Notice Number: NOT-OD-10-097

Key Dates
Release Date: May 13, 2010

Issued by
National Institutes of Health (NIH), (http://www.nih.gov)

Summary

This notice addresses the application of cost principles and reimbursement policy for high-throughput biomedical research under grant and contracts which require the purchase of the supply identified as “Genomic Arrays” (GA).  This notice provides guidance on the transformation from customary costing principles and procedures for the treatment of this specific supply (GA) through the application of the Facilities and Administration (F & A) rate, also known as the Indirect Cost Rate.For purposes of this policy Notice the term F & A rate will be used. 

The budgeting and reimbursement approval of these costs require careful consideration to ensure that these substantial investments are both scientifically and fiscally justified.
The application of F & A costs when budgeting and for reimbursement purposes will be limited for GA as a “high-throughput commodity and service”. 
Supplementary Information

This notice addresses recent inquiries to National Institute of Health (NIH) staff on the appropriate treatment of F & A costs for GA and other highly specialized tools for similar high-throughput biomedical research.  The development of high-throughput genetic analysis technology has enabled study of genetic variation and gene expression at unprecedented resolution.  These methods promise important new insights into biological mechanisms and the risk for disease.

Approaches such as genome-wide association and gene expression profiling depend upon manufactured products known as microarrays or bead arrays.  These tools are exceptional among laboratory supplies in that they are almost always procured from a commercial source; have a relatively high unit cost (currently the approximate range is broad from several hundred dollars to greater than five hundred dollars each) and are often utilized in large numbers (ranging from several hundred to several thousand or more in a single study).  These costs are increasingly common in the requested budgets of applications for support of genome-wide association studies and other genetic and genomic methodologies. 

Key Provision

In recent years while the cost of these tools has been significantly reduced, the current awards being approved often require large volumes of these consumables which have become an increasingly significant component of the funds awarded and reimbursed for these research projects.  The treatment of the costs for purchase of GA as “supplies” in these specialized award budgets at high levels of usage would result in the application of F & A cost recovery that is disproportionate to the actual administrative burden associated with the relatively high cost of the procurement of these GA.  In this connection, the applicable regulations that govern F & A reimbursement policy state in part “Other items may only be excluded where necessary to avoid a serious inequity in the distribution of F & A costs” (Appendix A, D(4.)f. of 2 CFR 220 - OMB Circular A-122).  Similar regulatory terminology is cited in 2 CFR 220 - OMB Circular A-21 and in 45 CFR PART74 Appendix E – Principles for Determining Costs Applicable to Research and Development under Grants and Contracts with Hospitals.  In the case of GA and other highly specialized tools, full inclusion in the application base for F & A development and recovery creates serious inequities and results in the application of F & A that is disproportionate to the actual administrative burden associated with these items.

Procedures for Budgeting and Reimbursement of GA,

The use of GA in research is generally procured from an external source utilizing a purchase order by the applicant institution with the analysis undertaken by the applicant institution either utilizing the staff of the requested project or by a specialized service center.  The appropriate budgeting and costing for the procurement and use of these GA is addressed below:

Reimbursement Policy – Budgeting and Accounting on Award

For purposes of budgeting and accounting for high volume purchases of GA in excess of $50,000 per year, the standard treatment of these resources as supplies in determining the F&A base of an award will be non-applicable.  Instead the requested and reimbursed costs for GA will utilize as a surrogate the concept of subcontracts (consortium/contractual cost).  This change of account classification from supplies (for the first $50,000) to subcontract (the excess over $50,000) for high volume requirements allows the use as a surrogate the budgeting and reimbursement concept utilized for subcontracts (consortium/contractual cost) providing consistent budgeting, accounting and reimbursement of these costs. 

Procurement from an External Source

In order to facilitate budgeting, accounting and reimbursement changes, for award applications that require the purchase of GA from external sources, the requested and awarded budget will show this procurement as a consortium/contractual cost.  This unique distinction allows the application of this policy notice by separating these high volume purchases of supplies due to the highly specialized and unique technical requirements (tools and services) associated with these awards, as contrasted to the general applicability and routine nature of research supplies and services.

Reimbursement Policy - Application of F & A Rate

This policy will be applied prospectively to new commitments established by competing awards and by administrative supplements.  Effective for new competitive segments of awards (defined as new, renewal and revision) and administrative supplements to enhance the use of GA on a project, when total purchases for GA will exceed $50,000 per year in any year of the project, the F & A rate reimbursement will be applied to a limited GA cost of $25,000 in addition to the $50,000 threshold for each respective year of the award. 

Example I: GA is budgeted at $50,000 for each year of the project: GA costs would be treated as supplies and reimbursed in accordance to our customary procedures for supplies.

Example II:  Award is for three years and GA is budgeted at $75,000 in year one and $150,000 in years 2 & 3 respectively.  For each budget year the F & A rate will be applied as follows:  

• Year one –applied to the $75,000: The first $50,000 as supplies plus the first 25,000 over the $50,000 ($25,000 rebudgeted in the consortium/subcontract line item) for a total of $75,000;
• Year two and three-applied to $75,000 each year:  The first $50,000 will be awarded as supplies and receive full F&A.  The remaining balance ($100,000) will be treated as consortium/subcontract costs where the first $25,000 will also receive full F&A.  Any remaining portion (in this example $75,000) of each year respectively will be excluded from the F&A cost base calculation in accord with this policy bulletin.

Institutions which have approved F & A rates utilizing the standards set out in the regulations governing their institution, prior to this policy bulletin, may require guidance on the application of the F & A rate to these sub awards.  These institutions should contact their cognizant Division of Cost Allocation Field Office. 

Other Considerations

GA used by the Project Staff

When the research staff of the requested project will use GA in the course of the project, the cost of GA procured from an external source should be budgeted as described above. The salaries and related costs of project staff assigned to this task should be budgeted as personnel costs.  Supplies, equipment and other materials should be budgeted in the appropriate cost categories of the requested budget. 

Services provided by a Specialized Service Facility

When services requiring GA are provided by specialized facilities operated by the institution, costs are allowable provided they are budgeted and accounted for in accord with applicable Federal Cost Principles (Examples: Appendix A, Paragraph J 47 of 2 CFR 220 - OMB Circular A-21 and Attachment B, Paragraph 46 of 2 CFR 230 - OMB Circular A-122 and 45 CFR PART74 Appendix E – Principles for Determining Costs Applicable to Research and Development Under Grants and Contracts with Hospitals).  The costs of the procurement of GA procured from an external source should be budgeted and incurred, as described above.

Review and Consideration of Requested Budgets by NIH Staff

Effective immediately, NIH staff will review pending budget requests for GA consistent with the considerations provided in this Notice.  Should the NIH grant specialist determine that a proposed budget is not presented in accordance with this policy notice, the NIH representative will request a revised budget consistent with this notice, or NIH may incorporate the required compliance changes into the authorized budget of the “Award Notice” for the funded project, citing this policy bulletin notice in the terms of the “Notice of Award”.  Grantees are reminded that by drawing funds from the DHHS payment system, the grantee agrees to the terms and conditions of the award, and that any change in scope requires prior approval from the NIH awarding office.

Inquiries

Questions about specific awards may be directed to the Grants Management Specialist identified in the Notice of Award.