OMB Rewrite of Uniform Guidance – Part 1: Cost Principles

On December 26, 2013, the Office of Management and Budget (OMB) issued the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (commonly referred to as the “Uniform Guidance”). The Uniform Guidance sets forth the administrative requirements, cost principles, and audit requirements for federal awards to nonfederal entities such as colleges and universities, state governments, tribal entities, and nonprofit organizations.

A decade later, OMB is proposing substantial changes to the Uniform Guidance with the hopes of simplifying and streamlining federal award policy across the government. The proposed revisions span a number of 2 CFR 200 requirements. This initial discussion addresses the proposed revisions that affect cost principles only.

The proposed rule contains two substantial revisions that affect cost principles:

• Raising the De Minimis Indirect Cost Rate
• Removal of the Prior Written Approval Requirements for Certain Cost Items

OMB is proposing to raise the de minimis indirect cost rate from 10 to 15 percent over a modified total direct cost base. According to OMB, this should facilitate a more equitable and realistic recovery of indirect costs, especially for new or inexperienced organizations that might lack the resources or experience to engage in formal negotiations for cost recovery. This proposed change is designed to ensure that these organizations are adequately compensated for their indirect costs despite their limited capacity for formal rate negotiation processes. OMB specified that recipients and subrecipients have discretion to apply a rate lower than 15 percent, but agencies cannot force them to do so unless required by statute. OMB also specified that the de minimis cost rate does not apply to cost-reimbursement contracts.

Additionally, OMB proposes to revise additional aspects of the guidance pertaining to indirect costs. OMB proposes two key clarifications: (i) recipients and subrecipients may notify OMB of any disputes with regard to a federal agency’s application or acceptance of a federally negotiated indirect cost rate, and (ii) pass-through entities must accept all federally negotiated indirect cost rates for subrecipients.

OMB also proposes to remove the prior-written-approval requirements for the following ten cost items:

• Use of grant agreements (including fixed-amount awards), cooperative agreements, and contracts
• Real property
• Equipment
• Direct costs
• Entertainment costs
• Exchange rates
• Memberships
• Participant support costs
• Selling and marketing costs
• Taxes

OMB clarified that the recipient and subrecipient are responsible for treating participant support costs consistently across federal awards. OMB also clarified that selling and marketing costs are unallowable unless they meet certain requirements.

Overall, this proposed change should benefit the recipient community by reducing the administrative burden on organizations. However, recipients may find it difficult to evaluate the appropriateness and allocability of specific cost items without written approval.

Find the OMB’s Proposed Revisions here: Guidance for Grants and Agreements