4.   Regulations

Project funding   

The Office of Naval Research (ONR) is the cognizant federal agency overseeing the administration of sponsored projects at Stanford. Among other things, Stanford negotiates its Facilities & Administrative (F&A, otherwise known as indirect) cost rates annually with ONR.

Almost half of all Stanford's funding comes from the federal government. Most of this comes in the form of direct support for sponsored projects, but a substantial portion comes in the form of reimbursement for the indirect costs of those projects. Stanford tracks whether University activities are allowable for reimbursement through its Chart of Accounts.

Anyone authorizing the expenditure of federal funds needs to understand the fundamental cost principles contained in Circular A-21, published by the Office of Management and Budget.

What is OMB
Circular A-21?

These principles govern costs that may be charged to the government by educational institutions.

The Circular requires that all costs being charged to the federal government pass the following tests:

1. The cost must be ALLOWABLE under both the provisions of the Circular AND under the terms of the particular award.

2. The cost must be ALLOCABLE, i.e. the project which paid the expense must benefit from it.
3. The expense must be REASONABLE, i.e. a "prudent person" would have paid this much.

Illustrations of
A-21 Cost Principles

A-21 also defines those costs that may be charged DIRECTLY and those for which we are reimbursed through the INDIRECT cost rate. When proposing to conduct a sponsored project, the PI develops a budget which includes the direct costs, e.g., salaries, equipment, supplies - the costs that are relatively easy to associate DIRECTLY with the project - and then applies the negotiated F&A rate to add the costs of utilities, facilities and other essential infrastructure to the project budget. More on issues related to proposals in the next section.

Stanford's recovery of the direct and the indirect costs of projects are subject to audit by Stanford, the sponsor and by the Defense Contract Audit Agency (DCAA), the Government agency assigned audit responsibility for Schools under ONR cognizance.