IMPLEMENTATION OF ‘FIXED RATE’ REQUIREMENT OF A-21
DEFINITION OF COMPETING SEGMENT FOR COMMON AWARD TYPES

The May, 1996 revision to A-21 incorporated a requirement to hold the indirect costs to the rates in effect at the time of the award for what the government states is “the life of the award or the competitive segment thereof.” At that time OSP released guidance with respect to how the federal “fixed rate” policy would be administered. Attached is a copy of that general implementation guidance. In response to requests for additional information regarding the concept of federal competitive segments, OSP provides the following summary of how “competitive segment” is generally defined for common award types. Please note that this guidance is based on the current grant practices of our major FDP sponsors—guidance may change in response to sponsor changes in practices. Federal contracts, cooperative agreements and grants from other Federal sponsors should be evaluated, applying the general implementation guidance, on a case-by-case basis.

In addition, please note that no-cost extensions, approved within the guidelines of the sponsoring agency, are considered extensions of the current competing segment and within the “life of the agreement.” Rates, which are potentially applicable to the competing segment based on the original effective date of the competing segment, will be applied through the no-cost extension period.

NASA policy makes maximum use of multiple year grants spanning generally three years. For the periods covered neither a new proposal nor another technical evaluation is required. This type of award will contain a clause anticipating the multi-year commitment and will result in the rates being fixed for the multi-year duration of the award. A research grant, continuing beyond this three year commitment, will require a new proposal, will be subject to peer evaluation, and will result in new competing segment with rates being fixed on the effective date of the modification awarded to extend the grant.

However, frequently NASA does not make a multi-year grant commitment in response to a multi-year proposal. NASA sometimes provides the funding for only the first year and then requests a new proposal for each subsequent year. In these cases the grant does not include a clause anticipating the multi-year commitment. That being the case, each year is considered a competing segment and rates are fixed on the effective date of each grant modification extending the grant.

Most DOE awards are written with multi-year (usually three) project periods, with the negotiated estimated budgets for the full multi-year period incorporated in the award. In those cases, rates should be fixed on the effective date of the grant for the life of that multi-year project period, which constitutes a single competing segment. Funded extensions of the original multi-year period, will require new proposals and will constitute new competing segments, even though the same funding instrument will in all likelihood be retained by DOE.

For those few DOE awards where budgets must be submitted and approved annually, each annual period is considered a competing segment and rates will be fixed on the effective date of each annual period.

Most DOD awards reflect multi-year commitments where budgets are negotiated prior to award and funding is provided on an annual basis. While some of our DOD sponsors (ONR, AFRL) use the standard incremental funding language and others (AFOSR, ARO) use the standard option period language to express the multi-year commitment, all of these awards anticipate a multi-year commitment to a budgets negotiated prior to the initial award and represent a single competing segment. Rates should therefore be fixed on the effective date of the award for the multi-year period. Funded extensions of the originally anticipated multi-year period, will require new proposals and will be treated as new competing segments.

NIH defines competing segment as "The initial project period recommended for support (up to 5 years) or each extension of a project period resulting from the award of a competing continuation grant that establishes a new competing segment for the project." Rates are fixed as of the effective date of each competing segment.

The following explanation of NIH Award Number codes is offered as an aid to determining where in a competing segment the individual Grant Year falls.

NSF defines Grant Period as "the period of time between the effective date and the expiration date of an NSF Grant shown as the duration." The effective date and the expiration date will be stated within the award letter. This Grant Period, then, is the period within which expenditures may be charged to the Grant without having to submit another proposal. Note that for Continuing Grants, annual progress reports are required but these are not considered proposals.

In certain situations (supplemental or creative awards, for example) the overhead rate can increase for the additional funds. OSP can provide further information.

Implementation of the ‘Fixed Rate’ requirements of A-21 can be confusing, if MIT is not receiving good information from the prime awardee regarding the “life of the prime agreement.” For subawards, "Time of the Initial Award" is the effective date of the MIT subaward. The effective date of MIT’s subaward may be the same as or later than the effective date of the prime awardees Federal agreement. For subawards, "Life of the Sponsored Agreement" is the multi-year portion of the prime competing segment, which is awarded to MIT. Occasionally, a prime awardee solicits a single year proposal from MIT and makes a single year commitment, only to subsequently solicit another single year proposal and make another single year commitment. While generally, we would evaluate each single year commitment as an individual competing segment, if MIT is informed via the solicitation that the subsequent period is within the same prime award competing segment as the prior period, MIT should propose and apply rates that were applicable based on the effective date of our initial subrecipient agreement.

Questions should be directed to OSP Contract Administrators and agency specialists.

Requirement of OMB Circular A-21: Federal agencies shall use the negotiated rates for indirect (now F&A) costs in effect at the time of the initial award throughout the life of the sponsored agreement. "Life" for the purpose of this subsection means each competitive segment of a project. A competitive segment is a period of years approved by the Federal funding agency at the time of the award. If negotiated rate agreements do not extend through the life of the sponsored agreement at the time of the initial award, then the negotiated rate for the last year of the negotiated rate agreements shall be extended through the end of the life of the sponsored agreement. Award levels for sponsored agreements may not be adjusted in future years as a result of changes in negotiated rates.

Defined as the effective date of the agreement, rather than the execution date since agreements can be signed by both parties well before or after the effective date of the agreement. If pre-award costs are authorized which cut across the first day of a fiscal year, indirect cost charges will reflect the rates in effect at the time of the expense.

(a) If the federal agency has committed to a multi-year award and has provided the allocations and/or estimates for the individual out years, then the rate should be fixed for the life of the agreement (generally, but not always NSF, NIH, DOD).

(b) If the federal agency has committed to a multi-year award but only provides funding for the first year and then requests a proposal for the second year, then only the first year should have the rates fixed. When the second year funding comes in, then the rate will be fixed again at the time of the second year award (generally but not always NASA, EPA). Any request for proposal beyond what has been defined as the period of performance will result in a proposal that will contain the new rates.

(c) If submitting a proposal for a supplement to an existing award that does not extend the period of performance and the existing award has fixed rates for the life of the agreement, then the proposal for the supplement should contain the rates established for the life of the agreement.

· Underrecoveries generated by applying fixed rates which are lower than the currently negotiated rates will be covered by the Institute.

· Fixed rates apply only to projects funded by the federal government either directly or as flow-through funds. Rates are not fixed on non-federal awards.