UNIVERSITY F&A RATES – FEDERAL REVIEWS & NEGOTIATION ISSUES

1. UNIVERSITY F&A RATES –FEDERAL REVIEWS & NEGOTIATION ISSUES Gary Talesnik, Attain, LLP Cindy Hope, The University of Alabama Paul Nacon, Huron Consulting Group

2. Importance of F&A Rates 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

3. Overview of Proposal Review and Negotiation Process 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 Visit Site Visit(s) • Main Focus - Space Study • Will Identify Departments/PIs in Advance • Accuracy of Equipment Inventory • Other Aspects of Proposal

4. Overview of Proposal Review and Negotiation Process (Continued) 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

5. Space Surveys 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

6. Reviews of Space Surveys 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

7. Reviews of Space Surveys (Continued) 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

8. Reviews of Space Surveys (Continued) 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 • Purpose of Review, Questions That Will Be Asked, etc. • Avoid Interfering with Interviews • HHS May Stop Process • But Should Make Sure Questions/Responses are Clear, Complete

9. Space Surveys - Focus of Review and Negotiation Issues 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

10. Space Surveys– Potential Adjustments Proposed Adjustments if Federal Review Finds Problems FTE or S&W Allocation of Each PI’s Space; Extrapolation to All Organized Research Space OR Determine Adjustments For Each Selected Departments; Extrapolation to All Organized Research Space OR Limit Maximum Research Percentage of All Rooms

11. Organized Research Base 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

12. Building Depreciation 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 Lives • Occurs Mainly When Buildings are Initially Componentized • Not Allowed in One Year; Spread Over New Rate Cycle (Usually Fours Years)

13. Equipment Depreciation • 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 • Submit Impact Statement – Show Rate Adjustments Related to Capitalization Change; Usually a “Wash” for First Rate Cycle After Change

14. Interest Expense • Interest on Fully Depreciated Assets is Unallowable • HHS Position: For Componentized Buildings, Allocate Interest to Three General Building Components • General Building Components – Building Shell, Building Service Systems, Fixed Equipment • Could Have Significant Impact on Interest Associated With Short-Lived Building Components • Interest on State General Obligation Bonds • A-21 Requires Allocation of State-Paid Interest in SWCAP • Interest-only Loans • A-21 compliance requirements (e.g. lease-purchase analysis)

15. Operation and Maintenance Expenses • 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

16. Library Costs • Inadequate Allocation to Non-University Library Users • Student and Professional Employee FTE Statistics Used to Allocate Library Costs • How FTEs are Calculated • Professional vs. Non-professional • Multiple Libraries - Separate vs. Combined Allocation • Special Library Studies – How User Surveys are Conducted

17. Administrative Cost PoolsG&A, DA, SPA • G&A: Shifting Costs from G&A to O&M • DA: Direct Charge Equivalent (DCE) Calculations • Classification of Employees in Categories to Calculate DCEs • Faculty/Professional, Administrative, General Support, Technical • Classification of Positions as “Administrative” vs. “General Support” • May Ask for Direct Charges to Sponsored Agreements • SPA : Offices and Functions Included in SPA • Must Be Separate Offices Established Primarily to Administer Sponsored Projects • Tech Transfer (Especially Marketing and Licensing Functions)

18. Rate Projections Issues Related to Rate Projections for New Facilities and Major Renovations • Acceptance of Projection for Future Rates • HHS Position: Projection “Not a Given, Not a Right” • Impact on Research Base and Existing Space • Decompression • New Research • Replace Existing Space • HHS Position: Annual Base Increase Should be Average for Last Five Years, Unless Otherwise Justified • Timing – Construction and Occupancy Dates • HHS Position: Will Only Consider Projection if Construction Has Started

19. Rate Projections Issues Related to Rate Projections for New Facilities and Major Renovations (Continued) • Planned Functional Use of Buildings • Inclusion of O&M Costs in Projection • HHS Manual Does Not Recognize O&M Costs for New Facilities • Comparison of Previous Projections with Actual Experience • Could be a Problem if Actual Base Year Rate is Substantially Lower Than Previous Projection

20. OMB, FDP Initiatives OMB Grant Reform Initiative • Consolidate OMB Grant Circulars (A-21, A-122, A-110, A-133, Others) • Numerous Changes Federal Demonstration Partnership (FDP)

21. Useful Reference Documents 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

22. Contact Information Paul Nacon Senior Director, Huron Education Huron Consulting Group Cell: (312) 804-9293 pnacon@huronconsultinggroup.com Cindy Hope Assistant Vice President for Research The University of Alabama Office: (205) 348- 8119 chope@fa.ua.edu Gary Talesnik Special Consultant Attain, LLC Office: (301) 738-0088 gtalesnik@msn.com