United States: OMB Revises And Consolidates Rules Governing Most Federal Grants

Last Updated: January 8 2014
Article by Tina D. Reynolds and Catherine L. Chapple

In the final days of 2013, the White House Office of Management and Budget (OMB) released for publication long-awaited final guidance on administrative requirements, cost principles and audit requirements pertaining to federal grants and cooperative agreements. Guidance previously found in eight separate OMB Circulars has been consolidated in an attempt to reduce the administrative burden on recipients of federal funds, while also bolstering the government's efforts to eliminate fraud, waste and abuse in federal funding. The new rules have significant ramifications for "non-Federal entities"—defined by OMB to include non-profit organizations, institutes of higher education (IHEs), state and local governments and Indian tribes—and may also apply to for-profit and foreign entities in limited circumstances.

In February 2013, OMB released draft uniform federal funding guidance and sought comments from stakeholders. The proposed reforms were developed by a newly created OMB Council on Financial Assistance Reform (COFAR), charged with cutting government red tape and reducing waste, fraud, and abuse in connection with the more than $500 billion spent annually on grants. OMB received more than 300 comments, which it considered in developing the final guidance.

This final guidance, to be codified at Title 2 of the Code of Federal Regulations, supersedes and consolidates requirements from OMB Circulars A-21, A-87, A-89, A-102, A-110, A-122 and A-133, and those portions of A-50 pertaining to audits. These Circulars had conflicting and duplicative language, which increased administrative burdens on federal funding recipients. In addition to standardizing administrative requirements, OMB has clarified those policies that differ depending on the type of entity involved, and the final guidance includes sections that clearly delineate the type(s) of non-Federal entities to which they apply.

Of particular note are provisions that require federal funding applicants to disclose conflicts of interest and certain types of criminal violations, that raise the thresholds on federal awards subject to audit, that limit allowable costs associated with federal award performance, and that restrict the accumulation of profits in connection with federal awards.

The guidance applies to federal agencies effective on its date of issuance (December 26, 2013), although it is understood that it will take until the second half of the year to be fully implemented. Agencies have six months to submit necessary draft implementing regulations to OMB, with the expectation that they will be finalized and effective no later than December 26, 2014. In the interim, non-Federal entities that wish to implement system changes to comply with the new requirements may do so. Below is a brief summary of the areas addressed by OMB's final guidance:


As noted above, the combination of eight separate sets of guidance into one uniform set has eliminated overlapping and sometimes conflicting requirements.


The new guidance includes provisions for fixed amount awards that limit compliance requirements in exchange for requirements to meet specified performance milestones. Also, OMB will now permit, on a case-by-case basis, the waiver of certain compliance requirements for other program designs that improve cost-effectiveness and encourage collaboration across programs. Examples of such strategies include tiered evidence grants, "Pay for Success" and other pay-for-performance approaches, and "Performance Partnerships" allowing braided and blended funding.

Additionally, IHEs are now only subject to cost accounting standards when their federal awards total $50 million or more—up from the prior $25 million threshold. Further, IHEs no longer need to wait for agency approval of proposed changes to their disclosure statements. Instead, if, after six months, the applicable agency has not extended the review period or indicated concern regarding any proposed change submitted to the agency, the IHE may implement the change without further delay.


A non-Federal entity's responsibility for safeguarding protected personally identifiable information and information designated as sensitive is now explicit. This new language is intended to result in stronger policies for protecting sensitive information across federal awards.

OMB's guidance also includes specific rules pertaining to the allowability of certain technology-related costs. Certain computing devices are subject to the less-burdensome administrative requirements applicable to supplies rather than those pertaining to equipment. Costs of idle facilities that are necessary to meet fluctuations in workload (such as when developing shared service arrangements) are now allowable. Additionally, beginning in January 2016, non-Federal entities may be reimbursed for financing costs associated with patents and computer software.


The final guidance updates policies on direct and indirect costs. Non-Federal entities may treat administrative costs as direct costs when such costs meet conditions showing they are directly allocable to a federal award. With regard to indirect costs, the guidance includes provisions that provide for a de minimis indirect cost rate of 10% to non-Federal entities that have never had a negotiated indirect cost rate. Though commenters suggested that the de minimis rate be set at 15-20%, ultimately OMB adopted the more conservative, lower rate, given its automatic application and indefinite allowability. The new guidance also requires federal agencies to accept negotiated indirect cost rates unless an exception is required by statute or regulation, or otherwise approved by a federal awarding agency head or delegate based on publicly documented justification and to allow for a one-time extension without further negotiation of federally approved negotiated indirect cost rates for a period of up to 4 years. The guidance also addresses cost sharing by non-Federal entities. Voluntary cost sharing will only be solicited for research proposals where required by regulation and clearly articulated in the Notice of Funding Opportunity. Such voluntary cost sharing "may never be considered during the merit review."


The final guidance limits the allowability of certain types of costs under federal awards. For instance, a provision regarding employee health and welfare costs eliminates the previous allowance for "morale" costs. New "relocation" guidance limits the previously unlimited amount of time for which a federal award may be charged for the costs of an employee's vacant home to up to six months. Conference spending allowances have been clarified and conference sponsors are instructed to use their judgment and discretion regarding conference expenses to limit costs under federal awards to only those that are appropriate and necessary.


Agencies will now use standard definitions of terms and acronyms, and standard data elements in Notices of Funding Opportunities and related documents. Funding recipients will also now receive a standard set of data elements to be provided in all federal awards. This will ease the management of information and allow for easier comparison of opportunities and awards.


The new guidance includes provisions intended to promote family-friendly policies to enable researchers with families to better balance their careers. Specifically, the new guidance addresses dependent-care costs during conference attendance and associated travel costs.


The final guidance includes provisions that strengthen oversight over federal awards in a number of ways. First, OMB's final guidance requires federal agencies and pass-through entities to review risks associated with potential award recipients prior to award, including by making better use of available information, by using the Federal Awardee Performance Integrity Information System (FAPIIS), Dun & Bradstreet reports, and audit reports available government-wide. The guidance lists potential risk areas an agency may consider, including financial stability and past performance.

Next, non-Federal entities must disclose information pertaining to conflicts of interest and criminal violations. Potential conflicts must be disclosed in writing, and other mandatory disclosures include all violations of criminal law involving bribery, fraud or gratuity violations potentially affecting the federal award.

Additional provisions expressly prohibit recipients of federal awards from earning or keeping any profits unless explicitly authorized by the terms and conditions of the award, and require certifications related to awareness of potential penalties under the False Claims Act.


OMB's guidance is intended to tailor oversight and focus on areas with the greatest potential for waste and abuse. The Single Audit threshold has been raised from $500,000 to $750,000, a change that OMB expects to reduce the audit burden for approximately 5,000 non-Federal entities. This change will also keep intact Single Audit coverage for over 99% of the federal dollars that the Audit Act currently covers. Single Audit Reports must be published online with safeguards for personally identifiable information.

These changes are significant but should also be welcome to recipients of federal funding. As with any regulatory change, implementation may be tricky at first, and affected non-Federal entities should be sure to understand the implications of these changes.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Tina D. Reynolds
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions