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Federal Register/Vol. 70, No. 168 /Wednesday, August 31, 2005 /Rules and Regulations 51911
<br />A -87. Appendix A to this part contains
<br />the guidance that was in Attachment A
<br />(general principles) to the OMB circular;
<br />Appendix B contains the guidance that
<br />was in Attachment B (selected items of
<br />cost); Appendix C contains the
<br />information that was in Attachment C
<br />(state /local -wide central service cost
<br />allocation plans); Appendix D contains
<br />the guidance that was in Attachment D
<br />(public assistance cost allocation plans);
<br />and Appendix E contains the guidance
<br />that was in Attachment E (state and
<br />local indirect cost rate proposals).
<br />(b) This part supersedes OMB Circular
<br />A -87, as amended May 10, 2004, which
<br />superseded Circular A -87, as amended
<br />and issued May 4, 1995.
<br />§ 225.50 Policy review date.
<br />This part will have a policy review
<br />three years from the date of issuance.
<br />§ 225.55 Information contact.
<br />Further information concerning this
<br />part may be obtained by contacting the
<br />Office of Federal Financial
<br />Management, Financial Standards and
<br />Reporting Branch, Office of
<br />Management and Budget, Washington,
<br />DC 20503, telephone 202 - 395 -3993.
<br />Appendix A to Part 225 - General
<br />Principles for Determining Allowable
<br />Costs
<br />Table of Contents
<br />A. Purpose and Scope
<br />1. Objectives
<br />2. Policy guides
<br />3. Application
<br />B. Definitions
<br />1. Approval or authorization of the
<br />awarding or cognizant Federal agency
<br />2. Award
<br />3. Awarding agency
<br />4. Central service cost allocation plan
<br />5. Claim
<br />6. Cognizant agency
<br />7. Common rule
<br />8. Contract
<br />9. Cost
<br />10. Cost allocation plan
<br />11. Cost objective
<br />12. Federally- recognized Indian tribal
<br />government
<br />13. Governmental unit
<br />14. Grantee department or agency
<br />15. Indirect cost rate proposal
<br />16. Local government
<br />17. Public assistance cost allocation plan
<br />18. State
<br />C. Basic Guidelines
<br />1. Factors affecting allowability of costs
<br />2. Reasonable costs
<br />3. Allocable costs
<br />4. Applicable credits
<br />D. Composition of Cost
<br />1. Total cost
<br />2. Classification of costs
<br />E. Direct Costs
<br />1. General
<br />2. Application
<br />3. Minor items
<br />F. Indirect Costs
<br />1. General
<br />2. Cost allocation plans and indirect cost
<br />proposals
<br />3. Limitation on indirect or administrative
<br />costs
<br />G. Interagency Services
<br />H. Required Certifications
<br />General Principles for Determining
<br />Allowable Costs
<br />A. Purpose and Scope
<br />1. Objectives. This Appendix establishes
<br />principles for determining the allowable
<br />costs incurred by State, local, and federally -
<br />recognized Indian tribal governments
<br />(governmental units) under grants, cost
<br />reimbursement contracts, and other
<br />agreements with the Federal Government
<br />(collectively referred to in this appendix and
<br />other appendices to 2 CFR part 225 as
<br />"Federal awards "). The principles are for the
<br />purpose of cost determination and are not
<br />intended to identify the circumstances or
<br />dictate the extent of Federal or governmental
<br />unit participation in the financing of a
<br />particular program or project. The principles
<br />are designed to provide that Federal awards
<br />bear their fair share of cost recognized under
<br />these principles except where restricted or
<br />prohibited by law. Provision for profit or
<br />other increment above cost is outside the
<br />scope of 2 CFR part 225.
<br />2. Policy guides.
<br />a. The application of these principles is
<br />based on the fundamental premises that:
<br />(1) Governmental units are responsible for
<br />the efficient and effective administration of
<br />Federal awards through the application of
<br />sound management practices.
<br />(2) Governmental units assume
<br />responsibility for administering Federal
<br />funds in a manner consistent with
<br />underlying agreements, program objectives,
<br />and the terms and conditions of the Federal
<br />award.
<br />(3) Each governmental unit, in recognition
<br />of its own unique combination of staff,
<br />facilities, and experience, will have the
<br />primary responsibility for employing
<br />whatever form of organization and
<br />management techniques may be necessary to
<br />assure proper and efficient administration of
<br />Federal awards.
<br />b. Federal agencies should work with
<br />States or localities which wish to test
<br />alternative mechanisms for paying costs for
<br />administering Federal programs. The Office
<br />of Management and Budget (OMB)
<br />encourages Federal agencies to test fee -for-
<br />service alternatives as a replacement for
<br />current cost - reimbursement payment
<br />methods in response to the National
<br />Performance Review's (NPR)
<br />recommendation. The NPR recommended the
<br />fee - for - service approach to reduce the burden
<br />associated with maintaining systems for
<br />charging administrative costs to Federal
<br />programs and preparing and approving cost
<br />allocation plans. This approach should also
<br />increase incentives for administrative
<br />efficiencies and improve outcomes.
<br />3. Application.
<br />a. These principles will be applied by all
<br />Federal agencies in determining costs
<br />incurred by governmental units under
<br />Federal awards (including subawards) except
<br />those with (1) publicly - financed educational
<br />institutions subject to, 2 CFR part 220, Cost
<br />Principles for Educational Institutions (OMB
<br />Circular A -21), and (2) programs
<br />administered by publicly -owned hospitals
<br />and other providers of medical care that are
<br />subject to requirements promulgated by the
<br />sponsoring Federal agencies. However, 2 CFR
<br />part 225 does apply to all central service and
<br />department /agency costs that are allocated or
<br />billed to those educational institutions,
<br />hospitals, and other providers of medical
<br />care or services by other State and local
<br />government departments and agencies.
<br />b. All subawards are subject to those
<br />Federal cost principles applicable to the
<br />particular organization concerned. Thus, if a
<br />subaward is to a governmental unit (other
<br />than a college, university or hospital), 2 CFR
<br />part 225 shall apply; if a subaward is to a
<br />commercial organization, the cost principles
<br />applicable to commercial organizations shall
<br />apply; if a subaward is to a college or
<br />university, 2 CFR part 220 (Circular A -21)
<br />shall apply; if a subaward is to a hospital, the
<br />cost principles used by the Federal awarding
<br />agency for awards to hospitals shall apply,
<br />subject to the provisions of subsection A.3.a.
<br />of this Appendix; if a subaward is to some
<br />other non - profit organization, 2 CFR part 230,
<br />Cost Principles for Non - Profit Organizations
<br />(Circular A -122), shall apply.
<br />c. These principles shall be used as a guide
<br />in the pricing of fixed price arrangements
<br />where costs are used in determining the
<br />appropriate price.
<br />d. Where a Federal contract awarded to a
<br />governmental unit incorporates a Cost
<br />Accounting Standards (CAS) clause, the
<br />requirements of that clause shall apply. In
<br />such cases, the governmental unit and the
<br />cognizant Federal agency shall establish an
<br />appropriate advance agreement on how the
<br />governmental unit will comply with
<br />applicable CAS requirements when
<br />estimating, accumulating and reporting costs
<br />under CAS - covered contracts. The agreement
<br />shall indicate that 2 CFR part 225 (OMB
<br />Circular A -87) requirements will be applied
<br />to other Federal awards. In all cases, only one
<br />set of records needs to be maintained by the
<br />governmental unit.
<br />e. Conditional exemptions.
<br />(1) OMB authorizes conditional exemption
<br />from OMB administrative requirements and
<br />cost principles for certain Federal programs
<br />with statutorily - authorized consolidated
<br />planning and consolidated administrative
<br />funding, that are identified by a Federal
<br />agency and approved by the head of the
<br />Executive department or establishment. A
<br />Federal agency shall consult with OMB
<br />during its consideration of whether to grant
<br />such an exemption.
<br />(2) To promote efficiency in State and local
<br />program administration, when Federal non-
<br />entitlement programs with common purposes
<br />have specific statutorily - authorized
<br />consolidated planning and consolidated
<br />administrative funding and where most of
<br />the State agency's resources come from non-
<br />Federal sources, Federal agencies may
<br />exempt these covered State - administered,
<br />non - entitlement grant programs from certain
<br />OMB grants management requirements. The
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