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OMB Issues Notice on Reforms to Cost Principles and Administrative Requirements

March 2, 2012—The Office of Management and Budget (OMB) Feb. 28 published an “Advance Notice of Proposed Guidance” regarding fundamental changes to the structure, scope and terms of the cost principles and administrative requirements governing federal grants, cooperative agreements and some contracts. Many of the “reform ideas” could, if adopted, result in major changes to the Facilities and Administrative (F&A or indirect) cost structure, as well as alter major administrative systems, such as audits and time and effort reporting.

These “reform ideas” also could result in proposed revisions to numerous government-wide issuances, which could directly affect universities and medical schools, hospitals, academic societies, as well as affect administrative interactions with key partners such as state and local governments.  As part of this ongoing review, OMB says it is considering “the development and issuance of an integrated set of guidelines that would be contained in one consolidated circular, in which current administrative requirements that currently vary by type-of-recipient would be streamlined into one set of common requirements, while at the same time some provisions that vary among different types of recipients would be retained. The goal of such a streamlining would be to increase the consistency, and decrease the complexity, in how the federal government’s financial assistance programs are administered.”

OMB groups its “reform ideas” into three buckets:

  • Reforms to audit requirements: Proposals include concentrating audit resolution and oversight resources on higher dollar, higher risk awards, shrinking the “footprint” of audits, and reducing the burden on pass-through entities and subrecipients by ensuring across-agency coordination;

  • Reforms to cost principles: For indirect costs, the “reform ideas” includes using flat rates instead of negotiated rates (among the possibilities offered are the establishment of a mandatory flat rate that is discounted from the recipient’s already negotiated rate or giving recipients the option of accepting a flat rate or negotiating a rate).

    For time-and-effort reporting requirements for salaries and wages, the ideas for reforms “would involve working with the Federal grant and Inspector General (IG) communities to identify risks associated with justifications for salaries and wages and to identify possible alternative mechanisms for addressing those risks beyond current time-and-effort reporting requirements. This would include consideration of the ideas described in existing pilots or development of new pilots to accountably document the allowability and allocability of salaries and wages charged to Federal awards as direct costs.” The first three pilots under consideration are the Federal Demonstration Partnership, the Department of Labor’s Workforce Innovation Fund, and the Department of Education’s Request for Ideas.

  • Other proposals include (among several others): expanding the Utility Cost Adjustment for research to more higher education institutions; charging directly allocable administrative support as a direct cost; including the cost of certain computing devices as allowable direct cost supplies; eliminating restrictions on the use of indirect costs recovered for depreciation or use allowances; allowing for the budgeting for contingency funds for certain awards; and allowing for excess or idle capacity for certain facilities, in anticipation of usage increases.
  • Reforms to Administrative Requirements: “Reform ideas” includes creating a consolidated, uniform set of administrative requirements; requiring standardized funding opportunity time notices and formats; and continuing efforts at data standardization.

Comments on the notice are due March 29. OMB says it will propose specific revisions to existing requirements mid-year and finalize the changes by the end of 2012.


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Washington Highlights, a weekly electronic newsletter, features brief updates on the latest legislative and regulatory activities affecting medical schools and teaching hospitals.

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Jason Kleinman
Sr. Legislative Analyst, Govt. Relations
Telephone: 202-903-0806