F&A Booklet
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2. How have the terms of Circular A-21 changed over
time?
Circular A-21 was revised six times between 1961 and 1976. In 1979, protracted negotiations among federal agencies, universities and OMB (Office of Management and Budget, formerly the Bureau of the Budget), led to a major revision of Circular A-21. The government had been dissatisfied with the lack of uniformity in costing methods and with documentation of salary charges. The universities hoped to get a clearer definition of allowable costs to protect themselves from interpretation of the guidelines by government officials and the threat of future audit disallowances. The 1979 revision increased reporting requirements and reduced institutional flexibility. It also introduced the concept of Modified Total Direct Costs (MTDC) as the standard basis for determining allowable F&A costs (see -Question 4 ).
From the mid-1960’s and through the 1970’s, revisions to OMB Circular A-21 were negotiated between government cost accounting experts and their university counterparts. During the 1980’s, the Administration budget requests attempted to use regulatory language to modify cost principles. In 1983 the Department of Health and Human Services (DHHS, the new name for DHEW after the Department of Education had been established separately) proposed a ceiling for F&A costs. In 1985, DHHS requested that F&A cost rates be frozen at their 1985 levels. In 1986 the Assistant Secretary for Management and Budget at OMB and the Deputy Associate Director for Health Programs at DHHS teamed up to propose a limit of 20 percent for recovery of administrative costs. While Congress allowed none of these attempts, the December 1986 revision of Circular A-21 did set a 3.6 percent fixed allowance for faculty administrative costs, establishing a precedent for capping a portion of F&A costs.
Increasing budget pressures, demands from the research community for increased funding, revelations of serious cost-accounting errors, and the recognition that the federal guidelines were ambiguous breathed new life into earlier efforts to limit F&A costs, and resulted in increased federal scrutiny of F&A costs at universities. In 1991, this led to new restrictions and revisions of Circular A-21, including a 26 percent cap on the administrative cost component, which includes General Administration, Departmental Administration, Office of Grant and Research Development, and Sponsored Programs Services. During 1993 additional changes to Circular A-21 included restrictions on administrative and clerical salaries and a formal grouping of F&A cost pools into two broad categories-–”facilities” and “administrative” costs.
Changes to Circular A-21 in 1996 included consistency requirements when charging costs, the requirement to file a detailed Cost Accounting Standards (CAS) disclosure statement (DS II), an increase in the equipment capitalization threshold to $5,000, fixed F&A cost rates for the “competitive segment” of an award (e.g., the F&A rate in effect during the first year of the award applies for all years of a multi-year award), and a replacement of the term indirect costs with the term Facilities and Administrative (F&A) costs. Also, recent changes implemented a standard format for F&A rate submissions.