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Government revises rules on research-facility costs

On June 1, the Office of Management and Budget issued the latest set of revisions to OMB Circular A-21, Cost Principles for Educational Institutions. This is the circular that describes the principles for determining costs applicable to grants, contracts and other agreements for institutions of higher education.

This most recent revision (the fifth by the federal government this decade) was published for comment last fall and addresses a number of cost impact areas for MIT.

Although OMB had proposed a process for establishing regional benchmark rates for research facility construction, the final rule does not adopt this approach, but rather establishes a review process to ensure the reasonableness of facilities costs for research facilities costing more than $10 million in which more than 40 percent is expected to be used for federal research.

There is a requirement for additional documentation for buildings costing more than $25 million with more than 50 percent allocated to federal research. In addition, the federal government will revise its biannual survey of research facilities to identify costs by project for those in excess of $10 million, rather than averaging the cost of all construction projects regardless of size.

"These regulations are one example of how universities are singled out for treatment not imposed on other recipients of federal funds and they will impose additional administrative burdens on MIT offices, with little or no substantive benefit to the process itself," said Julie Norris, director of MIT's Office Of Sponsored Programs.

The provisions apply to research facilities with design and construction beginning after July 1, 1998, and should be included in an insti-tution's facilities and administrative (indirect cost) rate proposals negotiated after January 1, 2000.

However, the OMB did not adopt regulations regarding special reviews for facility renovations. "This recognizes the diverse nature of these projects, their costs and the impossibility of quantifying such costs in a meaningful manner," said Ms. Norris.

In addition to the revisions on construction costs, OMB has established a utility cost adjustment factor of 1.3 points to be added to the Facilities and Administrative (F&A) rate in lieu of any special cost studies for utility costs. MIT has for several years utilized a special cost study for utility costs, and this change will enable the Institute to recover the incremental cost of utilities for research space and avoid the cost of conducting a special utility study.

Although this change does increase MIT's utility cost recovery, the increase is more than offset by a loss of recovery, because of the revision which now prohibits any allocation of student service costs to sponsored research. MIT will use the utility cost for years beginning on or after July 1, 1998.

In July 1994, the OMB issued a memorandum to federal agencies that provided guidance for when administrative and clerical salaries may be charged directly to federal sponsored agreements. A revision to the circular defining "major project" (which is a condition under which such charges are allowable) has been included along with examples. This is not a change for the Institute, which has been operating under this guidance since it was issued.

In 1991, a revision to the circular made trustees' travel expenses unallowable, but this provision has now been reversed. The OMB now believes that such expenses are necessary and reasonable business expenses and are again allowable as part of the administrative portion of the F&A rate.

The effective date of the final revisions to the circular is June 30. MIT will post the revisions to the circular to the OS home page. Any questions should be directed to Julie T. Norris, director of sponsored programs, x3-2492,; Patrick W. Fitzgerald, director of cost analysis, x3-2762,; or Thomas E. Mullen, director of federal cost studies, x3-6287.

A version of this article appeared in MIT Tech Talk on June 3, 1998.

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