Procurement

Procurement:

• Governed by A-110 (2 CFR 115) and A-21 or A-122 (2 CRF 220)
• Mechanism for procurement:
• Purchase Orders
• Subcontracts
• Consulting Contracts

Procurement: Written Policies and Procedures:

• Cognizant of policies and procedures governing procurement of goods & services
• Familiar with cost principles and procurement procedures described by federal regulations
• Trained in institution's policies and requirements imposed by external sponsors
• Vendor relationships with institution employees reviewed to prevent conflict of interest in selection
• Procedures in place to detect, prevent & report kickbacks as required by Federal regulations

Procurement: OMB Circular A-110A 102 & FARs

• Bid system provides competitive procurement & justification for accepting other than lowest bid
• Criteria for sole-source acquisition
• Policies to encourage procurement from small, minority, disadvantaged and/or women-owned businesses
• Policies to identify debarred/suspended vendors
• Documentation maintained for certified cost or pricing data as applicable
• Documentation maintained indicating that costs analysis was performed as necessary
• System in place to avoid purchase of unnecessarily duplicative equipment
• As appropriate, contracts & agreements for the most frequently purchased items and services are developed to reduce errors in pricing or lost opportunity costs, improve services and reduce re-order cycle times
• Retention of financial and administrative records as regulated by OMB Circulars and FARs
• All records pertinent to an award retained for a period of three years from the date of the final expenditure

Cost Accounting Standards

Cost Accounting Standards (popularly known as CAS) are a set of 19 standards and rules promulgated by the United States Government for use in determining costs on negotiated procurements. CAS differs from the Federal Acquisition Regulation (FAR) in that FAR applies to substantially all contractors, whereas CAS applies primarily to the larger ones.

CAS Applicability

A company may be subject to "full" CAS coverage (required to follow all 19 standards), "modified" CAS coverage (required to follow only Standards 401, 402, 405, and 406), or be exempt from coverage. However, a company under "full" coverage is not subject to a standard where it does not apply (e.g., a company which does not use standard costing does not have to comply with CAS 407).

"Full" coverage applies only when a company receives either one CAS-covered contract of US$50 million or more, or a number of smaller CAS-covered contracts totalling US$50 million. In addition to complying with all 19 standards (where applicable), the company must also file a CAS Disclosure Statement, which spells out the company's accounting practices (such as if certain costs are treated as direct contract charges or as part of overhead expense). There are two versions of the CAS Disclosure Statement: DS-1 applies to commercial companies while DS-2 applies to educational institutions.

"Modified" coverage applies when a company receives a single CAS-covered contract of US$7.5 million or more.

In some instances, a contract may be exempt from CAS standards:

•     Contracts awarded to small businesses are exempt from CAS, regardless of contract size
•     Any contract less than US$7.5 million is exempt, provided the company has not been awarded a contract greater than US$7.5 million, and also any contract less than US$650,000 is always exempt
•     Contracts for commercial items
•     Contracts awarded under sealed bid procedures, or where "adequate price competition" was available (the latter meaning where at least two companies had the ability to bid and perform on a contract, even if only one bid was later received)
•     Contracts where the price is set by law or regulation
•     Contracts awarded to foreign governments
•     Contracts awarded to foreign concerns (only the disclosure statement and CAS 401 and 402 apply in this case) (See CFR 9903.201-1(b))
•     Expired as of October 11, 2011: Contracts where performance will be performed entirely outside the United States (including territories and possessions)

Furthermore, in some instances even where a company is subject to a standard, different rules may apply within the standard itself as to what a company is required to do. As an example, under CAS 403, if Company A's "residual expenses" (defined as those expenses incurred by the home office – usually the corporate office – which cannot be identified to a specific contract, group of contracts, or company segment) exceed a specified percentage of revenue, Company A must follow a dictated "three-factor" formula to allocate such expenses, but if Company B's residual expenses do not exceed the percentage (even if, in dollar terms, they are greater), Company B may follow the formula but is not required to do so.


Cost Accounting Standards as applied to Educational Institutions

• Located in A-21 (2 CFR 220)
• Federal sponsored grants and contracts
• Annual Disclosure Statement
• Entities receiving <4@25 million in federally sponsored agreements annually are exempt from Disclosure Statement
• Other exemptions apply

Four Basic Requirements:

• Consistency in estimating, accumulating and reporting costs
• Consistency in allocating costs
• Consistency in cost accounting periods
• Accounting for unallowable costs

Financial Reporting

• SF272: Report on federal cash transactions
• SF270: Request for advance or reimbursement
• SF269: Quarterly, semi-annual, annual, end; Reports total awarded & total spent; Reports cost sharing required; Long and Short forms
• External invoices

Facilities & Administrative Costs

Three Methods of Computing F&A Rates for Nonprofits:

• Simplified Method: used when all major functions of the organization benefit from the indirect cost incurred to approximately the same degree.
• Direct Allocation Mathod: more appropriately used when all join costs are prorated using bases which accurately measures benefits derived.
• Multiple Allocation Base Method: used when an agency has several major functions which benefit from indirect cost in varying amounts. Multiple allocation method is seldom used by Non Profit Organizations.

Methods of Computing F&A Rates for Colleges and Universities:

• Simplified Method: available to universities with direct funding under $10,000,000 & should be used when all major functions of the organizations benefit from indirect costs to approximately the same degree, should not be used when it produces results that appear inequitable to the Federal Government or the grantee.
• F&A Cost Rate Proposal Method: required for grantees that receive > $10,000,000 of Federal funding in a fiscal year.  Discrete allocations of facilities & administrative cost pools are required in developing F&A cost rates.  Administrative components of the rate are limited to 26% of the total rate.  A 3.6% allowance is added to the rate for faculty performing administrative functions. 

F&A Costs: Types of F&A Rates:

• Predetermined: rate established for period; no carry forward provision
• Fixed: rate established for period; under-over-recovery adjusted during next negotiation
• Provisional: estimated rat used until actual rate is determined
• Final: rate applicable to a specified past period with no adjustments

Allocable Costs

A cost is allocable to a sponsored agreement if:

• it is incurred solely to advance the work under the sponsored agreement.
• if the cost is charged in accordance with relative benefits received or other equitable relationship.

OMB Circular A-21 "Cost Principles for Educational Institutions"

Contents of Circular: 

• Sets forth allowability principles for the reimbursement of costs associated with Federally sponsored agreements (Direct and F&A)
• Describes what costs can be included in the F&A rate and methods for its calculation
• Prescribes methods to distribute F&A costs to various functions of the University (e.g., instruction, research, other activities)
• Determination  and application of F&A rates
• Simplified method for small institutions 
• General provisions for selected items of cost
• Certification of charges by "authorized official"

A-21, Section C.1:

• The cost of a sponsored agreement is comprised of the allocable direct costs incident to its performance, plus the allocable portion of the allowable F&A costs of the institution...
• Therefore, Federal sponsors reimburse the institution of the allowable costs of a project, including direct costs and F&A costs

Allocation and Documentation:
C.4.d. (1) Cost Principles.  The recipient institution is responsible for ensuring that costs charged to a sponsored agreement are allowable, allocable, and reasonable under these cost principles.
C. 4. d(2) Internal controls. The institution's financial management system shall enure that no one person has complete control over all aspects of a financial transaction.
C. 4. d. (4) Documentation
...if the institution authorizes the principal investigator or other individual to have primary responsibility, given the requirements of subsection d. (2), for the management of sponsored agreement funds, then the institution's documentation requirements for the actions of those individuals (e.g., signature or initials of the principal investigator or designee or use of a password) will normally be considered sufficient.

A-21 Section J:
J.1. Advertising:
Allowable for:

• Recruiting of personnel for the project
• Procurement of goods and services
• Disposal of scrap materials

Unallowable for:

• Advertising and public relations to promote the institution
• Cost of promotional items and memorabilia
• Cost of meetings related to other activities of the institution.

J.3 Alcoholic beverages are unallowable.
J. 5 Audit costs are allowable:

• A-133 audits are typically F&A 
• Certain audits can be charged directly if sponsor agrees.

J.9 Communication Costs.

• Local telephone normally F&A
• Long Distance cost may be direct 
• Postage normally F&A

Assistance vs. Procurement

Assistance: generally, what the proposer wants to do.  Awards are either grants or cooperative agreements.

Procurement: generally, what the government buys [can include research].  Awards are contracts.

Contract vs. Gift

Grant (assistance)

• project conceived by investigator
• agency supports or assists 
• performer defines details and retains scientific freedom
• agency maintains cognizance
• unilateral

Contract (procurement)

• project conceived by agency (BAA< RFQ, RFP) agency procure service
• agency exercises direction or control
• agency closely monitors
• bilateral

Cost Sharing

Cost Sharing:

• Must be verifiable from records
• Provided for in approved budget
• Only used for one award
• Conforms to Federal rules & regulations
• Un-recovered f&A costs may be included
• One Federal award cannot be used as cost sharing on another Federal award

   Mandatory Cost Sharing - University contributions to the sponsored project that are required as a condition of the award (normally, but not always, Federal) and which were agreed to between the University and the sponsor prior to the awarding of the grant or contract. This is printed on the FEC and includes the proposed amount agreed upon when the grant or contract was executed.

- represents contributions to a sponsored project or program required by the sponsor as a condition of award.  Mandatory cost sharing:

• may be a fixed percent or specific level of participation negotiated between the institution and the sponsor.
• must be included in the proposal and be provided by someone other than the sponsor.
• is a binding commitment and must be accounted for 
• may be reportable to the sponsor

     
Committed Cost Sharing- University contributions to the sponsored project not required as a condition of the award but included in the grant/contract proposal budget or budget justification with no corresponding funding requested or awarded. This budget number is printed on the FEC and includes the percent offered in the proposal.

    Aggregate Cost Sharing - University contributions required by the National Science Foundation (NSFi) to fulfill the requirement that the University provide one percent (1%) contribution (cost sharing) on the total of all unsolicited NSF funding. NSF is eliminating both program specific cost sharing and the 1% statutory cost sharing requirement on unsolicited proposals. These changes will be reflected in the terms and conditions of new awards or supplements issued after June 1, 2007. Awards issued before June 1st will continue to carry the 1% requirement or may have program specific cost sharing requirements that must be met.

    Salary Cap Cost Sharing - University contribution required by the National Institutes of Health (NIHi), the Substance Abuse and Mental Health Services Administration (SAMHSA) and the Agency for Healthcare Research and Quality (AHRQ) for faculty with salaries in excess of the salary cap applicable to the particular federal fiscal year. For effort reporting, the FEC will reflect the cap in effect during the period of expenditure.

    K Award Cost Sharing - NIH Career Development Awards, or K Awards, are intended to provide support and protected time for new faculty to develop research skills. Because the effort requirements are high and salary recovery is limited, cost share may be necessary to complete the 75% effort requirement.

    Voluntary Uncommitted Cost Sharing - Effort that was not required by the sponsor nor committed on the budget page or budget justification of the proposal (i.e. it is not mandatory or committed cost sharing). Include this type of effort with other non-grant activities on the FEC.

Voluntary Cost Sharing represents contributions to a sponsored project or program not required by the sponsor as a condition award.  Voluntary cost sharing is classified as either:

• Committed: quantified contributions reflected in the proposal.  These are binding commitments and must be accounted for.  They may be reportable to the sponsor.
• Uncommitted: contributions not quantified or reflected in the proposal. These are not binding commitments and do not require documentation or reporting. 

 Taken from: http://www.ncsu.edu/sparcs/budgeting/cost_sharing.php