed 80 percent.

exceed the percentage However, if an agreement

determined by an reached under

authorized Federal subparagraph c has

official to be explicitly considered

appropriate considering this 80 percent

the complexity of limitation and permitted

procurement litigation, a higher

generally accepted percentage, then the

principles governing the full amount of costs



73

A-21 A-87 A-122 Proposed Change



award of legal fees in resulting from that

civil actions involving agreement shall be

the United States as a allowable.

party, and such other

factors as may be f. Costs incurred by the

appropriate. Such organization in

percentage shall not connection with the

exceed 80 percent. defense of suits brought

However, if an agreement by its employees or ex-

reached under subsection employees under section 2

c has explicitly of the Major Fraud Act of

considered this 80 1988 (Pub. L. 100-700),

percent limitation and including the cost of all

permitted a higher relief necessary to make

percentage, then the full such employee whole,

amount of costs resulting where the organization

from that agreement shall was found liable or

be allowable. settled, are unallowable.



g. Costs of legal,

accounting, and

consultant services, and

f. Costs incurred by the

related costs, incurred

institution in connection

in connection with

with the defense of suits

defense against Federal

brought by its employees

Government claims or

or ex-employees under

appeals, antitrust suits,

section 2 of the Major

or the prosecution of

Fraud Act of 1988 (Pub.

claims or appeals against

L. 100-700), including

the Federal Government,

the cost of all relief

are unallowable.

necessary to make such

employee whole, where the

h. Costs of legal,

institution was found

accounting, and

liable or settled, are

consultant services, and

unallowable.

related costs, incurred

in connection with patent

infringement litigation,

g. Costs of legal, are unallowable unless

accounting, and otherwise provided for in

consultant services, and the sponsored awards.

related costs, incurred

in connection with i. Costs which may be



74

A-21 A-87 A-122 Proposed Change



defense against Federal unallowable under this

Government claims or paragraph, including

appeals, or the directly associated

prosecution of claims or costs, shall be

appeals against the segregated and accounted

Federal Government, are for by the organization

unallowable. separately. During the

pendency of any

h. Costs of legal, proceeding covered by

accounting, and subparagraphs b and f,

consultant services, and the Federal Government

related costs, incurred shall generally withhold

in connection with patent payment of such costs.

infringement litigation, However, if in the best

are unallowable unless interests of the Federal

otherwise provided for in Government, the Federal

the sponsored agreements. Government may provide

for conditional payment

i. Costs which may be upon provision of

unallowable under this adequate security, or

section, including other adequate assurance,

directly associated and agreements by the

costs, shall be organization to repay all

segregated and accounted unallowable costs, plus

for by the institution interest, if the costs

separately. During the are subsequently

pendency of any determined to be

proceeding covered by unallowable.

subsections b and f, the

Federal Government shall

generally withhold

payment of such costs.

However, if in the best

interests of the Federal

Government, the Federal

Government may provide

for conditional payment

upon provision of

adequate security, or

other adequate assurance,

and agreement by the

institution to repay all

unallowable costs, plus



75

A-21 A-87 A-122 Proposed Change



interest, if the costs

are subsequently

determined to be

unallowable.



12. Depreciation and use 15. Depreciation and use 11. Depreciation and use Depreciation and use

allowances. allowances. allowances. allowances.



The three circulars have

similar treatment for

many of the provisions

under depreciation and

use allowances. A few

minor changes would be

made where the three

circulars appear to

intend the same treatment

but use different

language.

Institutions may be a. Depreciation and use a. Compensation for the

compensated for the use allowances are means of use of buildings, other

of their buildings, allocating the cost of capital improvements, and

capital improvements, and fixed assets to periods equipment on hand may be

equipment, provided that benefiting from asset use. made through use

they are used, needed in Compensation for the use allowances or

the institutions' of fixed assets on hand depreciation. However,

activities, and properly may be made through except as provided in

allocable to sponsored depreciation or use subparagraph f, a

agreements. Such allowances. A combination combination of the two

compensation shall be of the two methods may not methods may not be used

made by computing either be used in connection with in connection with a

depreciation or use a single class of fixed single class of fixed

allowance. Use allowances assets (e.g., buildings, assets (e.g., buildings,

are the means of office equipment, computer office equipment,

providing such equipment, etc.) except as computer equipment,

compensation when provided in subsection g. etc.).

depreciation or other Except for enterprise

equivalent costs are not funds and internal service

computed. The allocation funds that are included as

for depreciation or use part of a State/local cost

allowance shall be made allocation plan, classes

in accordance with of assets shall be



76

A-21 A-87 A-122 Proposed Change



Section F.2. Depreciation determined on the same

and use allowances are basis used for the

computed applying the government-wide financial

following rules: statements.



This general introduction

to depreciation and use

allowances is not changed

for Circulars A-87 and A-

122.

Circular A-21 is changed

by adding a new sentence,

after the first sentence

and before the

introduction to the list,

as follows:

a. The computation of b. The computation of b. The computation of For an asset donated to

depreciation or use depreciation or use use allowances or the non-Federal entity by

allowances shall be based allowances shall be based depreciation shall be a third party, its fair

on the acquisition cost on the acquisition cost of based on the acquisition market value at the time

of the assets involved. the assets involved. Where cost of the assets of the donation shall be

For this purpose, the actual cost records have involved. The acquisition considered as the

acquisition cost will not been maintained, a cost of an asset donated acquisition cost.

exclude reasonable estimate of the to the organization by a

original acquisition cost third party shall be its

may be used. The value of fair market value at the

an asset donated to the time of the donation.

governmental unit by an

unrelated third party

shall be its fair market

value at the time of

donation. Governmental or

quasi-governmental

organizations located

within the same State

shall not be considered

unrelated third parties

for this purpose.



c. The computation of c. The computation of

depreciation or use use allowances or

depreciation will



77

A-21 A-87 A-122 Proposed Change



allowances will exclude: exclude:



(1) the cost of land; (1) The cost of land; (1) The cost of land;



(2) any portion of the (2) Any portion of the (2) Any portion of the

cost of buildings and cost of buildings and cost of buildings and

equipment borne by or equipment borne by or equipment borne by or

donated by the Federal donated by the Federal donated by the Federal

Government, irrespective Government irrespective of Government irrespective

of where title was where title was originally of where title was

originally vested or vested or where it originally vested or

where it is presently presently resides; and where it presently

located; and resides; and





(3) Any portion of the

(3) any portion of the cost of buildings and

cost of buildings and (3) Any portion of the equipment contributed by

equipment contributed by cost of buildings and or for the organization

or for the institution equipment contributed by in satisfaction of a

statutory matching Circular A-21.

where law or agreement or for the governmental

prohibit recovery. For an unit, or a related donor requirement.

The second sentence of

asset donated to the organization, in paragraph (3) would be

institution by a third satisfaction of a matching moved to the introductory

party, its fair market requirement. paragraph for

value at the time of the depreciation and use

donation shall be allowances.

considered as the

acquisition cost.



d. In the use of the e. Where the depreciation e. Where depreciation

depreciation method, the method is followed, method is followed,

following shall be

observed:



(1) The period of useful the period of useful

service or useful life service (useful life)

the period of useful established in each case

established in each case service (useful life)

for usable capital assets for usable capital assets

established in each case must take into

must take into for usable capital assets

consideration such consideration such

must take into factors as type of

factors as type of consideration such factors construction, nature of



78

A-21 A-87 A-122 Proposed Change



construction, nature of as type of construction, the equipment used,

the equipment, nature of the equipment technological

technological used, historical usage developments in the

developments in the patterns, technological particular program area,

particular area, and the developments, and the and the renewal and

renewal and replacement renewal and replacement replacement policies

policies followed for the policies of the followed for the

individual items or governmental unit followed individual items or

classes of assets for the individual items classes of assets

involved. or classes of assets involved.

involved.



The method of Circular A-21.

(2) The depreciation

method used to charge the depreciation used to

assign the cost of an Paragraph d.(1) would be

cost of an asset (or

asset (or group of changed. Instead of "or

group of assets) to

assets) to accounting useful life," the revised

accounting periods shall

periods shall reflect the provision would read

reflect the pattern of

pattern of consumption of "(useful life)" for

consumption of the asset

the asset during its consistency with A-87 and

during its useful life.

useful life. A-122.



In the absence of clear

In the absence of clear evidence indicating that

evidence indicating that the expected consumption

the expected consumption In the absence of clear of the asset will be

of the asset will be evidence indicating that significantly greater or

significantly greater in the expected consumption lesser in the early

the early portions than of the asset will be portions of its useful

in the later portions of significantly greater in life than in the later

its useful life, the the early portions than in portions, the straight-

straight-line method the later portions of its line method shall be

shall be presumed to be useful life, the straight presumed to be the

the appropriate method. line method of appropriate method.

depreciation shall be Depreciation methods once

used. used shall not be changed

Depreciation methods once unless approved in

used shall not be changed advance by the cognizant

unless approved in Depreciation methods once Federal agency. When the

advance by the cognizant used shall not be changed depreciation method is

Federal agency. The unless approved by the introduced for

depreciation methods used Federal cognizant or application to assets

to calculate the awarding agency. When the previously subject to a



79

A-21 A-87 A-122 Proposed Change



depreciation amounts for depreciation method is use allowance, the

F&A rate purposes shall introduced for application combination of use

be the same methods used to an asset previously allowances and

by the institution for subject to a use depreciation applicable

its financial statements. allowance, the annual to such assets must not

This requirement does not depreciation charge exceed the total

apply to institutions thereon may not exceed the acquisition cost of the

(e.g., public amount that would have assets.

institutions) which are resulted had the Circular A-122.

not required to record depreciation method been

depreciation by in effect from the date of The last sentence of

applicable generally acquisition of the asset. paragraph e. in circular

accepted accounting The combination of use A-122 would be moved to a

principles (GAAP). allowances and separate paragraph to be

depreciation applicable to consistent with circular

the asset shall not exceed A-87 to read as follows:

the total acquisition cost

of the asset or fair When the depreciation

market value at time of method is used for When the depreciation

donation. buildings, a building's method is used for

shell may be segregated buildings, a building's

f. When the depreciation from each building shell may be segregated

method is used for component (e.g., plumbing from each building

buildings, a building's system, heating, and air component (e.g., plumbing

shell may be segregated conditioning system, system, heating, and air

from the major component etc.) and each item conditioning system,

of the building (e.g., depreciated over its etc.) and each item

plumbing system, heating, estimated useful life; or depreciated over its

and air conditioning the entire building estimated useful life; or

system, etc.) and each (i.e., the shell and all the entire building

major component components) may be (i.e., the shell and all

depreciated over its treated as a single asset components) may be

estimated useful life, or and depreciated over a treated as a single asset

the entire building (i.e., single useful life. and depreciated over a

the shell and all single useful life.

components) may be treated

as a single asset and

depreciated over a single

useful life.









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A-21 A-87 A-122 Proposed Change









(3) Where the

depreciation method is

introduced to replace the

use allowance method,

depreciation shall be

computed as if the asset

had been depreciated over

its entire life (i.e.,

from the date the asset

was acquired and ready

for use to the date of

disposal or withdrawal

from service). The

aggregate amount of use

allowances and

depreciation attributable

to an asset (including

imputed depreciation

applicable to periods

prior to the conversion

to the use allowance

method as well as

depreciation after the

conversion) may be less

than, and in no case,

greater than the total

acquisition cost of the

asset.



(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



81

A-21 A-87 A-122 Proposed Change



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,

fume hoods, 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). d. Where the use

allowance method is

(5) Where the followed, the use

depreciation method is allowance for buildings

used for a particular and improvement

class of assets, no (including land

depreciation may be improvements, such as

allowed on any such paved parking areas,

assets that have outlived fences, and sidewalks)

their depreciable lives. will be computed at an

(See also subsection annual rate not exceeding



82

A-21 A-87 A-122 Proposed Change



c.(3)) two percent of

acquisition cost.

c. Under the use

allowance method, the

following shall be

observed:



(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 The use allowance for

computed at an annual equipment will be

rate not exceeding six computed at an annual

and two-thirds percent of rate not exceeding six

acquisition cost. Use and two-thirds percent of

allowance recovery is acquisition cost. When

limited to the d. Where the use the use allowance method

acquisition cost of the allowance method is is used for buildings,

assets. For donated followed, the use the entire building must

assets, use allowance is allowance for buildings be treated as a single

limited to the fair and improvements asset; the building's

market value of the (including land components (e.g.,

assets at the time of improvements, such as plumbing system, heating

donation. paved parking areas, and air conditioning,

fences, and sidewalks) etc.) cannot be

(2) In contrast to the will be computed at an segregated from the

depreciation method, the annual rate not exceeding building's shell.

entire building must be two percent of acquisition

treated as a single asset costs. The two percent

without separating its limitation, however, need

"shell" from other not be applied to





83

A-21 A-87 A-122 Proposed Change



building components under equipment which is merely

the use allowance method. attached or fastened to

The entire building must the building but not

be treated as a single permanently fixed to it

asset, and the two- and which is used as

percent use allowance furnishings or

limitation must be decorations or for

applied to all parts of specialized purposes

the building. (e.g., dentist chairs and Circulars A-21 and A-122.

dental treatment units,

counters, laboratory In the examples of

benches bolted to the equipment that is not

floor, dishwashers, fastened to a building,

carpeting, etc.). Such "modular furniture" would

The two-percent equipment will be be added.

limitation, however, need considered as not being

not be applied to permanently fixed to the

equipment or other assets building if it can be

that are merely attached removed without the need

or fastened to the for costly or extensive

building but not alterations or repairs to

permanently fixed and are the building or the

used as furnishings, equipment. Equipment that

decorations or for meets these criteria will

specialized purposes The use allowance for

equipment will be computed be subject to the six and

at an annual rate not two-thirds percent

(e.g., dentist chairs and equipment use allowance

exceeding 6 2/3 percent of

dental treatment units, limitation.

acquisition cost. When the

counters, laboratory

use allowance method is

benches bolted to the

used for buildings, the

floor, dishwashers, and

entire building must be

carpeting). Such

treated as a single asset;

equipment and assets will

the building's components

be considered as not

(e.g., plumbing system,

being permanently fixed

heating and air condition,

to the building if they

etc.) cannot be segregated

can be removed without

from the building's shell.

the need for costly or

extensive alterations or

repairs to the building

to make the space usable

for other purposes.

Equipment and assets



84

A-21 A-87 A-122 Proposed Change



which meet these criteria

The two percent

will be subject to the

limitation, however, need

six and two-thirds

not be applied to

percent equipment use

equipment which is merely

allowance.

attached or fastened to

the building but not

(3) A reasonable use

permanently fixed to it

allowance may be

and which is used as

negotiated for any assets

furnishings or decorations

that are considered to be

or for specialized

fully depreciated, after

purposes

taking into consideration

the amount of

(e.g., dentist chairs and

depreciation previously

dental treatment units,

charged to the Federal

counters, laboratory

Government, the estimated

benches bolted to the

useful life remaining at

floor, dishwashers,

the time of negotiation,

modular furniture,

the effect of any

carpeting, etc.). Such

increased maintenance

equipment will be

charges, decreased

considered as not being

efficiency due to age,

permanently fixed to the

and any other factors

building if it can be

pertinent to the

removed without the

utilization of the asset

destruction of, or need

for the purpose

for costly or extensive

contemplated.

alterations or repairs, to

the building or the

(4) Notwithstanding

equipment. Equipment that

subsection(3), once an

meets these criteria will

educational institution

be subject to the 6 2/3

converts from one cost

percent equipment use g. Charges for use

recovery methodology to

allowance limitation. allowances or

another, acquisition

costs not recovered may depreciation must be

not be used in the supported by adequate

calculation of the use g. A reasonable use property records and

allowance in allowance may be physical inventories must

subsection(3). negotiated for any assets be taken at least once

that are considered to be every two years (a

d. Except as otherwise fully depreciated, after statistical sampling

provided in subsections b taking into consideration basis is acceptable) to

the amount of depreciation ensure that assets exist



85

A-21 A-87 A-122 Proposed Change



and c, a combination of previously charged to the and are usable and

the depreciation and use government, the estimated needed. When the

allowance methods may not useful life remaining at depreciation method is

be used, in like the time of negotiation, followed, adequate

circumstances, for a the effect of any depreciation records

single class of assets increased maintenance indicating the amount of

(e.g., buildings, office charges, decreased depreciation taken each

equipment, and computer efficiency due to age, and period must also be

equipment). any other factors maintained.

pertinent to the

e. Charges for use utilization of the asset

allowances or for the purpose

depreciation must be contemplated.

supported by adequate

property records, and

physical inventories must

be taken at least once

every two years to ensure

that the assets exist and

are usable, used, and

needed. Statistical

sampling techniques may

be used in taking these

inventories. In addition,

when the depreciation

method is used, adequate

depreciation records

showing the amount of

depreciation taken each

period must also be

maintained.



f. This section applies

to the largest college

and university recipients

of Federal research and

development funds as

displayed in Exhibit A.



(1) Institutions shall

expend currently, or

reserve for expenditure





86

A-21 A-87 A-122 Proposed Change



within the next five

years, the portion of F&A

cost payments made for

depreciation or use

allowances under

sponsored research h. Charges for use

agreements, consistent allowances or depreciation

with Section F.2, to must be supported by

acquire or improve adequate property records.

research facilities. This Physical inventories must

provision applies only to be taken at least once

Federal agreements which every two years (a

reimburse F&A costs at a statistical sampling

full negotiated rate. approach is acceptable) to

These funds may only be ensure that assets exist,

used for (a) liquidation and are in use.

of the principal of debts Governmental units will

incurred to acquire manage equipment in

assets that are used accordance with State laws

directly for organized and procedures. When the

research activities, or depreciation method is

(b) payments to acquire, followed, depreciation

repair, renovate, or records indicating the

improve buildings or amount of depreciation

equipment directly used taken each period must

for organized research. also be maintained.

For buildings or

equipment not exclusively

used for organized

research activity, only

appropriately

proportionate amounts

will be considered to

have been expended for

research facilities.



(2) An assurance that an

amount equal to the

Federal reimbursements

has been appropriately

expended or reserved to

acquire or improve

research facilities shall



87

A-21 A-87 A-122 Proposed Change



be submitted as part of

each F&A cost proposal

submitted to the

cognizant Federal agency

which is based on costs

incurred on or after

October 1, 1991. This

assurance will cover the

cumulative amounts of

funds received and

expended during the

period beginning after

the period covered by the

previous assurance and

ending with the fiscal

year on which the

proposal is based. The

assurance shall also

cover any amounts

reserved from a prior

period in which the funds

received exceeded the

amounts expended.



14. Employee morale, 17. Employee morale, 13. Employee morale, Employee morale, health,

health, and welfare costs health, and welfare costs. health, and welfare costs and welfare costs.

and credits. and credits.

The first paragraph for

all three circulars would

be the same and would

read as follows:

The costs of house The costs of house a. The costs of employee

publications, health or publications, health or information publications,

first-aid clinics and/or The costs of health or first-aid clinics, and/or health or first-aid

infirmaries, recreational first-aid clinics and/or infirmaries, recreational clinics and/or

activities, food infirmaries, recreational activities, employees' infirmaries, recreational

services, employees' facilities, employee counseling services, and activities, employee

counseling services, and counseling services, other expenses incurred counseling services, and

other expenses incurred employee information in accordance with the any other expenses

in accordance with the publications, and any organization's incurred in accordance

institution's related expenses incurred with the non-Federal

in accordance with a established practice or entity's established





88

A-21 A-87 A-122 Proposed Change



governmental unit's custom for the practice or custom for

established practice or

improvement of working the improvement of

custom for the

policy are allowable. conditions, employer- working conditions,

improvement of working

Income generated from any employee relations, employer-employee

conditions, employer-

of these activities will employee morale, and relations, employee

employee relations,

be offset against employee performance are morale, and employee

employee morale, and

expenses. allowable. performance are

employee performance, are

allowable.

allowable.



The remaining paragraphs

would appear as follows:

Such costs will be [A-21 & A-122:

Such costs will be b. Such costs will be

equitably apportioned to

equitably apportioned to equitably apportioned to

all activities of the

all activities of the all activities of the

institution. Income

organization. Income non-Federal entity.

generated from any of

generated from any of Income generated from any

these activities will be

these activities will be of these activities will

credited to the cost

credited to the cost be credited to the cost

thereof unless such

thereof unless such thereof unless such

income has been

income has been income has been

irrevocably set over to

irrevocably set over to irrevocably set over to

employee welfare

employee welfare employee welfare

organizations.

organizations. organizations.]

[A-87:

b. Such costs will be

equitably apportioned to

all activities of the

non-Federal entity.

Income generated from any

of these activities will

be offset against

expenses.]

Circular A-21 would have

an additional paragraph

c., to read as follows:



c. Losses resulting from

operating food services

are allowable only if the

non-Federal entity's



89

A-21 A-87 A-122 Proposed Change



objective is to operate

such services on a break-

even basis. Losses

Losses resulting from sustained because of

operating food services operating objectives

are allowable only if the other than the above are

institution's objective allowable only (a) where

is to operate such the non-Federal entity

services on a break-even can demonstrate unusual

basis. Losses sustained circumstances, and (b)

because of operating with the approval of the

objectives other than the cognizant Federal agency.

above are allowable only

(a) where the institution

can demonstrate unusual

circumstances, and (b)

with the approval of the

cognizant Federal agency.



15. Entertainment costs. 18. Entertainment. 14. Entertainment costs. Entertainment costs.



Costs of entertainment, Costs of entertainment, Costs of amusement, All three circulars would

including amusement, including amusement, diversion, social use the same standard

diversion, and social diversion, and social activities, ceremonials, language as follows:

activities and any costs activities and any costs and costs relating

directly associated with directly associated with thereto, such as meals, Costs of entertainment,

such costs (such as such costs (such as lodging, rentals, including amusement,

tickets to shows or tickets to shows or sports transportation, and diversion, and social

sports events, meals, events, meals, lodging, gratuities are activities and any costs

lodging, rentals, rentals, transportation, unallowable (but see directly associated with

transportation, and and gratuities) are paragraphs 13 and 30). such costs (such as

gratuities) are unallowable. tickets to shows or

unallowable. sports events, meals,

lodging, rentals,

transportation, and

gratuities) are

unallowable.



16. Equipment and other 19. Equipment and other 15. Equipment and other Equipment and other

capital expenditures. capital expenditures. capital expenditures. capital expenditures.



Generally, the provisions

of the three circulars



90

A-21 A-87 A-122 Proposed Change



would be made more

consistent with one

another. However, some

differences would remain

which are noted where

they appear.

Paragraph a and would be

the same for all three

circulars, to read as

follows:

a. As used in this a. For purposes of this

a. For purposes of this a. As used in this section

paragraph, the following subsection, the following

subsection, the following the following terms have

terms have the meanings definitions apply:

definitions apply: the meanings as set forth

set forth below:

below:



(2) "Capital (1) "Capital expenditure" (2) Acquisition cost (1) "Capital

expenditures" means the means the cost of the means the net invoice Expenditures” means

cost of the asset asset including the cost unit price of an item of expenditures for the

including the cost to put to put it in place. equipment, including the acquisition cost of

it in place. Capital Capital expenditure for cost of any capital assets

expenditure for equipment means the net modifications, (equipment, original

equipment, for example, invoice price of the attachments, accessories, complements of low cost

means the net invoice equipment, including the or auxiliary apparatus equipment, buildings,

price of the equipment, cost of any modifications, necessary to make it land), or expenditures to

including the cost of any attachments, accessories, usable for the purpose make improvements to

modifications, or auxiliary apparatus for which it is acquired. capital assets that

attachments, accessories, necessary to make it Ancillary charges, such materially increase their

or auxiliary apparatus usable for the purpose for as taxes, duty, value or useful life.

necessary to make it which it is acquired. protective in-transit Acquisition cost means

usable for the purpose Ancillary charges, such as insurance, freight, and the cost of the asset

for which it is acquired. taxes, duty, protective in installation shall be including the cost to put

Ancillary charges, such transit insurance, included in or excluded it in place. Acquisition

as taxes, duty, freight, and installation from acquisition cost in cost for equipment, for

protective in transit may be included in, or accordance with the example, means the net

insurance, freight, and excluded from, capital organization's regular invoice price of the

installation may be expenditure cost in written accounting equipment, including the

included in, or excluded accordance with the practices. cost of any

from, capital expenditure governmental unit's modifications,

cost in accordance with regular accounting attachments, accessories,

the institution's regular practices. or auxiliary apparatus

accounting practices. necessary to make it

usable for the purpose



91

A-21 A-87 A-122 Proposed Change



for which it is acquired.

Ancillary charges, such

as taxes, duty,

protective in transit

insurance, freight, and

installation may be

included in, or excluded

from the acquisition cost

in accordance with the

non-Federal entity's

regular accounting

practices.

Circulars A-21 and A-122.



The provisions relating

to the unamortized

portions of equipment

would be moved from the

definitions in paragraph

a. to a new paragraph

b(6). A new sentence is

added at the end of the

"Equipment," definition.

The three circulars would

read as follows:

(1) "Equipment" means an (2) "Equipment" means an (1) "Equipment" means an (2) "Equipment" means an

article of nonexpendable, article of nonexpendable, article of nonexpendable, article or an original

tangible personal tangible personal property tangible personal complement of

property having a useful having a useful life of property having a useful nonexpendable, tangible

life of more than one more than one year and an life of more than one personal property having

year and an acquisition acquisition cost which year and an acquisition a useful life of more

cost which equals or equals the lesser of (a) cost which equals or than one year and an

exceeds the lesser of the the capitalization level exceeds the lesser of (a) acquisition cost which

capitalization level established by the the capitalization level equals or exceeds the

established by the governmental unit for established by the lesser of the

organization for financial statement organization for the capitalization level

financial statement purposes, or (b) $5000. financial statement established by the non-

purposes, or $5000. The purposes, or (b) $5000. Federal entity for

unamortized portion of The unamortized portion financial statement

any equipment written off of any equipment written purposes, or $5000. An

as a result of a change off as a result of a original complement of

in capitalization levels change in capitalization low cost equipment means



92

A-21 A-87 A-122 Proposed Change



may be recovered by levels may be recovered a group of items acquired

continuing to claim the by continuing to claim for the initial

otherwise allowable use the otherwise allowable outfitting of a tangible

allowances or use allowances or capital asset or an

depreciation on the depreciation on the operational unit, or a

equipment, or by equipment, or by new addition to either.

amortizing the amount to amortizing the amount to The items in the group

be written off over a be written off over a individually cost less

period of years period of years as than the minimum amount

negotiated with the negotiated with the established by the

cognizant agency. Federal cognizant agency. capitalization level for

the classes of assets

acquired but in the

aggregate they represent

a material investment

(e.g. information

technology systems). The

group, as a complement,

is expected to be held

for continued service

beyond the current

period. Initial

outfitting of the unit is

completed when the unit

is ready and available

for normal operations.

The definitions of

special purpose equipment

and general purpose

equipment would be added

to A-87.

In paragraph (a)(4)

“automatic data

processing” would be

changed to “information

technology equipment and

systems” for all three

circulars. The examples

of special purpose

equipment in A-122 would

be added to A-21 and the

new definition for A-87.





93

A-21 A-87 A-122 Proposed Change



As revised, the three

circulars would read as

follows:

(3) "Special purpose (3) Special purpose (3) "Special purpose

equipment" means equipment means equipment equipment" means

equipment which is used which is usable only for equipment which is used

only for research, research, medical, only for research,

medical, scientific, or scientific, or technical medical, scientific, or

other technical activities. Examples of other technical

activities. special purpose equipment activities. Examples of

include microscopes, x- special purpose

ray machines, surgical equipment include

instruments, and microscopes, x-ray

spectrometers. machines, surgical

instruments, and

spectrometers.



(4) General purpose (4) "General purpose

equipment means equipment equipment" means

(4) "General purpose which is usable for other equipment, which is not

equipment" means than research, medical, limited to research,

equipment, the use of scientific, or technical medical, scientific or

which is not limited only activities, whether or other technical

to research, medical, not special modifications activities. Examples

scientific or other are needed to make them include office equipment

technical activities. suitable for a particular and furnishings, modular

Examples of general purpose. Examples of offices, telephone

purpose equipment include general purpose equipment networks, information

office equipment and include office equipment technology equipment and

furnishings, air and furnishings, air systems, air conditioning

conditioning equipment, conditioning equipment, equipment, reproduction

reproduction and printing reproduction and printing and printing equipment,

equipment, motor equipment, motor and motor vehicles.

vehicles, and automatic vehicles, and automatic

data processing data processing

equipment. equipment.



The definition of "other

capital assets" in A-87

would be removed because

it would be included in

the definition of



94

A-21 A-87 A-122 Proposed Change



"capital expenditures,"

as would be revised by

this proposal.

The larger scope in A-21,

including "buildings and

land," would be included

in both A-87 and A-122.

The introduction to

paragraph b. and

subparagraph b.(1) for

all three circulars would

read as follows:

(3) "Other capital b. The following rules

assets" mean buildings, of allowability shall

land, and improvements to apply to equipment and

buildings or land that other capital

b. The following rules of materially increase their expenditures:

allowability shall apply value or useful life.

to equipment and other

capital expenditures: (1) Capital expenditures

b. (1) Capital for general purpose

expenditures for general equipment, buildings, and

(1) Capital expenditures purpose equipment are

for general purpose land are unallowable as

unallowable as a direct direct charges, except

equipment, buildings, and cost except with the

land are unallowable as where approved in advance

prior approval of the by the awarding agency.

direct charges, except awarding agency.

where approved in advance

by the sponsoring agency.



b. Capital expenditures

which are not charged

directly to a Federal

award may be recovered

through use allowances or

depreciation on buildings,

capital improvements, and

equipment (see section

15). See also section 38

for allowability of rental

costs for buildings and

equipment.





95

A-21 A-87 A-122 Proposed Change



The rule in both A-21

and A-122 regarding

allowability of special

purpose equipment would

be added to A-87.

Paragraph b. of A-87

would be removed because

it is included in

paragraph b.(5).

(2) Expenditures for (2) Capital expenditures (2) Capital expenditures

special purpose equipment for special purpose for special purpose

are allowable as direct equipment are allowable equipment are allowable

charges with the approval as direct costs, provided as direct costs,

of the sponsoring agency. that items with a unit provided that items with

cost of $5000 or more a unit cost of $5000 or

have the prior approval more have the prior

of awarding agency. approval of awarding

agency.

Circular A-87. Paragraphs

c. and d. would be

removed because the

content of paragraph c.

would be incorporated

into paragraphs b. (1),

(2), and (3) and the

content of paragraph d.

would be contained in the

revised paragraph b. (2),

as proposed above.

c. Capital expenditures

for equipment, including

replacement equipment,

other capital assets, and

improvements which

materially increase the

value or useful life of

equipment or other capital

assets are allowable as a

direct cost when approved

by the awarding agency.

Federal awarding agencies



96

A-21 A-87 A-122 Proposed Change



are authorized at their

option to waive or

delegate this approval

requirement.



d. Items of equipment

with an acquisition cost

of less than $5000 are

considered to be supplies

and are allowable as

direct costs of Federal

awards without specific

awarding agency approval.



The provisions of

paragraph e. in A-87

would be moved to a new

paragraph b.(6).

e. The unamortized

portion of any equipment

written off as a result of

a change in capitalization

levels may be recovered by

(1) continuing to claim

the otherwise allowable

use allowances or

depreciation charges on

the equipment or by (2)

amortizing the amount to

be written off over a

period of years negotiated

with the cognizant agency.



Circular A-122.



Paragraph c. in Circular

A-122 would be removed

because the content would

be moved to paragraph

b.(1).



All circulars.



97

A-21 A-87 A-122 Proposed Change





The substance of

paragraphs b.(3) in

Circular A-21 and d. in

Circular A-122 would be

added to A-87 and

consistent language would

be used for all three

circulars. A new

paragraph (4) would be

included in all three

circulars to clarify that

charges must be made

during the period they

are incurred. Paragraphs

(3) and (4) in all three

circulars would read as

follows:

c. Capital expenditures (3) Capital

for land or buildings are expenditures for

unallowable as a direct improvements to land,

cost except with the buildings, or equipment

prior approval of the which materially

awarding agency. increase their value or

useful life are

d. Capital expenditures unallowable as a direct

for improvements to land, cost except with the

buildings, or equipment prior approval of the

which materially increase awarding agency.

their value or useful

(4) When approved as a

life are unallowable as a

direct charge pursuant to

direct cost except with

(1), (2), and (3) above,

the prior approval of the

capital expenditures will

awarding agency.

be charged in the period

in which the expenditure

is incurred.





f. When replacing The introduction in

equipment purchased in paragraph b.(4) in A-21

whole or in part with would be modified to read

Federal funds, the "Equipment and other



98

A-21 A-87 A-122 Proposed Change



governmental unit may use capital . . .

the equipment to be expenditures." This

replaced as a trade-in or paragraph would be

sell the property and use redesignated paragraph

the proceeds to offset the b.(5). The similar

cost of the replacement paragraph e. in A-122

property. also would be

redesignated paragraph

b.(5). The substance of

this paragraph is carried

several places in A-87.

For consistency, it would

be separately stated in a

paragraph b.(5) as in

circulars A-21 and A-122,

so all three circulars

would read as follows:



(5) Equipment and other

capital expenditures are

unallowable as indirect

costs. However, see

section 15 for

allowability of use

allowances or

depreciation on

buildings, capital

improvements, and

equipment. Also, see

paragraph 38 for

allowability of rental

costs for land,

buildings, and equipment.



All Circulars.



The provisions regarding

the unamortized portion

of equipment that is

written off which are

currently in the

definition of "Equipment"

for circulars A-21 and A-



99

A-21 A-87 A-122 Proposed Change



122 and paragraph f. in

A-87 would be moved to a

new paragraph b.(6) to

read as follows:

e. Equipment and other

capital expenditures are (6) The unamortized

unallowable as indirect portion of any equipment

costs. However, see written off as a result

paragraph 11 for of a change in

allowability of use capitalization levels may

allowances or be recovered by

depreciation on continuing to claim the

buildings, capital otherwise allowable use

improvements, and allowances or

(3) Capital expenditures equipment. Also, see depreciation on the

for improvements to land, paragraph 46 for equipment, or by

buildings, or equipment allowability of rental amortizing the amount to

which materially increase costs for land, be written off over a

their value or useful buildings, and equipment. period of years

life are unallowable as negotiated with the

direct charges, except cognizant agency.

where approved in advance

by the sponsoring agency. Circular A-87.



Paragraph f. in A-87

would be redesignated

paragraph b.(7) but not

added to A-21 and A-122.









100

A-21 A-87 A-122 Proposed Change









101

A-21 A-87 A-122 Proposed Change









(4) Capital expenditures

are unallowable as F&A

costs. See Section J.12

for allowability of

depreciation or use

allowances on buildings,

capital improvements, and

equipment. Also see

Section J.38 for

allowability of rental

costs on land, buildings,

and equipment.



18. Fines and penalties. 20. Fines and penalties. 16. Fines and penalties. Fines and penalties.

Costs resulting from Fines, penalties, damages, Costs of fines and

violations of, or failure and other settlements penalties resulting from No Changes.

of the institution to resulting from violations violations of, or failure

comply with, Federal, (or alleged violations) of the organization to

State, and local or of, or failure of the comply with Federal,

foreign laws and governmental unit to State, and local laws and

regulations are comply with, Federal, regulations are

unallowable, except when State, local, or Indian unallowable except when

incurred as a result of tribal laws and incurred as a result of

compliance with specific regulations are compliance with specific



102

A-21 A-87 A-122 Proposed Change



provisions of the unallowable except when provisions of an award or

sponsored agreement, or incurred as a result of instructions in writing

instructions in writing compliance with specific from the awarding agency.

from the authorized provisions of the Federal

official of the award or written

sponsoring agency instructions by the

authorizing in advance awarding agency

such payments. authorizing in advance

such payments.



22. [Interest], fund 21. Fund raising and [Interest,] fund raising Fund raising and

raising, and investment investment management and investment management investment management

management costs. costs. costs costs.



The treatment of interest

would treated separately

in A-21 and A-122, as is

currently done in A-87.

See "Interest" later in

this chart.

b. Costs of organized a. Costs of organized fund b. Costs of organized Regarding the costs of

fund raising, including raising, including fundraising, including fund raising and

financial campaigns, financial campaigns, financial campaigns, investment management

endowment drives, solicitation of gifts and endowment drives, costs, paragraph a. in A-

solicitation of gifts and bequests, and similar solicitation of gifts and 87 is not changed.

bequests, and similar expenses incurred to raise bequests, and similar Paragraphs b. in A-21 and

expenses incurred solely capital or obtain expenses incurred solely A-122 are amended by

to raise capital or contributions are to raise capital or removing the word

obtain contributions, are unallowable, regardless of obtain contributions are "solely."

unallowable. the purpose for which the unallowable.

funds will be used. Paragraph c. in circulars

A-21 and A-122 would be

revised to provide the

same text as in paragraph

b. of A-87, to read as

follows:



c. Costs of investment Costs of investment

counsel and staff and counsel and staff and

c. Costs of investment similar expenses incurred similar expenses incurred

b. Costs of investment

counsel and staff and solely to enhance income to enhance income from

counsel and staff and

similar expenses incurred from investments are investments are

similar expenses incurred



103

A-21 A-87 A-122 Proposed Change



solely to enhance income to enhance income from unallowable. unallowable. However,

from investments are investments are such costs associated

unallowable. unallowable. However, such with investments covering

costs associated with pension, self-insurance,

investments covering or other funds which

pension, self-insurance, include Federal

or other funds which participation allowed by

include Federal this Circular are

participation allowed by allowable.

this Circular are

allowable. Paragraph c. of A-87 and

paragraph d. of A-122

would eliminate the

internal cross

references, to read as

follows:



d. Fundraising and Fund raising and

investment activities investment activities

shall be allocated an shall be allocated an

appropriate share of appropriate share of

indirect costs under the indirect costs.

c. Fund raising and conditions described in

investment activities subparagraph B.3 of

shall be allocated an Attachment A.

appropriate share of

indirect costs under the

conditions described in

subsection C.3.b. of No Change to sub-section

Attachment A. d. of A-21.









d. Costs related to the

physical custody and

control of monies and

securities are allowable.



33. Profits and losses on 22. Gains and losses on 40. Profits and losses on Profits and losses on



104

A-21 A-87 A-122 Proposed Change



disposition of plant disposition of depreciable disposition of disposition of

equipment or other property and other capital depreciable property or depreciable property and

capital assets. assets and substantial other capital assets. other capital assets [and

relocation of Federal substantial relocation of

programs. Federal programs].



No change would be made

to the substance of the

circulars. However, the

title for the A-87

treatment would be

changed by substituting

"Profits" for "Gains" so

the provisions regarding

this treatment would

appear in the same

general place in all

three circulars.

a. (1) Gains and losses a. (1) Gains and losses a. (1) Gains and losses

on the sale, retirement, on the sale, retirement, on sale, retirement, or

or other disposition of or other disposition of other disposition of

depreciable property depreciable property shall depreciable property

shall be included in the be included in the year in shall be included in the

year in which they occur which they occur as year in which they occur

as credits or charges to credits or charges to the as credits or charges to

the asset cost asset cost grouping(s) in cost grouping(s) in which

grouping(s) in which the which the property was the depreciation

property was included. included. The amount of applicable to such

The amount of the gain or the gain or loss to be property was included.

loss to be included as a included as a credit or The amount of the gain or

credit or charge to the charge to the appropriate loss to be included as a

appropriate asset cost asset cost grouping(s) credit or charge to the

grouping(s) shall be the shall be the difference appropriate cost

difference between the between the amount grouping(s) shall be the

amount realized on the realized on the property difference between the

property and the un- and the un-depreciated amount realized on the

depreciated basis of the basis of the property. property and the un-

property. depreciated basis of the

property.



(2) Gains and losses on

(2) Gains and losses on the disposition of

(2) Gains and losses on



105

A-21 A-87 A-122 Proposed Change



the disposition of the disposition of depreciable property

depreciable property depreciable property shall shall not be recognized

shall not be recognized not be recognized as a as a separate credit or

as a separate credit or separate credit or charge charge under the

charge under the under the following following conditions: Circular A-122.

following conditions: conditions:

(a) The gain or loss is Paragraph a.(2)(a) in A-

processed through a 122 would be amended by

depreciation reserve removing the word

(a) The gain or loss is (a) The gain or loss is

account and is reflected "reserve" for consistency

processed through a processed through a

in the depreciation with the other two

depreciation account and depreciation account and

allowable under paragraph circulars.

is reflected in the is reflected in the

11.

depreciation allowable depreciation allowable

under Section J.12. under sections 15 and 19.

(b) The property is

given in exchange as part

of the purchase price of

(b) The property is given (b) The property is given a similar item and the

in exchange as part of in exchange as part of the gain or loss is taken

the purchase price of a purchase price of a into account in

similar item and the gain similar item and the gain determining the

or loss is taken into or loss is taken into depreciation cost basis

account in determining account in determining the of the new item.

the depreciation cost depreciation cost basis of

basis of the new item. the new item. (c) A loss results from

the failure to maintain

permissible insurance,

except as otherwise

(c) A loss results from (c) A loss results from provided in subparagraph

the failure to maintain the failure to maintain 22.a(3).

permissible insurance, permissible insurance,

except as otherwise except as otherwise (d) Compensation for the

provided in Section provided in subsection use of the property was

J.21.d. 25.d. provided through use

allowances in lieu of

(d) Compensation for the (d) Compensation for the depreciation in

use of the property was use of the property was accordance with paragraph

provided through use provided through use 11.

allowances in lieu of allowances in lieu of

depreciation. depreciation.







106

A-21 A-87 A-122 Proposed Change







b. Substantial relocation

of Federal awards from a

facility where the Federal

Government participated in

the financing to another

facility prior to the

expiration of the useful

life of the financed

facility requires Federal

agency approval. The

extent of the relocation,

the amount of the Federal

participation in the (e) Gains and losses

financing, and the arising from mass or

depreciation charged to extraordinary sales,

date may require retirements, or other

negotiation of space dispositions shall be

charges for Federal considered on a case-by-

awards. case basis.





b. Gains or losses of

any nature arising from

the sale or exchange of

property other than the

property covered in

subparagraph a shall be

excluded in computing

award costs.







c. Gains or losses of any

nature arising from the

sale or exchange of

property other than the

property covered in

subsection a., e.g., land

or included in the fair

b. Gains or losses of any market value used in any



107

A-21 A-87 A-122 Proposed Change



nature arising from the adjustment resulting from

sale or exchange of a relocation of Federal

property other than the awards covered in

property covered in subsection b. shall be

subsection a shall be excluded in computing

excluded in computing Federal award costs.

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."



21. Insurance and 25. Insurance and 22. Insurance and Insurance and

indemnification. indemnification. indemnification. indemnification.



a. Insurance includes

insurance which the

organization is required No Change.

to carry, or which is

approved, under the terms

of the award and any

other insurance which the

organization maintains in

connection with the





108

A-21 A-87 A-122 Proposed Change



general conduct of its

operations. This

paragraph does not apply

to insurance which

represents fringe

benefits for employees

(see subparagraphs 7.f

and 7.h(2)).



(1) Costs of insurance

required or approved, and

maintained, pursuant to

the award are allowable.



(2) Costs of other

insurance maintained by

the organization in

a. Costs of insurance a. Costs of insurance connection with the

required or approved, and required or approved and general conduct of its

maintained, pursuant to maintained, pursuant to operations are allowable

the sponsored agreement, the Federal award, are subject to the following

are allowable. allowable. limitations:

b. Costs of other b. Costs of other (a) Types and extent of

insurance maintained by insurance in connection coverage shall be in

the institution in with the general conduct accordance with sound

connection with the of activities are business practice and the

general conduct of its allowable subject to the rates and premiums shall

activities, are allowable following limitations: be reasonable under the

subject to the following circumstances.

limitations:

(b) Costs allowed for

(1) types and extent and business interruption or

(1) Types and extent and

cost of coverage must be other similar insurance

cost of coverage are in

in accordance with sound shall be limited to

accordance with the

institutional practice; exclude coverage of

governmental unit's policy

and sound business management fees.

practice.

(c) Costs of insurance

or of any provisions for

a reserve covering the

risk of loss or damage to





109

A-21 A-87 A-122 Proposed Change



Federal property are

allowable only to the

extent that the

organization is liable

for such loss or damage.









(2) Costs of insurance or

of contributions to any

reserve covering the risk

of loss of, or damage to,

Federal Government

property are unallowable

except to the extent that

the awarding agency has

specifically required or

approved such costs.







(2) costs of insurance

or of any contributions

to any reserve covering

the risk of loss of or

damage to federally-owned

property are unallowable,

except to the extent that

the Federal Government

has specifically required

or approved such costs;

and



(3) costs of insurance on c. Actual losses which

the lives of officers or could have been covered by

trustees are unallowable permissible insurance

except where such (through a self-insurance

insurance is part of an program or otherwise) are

employee plan which is unallowable, unless

not unduly restricted. expressly provided for in





110

A-21 A-87 A-122 Proposed Change



the Federal award or as

described below. However,

the Federal Government

will participate in actual

losses of a self insurance

fund that are in excess of

reserves. Costs incurred

because of losses not

covered under nominal

deductible insurance

coverage provided in

keeping with sound

management practice, and

minor losses not covered

by insurance, such as

spoilage, breakage, and

disappearance of small

hand tools, which occur in

the ordinary course of

operations, are allowable.



d. Contributions to a

reserve for certain self-

insurance programs

including workers

compensation, unemployment

compensation, and

severance pay are

allowable subject to the

following provisions:



(1) The type of coverage

and the extent of coverage (d) Provisions for a

and the rates and premiums reserve under a self-

would have been allowed insurance program are

had insurance (including allowable to the extent

reinsurance) been that types of coverage,

c. Contributions to a purchased to cover the extent of coverage,

reserve for a self- risks. However, provision rates, and premiums would

insurance program are for known or reasonably have been allowed had

allowable, to the extent estimated self-insured insurance been purchased

that the types of liabilities, which do not to cover the risks.

become payable for more



111

A-21 A-87 A-122 Proposed Change



coverage, extent of than one year after the However, provision for

coverage, and the rates provision is made, shall known or reasonably

and premiums would have not exceed the discounted estimated self-insured

been allowed had present value of the liabilities, which do not

insurance been purchased liability. The rate used become payable for more

to cover the risks. for discounting the than one year after the

liability must be provision is made, shall

d. Actual losses which determined by giving not exceed the present

could have been covered consideration to such value of the liability.

by permissible insurance factors as the

(whether through governmental unit's

purchased insurance or settlement rate for those

self-insurance) are liabilities and its

unallowable, unless investment rate of return.

expressly provided for in

the sponsored agreement,

except that costs

incurred because of

losses not covered under

existing deductible

clauses for insurance

coverage provided in

keeping with sound

management practice as

well as minor losses not

covered by insurance,

such as spoilage,

breakage and

disappearance of small

hand tools, which occur

in the ordinary course of

operations, are

allowable.

(e) Costs of insurance

e. Indemnification (2) Earnings or investment

on the lives of trustees,

includes securing the income on reserves must be

officers, or other

institution against credited to those

employees holding

liabilities to third reserves.

positions of similar

persons and other losses

responsibilities are

not compensated by (3) Contributions to allowable only to the

insurance or otherwise. reserves must be based on extent that the insurance

The Federal Government is sound actuarial principles represents additional

obligated to indemnify



112

A-21 A-87 A-122 Proposed Change



the institution only to using historical compensation (see

the extent expressly experience and reasonable subparagraph 7.f(4)). The

provided for in the assumptions. Reserve cost of such insurance

sponsored agreement, levels must be analyzed when the organization is

except as provided in and updated at least identified as the

subsection d. biennially for each major beneficiary is

risk being insured and unallowable.

take into account any

reinsurance, coinsurance,

etc. Reserve levels

related to employee-

related coverages will

normally be limited to the

value of claims (a)

submitted and adjudicated

but not paid, (b)

submitted but not

adjudicated, and (c)

incurred but not

submitted. Reserve levels

in excess of the amounts

based on the above must be

identified and justified

in the cost allocation

plan or indirect cost rate

proposal.



(4) Accounting records,

actuarial studies, and

cost allocations (or

billings) must recognize

any significant

differences due to types

of insured risk and losses

generated by the various

insured activities or

agencies of the

governmental unit. If

individual departments or

agencies of the

governmental unit

experience significantly

different levels of claims



113

A-21 A-87 A-122 Proposed Change



for a particular risk,

those differences are to

be recognized by the use

of separate allocations or

other techniques resulting

in an equitable

allocation.







(5) Whenever funds are

transferred from a self-

insurance reserve to other

accounts (e.g., general

fund), refunds shall be

made to the Federal

Government for its share

of funds transferred,

including earned or

imputed interest from the

date of transfer.



e. Actual claims paid to

or on behalf of employees

or former employees for

workers' compensation,

unemployment compensation,

severance pay, and similar

employee benefits (e.g.,

subsection 11.f. for post

retirement health

benefits), are allowable

in the year of payment



provided (1) the

governmental unit follows

a consistent costing

policy and (2) they are

allocated as a general

administrative expense to

all activities of the

governmental unit.





114

A-21 A-87 A-122 Proposed Change







f. Insurance refunds shall

be credited against

insurance costs in the

year the refund is

received.



f. Insurance against (f) Insurance against

defects. Costs of defects. Costs of

insurance with respect to insurance with respect to

any costs incurred to any costs incurred to

correct defects in the correct defects in the

institution's materials organization's materials

or workmanship are or workmanship are

unallowable. unallowable.

(g) Medical liability

g. Medical liability (malpractice) insurance.

(malpractice) insurance Medical liability

is an allowable cost of insurance is an allowable

research programs only to cost of Federal research

the extent that the programs only to the

research involves human extent that the Federal

subjects. Medical research programs involve

liability insurance costs human subjects or

shall be treated as a training of participants

direct cost and shall be in research techniques.

assigned to individual Medical liability

projects based on the insurance costs shall be

manner in which the treated as a direct cost

insurer allocates the and shall be assigned to

risk to the population individual projects based

covered by the insurance. on the manner in which

the insurer allocates the

risk to the population

covered by the insurance.



(3) Actual losses which

could have been covered

by permissible insurance

(through the purchase of

insurance or a self-



115

A-21 A-87 A-122 Proposed Change



insurance program) are

unallowable unless

expressly provided for in

the award, except:



(a) Costs incurred

because of losses not

covered under nominal

deductible insurance

coverage provided in

keeping with sound

business practice are

allowable.



(b) Minor losses not

covered by insurance,

such as spoilage,

breakage, and

disappearance of

supplies, which occur in

the ordinary course of

operations, are

allowable.



b. Indemnification

includes securing the

organization against

liabilities to third

persons and any other

loss or damage, not

compensated by insurance

or otherwise. The Federal

Government is obligated

to indemnify the

organization only to the

extent expressly provided

in the award.

g. Indemnification

includes securing the

governmental unit against

liabilities to third

persons and other losses



116

A-21 A-87 A-122 Proposed Change



not compensated by

insurance or otherwise.

The Federal Government is

obligated to indemnify the

governmental unit only to

the extent expressly

provided for in the

Federal award, except as

provided in subsection d.



h. Costs of commercial

insurance that protects

against the costs of the

contractor for correction

of the contractor's own

defects in materials or

workmanship are

unallowable.



22. Interest, [fund 26. Interest. 23. Interest, Interest.

raising, and investment [fundraising, and

management costs]. investment management

costs].

Fund raising and

investment management

sections of A-21 and A-

122 have been moved to a

separate paragraph.

The revised Interest

section for A:21 would

read as follows.

a. Interest.



(1) Costs incurred for Costs incurred for

a. Costs incurred for a. Costs incurred for interest on borrowed interest on borrowed

interest on borrowed interest on borrowed capital or temporary use capital, temporary use of

capital or temporary use capital or the use of a of endowment funds, endowment funds, or the

of endowment funds, governmental unit's own however represented, are use of the non-Federal

however represented, are funds, however unallowable. entity’s own funds,

unallowable, except as represented, are

however represented, are

indicated in subsection unallowable except as

unallowable. However,

e. specifically provided in

interest on debt incurred



117

A-21 A-87 A-122 Proposed Change



subsection b. or after July 1, 1982 to

b. Costs of organized

authorized by Federal acquire or replace

fund raising, including

legislation. capital assets (including

financial campaigns,

renovations, alterations,

endowment drives,

equipment, land, and

solicitation of gifts and

capital assets acquired

bequests, and similar

through capital leases),

expenses incurred solely

acquired after July 1,

to raise capital or

1982 and used in support

obtain contributions, are

of Federal awards is

unallowable.

allowable, provided that:

c. Costs of investment [Sections b.-d. were

counsel and staff and moved to fund raising.

similar expenses incurred Section e. would be

solely to enhance income deleted and the following

from investments are text would be a. (1)-(4)]

unallowable.

(1) For facilities

d. Costs related to the costing over $500,000,

physical custody and the non-Federal entity

control of monies and shall prepare, prior to

securities are allowable. acquisition or

replacement of the

e. The cost of interest facility, a lease-

paid to an external party purchase analysis in

is allowable where However, interest on debt accordance with the

associated with the incurred after the provisions of Sec___.30

following assets, effective date of this through____.37 of OMB

provided the assets are revision to acquire or Circular A-110, which

used in support of replace capital assets shows that a financed

sponsored agreements, and (including renovations, purchase, including a

the total cost (including alterations, equipment, capital lease is less

depreciation or use land, and capital assets costly to the non-Federal

allowance, operation and acquired through capital entity than other

maintenance costs, leases), acquired after operating lease

interest, etc.) does not the effective date of alternatives, on a net

exceed the rental cost of b. Financing costs this revision and used in present value basis.

comparable assets in the (including interest) paid support of sponsored Discount rates used shall

same locality. or incurred on or after agreements is allowable, be equal to the non-

the effective date of this provided that: Federal entity's

(1) Buildings acquired or Circular associated with anticipated interest

completed on or after the otherwise allowable (a) For facilities rates and shall be no



118

A-21 A-87 A-122 Proposed Change



July 1, 1982. costs of building acquisitions (excluding higher than the fair

acquisition, construction, renovations and market rate available to

(2) Major reconstruction or fabrication, alterations) costing over the non-Federal entity

and remodeling of reconstruction or $10 million where the from an unrelated ("arm's

existing buildings remodeling completed on or Federal Government's length") third-party. The

completed on or after after October 1, 1980 is reimbursement is expected lease-purchase analysis

July 1, 1982. allowable, subject to the to equal or exceed 40 shall include a

conditions in (1)-(4). percent of an asset's comparison of the net

(3) Acquisition or cost, the non-profit present value of the

fabrication of capital Financing costs (including organization prepares, projected total cost

equipment (as defined in interest) paid or incurred prior to the acquisition comparisons of both

Section J.16, Equipment on or after the effective or replacement of the alternatives over the

and other capital date of this Circular capital asset(s), a period the asset is

expenditures) completed associated with otherwise justification that expected to be used by

on or after July 1, 1982, allowable costs of demonstrates the need for the non-Federal entity.

costing $10,000 or more, equipment is allowable, the facility in the The cost comparisons

if agreed to by the subject to the conditions conduct of federally- associated with

Federal Government. in (1)-(4). sponsored activities. purchasing the facility

Upon request, the needs shall include the

f. Interest on debt (1) The financing is justification must be estimated purchase price,

incurred after the provided (from other than provided to the Federal anticipated operating and

effective date of this tax or user fee sources) agency with cost maintenance costs

revision to acquire, by a bona fide third party cognizance authority as a (including property

replace or renovate external to the prerequisite to the taxes, if applicable) not

capital assets (including governmental unit; continued allowability of included in the debt

renovations, alterations, interest on debt and financing, less any

equipment, land, and (2) The assets are used depreciation related to estimated asset salvage

capital assets acquired in support of Federal the facility. The needs value at the end of the

through capital leases), awards; justification for the defined period. The cost

acquired after the acquisition of a facility comparison for a capital

effective date of this (3) Earnings on debt should include, at a lease shall include the

revision and used in service reserve funds or minimum, the following: estimated total lease

support of sponsored interest earned on payments, any estimated

agreements is subject to borrowed funds pending A statement of purpose bargain purchase option,

the following conditions: payment of the and justification for operating and maintenance

construction or facility acquisition or costs, and taxes not

(1) For facilities acquisition costs are used replacement included in the capital

costing over $500,000, to offset the current leasing arrangement, less

the educational period's cost or the A statement as to why any estimated credits due

institution shall capitalized interest, as current facilities are under the lease at the

prepare, prior to the appropriate. Earnings not adequate end of the defined

acquisition or subject to being reported period. Projected

A statement of planned operating lease costs



119

A-21 A-87 A-122 Proposed Change



replacement of the to the Federal Internal future use of the shall be based on the

facility, a lease- Revenue Service under facility anticipated cost of

purchase analysis in arbitrage requirements are leasing comparable

accordance with §___.44 excludable. A description of the facilities at fair market

of OMB Circular A-110, financing agreement to be rates under rental

which shows that a arranged for the facility agreements that would be

financed purchase, renewed or reestablished

including a capital lease (4) Governmental units A summary of the over the period defined

is less costly to the will negotiate the amount building contract with above, and any expected

educational institution of allowable interest estimated cost maintenance costs and

than other operating whenever cash payments information and statement allowable property taxes

lease alternatives, on a (interest, depreciation, of source and use of to be borne by the non-

net present value basis. use allowances, and funds Federal entity directly

Discount rates used shall contributions) exceed the or as part of the lease

be equal to the governmental unit's cash A schedule of planned arrangement.

educational institution's payments and other occupancy dates

anticipated interest (2) The actual interest

contributions attributable

rates and shall be no (b) For facilities cost claimed is

to that portion of real

higher than the fair costing over $500,000, predicated upon interest

property used for Federal

market rate available to the non-profit rates that are no higher

awards.

the educational organization prepares, than the fair market rate

institution from an prior to the acquisition available to the non-

unrelated ("arm's or Federal entity from an

length") third-party. The replacement of the unrelated (arm's length)

lease-purchase analysis facility, a third party.

shall include a lease/purchase analysis

comparison of the net in accordance with the (3) Investment earnings,

present value of the provisions of Sec. __.30 including interest income

projected total cost through __.37 of Circular on bond or loan

comparisons of both A-110, which shows that a principal, pending

alternatives over the financed purchase or payment of the

period the asset is capital lease is less construction or

expected to be used by costly to the acquisition costs, are

the educational organization than other used to offset allowable

institution. The cost leasing alternatives, on interest cost. Arbitrage

comparisons associated a net present value earnings reportable to

with purchasing the basis. Discount rates the Internal Revenue

facility shall include used should be equal to Service are not required

the estimated purchase the non-profit to be offset against

price, anticipated organization's allowable interest costs.

operating and maintenance anticipated interest (4) Reimbursements are

costs (including property rates and should be no limited to the least

taxes, if applicable) not higher than the fair



120

A-21 A-87 A-122 Proposed Change



included in the debt market rate available to costly alternative based

financing, less any the non-profit on the total cost

estimated asset salvage organization from an analysis required under

value at the end of the unrelated ("arm's subsection (1). For

defined period. The cost length") third-party. The example, if an operating

comparison for a capital lease/purchase analysis lease is determined to be

lease shall include the shall include a less costly than

estimated total lease comparison of the net purchasing through debt

payments, any estimated present value of the financing, then

bargain purchase option, projected total cost reimbursement is limited

operating and maintenance comparisons of both to the amount determined

costs, and taxes not alternatives over the if leasing had been used.

included in the capital period the asset is In all cases where a

leasing arrangement, less expected to be used by lease-purchase analysis

any estimated credits due the non-profit is required to be

under the lease at the organization. The cost performed, Federal

end of the defined comparisons associated reimbursement shall be

period. Projected with purchasing the based upon the least

operating lease costs facility shall include expensive alternative.

shall be based on the the estimated purchase

anticipated cost of price, anticipated b. Non-Federal entities

leasing comparable operating and maintenance are also subject to the

facilities at fair market costs (including property following conditions:

rates under rental taxes, if applicable) not (1) Interest on debt

agreements that would be included in the debt incurred to finance or

renewed or reestablished financing, less any refinance assets acquired

over the period defined estimated asset salvage before or reacquired

above, and any expected value at the end of the after May 8, 1996 is not

maintenance costs and period defined above. The allowable.

allowable property taxes cost comparison for a (2) Interest attributable

to be borne by the capital lease shall to fully depreciated

educational institution include the estimated assets is unallowable.

directly or as part of total lease payments, any (3) For debt arrangements

the lease arrangement. estimated bargain over $1 million incurred

purchase option, after May 8, 1996 unless

(2) The actual interest operating and maintenance the non-Federal entity

cost claimed is costs, and taxes not makes an initial equity

predicated upon interest included in the capital contribution to the asset

rates that are no higher leasing arrangement, less purchase of 25 percent or

than the fair market rate any estimated credits due more, non-Federal

available to the under the lease at the entities shall reduce

educational institution end of the period defined claims for interest cost

from an unrelated (arm's above. Projected by an amount equal to



121

A-21 A-87 A-122 Proposed Change



length) third party. operating lease costs imputed interest earnings

shall be based on the on excess cash flow,

(3) Investment earnings, anticipated cost of which is to be calculated

including interest income leasing comparable as follows. Annually,

on bond or loan facilities at fair market non-Federal entities

principal, pending rates under rental shall prepare a

payment of the agreements that would be cumulative (from the

construction or renewed or reestablished inception of the project)

acquisition costs, are over the period defined report of monthly cash

used to offset allowable above, and any expected flows that includes

interest cost. Arbitrage maintenance costs and inflows and outflows,

earnings reportable to allowable property taxes regardless of the funding

the Internal Revenue to be borne by the non- source. Inflows consist

Service are not required profit organization of depreciation expense,

to be offset against directly or as part of amortization of

allowable interest costs. the lease arrangement. capitalized construction

interest, and annual

(4) Reimbursements are (c) The actual interest interest cost. For cash

limited to the least cost claimed is flow calculations, the

costly alternative based predicated upon interest annual inflow figures

on the total cost rates that are no higher shall be divided by the

analysis required under than the fair market rate number of months in the

subsection (1). For available to the non- year (i.e., usually 12)

example, if an operating profit organization from that the building is in

lease is determined to be an unrelated ("arm's service for monthly

less costly than length") third party. amounts. Outflows consist

purchasing through debt of initial equity

financing, then (d) Investment earnings, contributions, debt

reimbursement is limited including interest principal payments (less

to the amount determined income, on bond or loan the pro rata share

if leasing had been used. principal, pending attributable to the

In all cases where a payment of the unallowable costs of

lease-purchase analysis construction or land) and interest

is required to be acquisition costs, are payments. Where

performed, Federal used to offset allowable cumulative inflows exceed

reimbursement shall be interest cost. Arbitrage cumulative outflows,

based upon the least earnings reportable to interest shall be

expensive alternative. the Internal Revenue calculated on the excess

Service are not required inflows for that period

(5) Educational to be offset against and be treated as a

institutions are also allowable interest costs. reduction to allowable

subject to the following interest cost. The rate

(e) Reimbursements are of interest to be used to



122

A-21 A-87 A-122 Proposed Change



conditions: limited to the least compute earnings on

costly alternative based excess cash flows shall

(a) For debt arrangements on the total cost be the three-month

over $1 million, unless analysis required under Treasury bill closing

the educational subparagraph (b). For rate as of the last

institution makes an example, if an operating business day of that

initial equity lease is determined to be month.

contribution to the asset less costly than (4) Substantial

purchase of 25 percent or purchasing through debt relocation of federally-

more, educational financing, then sponsored activities from

institutions shall reduce reimbursement is limited a facility financed by

claims for interest cost to the amount determined indebtedness, the cost of

by an amount equal to if leasing had been used. which was funded in whole

imputed interest earnings In all cases where a or part through Federal

on excess cash flow, lease/purchase analysis reimbursements, to

which is to be calculated is performed, Federal another facility prior to

as follows. Annually, reimbursement shall be the expiration of a

educational institutions based upon the least period of 20 years

shall prepare a expensive alternative. requires notice to the

cumulative (from the cognizant agency. The

inception of the project) (f) Non-profit extent of the relocation,

report of monthly cash organizations are also the amount of the Federal

flows that includes subject to the following participation in the

inflows and outflows, conditions: financing, and the

regardless of the funding depreciation and interest

source. Inflows consist (i) Interest on debt charged to date may

of depreciation expense, incurred to finance or require negotiation

amortization of refinance assets acquired and/or downward

capitalized construction before or reacquired adjustments of

interest, and annual after the effective date replacement space charged

interest cost. For cash of this Circular is not to Federal programs in

flow calculations, the allowable. the future.

annual inflow figures (5) The allowable costs

shall be divided by the (ii) For debt to acquire facilities and

number of months in the arrangements over $1 equipment are limited to

year (i.e., usually 12) million, unless the non- a fair market value

that the building is in profit organization makes available to the non-

service for monthly an initial equity Federal entity from an

amounts. Outflows consist contribution to the asset unrelated (arm's length)

of initial equity purchase of 25 percent or third party.

contributions, debt more, non-profit

principal payments (less organizations shall c. The following

the pro rata share reduce claims for definitions are to be



123

A-21 A-87 A-122 Proposed Change



attributable to the interest expense by an used for purposes of this

unallowable costs of amount equal to imputed section:

land) and interest interest earnings on (1) “Re-acquired” assets

payments. Where excess cash flow, which means assets held by the

cumulative inflows exceed is to be calculated as non-Federal entity prior

cumulative outflows, follows. Annually, non- to May 8, 1996 that have

interest shall be profit organizations again come to be held by

calculated on the excess shall prepare a the non-Federal entity,

inflows for that period cumulative (from the whether through

and be treated as a inception of the project) repurchase or

reduction to allowable report of monthly cash refinancing. It does not

interest cost. The rate flows that includes include assets acquired

of interest to be used to inflows and outflows, to replace older assets.

compute earnings on regardless of the funding (2) "Initial equity

excess cash flows shall source. Inflows consist contribution" means the

be the three-month of depreciation expense, amount or value of

Treasury bill closing amortization of contributions made by

rate as of the last capitalized construction non-Federal entities for

business day of that interest, and annual the acquisition of the

month. interest expense. For asset prior to occupancy

cash flow calculations, of facilities.

(b) Substantial the annual inflow figures (3) "Asset costs" means

relocation of federally- shall be divided by the the capitalizable costs

sponsored activities from number of months in the of an asset, including

a facility financed by year (usually 12) that construction costs,

indebtedness, the cost of the building is in acquisition costs, and

which was funded in whole service for monthly other such costs

or part through Federal amounts. Outflows consist capitalized in accordance

reimbursements, to of initial equity with Generally Accepted

another facility prior to contributions, debt Accounting Principles

the expiration of a principal payments (less (GAAP).

period of 20 years the pro rata share

requires notice to the attributable to the A-87, 26.a would remain

cognizant agency. The unallowable costs of the same and 26.b. would

extent of the relocation, land) and interest changed as follows:

the amount of the Federal payments. Where

participation in the cumulative inflows exceed b. Financing

financing, and the cumulative outflows, costs(including interest)

depreciation and interest interest shall be paid or incurred which

charged to date may calculated on the excess are associated with the

require negotiation inflows for that period otherwise allowable costs

and/or downward and be treated as a of building acquisition,

adjustments of reduction to allowable construction, or



124

A-21 A-87 A-122 Proposed Change



replacement space charged interest expense. The fabrication,

to Federal programs in rate of interest to be reconstruction or

the future. used to compute earnings remodeling completed on

on excess cash flows or after October 1, 1980

(c) The allowable costs shall be the three month is allowable subject to

to acquire facilities and Treasury Bill closing the conditions in (1) -

equipment are limited to rate as of the last (4). Financing costs

a fair market value business day of that (including interest) paid

available to the month. or incurred on or after

educational institution September 1, 1995 for

from an unrelated (arm's (iii) Substantial land or associated with

length) third party. relocation of federally- otherwise allowable costs

sponsored activities from of equipment is

(6) The following a facility financed by allowable, subject to the

definitions are to be indebtedness, the cost of conditions in (1) - (4).

used for purposes of this which was funded in whole

section: or part through Federal (1) The financing is

reimbursements, to provided (from other than

(a) "Initial equity another facility prior to tax or user fee sources)

contribution" means the the expiration of a by a bona fide third

amount or value of period of 20 years party external to the

contributions made by requires notice to the non-Federal entity;

non-Federal entities for Federal cognizant agency.

(2) The assets are used

the acquisition of the The extent of the

in support of Federal

asset prior to occupancy relocation, the amount of

awards;

of facilities. the Federal participation

in the financing, and the (3) Earnings on debt

(b) "Asset costs" means depreciation and interest service reserve funds or

the capitalizable costs charged to date may interest earned on

of an asset, including require negotiation borrowed funds pending

construction costs, and/or downward payment of the

acquisition costs, and adjustments of construction or

other such costs replacement space charged acquisition costs are

capitalized in accordance to Federal programs in used to offset the

with Generally Accepted the future. current period's cost or

Accounting Principles the capitalized interest,

(GAAP). (iv) The allowable costs as appropriate. Earnings

to acquire facilities and subject to being reported

equipment are limited to to the Federal Internal

a fair market value Revenue Service under

available to the non- arbitrage requirements

profit organization from are excludable.

an unrelated ("arm's



125

A-21 A-87 A-122 Proposed Change



length") third party. (4) Interest attributable

to fully depreciated

(2) For non-profit assets is unallowable.

organizations subject to

"full coverage"' under A-122,23.a.(1) would

the Cost Accounting change as follows:

Standards (CAS) as Costs incurred for

defined at 48 CFR interest on borrowed

9903.201, the interest capital, temporary use of

allowability provisions endowment funds, or the

of subparagraph a do not use of the non-Federal

apply. Instead, these entity’s own funds,

organizations' sponsored however represented, are

agreements are subject to unallowable. However,

CAS 414 (48 CFR interest on debt incurred

9903.414), cost of money after September 29, 1995

as an element of the cost to acquire or replace

of facilities capital, capital assets (including

and CAS 417 (48 CFR renovations, alterations,

9903.417), cost of money equipment, land, and

as an element of the cost capital assets acquired

of capital assets under through capital leases),

construction. acquired after September

29, 1995 and used in

(3) The following support of Federal awards

definitions are to be is allowable, provided

used for purposes of that:

paragraph 23:

[23.(1)(a) - (e) would be

(a) Re-acquired assets unchanged.]

means assets held by the (f) Non-profit

non-profit organization organizations are also

prior to the effective subject to the following

date of this revision conditions:

that have again come to (i) Interest on debt

be held by the incurred to finance or

organization, whether refinance assets acquired

through repurchase or before or reacquired

refinancing. It does not after September 29, 1995,

include assets acquired is not allowable.

to replace older assets. (ii) Interest

attributable to fully

(b) Initial equity depreciated assets is



126

A-21 A-87 A-122 Proposed Change



contribution means the unallowable. [New]

amount or value of (iii) For debt

contributions made by arrangements over $1

non-Federal entities for million, unless the non-

the acquisition of the profit organization makes

asset or prior to an initial equity

occupancy of facilities. contribution to the asset

purchase of 25 percent or

(c) Asset costs means more, non-profit

the capitalizable costs organizations shall

of an asset, including reduce claims for

construction costs, interest expense by an

acquisition costs, and amount equal to imputed

other such costs interest earnings on

capitalized in accordance excess cash flow, which

with GAAP. is to be calculated as

follows. Annually, non-

profit organizations

shall prepare a

cumulative (from the

inception of the project)

report of monthly cash

flows that includes

inflows and outflows,

regardless of the funding

source. Inflows consist

of depreciation expense,

amortization of

capitalized construction

interest, and annual

interest expense. For

cash flow calculations,

the annual inflow figures

shall be divided by the

number of months in the

year (usually 12) that

the building is in

service for monthly

amounts. Outflows consist

of initial equity

contributions, debt

principal payments (less

the pro rata share



127

A-21 A-87 A-122 Proposed Change



attributable to the

unallowable costs of

land) and interest

payments. Where

cumulative inflows exceed

cumulative outflows,

interest shall be

calculated on the excess

inflows for that period

and be treated as a

reduction to allowable

interest expense. The

rate of interest to be

used to compute earnings

on excess cash flows

shall be the three month

Treasury Bill closing

rate as of the last

business day of that

month.

(iv) Substantial

relocation of federally-

sponsored activities from

a facility financed by

indebtedness, the cost of

which was funded in whole

or part through Federal

reimbursements, to

another facility prior to

the expiration of a

period of 20 years

requires notice to the

Federal cognizant agency.

The extent of the

relocation, the amount of

the Federal participation

in the financing, and the

depreciation and interest

charged to date may

require negotiation

and/or downward

adjustments of

replacement space charged



128

A-21 A-87 A-122 Proposed Change



to Federal programs in

the future.



(v) The allowable costs

to acquire facilities and

equipment are limited to

a fair market value

available to the non-

profit organization from

an unrelated ("arm's

length") third party.



[The remaining sections

of (f) are unchanged

except for reference

sequencing.]



24. Lobbying. 27. Lobbying. 25. Lobbying. Lobbying.



The treatment of lobbying

costs in each of the

circulars would not

change. However, the

executive lobbying

treatment from A-21 would

be moved to the end of

the lobbying treatment

for all three circulars.

The new paragraph would

be section h in A-21,

paragraph b in A-87 and

paragraph d in A-122, to

read as follows:

Reference is made to the The cost of certain [h][b][d] Costs incurred

common rule published at influencing activities in attempting to

55 FR 6736 (2/26/90), and associated with obtaining improperly influence

OMB's governmentwide grants, contracts, either directly or

guidance, amendments to cooperative agreements, or indirectly, an employee

OMB's governmentwide loans is an unallowable or officer of the

guidance, and OMB's cost. Lobbying with Executive Branch of the

clarification notices respect to certain grants, Federal Government to

give consideration or to



129

A-21 A-87 A-122 Proposed Change



published at 54 FR 52306 contracts, cooperative act regarding a Federal

(12/20/89), 61 FR 1412 agreements, and loans award or a regulatory

(1/19/96), 55 FR 24540 shall be governed by the matter are unallowable.

(6/15/90) and 57 FR 1772 common rule, "New Improper influence means

(1/15/92), respectively. Restrictions on Lobbying" any influence that

In addition, the published at 55 FR 6736 induces or tends to

following restrictions (February 26, 1990), induce a Federal employee

shall apply: including definitions, and or officer to give

the Office of Management consideration or to act

and Budget "Government- regarding a federal award

wide Guidance for New or regulatory matter on

Restrictions on Lobbying" any basis other than the

and notices published at merits of the matter.

54 FR 52306 (December 20,

1989), 55 FR 24540 (June

15, 1990), and 57 FR 1772

(January 15, 1992),

respectively. a. Notwithstanding other

provisions of this

Circular, costs

associated with the

a. Notwithstanding other following activities are

provisions of this unallowable:

Circular, costs

associated with the (1) Attempts to

following activities are influence the outcomes of

unallowable: any Federal, State, or

local election,

referendum, initiative,

(1) Attempts to

or similar procedure,

influence the outcomes of

through in kind or cash

any Federal, State, or

contributions,

local election,

endorsements, publicity,

referendum, initiative,

or similar activity;

or similar procedure,

through in kind or cash

(2) Establishing,

contributions,

administering,

endorsements, publicity,

contributing to, or

or similar activity;

paying the expenses of a

political party,

(2) Establishing,

campaign, political

administering,

action committee, or

contributing to, or

other organization



130

A-21 A-87 A-122 Proposed Change



paying the expenses of a established for the

political party, purpose of influencing

campaign, political the outcomes of

action committee, or elections;

other organization

established for the (3) Any attempt to

purpose of influencing influence: (i) The

the outcomes of introduction of Federal

elections; or State legislation; or

(ii) the enactment or

(3) Any attempt to modification of any

influence (i) the pending Federal or State

introduction of Federal legislation through

or State legislation, communication with any

(ii) the enactment or member or employee of the

modification of any Congress or State

pending Federal or State legislature (including

legislation through efforts to influence

communication with any State or local officials

member or employee of the to engage in similar

Congress or State lobbying activity), or

legislature (including with any Government

efforts to influence official or employee in

State or local officials connection with a

to engage in similar decision to sign or veto

lobbying activity, or enrolled legislation;

(iii) any government

(4) Any attempt to

official or employee in

influence: (i) The

connection with a

introduction of Federal

decision to sign or veto

or State legislation; or

enrolled legislation;

(ii) the enactment or

modification of any

(4) Any attempt to

pending Federal or State

influence (i) the

legislation by preparing,

introduction of Federal

distributing or using

or State legislation; or

publicity or propaganda,

(ii) the enactment or

or by urging members of

modification of any

the general public or any

pending Federal or State

segment thereof to

legislation by preparing,

contribute to or

distributing, or using

participate in any mass

publicity or propaganda,

demonstration, march,

or by urging members of



131

A-21 A-87 A-122 Proposed Change



the general public, or rally, fundraising drive,

any segment thereof, to lobbying campaign or

contribute to or letter writing or

participate in any mass telephone campaign; or

demonstration, march,

rally, fund raising (5) Legislative liaison

drive, lobbying campaign activities, including

or letter writing or attendance at legislative

telephone campaign; or sessions or committee

hearings, gathering

(5) Legislative liaison information regarding

activities, including legislation, and

attendance at legislative analyzing the effect of

sessions or committee legislation, when such

hearings, gathering activities are carried on

information regarding in support of or in

legislation, and knowing preparation for

analyzing the effect of an effort to engage in

legislation, when such unallowable lobbying.

activities are carried on b. The following

in support of or in activities are excepted

knowing preparation for from the coverage of

an effort to engage in subparagraph a:

unallowable lobbying.

(1) Providing a

b. The following technical and factual

activities are excepted presentation of

from the coverage of information on a topic

subsection a: directly related to the

performance of a grant,

(1) Technical and factual contract or other

presentations on topics agreement through hearing

directly related to the testimony, statements or

performance of a grant, letters to the Congress

contract, or other or a State legislature,

agreement (through or subdivision, member,

hearing testimony, or cognizant staff member

statements, or letters to thereof, in response to a

the Congress or a State documented request

legislature, or (including a

subdivision, member, or Congressional Record

cognizant staff member notice requesting

testimony or statements



132

A-21 A-87 A-122 Proposed Change



thereof), in response to for the record at a

a documented request regularly scheduled

(including a hearing) made by the

Congressional Record recipient member,

notice requesting legislative body or

testimony or statements subdivision, or a

for the record at a cognizant staff member

regularly scheduled thereof; provided such

hearing) made by the information is readily

recipient member, obtainable and can be

legislative body or readily put in

subdivision, or a deliverable form; and

cognizant staff member further provided that

thereof, provided such costs under this section

information is readily for travel, lodging or

meals are

obtainable and can be unallowable unless

readily put in incurred to offer

deliverable form, and testimony at a regularly

further provided that scheduled Congressional

costs under this section hearing pursuant to a

for travel, lodging or written request for such

meals are unallowable presentation made by the

unless incurred to offer Chairman or Ranking

testimony at a regularly Minority Member of the

scheduled Congressional Committee or Subcommittee

hearing pursuant to a conducting such hearing.

written request for such (2) Any lobbying made

presentation made by the unallowable by

Chairman or Ranking subparagraph a(3) to

Minority Member of the influence State

Committee or Subcommittee legislation in order to

conducting such hearings; directly reduce the cost,

or to avoid material

impairment of the

organization's authority

(2) Any lobbying made to perform the grant,

unallowable by subsection contract, or other

a.(3) to influence State agreement.

legislation in order to

directly reduce the cost, (3) Any activity

or to avoid material specifically authorized





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A-21 A-87 A-122 Proposed Change



impairment of the by statute to be

institution's authority undertaken with funds

to perform the grant, from the grant, contract,

contract, or other or other agreement.

agreement; or

c. (1) When an

organization seeks

reimbursement for

(3) Any activity

indirect costs, total

specifically authorized

lobbying costs shall be

by statute to be

separately

undertaken with funds

identified in the

from the grant, contract,

indirect cost rate

or other agreement.

proposal, and thereafter

treated as other

unallowable activity

costs in accordance with

c. When an institution the procedures of

seeks reimbursement for subparagraph B.3 of

F&A costs, total lobbying Attachment A.

costs shall be separately

identified in the F&A (2) Organizations shall

cost rate proposal, and submit, as part of the

thereafter treated as annual indirect cost rate

other unallowable proposal, a certification

activity costs in that the requirements and

accordance with the standards of this

procedures of Section paragraph have been

B.1.d. complied with.



(3) Organizations shall

maintain adequate records

to demonstrate

that the determination of

d. Institutions shall costs as being allowable

submit as part of their or unallowable pursuant

annual F&A cost rate to paragraph 25 complies

proposal a certification with the requirements of

that the requirements and this Circular.

standards of this section (4) Time logs,

have been complied with. calendars, or similar

records shall not be

required to be created



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A-21 A-87 A-122 Proposed Change



for purposes of complying

with this paragraph

during any particular

e. Institutions shall calendar month when:

maintain adequate records

to demonstrate that the (1) the employee engages

determination of costs as in lobbying (as defined

being allowable or in subparagraphs (a) and

unallowable pursuant to (b)) 25 percent or less

this section complies of the employee's

with the requirements of compensated hours of

this Circular. employment during that

calendar month, and

f. Time logs, calendars,

or similar records shall (2) within the preceding

not be required to be five-year period, the

created for purposes of organization has not

complying with this materially misstated

section during any allowable or unallowable

particular calendar month costs of any nature,

when: including legislative

lobbying

(1) the employee engages

in lobbying (as defined costs. When conditions

in subsections a and b) (1) and (2) are met,

25 percent or less of the organizations are not

employee's compensated required to establish

hours of employment records to support the

during that calendar allowability of claimed

month, and costs in addition to

records already required

(2) within the preceding or maintained. Also, when

five-year period, the conditions (1) and (2)

institution has not are met, the absence of

materially misstated time logs, calendars, or

similar records will not

allowable or unallowable serve as a basis for

costs of any nature, disallowing costs by

including legislative contesting estimates of

lobbying costs. When lobbying time spent by

conditions (1) and (2) employees during a

are met, institutions are calendar month.

not required to establish



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A-21 A-87 A-122 Proposed Change



records to support the (5) Agencies shall

allowability of claimed establish procedures for

costs in addition to resolving in advance, in

records already required consultation with OMB,

or maintained. Also, when any significant questions

conditions (1) and (2) or disagreements

are met, the absence of concerning the

time logs, calendars, or interpretation or

similar records will not application of paragraph

serve as a basis for 25. Any such advance

disallowing costs by resolution shall be

contesting estimates of binding in any subsequent

lobbying time spent by settlements, audits or

employees during a investigations with

calendar month. respect to that grant or

contract for purposes of

interpretation of this

Circular; provided,

g. Agencies shall however, that this shall

establish procedures for not be construed to

resolving in advance, in prevent a contractor or

consultation with OMB, grantee from contesting

any significant questions the lawfulness of such a

or disagreements determination.

concerning the

interpretation or

application of this

section. Any such advance

resolutions shall be

binding in any subsequent

settlements, audits, or

investigations with

respect to that grant or

contract for purposes of

interpretation of this

Circular, provided,

however, that this shall

not be construed to

prevent a contractor or

grantee from contesting

the lawfulness of such a

determination.





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A-21 A-87 A-122 Proposed Change



25. Losses on other 26. Losses on other Losses on other awards.

sponsored agreements or awards.

contracts.



Any excess of costs over Any excess of costs over No Change.

income under any other income on any award is

sponsored agreement or unallowable as a cost of

contract of any nature is any other award. This

unallowable. This includes, but is not

includes, but is not limited to, the

limited to, the organization's

institution's contributed contributed portion by

portion by reason of reason of cost sharing

cost-sharing agreements agreements or any under-

or any under-recoveries recoveries through

through negotiation of negotiation of lump sums

flat amounts for F&A for, or ceilings on,

costs. indirect costs.



26. Maintenance and 28. Maintenance, 27. Maintenance and Maintenance and repair

repair costs. operations, and repairs. repair costs. costs.



Circular A-87.



No Change.



Circulars A-21 & A-122.



Circulars A-21 & A-122

would be revised to read

as follows:

Unless prohibited by law, Maintenance and repair

the cost of utilities, costs.

insurance, security, Costs incurred for

Costs incurred for

janitorial services, necessary maintenance,

necessary maintenance,

Costs incurred for elevator service, upkeep repair, or upkeep of

repair, or upkeep of

necessary maintenance, of grounds, necessary buildings and equipment

buildings and equipment

repair or upkeep of maintenance, normal (including Federal

(including Federal

property (including repairs and alterations, property unless otherwise

property unless otherwise

Federal property unless and the like are allowable provided for) which

provided for) which

otherwise provided for) to the extent that they: neither add to the

neither add to the



137

A-21 A-87 A-122 Proposed Change



which neither add to the (1) keep property permanent value of the permanent value of the

permanent value of the (including Federal property nor appreciably property nor appreciably

property nor appreciably property, unless otherwise prolong its intended prolong its intended

prolong its intended life provided for) in an life, but keep it in an life, but keep it in an

but keep it in an efficient operating efficient operating efficient operating

efficient operating condition, (2) do not add condition, are allowable. condition, are allowable.

condition, are allowable. to the permanent value of Costs incurred for Costs incurred for

property or appreciably improvements which add to improvements which add to

prolong its intended life, the permanent value of the permanent value of

and (3) are not otherwise the buildings and the buildings and

included in rental or equipment or appreciably equipment or appreciably

other charges for space. prolong their intended prolong their intended

Costs which add to the life shall be treated as life shall be treated as

permanent value of capital expenditures (see capital expenditures .

property or appreciably paragraph 15).

prolong its intended life

shall be treated as

capital expenditures (see

sections 15 and 19).



27. Material costs. 29. Materials and 28. Materials and Materials and supplies.

supplies. supplies.

The treatment of this

item in all three

circulars would be

revised to read as

follows:



a. The cost of materials,

The costs of materials

supplies, and fabricated

and supplies necessary to

The cost of materials and parts actually used in

Costs incurred for carry out an award are

supplies is allowable. carrying out the Federal

purchased materials, allowable. Such costs

Purchases should be award are allowable.

supplies, and fabricated should be charged at

charged at their actual their actual prices after

parts directly or prices after deducting all b. Materials and supplies

indirectly related to the deducting all cash

cash discounts, trade purchased specifically

sponsored agreement, are discounts, trade

discounts, rebates, and for the Federal award

allowable. Purchases made discounts, rebates, and

allowances received. shall be charged at their

specifically for the allowances received by

Withdrawals from general actual prices, net of

sponsored agreement the organization.

stores or stockrooms applicable credits.

should be charged thereto Withdrawals from general

should be charged at cost stores or stockrooms

at their actual prices under any recognized c. Withdrawals from

after deducting all cash should be charged at cost

method of pricing, general stores or

under any recognized



138

A-21 A-87 A-122 Proposed Change



discounts, trade consistently applied. method of pricing stockrooms should be

discounts, rebates, and Incoming transportation consistently applied. charged at their actual

allowances received by charges are a proper part Incoming transportation net cost under any

the institution. of materials and supply charges may be a proper recognized method of

Withdrawals from general costs. part of material cost. pricing inventory

stores or stockrooms Materials and supplies withdrawals, consistently

should be charged at charged as a direct cost applied. Incoming

their cost under any should include only the transportation charges

recognized method of materials and supplies are a proper part of

pricing stores actually used for the materials and supplies

withdrawals conforming to performance of the cost.

sound accounting contract or grant, and

practices consistently due credit should be d. Where federally-

followed by the given for any excess donated or furnished

institution. Incoming materials or supplies materials are used in

transportation charges retained, or returned to performing the Federal

are a proper part of vendors. award, such materials

material cost. Direct will be used without

material cost should charge.

include only the

materials and supplies

actually used for the

performance of the

sponsored agreement, and

due credit should be

given for any excess

materials retained, or

returned to vendors. Due

credit should be given

for all proceeds or value

received for any scrap

resulting from work under

the sponsored agreement.

Where federally donated

or furnished materials is

used in performing the

sponsored agreement, such

material will be used

without charge.



28. Memberships, 30. Memberships, 30. Memberships, Memberships,

subscriptions and subscriptions, and subscriptions, and subscriptions, and

professional activity professional activities. professional activity professional activity



139

A-21 A-87 A-122 Proposed Change



costs. costs. costs.



a. Costs of the a. Costs of the a. Costs of the Paragraph c. in all three

institution's membership governmental unit's organization's membership circulars would be

in business, technical, memberships in business, in business, technical, removed and the remaining

and professional technical, and and professional sections/paragraphs would

organizations are professional organizations organizations are be re-designated

allowable. are allowable. allowable. accordingly.



b. Costs of the b. Costs of the b. Costs of the The subject of meetings

institution's governmental unit's organization's and conferences would be

subscriptions to subscriptions to business, subscriptions to treated separately as

business, professional, professional, and business, professional, they currently are

and technical periodicals technical periodicals are and technical periodicals treated in Circular A-

are allowable. allowable. are allowable. 122. See the part of this

chart that deals with

c. Costs of meetings and c. Costs of meetings and treatments that appear in

conferences where the conferences, when the only one circular.

c. Costs of meetings and primary purpose is the primary purpose is the

conferences, when the dissemination of technical dissemination of

primary purpose is the information, including technical information,

dissemination of meals, transportation, are allowable. This

technical information, rental of meeting includes costs of meals,

are allowable. This facilities, and other transportation, rental of

includes costs of meals, incidental costs are facilities, and other

transportation, rental of allowable. items incidental to such

facilities, and other meetings or conferences.

items incidental such

meetings or conferences. d. Costs of membership

in any civic or community

d. Costs of membership in organization are

any civic or community allowable with prior

organization are approval by Federal

unallowable. cognizant agency.

d. Costs of membership in e. Costs of membership

civic and community, in any country club or

social organizations are social or dining club or

e. Costs of membership in allowable as a direct cost organization are

any country club or with the approval of the unallowable.

social or dining club or Federal awarding agency.

organization are e. Costs of membership in

unallowable. organizations



140

A-21 A-87 A-122 Proposed Change



substantially engaged in

lobbying are unallowable.



31. Preagreement costs. 32. Pre-award costs.

38. Pre-award costs. Pre-award costs.



The Pre-award costs

treatment in Circular A-

21 is slightly different

than the treatment in the

A-87 and A-122. All

three circulars would use

the same language for

this treatment. The

requirement that the

costs be negotiated with

the awarding agency has

been dropped. In its

place there is a notice

requirement.



a. Pre-award costs are

those incurred before the

effective date of the

Pre-award costs are those Federal award.

incurred prior to the

effective date of the b. (1) Pre-award costs

award directly pursuant are allowable only to the

Costs incurred prior to to the negotiation and in extent that they would

the effective date of the anticipation of the award have been allowable if

sponsored agreement, Pre-award costs are those where such costs are incurred after the date

whether or not they would incurred prior to the necessary to comply with of the award and only

have been allowable effective date of the the proposed delivery with the written approval

thereunder if incurred award directly pursuant to schedule or period of of the awarding agency.

after such date, are the negotiation and in performance. Such costs

unallowable unless anticipation of the award are allowable only to the (2) If the entity is

approved by the where such costs are extent that they would subject to A-110, prior

sponsoring agency. necessary to comply with have been allowable if approval is not required

the proposed delivery incurred after the date unless required by the

schedule or period of of the award and only Federal agency through a

performance. Such costs with the written approval condition of the Federal

are allowable only to the of the awarding agency. award or program

extent that they would regulations. If the costs



141

A-21 A-87 A-122 Proposed Change



have been allowable if do not require prior

incurred after the date of approval, the entity must

the award and only with notify the awarding

the written approval of agency of the costs

the awarding agency. before the award is made

and the costs must be

necessary to comply with

the proposed delivery

schedule or period of

performance.



32. Professional services 33. Professional service

39. Professional service Professional service

costs. costs.

costs. costs.



All three circulars would

use the same language.

Paragraph a. for all

three circulars would

read as follows:



a. Costs of professional

and consultant services

a. Costs of professional

rendered by persons who

and consultant services are members of a

rendered by persons who particular profession or

a. Costs of professional are members of a

and consulting services, possess a special skill,

particular profession or

including legal services and who are not officers

possess a special skill,

rendered by the members or employees of the non-

a. Cost of professional and who are not officers

of a particular Federal entity, are

and consultant services or employees of the

profession who are not allowable, subject to

rendered by persons or organization, are subparagraphs b and c

employees of the organizations that are allowable, subject to

institution, are when reasonable in

members of a particular subparagraphs b and c

allowable, subject to relation to the services

profession or possess a when reasonable in

subsection b and Section rendered and when not

special skill, whether or relation to the services

J.11 when reasonable in contingent upon recovery

not officers or employees rendered and when not

relation to the services of the costs from the

of the governmental unit, contingent upon recovery

rendered and when not Federal Government.

are allowable, subject to of the costs from the

contingent upon recovery section 14 when reasonable Federal Government.

of the costs from the In addition, legal and

in relation to the related services are

Federal Government. services rendered and when

Retainer fees, to be limited under paragraph

not contingent upon ___.

allowable, must be



142

A-21 A-87 A-122 Proposed Change



reasonably supported by recovery of the costs from

evidence of services the Federal Government.

rendered. b. In determining the

allowability of costs

in a particular case,

no single factor or any

b. In determining the special combination of

allowability of costs in factors is necessarily

b. Factors to be a particular case, no determinative. However,

considered in determining single factor or any the following factors

the allowability of costs special combination of are relevant:

in a particular case factors is necessarily

include (1) the past determinative. However, (1) The nature and

pattern of such costs, the following factors are scope of the service

particularly in the years relevant: rendered in relation to

prior to the award of the service required.

sponsored agreements; (2)

the impact of sponsored (1) The nature and scope (2) The necessity of

agreements on the of the service rendered contracting for the

institution's total in relation to the service, considering

activity; (3) the nature service required. the non-Federal

and scope of managerial entity's capability in

services expected of the the particular area.

institution's own (2) The necessity of

organizations; and (4) contracting for the (3) The past pattern of

whether the proportion of service, considering the such costs, particularly

Federal Government work organization's capability in the years prior to

to the institution's in the particular area. Federal awards.

total activity is such as

to influence the (4) The impact of

institution in favor of Federal awards on the

incurring the cost, non-Federal entity's

particularly where the (3) The past pattern of business (i.e., what new

services rendered are not such costs, particularly problems have arisen).

of a continuing nature in the years prior to (5) Whether the

and have little Federal awards. proportion of Federal

relationship to work work to the non-Federal

under sponsored (4) The impact of entity's total business

agreements. Federal awards on the is such as to influence

organization's business the

(i.e., what new problems non-Federal entity in

have arisen). favor of incurring the





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A-21 A-87 A-122 Proposed Change



cost, particularly where

(5) Whether the the services rendered are

proportion of Federal not of a continuing

work to the nature and have little

organization's total relationship to work

business is such as to under Federal grants and

influence the contracts.

organization in favor of

incurring the cost, (6) Whether the service

particularly where the can be performed more

services rendered are not economically by direct

of a continuing nature employment rather than

and have little contracting.

relationship to work

under Federal grants and (7) The qualifications

contracts. of the individual or

concern rendering the

(6) Whether the service service and the customary

can be performed more fees charged, especially

economically by direct on non-Federal awards.

employment rather than

contracting. (8) Adequacy of the

contractual agreement for

(7) The qualifications the service (e.g.,

of the individual or description of the

concern rendering the service, estimate of time

service and the customary required, rate of

fees charged, especially compensation, and

on non-Federal awards. termination provisions).



(8) Adequacy of the c. In addition to the

contractual agreement for factors in subparagraph

the service (e.g., b, retainer fees to be

description of the allowable must be

service, estimate of time supported by evidence of

required, rate of bona fide services

compensation, and available or rendered.

termination provisions).



c. In addition to the

factors in subparagraph

b, retainer fees to be

allowable must be



144

A-21 A-87 A-122 Proposed Change



supported by evidence of

bona fide services

available or rendered.

Rearrangement and

alteration costs.



Circulars A-87 and A-122

would not be changed.



Circular A-21 would be

amended to read the same

as the other two

circulars:



Rearrangement and

alteration costs.

35. Rearrangement and 36. Rearrangements and 42. Rearrangement and

alteration costs. alterations. alteration costs. Costs incurred for

ordinary or normal

Costs incurred for Costs incurred for Costs incurred for rearrangement and

ordinary or normal ordinary and normal ordinary or normal alteration of facilities

rearrangement and rearrangement and rearrangement and are allowable. Special

alteration of facilities alteration of facilities alteration of facilities arrangement and

are allowable. Special are allowable. Special are allowable. Special alteration costs incurred

arrangement and arrangements and arrangement and specifically for the

alteration costs incurred alterations costs incurred alteration costs incurred project are allowable

specifically for the specifically for a Federal specifically for the with the prior approval

project are allowable award are allowable with project are allowable of the sponsoring

when such work has been the prior approval of the with the prior approval agency.

approved in advance by Federal awarding agency. of the awarding agency.

the sponsoring agency.





36. Reconversion costs.

37. Reconversion costs. 43. Reconversion costs. Reconversion costs.



Minor changes would be

made to A-21 and A-122 to

conform to A-87. The

three circulars would

read as follows:

Costs incurred in the



145

A-21 A-87 A-122 Proposed Change



Costs incurred in the Costs incurred in the restoration or

restoration or restoration or rehabilitation of the

Costs incurred in the rehabilitation of the rehabilitation of the non-Federal entity's

restoration or governmental unit's organization's facilities facilities to

rehabilitation of the facilities to to approximately the same approximately the same

institution's facilities approximately the same condition existing condition existing

to approximately the same condition existing immediately prior to immediately prior to

condition existing immediately prior to commencement of Federal commencement of Federal

immediately prior to commencement of Federal awards, fair wear and awards, less costs

commencement of a awards, less costs related tear excepted, are related to normal wear

sponsored agreement, fair to normal wear and tear, allowable. and tear, are allowable.

wear and tear excepted, are allowable.

are allowable.

38. Rental costs. 46. Rental costs. Rental Costs.

38. Rental cost of

buildings and equipment.

All three circulars would

be revised to read as

follows:



a. Subject to the a. Subject to the a. Subject to the

a. Rental costs of limitations described in limitations described in limitations described in

buildings or equipment subsections b. through d. subparagraphs b through subparagraphs b. through

are allowable to the of this section, rental d, rental costs are d. of this section,

extent that the decision costs are allowable to the allowable to the extent rental costs are

to rent or lease is in extent that the rates are that the rates are allowable to the extent

accordance with Section reasonable in light of reasonable in light of that the rates are

C.3. Rental arrangements such factors as: rental such factors as: rental reasonable in light of

should be reviewed costs of comparable costs of comparable such factors as: rental

periodically to determine property, if any; market property, if any; market costs of comparable

if circumstances have conditions in the area; conditions in the area; property, if any; market

changed and other options alternatives available; alternatives available; conditions in the area;

are available. and, the type, life and the type, life alternatives available;

expectancy, condition, and expectancy, condition, and, the type, life

value of the property and value of the property expectancy, condition,

leased. leased. and value of the property

leased. Rental

arrangements should be

reviewed periodically to

determine if

circumstances have

changed and other options

are available.



146

A-21 A-87 A-122 Proposed Change





b. Rental costs under b. Rental costs under

b. Rental costs under

sale and leaseback b. Rental costs under “sale and lease back”

"sale and lease back"

arrangements are allowable sale and leaseback arrangements are

arrangements are

only up to the amount that arrangements are allowable only up to the

allowable only up to the

would be allowed had the allowable only up to the amount that would be

amount that would be

governmental unit amount that would be allowed had the non-

allowed if the

continued to own the allowed had the Federal entity continued

institution continued to

property. organization continued to to own the property.

own the property.

own the property. This amount would include

expenses such as

depreciation or use

allowance, maintenance,

taxes, and insurance.



c. Rental costs under

"less-than-arms-length"

leases are allowable

c. Rental costs under only up to the amount

less-than-arms-length (as explained in

leases are allowable only c. Rental costs under

c. Rental costs under section b) that would

up to the amount that less-than-arms-length

"less-than-arms-length" be allowed had title to

would be allowed had title leases are allowable only the property vested in

leases are allowable only

to the property vested in up to the amount that the non-Federal entity.

up to the amount that

the governmental unit. For would be allowed had

would be allowed if the For this purpose, a

this purpose, less-than- title to the property

institution owned the less-than-arms-length

arms-length leases vested in the

property. For this lease is one under

include, but are not organization. For this

purpose, a less-than- which one party to the

limited to, those where: purpose, a less-than- lease agreement is able

arms-length lease is one

arms-length lease is one

under which one party to to control or

(1) One party to the under which one party to

the lease agreement is substantially influence

lease is able to control the lease agreement is

able to control or the actions of the

or substantially influence able to control or

substantially influence other. Such leases

the actions of the other; substantially influence

the actions of the other. include, but are not

the actions of the other.

limited to those

(2) Both parties are Such leases include, but

between (i) divisions

parts of the same are not limited to those

of a non-Federal

governmental unit; or between (i) divisions of

entity; (ii) non-

an organization; (ii)

Federal entities under

(3) The governmental unit organizations under

common control through

creates an authority or common control through

common officers,

similar entity to acquire common officers,

directors, or members;

and lease the facilities directors, or members;



147

A-21 A-87 A-122 Proposed Change



to the governmental unit and (iii) an organization and (iii) a non-Federal

and other parties. and a director, trustee, entity and a director,

officer, or key employee trustee, officer, or

of the organization or key employee of the

his immediate family non-Federal entity or

either directly or his immediate family

through corporations, either directly or

trusts, or similar through corporations,

arrangements in which trusts, or similar

they hold a controlling arrangements in which

interest. they hold a controlling

interest.

d. Rental costs under

leases which are required

to be treated as capital

leases under GAAP are

allowable only up to the

amount (as explained in

section b) that would be

allowed had the non-

Federal entity purchased

the property on the date

the lease agreement was

executed. The provisions

of Financial Accounting

Standards Board Statement

13, Accounting for

d. Rental costs under

Leases, shall be used to

d. Where significant leases which are required determine whether a lease

rental costs are incurred to be treated as capital

is a capital lease.

under leases which create leases under GAAP, are

Interest costs related to

a material equity in the d. Rental costs under allowable only up to the

capital leases are

leased property, they are leases which are required amount that would be

allowable to the extent

allowable only up to the to be treated as capital allowed had the they meet criteria in

amount that would be leases under GAAP are organization purchased subparagraph 23.a.

allowed if the allowable only up to the the property on the date

Unallowable costs include

institution purchased the amount that would be the lease agreement was

amounts paid for profit,

property on the date the allowed had the executed, i.e., to the

management fees, and

lease agreement was governmental unit amount that minimally taxes that would not have

executed. For this purchased the property on would pay for

been incurred had the

purpose, a material the date the lease depreciation or use

non-Federal entity

equity in the property agreement was executed. allowances, maintenance,

purchased the facility.

taxes, and insurance.



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A-21 A-87 A-122 Proposed Change



exists when the lease: This amount would include Interest costs related to

expenses such as capitalized leases are

(1) Is noncancelable or depreciation or use allowable to the extent

is cancelable only upon allowance, maintenance, they meet criteria in

the occurrence of some and insurance. The subparagraph 23.a.

remote contingency, and provisions of Financial Unallowable costs include

Accounting Standards Board amounts paid for profit,

(2) Has one or more of Statement 13 shall be used management fees, and

the following to determine whether a taxes that would not have

characteristics: lease is a capital lease. been incurred had the

Interest costs related to organization purchased

(a) Title to the capital leases are the facility.

property passes to the allowable to the extent

institution at some time they meet the criteria in

during or after the lease section 26.

period.



(b) The term of the

lease corresponds

substantially to the

estimated useful life of

the property (i.e., the

period of economic

usefulness to the legal

owner of the property).



(c) The initial term is

less than the useful life

of the property and the

institution has the

option to renew the lease

for the remaining useful

life at substantially

less than fair rental

value.



(d) The property was

acquired by the leaser to

meet the special needs of

the institution and will

probably be usable only

for that purpose and only

by the institution.





149

A-21 A-87 A-122 Proposed Change



(e) The institution has

the right, during or at

the expiration of the

lease, to purchase the

property at a price which

at the inception of the

lease appears to be

substantially less than

the probable fair market

value at the time it is

permitted to purchase the

property (commonly called

a lease with a bargain

purchase option), except

for any discount normally

given to educational

institutions.

46. Taxes. 39. Taxes.

51. Taxes. Taxes.

a. In general, taxes a. Taxes that a

which the institution is a. In general, taxes No Change.

governmental unit is which the organization is

required to pay and which legally required to pay

are paid or accrued in required to pay and which

are allowable, except for are paid or accrued in

accordance with generally self-assessed taxes that

accepted accounting accordance with GAAP, and

disproportionately affect payments made to local

principles are allowable. Federal programs or

Payments made to local governments in lieu of

changes in tax policies taxes which are

governments in lieu of that disproportionately

taxes which are commensurate with the

affect Federal programs. local government services

commensurate with the This provision becomes

local government services received are allowable,

effective for taxes paid except for

received are allowable, during the governmental

except for (1) taxes from unit's first fiscal year

which exemptions are that begins on or after

available to the (i) taxes from which

January 1, 1998, and exemptions are available

institution directly or applies thereafter.

which are available to to the organization

the institution based on directly or which are

an exemption afforded the available to the

Federal Government, and organization based on an

in the latter case when exemption afforded the

the sponsoring agency Federal Government and in

the latter case when the



150

A-21 A-87 A-122 Proposed Change



makes available the awarding agency makes

necessary exemption available the necessary

certificates; and exemption certificates,



(2) special assessments (ii) special assessments

on land which represent on land which represent

capital improvements. capital improvements, and



(iii) Federal income

taxes.



b. Any refund of taxes,

b. Any refund of taxes, and any payment to the

interest, or penalties, organization of interest

and any payment to the thereon, which were

institution of interest allowed as

thereon, attributable to award costs, will be

taxes, interest, or credited either as a cost

penalties which were reduction or cash refund,

allowed as sponsored as appropriate, to the

agreement costs, will be Federal Government.

credited or paid to the

Federal Government in the

manner directed by the

Federal Government.



However, any interest

actually paid or credited

to an institution

incident to a refund of

tax, interest, and

penalty will be paid or

credited to the Federal

Government only to the

extent that such interest

accrued over the period

during which the

institution has been

reimbursed by the Federal

Government for the taxes,

interest, and penalties.

b. Gasoline taxes, motor



151

A-21 A-87 A-122 Proposed Change



vehicle fees, and other

taxes that are in effect

user fees for benefits

provided to the Federal

Government are allowable.







c. This provision does

not restrict the authority

of Federal agencies to

identify taxes where

Federal participation is

inappropriate. Where the

identification of the

amount of unallowable

taxes would require an

inordinate amount of

effort, the cognizant

agency may accept a

reasonable approximation

thereof.



48. Travel costs. 41. Travel costs.

55. Travel costs. Travel costs.



The treatment of travel

costs in all three

circulars would be

revised to read as

presented below.

However, the last

sentence of

[section/paragraph] a. is

unique to the

governmental environment

and would therefore

appear only in A-87.

Accordingly, it is set

off by brackets ([]).



The reference to





152

A-21 A-87 A-122 Proposed Change



recruitment and

relocation costs in

subparagraph 55.d. of the

current A-122 would not

be retained because that

subject would be covered

under the heading of

“Recruitment costs.”



a. General. Travel

costs are the expenses

for transportation,

lodging, subsistence, and

a. Travel costs are the

related items incurred by

expenses for

employees who are in

transportation, lodging,

travel status on official

subsistence, and related

business of the non-

items incurred by

Federal entity. Such

employees who are in

costs may be charged on

travel status on official

an actual cost basis, on

business of the

a per diem or mileage

organization. Travel

basis in lieu of actual

costs are allowable

costs incurred, or on a

subject to subparagraphs

combination of the two,

b through e, when they

a. General. Travel costs provided the method used

a. General. Travel costs are directly attributable

are the expenses for is applied to an entire

are allowable for expenses to specific work under an

transportation, lodging, trip and not to selected

for transportation, award or are incurred in

subsistence, and related days of the trip, and

lodging, subsistence, and the normal course of

items incurred by results in charges

related items incurred by administration of the

employees who are in consistent with those

employees traveling on organization.

travel status on official normally allowed in like

official business. Such circumstances in the non-

business of the costs may be charged on an b. Such costs may be

institution. Such costs Federal entity’s non-

actual cost basis, on a charged on an actual

may be charged on an federally-sponsored

per diem or mileage basis basis, on a per diem or

actual basis, on a per activities.

in lieu of actual costs mileage basis in lieu of

diem or mileage basis in [Notwithstanding the

incurred, or on a actual costs incurred, or

lieu of actual costs provisions of section

combination of the two, on a combination of the

incurred, or on a [23], travel costs of

provided the method used two, provided the method

combination of the two, officials covered by that

is applied to an entire used results in charges

provided the method used section are allowable

trip, and results in consistent with those

is applied to an entire with the prior approval

charges consistent with normally allowed by the

trip and not to selected of an awarding agency

organization in its



153

A-21 A-87 A-122 Proposed Change



days of the trip, results those normally allowed in regular operations. when they are

in reasonable charges, like circumstances in non- specifically related to

and is in accordance with federally-sponsored c. The difference in Federal awards.]

the institution's travel activities. cost between first-class

policy and practices Notwithstanding the air accommodations and b. Lodging and

consistently applied to provisions of section 23, less than first-class air subsistence. Costs

all institutional travel travel costs of officials accommodations is incurred by employees and

activities. covered by that section, unallowable except when officers for travel,

when specifically related less than first-class air including costs of

to Federal awards, are accommodations are not lodging, other

allowable with the prior reasonably available to subsistence, and

approval of a grantor meet necessary mission incidental expenses,

agency. requirements, such as shall be considered

where less than first- reasonable and allowable

class accommodations only to the extent such

would (i) require costs do not exceed

b. Lodging and b. Lodging and circuitous routing, (ii) charges normally allowed

subsistence. Costs subsistence. Costs require travel during by the non-Federal entity

incurred by employees and incurred by employees and unreasonable hours, (iii) in its regular operations

officers for travel, officers for travel, greatly increase the as the result of the non-

including costs of including costs of duration of the flight, Federal entity’s written

lodging, other lodging, other (iv) result in additional travel policy. In the

subsistence, and subsistence, and costs which would offset absence of an acceptable,

incidental expenses, incidental expenses, shall the transportation written non-Federal

shall be considered be considered reasonable savings, or (v) offer entity policy regarding

reasonable and allowable and allowable only to the accommodations which are travel costs, the rates

only to the extent such extent such costs do not not reasonably adequate and amounts established

costs do not exceed exceed charges normally for the medical needs of under subchapter I of

charges normally allowed allowed by the the traveler. Chapter 57, Title 5,

by the institution in its governmental unit in its United States Code

regular operations as a regular operations as a d. Necessary and (“Travel and Subsistence

result of an result of the governmental reasonable costs of Expenses; Mileage

institutional policy and unit's policy. family movements and Allowances”), or by the

the amounts claimed under personnel movements of a Administrator of General

sponsored agreements special or mass nature Services, or by the

represent reasonable and are allowable, pursuant President (or his or her

allocable costs. to paragraphs 44 and 45, designee) pursuant to any

subject to allocation on provisions of such

In the absence of an the basis of work or time subchapter shall apply to

acceptable institutional period benefited when travel under Federal

policy regarding travel appropriate. Advance awards (48 CFR 31.205-

costs, the rates and agreements are 46(a)).

amounts established under particularly important.



154

A-21 A-87 A-122 Proposed Change



subchapter I of Chapter c. Commercial air

In the absence of a

57 of Title 5, United e. Direct charges for travel.

written governmental unit

States Code, foreign travel costs are

policy regarding travel

allowable only when the (1) Airfare

costs, the rates and

travel has received prior costs in excess of the

amounts established under

approval of the awarding customary standard

or by the Administrator subchapter I of Chapter 57

agency. Each separate commercial airfare (coach

of General Services, or of Title 5, United States

foreign trip must be or equivalent), Federal

the President (or his or Code "Travel and

approved. For purposes of Government contract

her designee) pursuant to Subsistence Expenses;

this provision, foreign airfare (where authorized

any provisions of such Mileage Allowances," or by

travel is defined as any and available), or the

subchapter shall apply to the Administrator of

travel outside of Canada lowest commercial

sponsored agreements (41 General Services, or the

and the United States and discount airfare are

U.S.C. 420). President (or his

its territories and unallowable except when

designee) pursuant to any

possessions. However, for such accommodations

provisions of such

an organization located would: (a) require

subchapter shall be used

in foreign countries, the circuitous routing; (b)

as guidance for travel

term "foreign travel" require travel during

under Federal awards (41

means travel outside that unreasonable hours; (c)

U.S.C. 420, "Travel

country. excessively prolong

Expenses of Government

travel; (d) result in

Contractors").

additional costs that

would offset the

transportation savings;

or (e) offer

accommodations not

reasonably adequate for

the traveler’s medical

needs. The non-Federal

entity must justify and

document these conditions

on a case-by-case basis

in order for the use of

first-class airfare to be

allowable in such cases.



(2) Unless a

pattern of avoidance is

detected, the Federal

Government will generally

not question a non-

Federal entity's

c. Commercial air travel. determinations that



155

A-21 A-87 A-122 Proposed Change



Airfare costs in excess customary standard

of the lowest available airfare or other discount

commercial discount airfare is unavailable

airfare, Federal for specific trips if the

Government contract non-Federal entity can

airfare (where authorized demonstrate either of the

and available), or following: (a) that such

customary standard (coach airfare was not available

or equivalent) airfare, in the specific case; or

are unallowable except (b) that it is the non-

when such accommodations Federal entity’s overall

would: require circuitous practice to make routine

routing; require travel use of such airfare

during unreasonable c. Commercial air travel.

hours; excessively Airfare costs in excess of d. Air travel by

prolong travel; greatly the customary standard other than commercial

increase the duration of (coach or equivalent) carrier. Costs of travel

the flight; result in airfare, are unallowable by non-Federal entity-

increased costs that except when such owned, -leased, or -

would offset accommodations would: chartered aircraft

transportation savings; require circuitous include the cost of

or offer accommodations routing, require travel lease, charter, operation

not reasonably adequate during unreasonable hours, (including personnel

for the medical needs of excessively prolong costs), maintenance,

the traveler. Where an travel, greatly increase depreciation, insurance,

institution can the duration of the and other related costs.

reasonably demonstrate to flight, result in The portion of such costs

the sponsoring agency increased cost that would that exceeds the cost of

either the offset allowable commercial air

nonavailability of travel, as provided for

discount airfare or in

Federal contract [subsection][subparagraph

] c., is unallowable.

airfare for individual

trips or, on an overall e. Foreign travel.

basis, that it is the Direct charges for

institution's practice to foreign travel costs are

make routine use of such allowable only when the

airfare, specific transportation savings, or travel has received prior

determinations of offer accommodations not approval of the awarding

nonavailability will reasonably adequate for agency. Each separate

generally not be the medical needs of the foreign trip must receive

questioned by the Federal such approval. For



156

A-21 A-87 A-122 Proposed Change



Government, unless a traveler. Where a purposes of this

pattern of avoidance is governmental unit can provision, “foreign

detected. However, in reasonably demonstrate to travel” includes any

order for airfare costs the awarding agency either travel outside Canada,

in excess of the the nonavailability of the United States, and

customary standard customary standard airfare any United States

commercial airfare to be or Federal Government territories and

allowable, e.g., use of contract airfare for possessions. However,

first-class airfare, the individual trips or, on an the term “foreign travel”

institution must justify overall basis, that it is for a non-Federal entity

and document on a case- the governmental unit's located in a foreign

by-case basis the practice to make routine country means travel

applicable condition(s) use of such airfare, outside that country.

set forth above. specific determinations of

nonavailability will

generally not be

questioned by the Federal

d. Air travel by other Government, unless a

than commercial carrier. pattern of avoidance is

detected. However, in

"Cost of travel by

order for airfare costs in

institution-owned, -

excess of the customary

leased, or –chartered

aircraft," as used in standard commercial

this subsection, includes airfare to be allowable,

e.g., use of first-class

the cost of lease,

airfare, the governmental

charter, operation

unit must justify and

(including personnel

document on a case-by-case

costs), maintenance,

depreciation, insurance, basis the applicable

condition(s) set forth

and other related costs.

above.

Costs of travel via

institution-owned, -

leased, or -chartered

aircraft shall not exceed d. Air travel by other

the cost of allowable than commercial carrier.

commercial air travel, as Cost of travel by

provided for in governmental unit-owned, -

subsection c. leased, or -chartered

aircraft, as used in this

section, includes the cost

of lease, charter,

operation (including



157

A-21 A-87 A-122 Proposed Change



personnel costs),

maintenance, depreciation,

interest, insurance, and

other related costs. Costs

of travel via governmental

unit-owned, -leased, or -

chartered aircraft are

unallowable to the extent

they exceed the cost of

allowable commercial air

travel, as provided for in

subsection c.









158

A-21 A-87 A-122 Proposed Change



Cost items in only two circulars

8. Bonding costs. 5. Bonding costs. Bonding costs.



The bonding provisions in

A-122 would be used for

all three circulars, to

read as follows:



Costs of bonding a. Bonding costs arise a. Bonding costs arise

employees and officials when the Federal when the Federal

are allowable to the Government requires Government requires

extent that such bonding assurance against assurance against

is in accordance with financial loss to itself financial loss to itself

sound business practice. or others by reason of the or others by reason of

act or default of the the act or default of the

organization. They arise non-Federal entity. They

also in instances where arise also in instances

the organization requires where the non-Federal

similar assurance. entity requires similar

Included are such bonds as assurance. Included are

bid, performance, payment, such bonds as bid,

advance payment, performance, payment,

infringement, and fidelity advance payment,

bonds. infringement, and

fidelity bonds.



b. Costs of bonding

required pursuant to the

terms of the award are

allowable.

b. Costs of bonding

required pursuant to the c. Costs of bonding

terms of the award are required by the non-

allowable. Federal entity in the

general conduct of its

c. Costs of bonding operations are allowable

required by the to the extent that such

organization in the bonding is in accordance

general conduct of its with sound business

operations are allowable practice and the rates









159

A-21 A-87 A-122 Proposed Change



to the extent that such and premiums are

bonding is in accordance reasonable under the

with sound business circumstances.

practice and the rates and

premiums are reasonable

under the circumstances.

19. Goods or services for 18. Goods or services for Goods or services for

personal use. personal use. personal use.



This treatment would be

added to Circular A-87,

to read as follows:





Costs of goods or Costs of goods or services Costs of goods or

services for personal use for personal use of the services for personal use

of the institution's organization's employees of the non-Federal

employees are unallowable are unallowable regardless entity's employees are

regardless of whether the of whether the cost is unallowable regardless of

cost is reported as reported as taxable income whether the cost is

taxable income to the to the employees. reported as taxable

employees. income to the employees.

19. Housing and personal Housing and personal

20. Housing and personal

living expenses. living expenses.

living expenses.

a. Costs of housing a. Costs of housing No change.

(e.g., depreciation, (e.g., depreciation,

maintenance, utilities, maintenance, utilities,

furnishings, rent, etc.), furnishings, rent, etc.),

housing allowances and housing allowances and

personal living expenses personal living expenses

for/of the institution's for/of the organization's

officers are unallowable officers are unallowable

regardless of whether the as fringe benefit or

cost is reported as indirect costs regardless

taxable income to the of whether the cost is

employees. reported as taxable income

b. The term "officers" to the employees. These

includes current and past costs are allowable as

direct costs to sponsored









160

A-21 A-87 A-122 Proposed Change



officers. award when necessary for

the performance of the

sponsored award and

approved by awarding

agencies.



b. The term "officers"

includes current and past

officers and employees.

24. Idle facilities and 20. Idle facilities and Idle facilities and idle

idle capacity. idle capacity. capacity.



This treatment would be

added to A-21 and the

three circulars would use

standard language, to

read as follows:



a. As used in this a. As used in this a. As used in this

section the following paragraph, the following section the following

terms have the meanings terms have the meanings terms have the meanings

set forth below: set forth below: set forth below:



(1) "Facilities" means (1) Facilities means land (1) "Facilities" means

land and buildings or and buildings or any land and buildings or any

any portion thereof, portion thereof, portion thereof,

equipment individually equipment individually or

or collectively, or any equipment individually or collectively, or any

other tangible capital collectively, or any other other tangible capital

asset, wherever located, tangible capital asset, asset, wherever located,

and whether owned or wherever located, and and whether owned or

leased by the whether owned or leased by leased by the non-Federal

governmental unit. the organization. entity.



(2) "Idle facilities" (2) Idle facilities means (2) "Idle facilities"

means completely unused completely unused means completely unused

facilities that are facilities that are excess facilities that are

excess to the to the organization's excess to the non-Federal

governmental unit's current needs. entity's current needs.

current needs.









161

A-21 A-87 A-122 Proposed Change



(3) "Idle capacity" (3) Idle capacity means (3) "Idle capacity"

means the unused the unused capacity of means the unused capacity

capacity of partially partially used facilities. of partially used

used facilities. It is It is the difference facilities. It is the

the difference between between that which a difference between (a)

(a) that which a facility could achieve that which a facility

facility could achieve under 100 percent could achieve under 100

under 100 percent operating time on a one- percent operating time on

operating time on a one- shift basis less operating a one-shift basis less

shift basis less interruptions resulting operating interruptions

operating interruptions from time lost for resulting from time lost

resulting from time lost repairs, setups, for repairs, setups,

for repairs, setups, unsatisfactory materials, unsatisfactory materials,

unsatisfactory and other normal delays, and other normal delays

materials, and other and the extent to which and (b) the extent to

normal delays and (b) the facility was actually which the facility was

the extent to which the used to meet demands actually used to meet

facility was actually during the accounting demands during the

used to meet demands period. A multi-shift accounting period. A

during the accounting basis may be used if it multi-shift basis should

period. A multi-shift can be shown that this be used if it can be

basis should be used if amount of usage could shown that this amount of

it can be shown that normally be expected for usage would normally be

this amount of usage the type of facility expected for the type of

would normally be involved. facility involved.

expected for the type of

facility involved.

(4) "Cost of idle (4) Costs of idle (4) "Cost of idle

facilities or idle facilities or idle facilities or idle

capacity" means costs capacity means costs such capacity" means costs

such as maintenance, as maintenance, repair, such as maintenance,

repair, housing, rent, housing, rent, and other repair, housing, rent,

and other related costs, related costs, e.g., and other related costs,

e.g., insurance, property taxes, insurance, e.g., insurance,

interest, and and depreciation or use interest, property taxes

depreciation or use allowances. and depreciation or use

allowances. allowances.









162

A-21 A-87 A-122 Proposed Change





b. The costs of idle b. The costs of idle b. The costs of idle

facilities are facilities are unallowable facilities are

unallowable except to except to the extent that: unallowable except to the

the extent that: extent that:

(1) They are necessary (1) They are necessary to (1) They are necessary

to meet fluctuations in meet fluctuations in to meet fluctuations in

workload; or workload; or workload; or



(2) Although not (2) Although not (2) Although not

necessary to meet necessary to meet necessary to meet

fluctuations in fluctuations in workload, fluctuations in workload,

workload, they were they were necessary when they were necessary when

necessary when acquired acquired and are now idle acquired and are now idle

and are now idle because because of changes in because of changes in

of changes in program program requirements, program requirements,

requirements, efforts to efforts to achieve more efforts to achieve more

achieve more economical economical operations, economical operations,

operations, reorganization, reorganization,

reorganization, termination, or other termination, or other

termination, or other causes which could not causes which could not

causes which could not have been reasonably have been reasonably

have been reasonably foreseen. Under the foreseen. Under the

foreseen. Under the exception stated in this exception stated in this

exception stated in this subparagraph, costs subparagraph, costs

subsection, costs

of idle facilities are of idle facilities are of idle facilities are

allowable for a allowable for a reasonable allowable for a

reasonable period of period of time, ordinarily reasonable period of

time, ordinarily not to not to exceed one year, time, ordinarily not to

exceed one year, depending upon the exceed one year,

depending on the initiative taken to use, depending on the

initiative taken to use, lease, or dispose of such initiative taken to use,

lease, or dispose of facilities (but see lease, or dispose of such

such facilities. subparagraphs 48.b and d). facilities [A-122:(but

see subparagraphs 48.b

and d)].









163

A-21 A-87 A-122 Proposed Change





c. The costs of idle c. The costs of idle c. The costs of idle

capacity are normal capacity are normal costs capacity are normal costs

costs of doing business of doing business and are of doing business and are

and are a factor in the a factor in the normal a factor in the normal

normal fluctuations of fluctuations of usage or fluctuations of usage or

usage or indirect cost indirect cost rates from indirect cost rates from

rates from period to period to period. Such period to period. Such

period. Such costs are costs are allowable, costs are allowable,

allowable, provided that provided the capacity is provided that the

the capacity is capacity is

reasonably anticipated reasonably anticipated to reasonably anticipated to

to be necessary or was be necessary or was be necessary or was

originally reasonable originally reasonable and originally reasonable and

and is not subject to is not subject to is not subject to

reduction or elimination reduction or elimination reduction or elimination

by use on other Federal by subletting, renting, or by use on other Federal

awards, subletting, sale, in awards, subletting,

renting, or sale, in renting, or sale, in

accordance with sound accordance with sound accordance with sound

business, economic, or business, economics, or business, economic, or

security practices. security practices. security practices.

Widespread idle capacity Widespread idle capacity Widespread idle capacity

throughout an entire throughout an entire throughout an entire

facility or among a facility or among a group facility or among a group

group of assets having of assets having of assets having

substantially the same substantially the same substantially the same

function may be function may be idle function may be

considered idle facilities. considered idle

facilities. facilities.

23. Labor relations 24. Labor relations costs. Labor relations costs.

costs.

Costs incurred in No change.

Costs incurred in maintaining satisfactory

maintaining satisfactory relations between the

relations between the organization and its

institution and its employees, including costs

employees, including of labor management

costs of labor management committees, employee

committees, employees' publications, and other









164

A-21 A-87 A-122 Proposed Change



publications, and other related activities are

related activities, are allowable.

allowable.

29. Patent costs. 35. Patent costs. Patent costs.

The patent costs

treatment would be added

to A-87. The standard

language for all three

circulars would read as

follows:

Costs of preparing a. Costs of (i) preparing a. Costs of (i)

disclosures, reports, and disclosures, reports, and preparing disclosures,

other documents required other documents required reports, and other

by the sponsored by the award and of documents required by

agreement, and of searching the art to the the Federal award and of

searching the art to the extent necessary to make searching the art to the

extent necessary to make such disclosures, (ii) extent necessary to make

such invention preparing documents and such disclosures, (ii)

disclosures, are any other patent costs in preparing documents and

allowable. In accordance connection with the filing any other patent costs

with the clauses of the and prosecution of a in connection with the

sponsored agreement United States patent filing and prosecution

relating to patents, application where title or of a United States

costs of preparing royalty-free license is patent application where

documents and any other required by the Federal title or royalty-free

patent costs, in Government to be conveyed license is required by

connection with the to the Federal Government, the Federal Government

filing of a patent and to be conveyed to the

application where title Federal Government, and

is conveyed to the (iii) general counseling

Federal Government, are services relating to

allowable. (See also (iii) general counseling patent and copyright

Section J.39.) services relating to matters, such as advice

patent and copyright on patent and copyright

matters, such as advice on laws, regulations,

patent and copyright laws, clauses, and employee

regulations, clauses, and agreements are allowable

employee agreements are (but see [section]

allowable (but see









165

A-21 A-87 A-122 Proposed Change



paragraph 39). [paragraph] ___).

b. Cost of preparing

disclosures, reports, and

b. Cost of preparing other documents and of

disclosures, reports, and

searching the art to the

other documents and of

extent necessary to make

searching the art to the disclosures, if not

extent necessary to make required by the award,

disclosures, if not are unallowable. Costs in

required by the award, are

connection with (i)

unallowable. Costs in

filing and prosecuting

connection with (i) filing any foreign patent

and prosecuting any application, or (ii) any

foreign patent United States patent

application, or (ii) any

application, where the

United States patent

Federal award does not

application, where the require conveying title

award does not require or a royalty-free license

conveying title or a to the Federal

royalty-free license to

Government, are

the Federal Government,

unallowable (but see

are unallowable (also see paragraph ___).

paragraph 47).

30. Plant security costs. 37. Plant security costs. Plant security costs.



The plant security costs

treatment would be added

to A-87 and all three

treatments would read as

follows:



Necessary expenses Necessary expenses Necessary expenses

incurred to comply with incurred to comply with incurred to comply with

security requirements, Federal security Federal security

including wages, uniforms requirements or for requirements or for

and equipment of facilities protection, facilities protection,

personnel engaged in including wages, uniforms, including wages,

plant protection, are and equipment of personnel uniforms, and equipment

allowable. are allowable. of personnel engaged in

plant protection, are









166

A-21 A-87 A-122 Proposed Change



allowable.

34. Proposal costs. 34. Proposal costs Proposal costs



This treatment would be

added to A-122, using the

language from A-87:



Costs of preparing

Proposal costs are the Costs of preparing proposals for potential

costs of preparing bids proposals for potential Federal awards are

or proposals on potential Federal awards are allowable. Proposal

federally and non- allowable. Proposal costs should normally be

federally-sponsored costs should normally be treated as indirect costs

agreements or projects, treated as indirect and should be allocated

including the development costs and should be to all activities of the

of data necessary to allocated to all non-Federal entity

support the institution's activities of the utilizing the cost

bids or proposals. governmental unit allocation plan and

Proposal costs of the utilizing the cost indirect cost rate

current accounting period allocation plan and proposal. However,

of both successful and indirect cost rate proposal costs may be

unsuccessful bids and proposal. However, charged directly to

proposals normally should proposal costs may be Federal awards with the

be treated as F&A costs charged directly to prior approval of the

and allocated currently Federal awards with the Federal awarding agency.

to all activities of the prior approval of the

institution, and no Federal awarding agency.

proposal costs of past

accounting periods will

be allocable to the

current period. However,

the institution's

established practices may

be to treat proposal

costs by some other

recognized method.

Regardless of the method

used, the results

obtained may be accepted

only if found to be









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A-21 A-87 A-122 Proposed Change



reasonable and equitable.

35. Publication and 41. Publication and Publication and printing

printing costs. printing costs. costs.



This treatment would be

revised to follow the A-

122 model and applied to

all three circulars.

Also, the treatment would

be amended to clarify the

allowability of page

charges. The treatment

for all three circulars

would read as follows:



Publication and printing

costs.



a. Publication costs

include the costs of

Publication costs, a. Publication costs printing (including the

including the costs of include the costs of

processes of

printing (including the printing (including the composition, plate-

processes of processes of composition, making, press work,

composition, plate- plate-making, press work, binding, and the end

making, press work, and binding, and the end products produced by

binding, and the end products produced by such

such processes),

products produced by processes), distribution, distribution, promotion,

such processes), promotion, mailing, and mailing, and general

distribution, promotion, general handling. handling. Publication

mailing, and general costs also include page

handling are allowable. b. If these costs are not

charges in professional

identifiable with a

publications.

particular cost objective,

they should be allocated b. If these costs are

as indirect costs to all not identifiable with a

benefiting activities of particular cost

the organization. objective, they should

be allocated as indirect

c. Publication and costs to all benefiting









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A-21 A-87 A-122 Proposed Change



printing costs are activities of the non-

unallowable as direct Federal entity.

costs except with the c. Publication and

prior approval of the printing costs are

awarding agency.

unallowable as direct

costs except with the

d. The cost of page prior approval of the

charges in journals is

awarding agency.

addressed paragraph 33.

d. Page charges for

professional journal

publications are

allowable as a necessary

part of research costs,

where:

(1) The research papers

report work supported by

the Federal Government;

and

(2) The charges are

levied impartially on all

research papers published

by the journal, whether

or not by federally-

sponsored authors.

44. Recruiting costs. Recruiting and relocation

37. Recruiting costs.

costs.



The heading of this

treatment would be

revised to reflect the

addition of relocation

costs, which would be

moved here from paragraph

45 of A-122. As revised,

the treatment would be

applied to all three

circulars, to read as

follows:









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A-21 A-87 A-122 Proposed Change





a. Recruiting costs are

allowable to the extent

a. Subject to that such costs are

subparagraphs b, c, and d, incurred pursuant to a

and provided that the size well-managed recruitment

a. Subject to subsections of the staff recruited and program and provided that

b, c, and d, and provided maintained is in keeping the size of the staff

that the size of the with workload recruited and maintained

staff recruited and requirements, costs of is in keeping with

maintained is in keeping "help wanted" advertising, workload requirements.

with workload operating costs of an These costs include

requirements, costs of employment office operating costs of an

"help wanted" necessary to secure and employment office

advertising, operating maintain an adequate necessary to secure and

costs of an staff, costs of operating maintain an adequate

employment office an aptitude and staff, costs of operating

necessary to secure and educational testing an aptitude and

maintain an adequate program, travel costs of educational testing

staff, costs of operating employees while engaged in program, travel costs of

an aptitude and recruiting personnel, employees while engaged

educational testing travel costs of applicants in recruiting personnel,

program, travel costs of for interviews for travel costs of

employees while engaged prospective employment, applicants for interviews

in recruiting personnel, and relocation costs for prospective

travel costs of incurred incident to employment. Where the

applicants for interviews recruitment of new non-Federal entity uses

for prospective employees, are allowable employment agencies,

employment, and to the extent that such costs not in excess of

relocation costs incurred costs are incurred standard commercial rates

incident to recruitment pursuant to a well-managed for such services are

of new employees, are recruitment program. Where allowable.

allowable to the extent the organization uses

that such costs are employment agencies, costs b. Costs of “help wanted

incurred pursuant to a that are not in excess of advertising” are subject

well-managed recruitment standard commercial rates to subsections (1), and

program. Where the for such services are (2) below:

institution uses allowable.

employment agencies, (1) Costs of help wanted

costs not in excess of b. In publications, costs advertising in









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A-21 A-87 A-122 Proposed Change



standard commercial rates of help wanted advertising publications that is

for such services are that includes color, excessive in size or

allowable. includes advertising utilization of color,

material for other than taking into consideration

recruitment purposes, or the intended recruitment

b. In publications, costs is excessive in size purpose and normal

of help wanted (taking into consideration institutional practice,

advertising that includes recruitment purposes for are unallowable.

color, includes which intended and normal

advertising material for organizational practices (2) Costs of help-wanted

other than recruitment in this respect), are advertising that includes

purposes, or is excessive unallowable. content not related to

in size (taking into the recruitment purpose

consideration recruitment c. Costs of help wanted are unallowable.

purposes for which advertising, special

intended and normal emoluments, fringe c. Costs of recruitment

institutional practices benefits, and salary that do not meet the test

in this respect), are allowances incurred to of reasonableness or do

unallowable. attract professional not conform to the

personnel from other established practices of

organizations that do not the non-Federal entity

c. Costs of help wanted meet the test of are unallowable. These

advertising, special costs include

emoluments, fringe reasonableness or do not advertising, special

benefits, and salary conform with the incentives, fringe

allowances incurred to established practices of benefits, and salary

attract professional the organization, are allowances incurred to

personnel from other unallowable. attract personnel from

institutions that do not other entities.

meet the test of d. Where relocation costs

reasonableness or do not incurred incident to d. Relocation costs are

conform with the recruitment of a new costs incident to the

established practices of employee have been allowed permanent change of duty

the institution, are either as an allocable assignment (for an

unallowable. direct or indirect cost, indefinite period or for

and the newly hired a stated period of not

d. Where relocation costs employee resigns for less than 12 months) of

incurred incident to reasons within his control an existing employee or

recruitment of a new within twelve months after upon recruitment of a new

employee have been being hired, the employee. Relocation









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A-21 A-87 A-122 Proposed Change



allowed either as an organization will be costs are allowable,

allocable direct or F&A required to refund or subject to the limitation

cost, and the newly hired credit such relocation described in

employee resigns for costs to the Federal subparagraphs e, f, and

reasons within his Government. g, provided that:

control within 12 months

after hire, the (1) The move is for the

institution will be benefit of the employer.

required to refund or

credit such relocation (2) Reimbursement to the

costs to the Federal employee is in accordance

Government. with an established

written policy

consistently followed by

the employer.



(3) The reimbursement

does not exceed the

employee's actual (or

reasonably estimated)

expenses.



e. Allowable relocation

costs for current

employees are limited to

the following:



(1) The costs of

transportation of the

employee, members of his

immediate family and his

household, and personal

effects to the new

location.



(2) The costs of finding

a new home, such as

advance trips by

employees and spouses to

locate living quarters









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A-21 A-87 A-122 Proposed Change



and temporary lodging

during the transition

period, up to maximum

period of 30 days,

including advance trip

time.



(3) Closing costs, such

as brokerage, legal, and

appraisal fees, incident

to the disposition of the

employee's former home.

These costs, together

with those described in

(4), are limited to 8 per

cent of the sales price

of the employee's former

home.



(4) The continuing costs

of ownership of the

vacant former home after

the settlement or lease

date of the employee's

new permanent home, such

as maintenance of

buildings and grounds

(exclusive of fixing up

expenses), utilities,

taxes, and property

insurance.



(5) Other necessary and

reasonable expenses

normally incident to

relocation, such as the

costs of canceling an

unexpired lease,

disconnecting and

reinstalling household









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A-21 A-87 A-122 Proposed Change



appliances, and

purchasing insurance

against loss of or

damages to personal

property. The cost of

canceling an unexpired

lease is limited to three

times the monthly rental.



f. Allowable relocation

costs for new employees

are limited to those

described in (1) and (2)

of subparagraph e. When

relocation costs incurred

incident to the

recruitment of new

employees have been

allowed either as a

direct or indirect cost

and the employee resigns

for reasons within his

control within 12 months

after hire, the non-

Federal entity shall

refund or credit the

Federal Government for

its share of the cost.

However, the costs of

travel to an overseas

location shall be

considered travel costs

in accordance with

paragraph ___ and not

relocation costs for the

purpose of this paragraph

if dependents are not

permitted at the location

for any reason and the

costs do not include









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A-21 A-87 A-122 Proposed Change



costs of transporting

household goods.



g. The following costs

related to relocation are

unallowable:



(1) Fees and other costs

associated with acquiring

a new home.



(2) A loss on the sale

of a former home.



(3) Continuing mortgage

principal and interest

payments on a home being

sold.



(4) Income taxes paid by

an employee related to

reimbursed relocation

costs.

39. Royalties and other 47. Royalties and other Royalties and other costs

costs for use of patents. costs for use of patents for use of patents and

and copyrights. copyrights.



This treatment would be

added to A-87 and all

three circulars would use

standard language, to

read as follows:



a. Royalties on a patent

Royalties on a patent or a. Royalties on a patent or copyright or

amortization of the cost or copyright or amortization of the cost

of acquiring a patent or amortization of the cost of acquiring by purchase

invention or rights of acquiring by purchase a a copyright, patent, or

thereto, necessary for copyright, patent, or rights thereto, necessary

the proper performance of rights thereto, necessary for the proper









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A-21 A-87 A-122 Proposed Change



the sponsored agreement for the proper performance performance of the award

and applicable to tasks of the award are allowable are allowable unless:

or processes thereunder, unless:

are allowable unless



the Federal Government (1) The Federal

has a license or the (1) The Federal Government has a license

right to free use of the Government has a license or the right to free use

patent, or the right to free use of the patent or

of the patent or copyright.

copyright.

the patent has been (2) The patent or

adjudicated to be invalid (2) The patent or copyright has been

or has been copyright has been adjudicated to be

administratively adjudicated to be invalid, invalid, or has been

determined to be invalid, or has been administratively

administratively determined to be invalid.

determined to be invalid.

the patent is considered (3) The patent or

to be unenforceable, or (3) The patent or copyright is considered

copyright is considered to to be unenforceable.

the patent has expired. be unenforceable.

(4) The patent or

(4) The patent or copyright is expired.

copyright is expired.

b. Special care should

b. Special care should be be exercised in

exercised in determining determining

reasonableness where the reasonableness where the

royalties may have arrived royalties may have

at as a result of less- arrived at as a result of

than-arm's-length less-than-arm's-length

bargaining, e.g.: bargaining, e.g.:



(1) Royalties paid to (1) Royalties paid to

persons, including persons, including

corporations, affiliated corporations, affiliated

with the organization. with the non-Federal

entity.









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A-21 A-87 A-122 Proposed Change



(2) Royalties paid to

(2) Royalties paid to unaffiliated parties,

unaffiliated parties, including corporations,

including corporations, under an agreement

under an agreement entered entered into in

into in contemplation that contemplation that a

a Federal award would be Federal award would be

made. made.



(3) Royalties paid under (3) Royalties paid under

an agreement entered into an agreement entered into

after an award is made to after an award is made to

an organization. a non-Federal entity.



c. In any case involving

a patent or copyright

c. In any case involving formerly owned by the

a patent or copyright non-Federal entity,

formerly owned by the the amount of royalty

organization, allowed should not exceed

the cost which would have

been allowed had the non-

the amount of royalty Federal entity retained

allowed should not exceed title thereto.

the cost which would have

been allowed had the

organization retained

title thereto.



42. Selling and 48. Selling and marketing. Selling and marketing.

marketing.

The first sentence that

currently exists in A-21

(with references specific

to that circular) would

be added to A-87 and

revised for A-122. The

second sentence would

remain in A-122 but not

added to in the other two









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A-21 A-87 A-122 Proposed Change



circulars:

Costs of selling and

Costs of selling and marketing any products or Costs of selling and

marketing any products or services of the marketing any products or

services of the organization services of the non-

institution (unless Federal entity are

allowed under Section unallowable (unless

J.1.c. or J.34) are (unless allowed under allowed under paragraph

unallowable. paragraph 1 as allowable ___ as allowable public

public relations costs) relations costs or

are unallowable. paragraph ___ as

allowable proposal

costs).

These costs, however, are

allowable as direct costs,

with prior approval by

awarding agencies, when

they are necessary for the

performance of Federal

programs.

43. Severance pay.

49. Severance pay. Severance pay.



The treatment of

severance pay in

circulars A-21 and A-122

would be moved to appear

with other treatments

regarding compensation

for personal services,

where A-87 already

carries this treatment.



50. Specialized service Specialized service

44. Specialized service

facilities. facilities.

facilities.

The Specialized service

facilities item would not

be added to A-87 because:

(a) governments generally









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A-21 A-87 A-122 Proposed Change



account for specialized

service facilities in

internal service funds

(ISFs); and (b) A-87,

Attachment C (Central

Service Cost Allocation

Plans) discusses ISFs in

detail. The treatment of

specialized service

facilities in A-21 and A-

122 would be revised to

read as follows:



a. The costs of a. The costs of services a. The costs of services

institutional services provided provided by

involving the use of

highly complex or by highly complex or highly complex or

specialized facilities specialized facilities specialized facilities

operated by the operated by the non-

organization, Federal entity,

such as electronic such as computers, wind

computers, wind tunnels, such as electronic tunnels, reactors and

and reactors are computers and wind motor pools are

allowable, provided the tunnels, are allowable, allowable, provided the

charge for the service provided the charges for charges for the services

meets the conditions of the services meet the meet the conditions of

subsections b through d. conditions of either either [A-21: subsection

subparagraph b or c and, b. or c.] [A-122:

in addition, subparagraph b. or c.]

b. The cost of each and, in addition,

service normally shall

consist of both its

direct costs and its

allocable share of F&A

costs with deductions for

appropriate income of

Federal financing as take into account any

described in Section C.5. take into account any items of income or

items of income or Federal Federal financing that

financing that qualify as qualify as applicable









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A-21 A-87 A-122 Proposed Change



applicable credits under credits under [A-21:

subparagraph A.5 of subsection ___][A-122:

Attachment A. subparagraph ___ of

Attachment A].

c. The cost of such

b. The costs of such

institutional services

when material in amount b. The costs of such services, when material,

will be charged directly services, when material, must be charged directly

to users, including must be charged directly to applicable awards

to applicable awards based based on actual usage of

sponsored agreements

on actual usage of the the services on the basis

based on actual use of

the services and a services on the basis of a of a schedule of rates or

schedule of rates or established methodology

schedule of rates that

established methodology that

does not discriminate that

between federally and (i) does not discriminate

non-federally supported (i) does not discriminate against federally-

activities of the against federally- supported activities of

institution, including supported activities of the non-Federal entity,

use by the institution the organization, including usage by the

for including usage by the non-Federal entity for

organization for internal purposes, and



internal purposes.

Charges for the use of internal purposes, and (ii) is designed to

specialized facilities recover only the

should be designed to aggregate costs of the

recover not more than the (ii) is designed to services. The costs of

aggregate cost of the recover only the aggregate each service shall

services over a long-term costs of the services. The consist normally of both

period agreed to by the costs of each service its direct costs and its

institution and the shall consist normally of allocable share of all

cognizant Federal agency. both its direct costs and indirect costs. Rates

Accordingly, it is not its allocable share of all shall be adjusted no less

necessary that the rates indirect costs. Advance frequently than bi-

charged for services be agreements pursuant to annually and shall take

equal to the cost of subparagraph A.6 of into consideration

providing those services over/under applied costs

during any one fiscal Attachment A are of the previous

year as long as rates are particularly important in period(s).









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A-21 A-87 A-122 Proposed Change



reviewed periodically for this situation.

consistency with the

long-term plan and

adjusted if necessary. c. Where the costs

incurred for a service

d. Where the costs

c. Where the costs are not material, they

incurred for such

institutional services incurred for a service are may be allocated as

are not material, they not material, they may be indirect costs.

may be allocated as F&A allocated as indirect

costs.

costs. Such arrangements

must be agreed to by the

institution and the

cognizant Federal agency.

e. Where it is in the

best interest of the

Federal Government and

the institution to

establish alternative

costing arrangements,

such arrangements may be

worked out with the

cognizant Federal agency.

52. Termination costs. Termination costs.

49. Termination costs

applicable to sponsored

The treatment of

agreement.

termination costs would

be revised as follows and

used in all three

circulars, except

subsection e.3 applies

a. Termination of only to A-87 and A-122.

sponsored agreements Termination of awards

generally gives rise to Termination of awards

the incurrence of costs generally give rise to the

or to the need for incurrence of costs, or generally give rise to

special treatment of the need for special the incurrence of costs,

costs, which would not treatment of costs, which or the need for special

have arisen had the would not have arisen had treatment of costs, which

agreement not been the award not been would not have arisen had









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A-21 A-87 A-122 Proposed Change



terminated. Items terminated. Cost the Federaal award not

peculiar to termination principles covering these been terminated. Cost

are set forth below. They items are set forth below. principles covering these

are to be used in They are to be used in items are set forth

conjunction with all conjunction with the other below. They are to be

other provisions of this provisions of this used in conjunction with

Circular in the case of Circular in termination the other provisions of

termination. situations. this Circular in

termination situations.

a. Common items. The cost

b. The cost of common of items reasonably usable a. The cost of items

items of material on the organization's reasonably usable on the

reasonably usable on the other work shall not be non-Federal entity's

institution's other work allowable unless the other work shall not be

will not be allowable organization allowable unless the non-

unless the institution Federal entity submits

evidence that it would

not retain such items at

submits evidence that it cost without sustaining a

would not retain such loss. In deciding whether

items at cost without such items are reasonably

submits evidence that it sustaining a loss. In usable on other work of

could not retain such deciding whether such the non-Federal entity,

items at cost without items are reasonably the awarding agency

sustaining a loss. In usable on other work of should consider the non-

deciding whether such the organization, the Federal entity's plans

items are reasonably and orders for current

usable on other work of and scheduled activity.

the institution, awarding agency should

consider the Contemporaneous purchases

organization's of common items by the

non-Federal entity shall

be regarded as evidence

consideration should be

plans and orders for that such items are

given to the

current and scheduled reasonably usable on the

institution's

activity. non-Federal entity's

other work. Any

plans and orders for Contemporaneous purchases acceptance of common

current and scheduled of common items by the items as allocable to the

organization shall terminated portion of the









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A-21 A-87 A-122 Proposed Change



work. Federal award shall be

Contemporaneous purchases limited to the extent

of common items by the be regarded as evidence that the quantities of

that such items are such items on hand, in

institution will

reasonably usable on the transit, and on order are

organization's in excess of the

be regarded as evidence reasonable quantitative

that such items are requirements of other

reasonably usable on the other work. Any acceptance work.

institution's of common items as

allocable to the

terminated portion of the

award b. If in a particular

case, despite all

other work. Any shall be limited to the reasonable efforts by the

acceptance of common extent that the quantities non-Federal entity,

items as allowable to the of such items on hand, in certain costs cannot be

terminated portion of the transit, and on order are discontinued immediately

agreement in excess of the after the effective date

should be limited to the reasonable quantitative of termination, such

extent that the requirements of other costs are generally

quantities of such items work. allowable within the

on hand, in transit, and limitations set forth in

on order are in excess of b. Costs continuing after this Circular, except

the reasonable termination. that any such costs

quantitative requirements If in a particular case, continuing after

of other work. despite all reasonable termination due to the

efforts by the negligent or willful

organization, failure of the non-

Federal entity to

c. If in a particular discontinue such costs

case, despite all certain costs cannot be shall be unallowable.

reasonable efforts by the discontinued immediately

institution, after the effective date

of termination, such costs c. Loss of useful value

are generally allowable of special tooling,

certain costs cannot be within the limitations set machinery and equipment

discontinued immediately forth in this Circular, which was not charged to

after the effective date except that any such costs the Federal award as a

continuing after capital expenditure is









183

A-21 A-87 A-122 Proposed Change



of the termination, such termination due to the generally allowable if:

costs are generally negligent or willful

allowable within the failure of the (1) Such special

limitations set forth in organization to tooling, machinery, or

this Circular, except equipment is not

that any such costs discontinue such costs reasonably capable of use

continuing after shall be unallowable. in the other work of the

termination due to the non-Federal entity,

negligent or willful c. Loss of useful value.

failure of the Loss of useful value of (2) The interest of the

institution to special tooling, machinery Federal Government is

and equipment which was protected by transfer of

not charged to the award title or by other means

discontinue such costs as a capital deemed appropriate by the

will be considered awarding agency, and

unacceptable. expenditure is generally

allowable if: (3) The loss of useful

value as to any one

d. Loss of useful value (1) Such special tooling, terminated Federal award

of special tooling, and machinery, or equipment is is limited to that

special machinery and not reasonably capable of portion of the

equipment is use in the other work of acquisition cost which

the organization. bears the same ratio to

the total acquisition

generally allowable, cost as the terminated

provided portion of the Federal

(2) The interest of the award bears to the entire

Federal Government is terminated Federal award

(1) such special tooling,

protected by transfer of and other Federal awards

machinery, or equipment

title or by other means for which the special

is not reasonably capable

deemed appropriate by the tooling, special

of use in the other work

awarding agency; machinery, or equipment

of the institution;

was acquired.



d. Rental costs under

unexpired leases are

(2) the interest of the generally allowable where

Federal Government is clearly shown to have

protected by transfer of been reasonably necessary

title or by other means for the performance of









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A-21 A-87 A-122 Proposed Change



deemed appropriate by the the terminated Federal

contracting officer or award less the residual

equivalent; and (3) the value of such leases, if:

loss of useful value as

to any one terminated (1) the amount of such

agreement is limited to rental claimed does not

that portion of the exceed the reasonable use

acquisition cost which value of the property

bears the same ratio to leased for the period of

the total acquisition the Federal award and

cost as the terminated such further period as

portion of the agreement may be reasonable, and

bears to the entire

(2) the non-Federal

terminated agreement

entity makes all

reasonable efforts to

and other Federal d. Rental costs. Rental terminate, assign,

agreements costs under unexpired settle, or otherwise

leases are generally reduce the cost of such

for which the special allowable lease. There also may be

tooling, special included the cost of

machinery, or equipment where clearly shown to alterations of such

was acquired. have been reasonably leased property, provided

e. Rental costs under necessary for the such alterations were

unexpired leases are performance of the necessary for the

generally allowable where terminated award performance of the

clearly shown to have less the residual value of Federal award, and of

been reasonably necessary such leases, if reasonable restoration

for the performance of required by the

the terminated agreement, (i) the amount of such provisions of the lease.

rental claimed does not

less the residual value exceed the reasonable use e. Settlement expenses

of such leases, if value of the property including the following

leased for the period of are generally allowable:

the award and such

(1) the amount of such

rental claimed does not

further period as may be (1) Accounting, legal,

exceed the reasonable use

reasonable, and clerical, and similar

value of the property

costs reasonably

leased for the period of

(ii) the organization necessary for:









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A-21 A-87 A-122 Proposed Change



the agreement and such

further period as may be (a) The preparation and

makes all reasonable presentation to awarding

reasonable; and

efforts to terminate, agency of settlement

(2) the institution assign, settle, or claims and supporting

otherwise reduce the cost data with respect to the

of such lease. There also terminated portion of the

may be included the cost Federal award,

makes all reasonable of alterations of such unless the termination is

efforts to terminate, leased property, provided for default (see Sec.

assign, settle, or such __.61 of Circular A-110);

otherwise reduce the cost and

of such lease. There also alterations were necessary

may be included the cost for the performance of the (b) The termination and

of alterations of such award, and of reasonable settlement of sub awards.

leased property, provided restoration required by

such alternations were the provisions of the (2) Reasonable costs for

necessary for the lease. the storage,

performance of the transportation,

agreement, and of e. Settlement expenses. protection, and

reasonable restoration Settlement expenses disposition of property

required by the including the following provided by the Federal

provisions of the lease. are generally allowable: Government or acquired or

produced for the Federal

(1) Accounting, legal, award, except when

f. Settlement expenses clerical, and similar

including the following costs reasonably necessary grantees or contractors

are generally allowable: for: are reimbursed for

disposals at a

(a) The preparation and predetermined amount in

(1) accounting, legal, presentation to awarding accordance with Sections

clerical, and similar agency of settlement __.32 through ___.37 of

costs reasonably claims and supporting data Circular A-110.

necessary for with respect to the

terminated portion of the (3) Indirect costs

award, related to salaries and

the preparation and wages incurred as

presentation to unless the termination is settlement expenses in

contracting officers or for default (see Sec. [subsections]

equivalent of settlement __.61 of Circular A-110); [subparagraphs] (1) and









186

A-21 A-87 A-122 Proposed Change



claims and supporting and (2). Normally, such

data with respect to the indirect costs shall be

terminated portion of the (b) The termination and limited to fringe

agreement, and the settlement of sub awards. benefits, occupancy cost,

termination and and immediate

settlement of sub (2) Reasonable costs for supervision.

agreements; and the storage,

transportation,

protection, and f. Claims under sub

disposition of property awards. Claims under sub

provided by the Federal awards, including the

Government or acquired or allocable portion of

produced for the award, claims which are common

except when to the Federal award, and

to other work of the non-

(2) reasonable costs for grantees or contractors Federal entity are

the storage, are reimbursed for generally allowable.

transportation, disposals at a

protection, and predetermined amount in An appropriate share of

disposition of property accordance with Sec. __.30 the non-Federal entity's

provided by the Federal through __.37 of Circular indirect expense may be

Government or acquired or A-110. allocated to the amount

produced by the of settlements with

institution for the (3) Indirect costs subcontractors and/or

agreement, except when related to salaries and subgrantees, provided

the institution is wages incurred as that the amount allocated

reimbursed for disposals settlement expenses in is otherwise consistent

at a predetermined amount subparagraphs (1) and (2). with the basic guidelines

in accordance with the Normally, contained in Attachment

provisions of Circular A- A. The indirect expense

110. such indirect costs shall so allocated shall

be limited to fringe exclude the same and

benefits, occupancy cost, similar costs claimed

and immediate supervision. directly or indirectly as

settlement expenses.

f. Claims under sub

awards. Claims under sub

awards, including the

allocable portion of

claims which are common to









187

A-21 A-87 A-122 Proposed Change



the award,





and to other work of the

organization are generally

allowable.



An appropriate share of

g. Claims under sub the organization's

agreements, including the

allocable portion of

claims which are common indirect expense may be

to the agreement allocated to the amount of

settlements with

subcontractors and/or

and to other work of the subgrantees, provided that

institution, are the amount allocated is

generally allowable. otherwise consistent with

the basic guidelines

contained in Attachment A.

The indirect expense so

allocated shall exclude

the same and similar costs

claimed directly or

indirectly as settlement

expenses.

40. Training. 53. Training and education Training.

costs.

The treatment of training

costs in A-87 would be

added to A-21, to read as

follows:



The cost of training

The cost of training a. Costs of preparation provided for employee

provided for employee and maintenance of a development is allowable.

development is program of instruction

allowable. including but not limited

to on-the-job, classroom,

and apprenticeship









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A-21 A-87 A-122 Proposed Change



training, designed to

increase the vocational

effectiveness of

employees, including

training materials,

textbooks, salaries or

wages of trainees

(excluding overtime

compensation which might

arise therefrom), and (i)

salaries of the director

of training and staff when

the training program is

conducted by the

organization; or (ii)

tuition and fees when the

training is in an

institution not operated

by the organization, are

allowable.



b. Costs of part-time

education, at an

undergraduate or post-

graduate college level,

including that provided at

the organization's own

facilities, are allowable

only when the course or

degree pursued is relative

to the field in which the

employee is now working or

may reasonably be expected

to work, and are limited

to:



(1) Training materials.



(2) Textbooks.









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A-21 A-87 A-122 Proposed Change



(3) Fees charges by the

educational institution.



(4) Tuition charged by

the educational

institution or, in lieu of

tuition, instructors'

salaries and the related

share of indirect costs of

the educational

institution to the extent

that the sum thereof is

not in excess of the

tuition which would have

been paid to the

participating educational

institution.



(5) Salaries and related

costs of instructors who

are employees of the

organization.



(6) Straight-time

compensation of each

employee for time spent

attending classes during

working hours not in

excess of 156 hours per

year and only to the

extent that circumstances

do not permit the

operation of classes or

attendance at classes

after regular working

hours; otherwise, such

compensation is

unallowable.



c. Costs of tuition,









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A-21 A-87 A-122 Proposed Change



fees, training materials,

and textbooks (but not

subsistence, salary, or

any other emoluments) in

connection with full-time

education, including that

provided at the

organization's own

facilities, at a post-

graduate (but not

undergraduate) college

level, are allowable only

when the course or degree

pursued is related to the

field in which the

employee is now working or

may reasonably be expected

to work, and only where

the costs receive the

prior approval of the

awarding agency. Such

costs are limited to the

costs attributable to a

total period not to exceed

one school year for each

employee so trained. In

unusual cases the period

may be extended.



d. Costs of attendance of

up to 16 weeks per

employee per year at

specialized programs

specifically designed to

enhance the effectiveness

of executives or managers

or to prepare employees

for such positions are

allowable. Such costs

include enrollment fees,









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A-21 A-87 A-122 Proposed Change



training materials,

textbooks and related

charges, employees'

salaries, subsistence, and

travel. Costs allowable

under this paragraph do

not include those for

courses that are part of a

degree-oriented

curriculum, which are

allowable only to the

extent set forth in

subparagraphs b and c.



e. Maintenance expense,

and normal depreciation or

fair rental, on facilities

owned or leased by the

organization for training

purposes are allowable to

the extent set forth in

paragraphs 11, 27, and 46.



f. Contributions or

donations to educational

or training institutions,

including the donation of

facilities or other

properties, and

scholarships or

fellowships, are

unallowable.



g. Training and education

costs in excess of those

otherwise allowable under

subparagraphs b and c may

be allowed with prior

approval of the awarding

agency. To be considered









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A-21 A-87 A-122 Proposed Change



for approval, the

organization must

demonstrate that such

costs are consistently

incurred pursuant to an

established training and

education program, and

that the course or degree

pursued is relative to the

field in which the

employee is now

working or may reasonably

be expected to work.

47. Transportation costs. 54. Transportation costs. Transportation costs.



Costs incurred for Transportation costs No change.

freight, include freight, express,

express, cartage, cartage, and postage

postage, and other charges relating either to

transportation services goods purchased, in

relating either to goods process, or delivered.

purchased, in process, or These costs are allowable.

delivered, are allowable.

When such costs can

readily be identified When such costs can

with the items involved, readily be identified with

they may be charged the items involved, they

directly as may be directly charged as

transportation costs or transportation costs or

added to the cost of such added to the cost of such

items. Where items (see paragraph 28).

Where identification with

identification with the the materials received

materials received cannot cannot readily be made,

readily be made, inbound

transportation cost may transportation costs may

be charged to the be charged to the

appropriate F&A cost appropriate indirect cost

accounts if the accounts if the

institution follows organization follows a









193

A-21 A-87 A-122 Proposed Change



a consistent, equitable consistent, equitable

procedure in this procedure in this respect.

respect. Outbound

freight, if reimbursable

under the terms of the

sponsored agreement,

should be treated as a

direct cost.

50. Trustees. 56. Trustees. Trustees.



Travel and subsistence Travel and subsistence No change.

costs of trustees (or costs of trustees (or

directors) are allowable. directors) are allowable.

The costs are subject to The costs are subject to

restrictions regarding restrictions regarding

lodging, subsistence and lodging, subsistence and

air travel costs provided air travel costs provided

in Section 48. in paragraph 55.

Cost items in only one circular

1. Accounting. The cost Accounting.

of establishing and

maintaining accounting This treatment would be

and other information deleted.

systems is allowable.

3. Advisory councils. Advisory councils.



This treatment would be

added to all the

circulars, to read as

follows:



Costs incurred by Costs incurred by

advisory councils or advisory councils or

committees are allowable committees are allowable

as a direct cost where as a direct cost where

authorized by the Federal authorized by the Federal

awarding agency or as an awarding agency or as an

indirect cost where indirect cost where

allocable to Federal allocable to Federal

awards. awards.









194

A-21 A-87 A-122 Proposed Change



3. Alumni/ae activities. Alumni/ae activities.



Costs incurred for, or in No change.

support of, alumni/ae

activities and similar

services are unallowable.

5. Audit services. Audit and related

services.



The title of this

treatment would be

revised to reflect the

true scope of the

treatment and applied to

all three circulars. The

treatment would be

amended to reflect the

new Circular A-133, to

read as follows:



a.(1) The costs of audits

are allowable provided

The costs of audits are that the audits were

allowable provided that performed in accordance

the audits were performed with the Single Audit

in accordance with the Act, as implemented by

Single Audit Act, as Circular A-133, "Audits

implemented by Circular of States, Local

A-128, "Audits of State Governments, and Non-

and Local Governments." Profit Organizations."

[Note: In June 1997, OMB

rescinded Circular A-128

and co-located all audit

requirements in a re-

titled Circular A-133,

"Audits of States, Local

Governments, and Non-

Profit Organizations."]

Generally, the percentage

of costs charged to (2)Generally, the









195

A-21 A-87 A-122 Proposed Change



Federal awards for a percentage of costs

single audit shall not charged to Federal awards

exceed the percentage for a single audit shall

derived by dividing not exceed the percentage

Federal funds expended by derived by dividing the

total funds expended by recipient or sub

the recipient or sub recipient's amount of

recipient (including Federal funds expended by

program matching funds) the recipient or sub

during the fiscal year. recipient's amount of

total funds (including

program matching funds)

during the fiscal year.

The percentage may be

exceeded only if (3) The percentage may be

appropriate documentation exceeded only if

demonstrates higher appropriate documentation

actual costs. demonstrates higher

actual costs.

Other audit costs are

allowable if specifically b. Other audit costs are

approved by the awarding allowable if specifically

or cognizant agency as a approved by the awarding

direct cost to an award or cognizant agency as a

or included as an direct cost to an award

indirect cost in a cost or included as an

allocation plan or rate. indirect cost in a cost

allocation plan or rate.



c. The cost of agreed-

upon procedures

engagements used by non-

Federal entities, to

monitor subrecipients

exempted from the OMB

Circular A-133 audit

requirement under section

200(d) of that Circular

is allowable, provided:

(1) the non-Federal









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A-21 A-87 A-122 Proposed Change



entity, arranges and pays

for the work; and

(2) the scope of the

work is limited to the

types of compliance

requirements listed in

paragraph 230(b)(2) of

Circular A-133.



6. Automatic electronic Automatic electronic data

data processing. processing.



The cost of data This treatment would be

processing services is deleted.

allowable (but see

section 19, Equipment and

other capital

expenditures).

Bid and Proposal costs. Bid and Proposal costs.

(Reserved) (Reserved)



This heading would be

deleted.

9. Budgeting. Budgeting.



Costs incurred for the This treatment would be

development, preparation, deleted.

presentation, and

execution of budgets are

allowable.

5. Civil defense costs. Civil defense costs.

Civil defense costs are

those incurred in This treatment would be

planning for, and the deleted.

protection of life and

property against, the

possible effects of enemy

attack. Reasonable costs

of civil defense measures

(including costs in









197

A-21 A-87 A-122 Proposed Change



excess of normal plant

protection costs, first-

aid training and

supplies, firefighting

training, posting of

additional exit notices

and directions, and other

approved civil defense

measures) undertaken on

the institution's

premises pursuant to

suggestions or

requirements of civil

defense authorities are

allowable when

distributed to all

activities of the

institution. Capital

expenditures for civil

defense purposes will not

be allowed, but a use

allowance or depreciation

may be permitted in

accordance with

provisions set forth in

Section J.12. Costs of

local civil defense

projects not on the

institution's premises

are unallowable.

6. Commencement and Commencement and

convocation costs. Costs convocation costs.

incurred for

commencements and No change.

convocations

are unallowable, except

as provided for in

Section F.9.

10. Deans of faculty and Deans of faculty and

graduate schools. The graduate schools.









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A-21 A-87 A-122 Proposed Change



salaries and expenses of

deans of faculty and No change.

graduate schools, or

their equivalents, and

their staffs, are

allowable.

16. Disbursing service. Disbursing service.



The cost of disbursing This treatment would be

funds by the Treasurer or deleted.

other designated officer

is allowable.

17. Executive lobbying Executive lobbying costs.

costs. Costs incurred in

attempting to improperly This treatment would be

influence either directly moved to appear with the

or indirectly, an treatment of other

employee or officer of lobbying costs and

the Executive Branch of applied to all three

the Federal Government to circulars.

give consideration or to

act regarding a sponsored

agreement or a regulatory

matter are unallowable.

Improper influence means

any influence that

induces or tends to

induce a Federal employee

or officer to give

consideration or to act

regarding a federally-

sponsored agreement or

regulatory matter on any

basis other than the

merits of the matter.

17. Fringe benefits. See Fringe benefits.

subparagraph 7.f.

This cross reference

would be deleted.

23. General government General government









199

A-21 A-87 A-122 Proposed Change



expenses. expenses.



This treatment would be

edited and would continue

to apply only to A-87.

a. The general costs of

government are

a. The general costs of unallowable (except as

government are provided in section 41).

unallowable (except as

These include:

provided in section 41).

These include: (1) Salaries and

expenses of the Office

(1) Salaries and of the Governor of a

expenses of the Office of State or the chief

the Governor of a State executive of a political

or the chief executive of subdivision or the chief

a political subdivision executive of federally-

or the chief executives recognized Indian tribal

of federally-recognized government;

Indian tribal (2) Salaries and other

governments; expenses of a State

legislature, tribal

(2) Salaries and other council, or similar

expenses of State local governmental body,

legislatures, tribal such as a county

councils, or similar supervisor, city

local governmental council, school board,

bodies, such as county etc., whether incurred

supervisors, city for purposes of

councils, school boards, legislation or executive

etc., whether incurred direction;

for purposes of

legislation or executive (3) Costs of the

direction; judiciary branch of a

government;

(3) Cost of the (4) Costs of

judiciary branch of a prosecutorial activities

government; unless treated as a

direct cost to a









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A-21 A-87 A-122 Proposed Change



(4) Cost of specific program if

prosecutorial activities authorized by program

unless treated as a statute or regulation

direct cost to a specific (however, this does not

program when authorized preclude the

by program regulations allowability of other

(however, this does not legal activities of the

preclude the allowability Attorney General); and

of other legal activities (5) Costs of other

of the Attorney General);

general types of

and

government services

normally provided to the

general public, such as

(5) Other general types fire and police, unless

of government services

provided for as a direct

normally provided to the

cost under a program

general public, such as

statute or regulation.

fire and police, unless

provided for as a direct b. For federally-

cost in program recognized Indian tribal

regulations. governments and Councils

Of Governments (COGs),

the portion of salaries

and expenses directly

b. For federally- attributable to managing

recognized Indian tribal and operating Federal

governments and Councils programs by the chief

Of Governments (COGs), executive and his staff

the portion of salaries is allowable.

and expenses directly

attributable to managing

and operating Federal

programs by the chief

executive and his staff

is allowable.

21. Independent research Independent research and

and development. development.

[Reserved]

This cross reference

would be deleted.









201

A-21 A-87 A-122 Proposed Change



29. Meetings and Meetings and conferences.

conferences.

This treatment would be

applied to all three

circulars, to read as

follows:



a. Costs of meetings and

a. Costs associated with conferences, the primary

the conduct of meetings purpose of which is

and conferences include dissemination of

the cost of renting technical information

facilities, meals, are allowable. This

speakers' fees, and the includes costs of meals,

like. But see paragraph transportation, rental of

14, Entertainment costs, facilities, speakers'

and paragraph 34, fees, and other items

Participant support incidental to such

costs. meetings or conferences.

But see

b. To the extent that [section][paragraph] ___,

these costs are Entertainment, and

identifiable with a Participant support

particular cost costs, [section]

objective, they should be [paragraph] ___.]

charged to that objective [A-122, only: Costs of

(see paragraph B of meetings or conferences

Attachment A). These held to conduct the

costs are allowable, general business of the

provided that they meet non-Federal entity are

the general tests of allowable.]

allowability, shown in

paragraph A of Attachment

A to this Circular.



c. Costs of meetings and

conferences held to

conduct the general

administration of the

organization are









202

A-21 A-87 A-122 Proposed Change



allowable.

31. Motor pools. Motor pools.



The costs of a service This treatment would be

organization which deleted.

provides automobiles to

user governmental units

at a mileage or fixed

rate and/or provides

vehicle maintenance,

inspection, and repair

services are allowable.

31. Organization costs. Organization costs.



Expenditures, such as No change.

incorporation fees,

brokers' fees, fees to

promoters,

organizers or management

consultants, attorneys,

accountants, or

investment counselors,

whether or not employees

of the organization, in

connection with

establishment or

reorganization of an

organization, are

unallowable except with

prior approval of the

awarding agency.

32. Overtime, extra-pay Overtime, extra-pay

shift, and multi-shift shift, and multi-shift

premiums. premiums.



This treatment would be

moved to the part of the

circulars addressing

compensation for personal

services and applied to









203

A-21 A-87 A-122 Proposed Change



all three circulars,

except section b only

applies to A-87 and A-

122.



Premiums for overtime, Premiums for overtime,

extra-pay shifts, and extra-pay shifts, and

multi-shift work are multi-shift work are

allowable only with the allowable only with the

prior approval of the prior approval of the

awarding agency except: awarding agency except:



a. When necessary to a. When necessary to

cope with emergencies, cope with emergencies,

such as those resulting such as those resulting

from accidents, natural from accidents, natural

disasters, breakdowns of disasters, breakdowns of

equipment, or occasional equipment, or occasional

operational bottlenecks operational bottlenecks

of a sporadic nature. of a sporadic nature.



b. When employees are b. When employees are

performing indirect performing indirect

functions, such as functions, such as

administration, administration,

maintenance, or maintenance, or

accounting. accounting.



c. In the performance of c. In the performance of

tests, laboratory tests, laboratory

procedures, or other procedures, or other

similar operations which similar operations which

are continuous in nature are continuous in nature

and cannot reasonably be and cannot reasonably be

interrupted or otherwise interrupted or otherwise

completed. completed.



d. When lower overall d. When lower overall

cost to the Federal cost to the Federal

Government will result. Government will result.









204

A-21 A-87 A-122 Proposed Change



33. Page charges in Page charges in

professional journals. professional journals.

Page charges for

professional journal This treatment would be

publications are deleted and the substance

allowable as a necessary would be carried under

part of research costs, the treatment

where: "Publication and printing

costs" which is addressed

a. The research papers in the part of this table

report work supported by covering those treatments

the Federal Government; that appear in two cost

and circulars.



b. The charges are

levied impartially on all

research papers published

by the journal, whether

or not by federally-

sponsored authors.

34. Participant support Participant support

costs. costs.



This treatment would be

added to the other two

circulars, using the same

text, to read as follows:



Participant support costs

Participant support costs are direct costs for

are direct costs for items such as stipends or

items such as stipends or subsistence allowances,

subsistence allowances, travel allowances, and

travel allowances, and registration fees paid to

registration fees paid to or on behalf of

or on behalf of participants or trainees

participants or trainees (but not employees) in

(but not employees) in connection with meetings,

connection with meetings, conferences, symposia, or

conferences, symposia, or training projects. These









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A-21 A-87 A-122 Proposed Change



training projects. These costs are allowable with

costs are allowable with the prior approval of the

the prior approval of the awarding agency.

awarding agency.

36. Pension plans. See Pension plans.

subparagraph 7.h.

This cross reference

would be deleted.

45. Relocation costs. Relocation costs.



a. Relocation costs are This treatment would be

costs incident to the moved to the treatment of

permanent change of duty "Recruiting costs" and

assignment (for an included in all three

indefinite period or for circulars.

a stated period of not

less than 12 months) of

an existing employee or

upon recruitment of a new

employee. Relocation

costs are allowable,

subject to the limitation

described in

subparagraphs b, c, and

d, provided that:



(1) The move is for the

benefit of the employer.



(2) Reimbursement to the

employee is in accordance

with an established

written policy

consistently followed by

the employer.



(3) The reimbursement

does not exceed the

employee's actual (or

reasonably estimated)









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A-21 A-87 A-122 Proposed Change



expenses.



b. Allowable relocation

costs for current

employees are limited to

the following:



(1) The costs of

transportation of the

employee, members of his

immediate family and his

household, and personal

effects to the new

location.



(2) The costs of finding

a new home, such as

advance trips by

employees and spouses to

locate living quarters

and temporary lodging

during the transition

period, up to maximum

period of 30 days,

including advance trip

time.



(3) Closing costs, such

as brokerage, legal, and

appraisal fees, incident

to the disposition of the

employee's former home.

These costs, together

with those described in

(4), are limited to 8 per

cent of the sales price

of the employee's former

home.



(4) The continuing costs









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A-21 A-87 A-122 Proposed Change



of ownership of the

vacant former home after

the settlement or lease

date of the employee's

new permanent home, such

as maintenance of

buildings and grounds

(exclusive of fixing up

expenses), utilities,

taxes, and property

insurance.



(5) Other necessary and

reasonable expenses

normally incident to

relocation, such as the

costs of canceling an

unexpired lease,

disconnecting and

reinstalling household

appliances, and

purchasing insurance

against loss of or

damages to personal

property. The cost of

canceling an unexpired

lease is limited to three

times the monthly rental.



c. Allowable relocation

costs for new employees

are limited to those

described in (1) and (2)

of

subparagraph b. When

relocation costs incurred

incident to the

recruitment of new

employees have been

allowed either as a









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A-21 A-87 A-122 Proposed Change



direct or indirect cost

and the employee resigns

for reasons within his

control within 12 months

after hire, the

organization shall refund

or credit the Federal

Government for its share

of the cost. However, the

costs of travel to an

overseas location shall

be considered travel

costs in accordance with

paragraph 55 and not

relocation costs for the

purpose of this paragraph

if dependents are not

permitted at the location

for any reason and the

costs do not include

costs of transporting

household goods.



d. The following costs

related to relocation are

unallowable:



(1) Fees and other costs

associated with acquiring

a new home.



(2) A loss on the sale

of a former home.



(3) Continuing mortgage

principal and interest

payments on a home being

sold.



(4) Income taxes paid by









209

A-21 A-87 A-122 Proposed Change



an employee related to

reimbursed relocation

costs.

40. Sabbatical leave Sabbatical leave costs.

costs.

This treatment would be

Costs of leave of absence moved to the treatment in

by employees for A-21 of fringe benefits

performance of graduate under "Compensation for

work or sabbatical study, personal services." This

travel, or research are treatment would not be

allowable provided the applied to A-87 or A-122.

institution has a uniform

policy on sabbatical

leave for persons engaged

in instruction and

persons engaged in

research. Such costs will

be allocated on an

equitable basis among all

related activities of the

institution. Where

sabbatical leave is

included in fringe

benefits for which a cost

is determined for

assessment as a direct

charge, the aggregate

amount of such

assessments applicable to

all work of the

institution during the

base period must be

reasonable in relation to

the institution's actual

experience under its

sabbatical leave policy.

41. Scholarships and Scholarships and student

student aid costs. aid costs.









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A-21 A-87 A-122 Proposed Change



This treatment was

amended to incorporate

the clarification in OMB

memorandum M-01-06,

regarding tuition

remission costs. The

clarification made clear

that a graduate student

did not have to be an

employee of the non-

Federal entity for tax

purposes in order for the

tuition remission

treatment to apply. The

revised treatment, only

for A-21, would read as

follows:



a. Costs of scholarships,

fellowships, and other

programs of student aid

are allowable only when

the purpose of the

a. Costs of scholarships, Federal award is to

fellowships, and other provide training to

programs of student aid selected participants and

are allowable only when the charge is approved by

the purpose of the the sponsoring agency.

sponsored agreement is to However, tuition

provide training to remission and other forms

selected participants and of compensation paid as,

the charge is approved by or in lieu of, wages to

the sponsoring agency. students performing

However, tuition necessary work are

remission and other forms allowable provided that

of compensation paid as,

or in lieu of, wages to (1) The individual is

students performing conducting activities

necessary work are necessary to the Federal

allowable provided that award;









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A-21 A-87 A-122 Proposed Change



(1) there is a bona fide

employer-employee (2) Tuition remission and

relationship between the other support are

student and the provided in accordance

institution for the work with established

performed, educational institutional

policy and consistently

provided in a like manner

to students in return for

similar activities

conducted in nonsponsored

as well as sponsored

activities; and



(3) During the academic

period, the student is

enrolled in an advanced

degree program at a

grantee or affiliated

non-Federal entity and

the activities of the

student in relation to

the Federally-sponsored

research project are

related to the degree

program;





(4) the tuition or other

payments are reasonable

compensation for the work

performed and are

conditioned explicitly

upon the performance of

necessary work; and

(2) the tuition or other

payments are reasonable (5) it is the non-Federal

entity's practice to

compensation for the work

similarly compensate

performed and are

conditioned explicitly students in nonsponsored









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A-21 A-87 A-122 Proposed Change



upon the performance of as well as sponsored

necessary work, and activities.





(3) it is the b. Charges for tuition

institution's practice to remission and other forms

similarly compensate of compensation paid to

students as, or in lieu

students in nonsponsored

as well as sponsored of, salaries and wages

shall be subject to the

activities.

reporting requirements

stipulated in Section

b. Charges for tuition J.8, and shall be treated

remission and other forms as direct or F&A cost in

of compensation paid to accordance with the

students as, or in lieu actual work being

of, salaries and wages performed. Tuition

shall be subject to the remission may be charged

reporting requirements on an average rate basis.

stipulated in Section

J.8, and shall be treated

as direct or F&A cost in

accordance with the

actual work being

performed. Tuition

remission may be charged

on an average rate basis.

45. Student activity Student activity costs.

costs. Costs incurred for

intramural activities, No change.

student publications,

student clubs, and other

student activities, are

unallowable, unless

specifically provided for

in the sponsored

agreements.









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A-21 A-87 A-122 Proposed Change



42. Under recovery of Under recovery of costs

costs under Federal under Federal agreements.

agreements. Any excess

costs over the Federal This treatment, which

contribution under one repeats concepts already

award agreement are covered in the "Basic

unallowable under other Considerations" coverage of

award agreements. A-87, would be deleted.









214

Plain Language Version



As stated at the beginning of the preamble, we prepared a short



table to compare how the cost principle for “Pre-award costs”



appears as proposed in the chart with a plain language version



of how the same principle might appear if it were stated in



simple short sentences.









Proposed language from chart Plain Language Example

a. Pre-award costs are those a. Pre-award costs are costs

incurred before the effective made before the effective

date of the Federal award date of the Federal award.

that directly pursuant to the b. These costs are allowable

negotiation and in if they meet the following

anticipation of the award criteria:

where such costs are

necessary to comply with the (1) The funds you expend are

proposed delivery schedule or for costs that would be

period of performance. allowable if incurred during

the award period;

b. (1) Pre-award costs are (2) The funds you expend are

allowable only to the extent provided by you and

that they would have been reimbursed from award funds

allowable if incurred after that become available during

the date of the award and the award period;

only with the written

approval of the awarding (3)The Federal awarding

agency. agency is notified of the

Pre-award expenditure during

(2) If the entity is subject negotiation for the award;

to A-110, prior approval is and

not required unless required (4)(i) You obtain written

by the Federal agency through approval from the awarding

a condition of the Federal agency before you expend your

award or program regulations. funds for the cost; or

If the costs do not require

prior approval, the entity (ii)(a) The cost is allowed

must notify the awarding without written approval

agency of the costs before under Circular A-110; or

the award is made and the (iii) Prior approval is not

costs must be necessary to required under the terms of





215

comply with the proposed the grant or program

delivery schedule or period regulations; and

of performance. (b) The costs are needed

to comply with the proposed

delivery schedule or period

of performance.

c. If you do not get an

award, the Federal government

will not pay for the pre-

award costs you incurred.









216