UNIVERSITY F&A RATES – FEDERAL REVIEWS & NEGOTIATION ISSUES

Gary Talesnik, Attain, LLPCindy Hope, The University of AlabamaPaul Nacon, Huron Consulting Group

Why are F&A Rates Important?

• Significant Source of Revenue to Institution

• University with Direct Federally Sponsored Research Costs of $100M (with Certain Exclusions) and 50% F&A Rate Receives $50M Cost Reimbursement Annually

• F&A Reimbursement is a Major Influence on Institutional Decisions to Invest in Research Facilities

Importance of F&A Rates

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Desk Review of Proposal• Identify Additional Information Needed• Identify Initial Areas of Focus

Request Additional Information• May Make Several Information Requests, Before and After Site

VisitSite Visit(s)

• Main Focus - Space Study• Will Identify Departments/PIs in Advance • Accuracy of Equipment Inventory• Other Aspects of Proposal

Overview of Proposal Review and Negotiation Process

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Establish Negotiation Date

Provide Opening HHS DCA Position • Proposed Adjustments• Usually One Week Before Negotiation Date

Negotiation Conference• May be at DCA Office or at Institution• Some Negotiations Done by Phone

Agreement on Rates, Period Covered, Rate Components Send Rate Agreement for Institutional Signature

Overview of Proposal Review and Negotiation Process (Continued)

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Determine the Functional Use of University Space

Critical Part of F&A Proposal

Drives the Allocation of All Facility Costs • Building and Equipment Depreciation• Interest Expense • Facility Operations and Maintenance Expenses

Complicated Process

HHS Alternate Space Study Methodology • Based on Conventions for Certain Types of Rooms

Space Surveys

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Major Focus of Federal Review of Proposal

Main Part of On-site Review of Proposal

Adequacy of Instructions, Functional Definitions

• Clear, Complete and Unbiased

• Compliance with A-21 Functional Definitions – e.g., Definition of Organized Research

• Consistent with Definitions of Base Costs – e.g., Handling of Research Training

Reviews of Space Surveys

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Negotiator Will Request Detailed Information for Specific Departments/PIs. May Include:

• Research S&W vs. Research Space by Department

• Functional Allocation of Space for Each Room

• All Room Occupants and Accounts (Including Faculty, Staff, Unfunded Occupants and Occupants Paid Stipends)

• Employees Funded by Non-Research Accounts and Rooms Used

• If PIs will be Interviewed, Space of Each PI Selected; All Occupants of Each PIs Space (Including Faculty, Staff, Unfunded Occupants and Occupants Paid Stipends); Salary Distribution of PI and Staff

Reviews of Space Surveys (Continued)

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On-Site Space Review of Selected Depts/PIs• Interview Departmental Administrators, PIs• Should be Accompanied by Cost Analysis Staff• Walk Through Rooms, Primarily Research Labs• Departments/PIs Should be Prepared in Advance

o Purpose of Review, Questions That Will Be Asked, etc.• Avoid Interfering with Interviews

o HHS May Stop Process• But Should Make Sure Questions/Responses are Clear,

Complete

Reviews of Space Surveys (Continued)

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Space/Base Inconsistencies

Insufficient Recognition of Instructional or Other Non-Research Activities in Research Space

• Unpaid Students and Students/Faculty/Staff Paid from General Fund Accounts Working in Labs

• Visiting Scientists, Howard Hughes Medical Institute Investigators• HHS Position:

Space Should be Allocated to Students Supported by Research Training Stipends, Tuition Remission, Thesis Work;

100% Research Rooms

Vacant, Underutilized Space

Standard/Arbitrary Percentages for Functional Use of Rooms

Space Surveys - Focus of Review and Negotiation Issues

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Proposed Adjustments if Federal Review Finds Problems

FTE or S&W Allocation of Each PI’s Space; Extrapolation to All Organized Research Space

ORDetermine Adjustments For Each Selected Departments; Extrapolation to All Organized Research Space

ORLimit Maximum Research Percentage of All Rooms

Space Surveys– Potential Adjustments

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ARRA (Stimulus Program) Funding

Cost sharing

Salaries Exceeding NIH Salary Cap

Classification of Sponsored Accounts

Research Training

Research Training Stipends

Research Funded Directly by Howard Hughes Medical Institute

Organized Research Base

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Building Depreciation Issues• Useful Lives of Building Components

• Allocation of Depreciation on Renovations by Floors/Rooms

• Treatment of Write-offs Related to Changes in Useful Liveso Occurs Mainly When Buildings are Initially Componentized

o Not Allowed in One Year; Spread Over New Rate Cycle (Usually Fours Years)

Building Depreciation

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• Equipment Inventories -- Inability to Locate Equipment• Allocation of Equipment Depreciation – Room-by-Room vs.

Department or Building• Equipment Funded by Non-Federal Grants/Contracts• Changes in Equipment Capitalization

o Submit Impact Statement – Show Rate Adjustments Related to Capitalization Change; Usually a “Wash” for First Rate Cycle After Change

Equipment Depreciation

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• Interest on Fully Depreciated Assets is Unallowable• HHS Position: For Componentized Buildings, Allocate Interest to

Three General Building Components o General Building Components – Building Shell, Building Service

Systems, Fixed Equipmento Could Have Significant Impact on Interest Associated With Short-

Lived Building Components• Interest on State General Obligation Bonds

o A-21 Requires Allocation of State-Paid Interest in SWCAP• Interest-only Loans• A-21 compliance requirements (e.g. lease-purchase analysis)

Interest Expense

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• Expensing vs. Capitalization of Repair and Maintenance Projects

• Handling of O&M Costs Paid by Academic Departments

• Classification of Costs as O&M vs. G&A

• Allocation of Campus Police, Security, Grounds-keeping

• Allocation of Environmental Health and Safety (Radiation Safety, Hazardous Waste, etc.)

• Building Metering – Building Level Metering vs. Floors/Rooms; Partial-year Metering

Operation and Maintenance Expenses

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• Inadequate Allocation to Non-University Library Users • Student and Professional Employee FTE Statistics Used to

Allocate Library Costso How FTEs are Calculated

o Professional vs. Non-professional

• Multiple Libraries - Separate vs. Combined Allocation • Special Library Studies – How User Surveys are Conducted

Library Costs

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• G&A: Shifting Costs from G&A to O&M• DA: Direct Charge Equivalent (DCE) Calculations

o Classification of Employees in Categories to Calculate DCEs Faculty/Professional, Administrative, General Support, Technical

o Classification of Positions as “Administrative” vs. “General Support”

May Ask for Direct Charges to Sponsored Agreements

• SPA : Offices and Functions Included in SPAo Must Be Separate Offices Established Primarily to Administer

Sponsored Projects

o Tech Transfer (Especially Marketing and Licensing Functions)

Administrative Cost PoolsG&A, DA, SPA

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Issues Related to Rate Projections for New Facilities and Major Renovations

• Acceptance of Projection for Future Rates o HHS Position: Projection “Not a Given, Not a Right”

• Impact on Research Base and Existing Spaceo Decompressiono New Research o Replace Existing Spaceo HHS Position: Annual Base Increase Should be Average for Last

Five Years, Unless Otherwise Justified• Timing – Construction and Occupancy Dates

o HHS Position: Will Only Consider Projection if Construction Has Started

Rate Projections

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Issues Related to Rate Projections for New Facilities and Major Renovations (Continued)

• Planned Functional Use of Buildings• Inclusion of O&M Costs in Projection

o HHS Manual Does Not Recognize O&M Costs for New Facilities • Comparison of Previous Projections with Actual Experience

o Could be a Problem if Actual Base Year Rate is Substantially Lower Than Previous Projection

Rate Projections

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OMB Grant Reform Initiative • Consolidate OMB Grant Circulars (A-21, A-122, A-110, A-133,

Others)• Numerous Changes

Federal Demonstration Partnership (FDP)

OMB, FDP Initiatives

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OMB Circular A-21• Federal Cost Principles for Educational Institutions• Includes Basic Rules for Developing F&A Rates

HHS DCA Best Practices Manual for Reviewing C&U Long-Form F&A Cost Rate Proposals

• Guidance to DCA Negotiators for Evaluating Proposals• Provides DCA Position on Issues• Not Official Federal Policy

COGR Analysis of Topics From HHS DCA Best Practices Manual• Provides COGR Position on Significant Issues in Manual• Some Differences of Opinion

Useful Reference Documents

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Gary TalesnikSpecial ConsultantAttain, LLC Office: (301) 738-0088gtalesnik@msn.com

Contact Information

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Cindy HopeAssistant Vice President for ResearchThe University of AlabamaOffice: (205) 348- 8119chope@fa.ua.edu

Paul NaconSenior Director, Huron EducationHuron Consulting GroupCell: (312) 804-9293pnacon@huronconsultinggroup.com