[Federal Register Volume 59, Number 221 (Thursday, November 17, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-28368]
[[Page Unknown]]
[Federal Register: November 17, 1994]
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Part III
Department of Education
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34 CFR Parts 75 and 76
Direct Grant Programs and State-Administered Programs; Final Rule
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DEPARTMENT OF EDUCATION
34 CFR Parts 75 and 76
RIN 1880-AA50
Direct Grant Programs and State-Administered Programs
AGENCY: Department of Education.
ACTION: Final regulations.
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SUMMARY: The Secretary amends the Department's regulations on direct
grant programs and State-administered programs to clarify the
requirements and procedures for establishing and applying indirect cost
rates under programs administered by the Department.
EFFECTIVE DATE: These regulations take effect on December 19, 1994.
FOR FURTHER INFORMATION CONTACT: Glenn Riley, U.S. Department of
Education, 400 Maryland Avenue, S.W., Room 3636, ROB-3, Washington,
D.C. 20202-4700. Telephone: (202) 708-7640. Individuals who use a
telecommunications device for the deaf (TDD) may call the Federal
Information Relay Service (FIRS) at 1-800-877-8339 between 8 a.m. and 8
p.m., Eastern time, Monday through Friday.
SUPPLEMENTARY INFORMATION: On January 14, 1994, the Secretary published
in the Federal Register (59 FR 2480) a notice of proposed rulemaking
(NPRM) proposing to revise certain sections in the Education Department
General Administrative Regulations (EDGAR) on indirect cost rates.
These proposed revisions were intended to improve the administration of
discretionary grants and to clarify for grantees the procedures and
requirements of the Department.
The proposed regulations addressed a number of problems in this
area of grants administration, including the computation and use of
restricted indirect cost rates in programs with a statutory supplement-
not-supplant requirement, the definition of a training grant, and the
use of indirect costs as matching or cost-sharing.
Significant differences between the NPRM and this final regulation
include changes to Secs. 75.561 and 76.561 to allow State educational
agencies to approve multi-year indirect cost rates for local
educational agencies, the deletion of research training programs from
the definition of a training grant in Sec. 75.562, and the inclusion of
a definition of ``modified total direct cost base,'' also in
Sec. 75.562.
Analysis of Comments and Changes
In response to the Secretary's invitation in the NPRM, 21 parties
submitted comments on the proposed regulations. An analysis of the
comments and of the resulting changes in the regulations follows.
Substantive issues are discussed under the section of the
regulations to which they pertain. Technical and other minor changes--
and suggested changes the Secretary is not legally authorized to make
under the applicable statutory authority--are not addressed.
Section 75.560 General Indirect Cost Rates; Exceptions
Since the Department recently adopted the revised OMB Circular A-
110 as 34 CFR Part 74, references in this section have been revised to
be consistent with the new Part 74.
Comments: Several parties commented on the requirement that a
recipient have a current indirect cost rate agreement to charge
indirect costs to a grant, asking what should happen if a recipient has
submitted an indirect cost proposal but has not received approval from
the Department. One suggested that the Department should assign an
indirect cost rate based on the applicant's last approved rate and
another thought the applicant should be allowed to use its proposed
rate.
Discussion: The Department now allows six months to review a rate
proposal and negotiate a new rate, which is generally adequate time to
complete the process. If for some reason a rate has not been approved
on time, the use of a temporary rate would be considered by the
Department. Since other changes to these regulations give the
Department authority to establish temporary rates, no additional
changes concerning temporary rates are necessary.
Changes: None.
Comments: Another commenter asked about the effect of the proposed
regulations on contractors under a grant and whether this section
requires contractors to obtain a rate, including a temporary rate if
necessary, from the Department.
Discussion: Many contractors already have a negotiated indirect
cost rate because they are direct recipients of Federal funds. Under
current procedures State and local governments are expected to assign
an indirect cost rate to a contractor or other lower tier organization
that does not already have one. Thus State educational agencies assign
rates to their local educational agencies (see Sec. 75.561). These
regulations do nothing to change these practices and contractors or
other lower tier organizations are not expected to negotiate a rate
with the Department.
Changes: None.
Section 75.561 Approval of indirect cost rates.
Comments: Several commenters were confused by the statement in
Sec. 75.561(c) that the Secretary approves indirect cost rate
agreements, an apparent conflict with the practice of the cognizant
agency negotiating a rate with an applicant.
Discussion: The Secretary does negotiate indirect cost rates with
applicants, but only when the Department is the cognizant agency. A
change has been made to clarify this paragraph.
Changes: Section 75.561(a) has been revised to make it clear that
the Secretary approves indirect cost rates for applicants when the
Department is the cognizant agency.
Comments: One commenter suggested that State educational agencies
have the same flexibility to approve multi-year indirect cost rates as
the proposed revision to Sec. 75.561 would give the Secretary. The
commenter observed that it would be more cost-effective, particularly
for small local educational agencies, to have rates in effect for more
than one year.
Discussion: The Secretary agrees with this comment and has made a
change.
Changes: Section 75.561(b) has been revised to allow State
educational agencies to approve indirect cost rates--for local
educational agencies--that are in effect for more than one year.
Section 75.562 Indirect cost rates for educational training projects.
Comments: A commenter objected to the inclusion of research
training programs in the proposed definition of an educational training
grant, observing that OMB Circular A-21 specifies that research
training is part of an institution's sponsored research activities.
Discussion: OMB Circular A-21, in Section B, Definition of Terms,
states that the term ``sponsored research'' includes ``activities
involving the training of individuals in research techniques (commonly
called research training) * * *.'' In order to be consistent with this
circular, the Secretary has made a change in the definition of an
educational training grant.
Changes: The phrase ``including special research training
programs'' has been deleted from the definition of an educational
training grant in Sec. 75.562(a).
Comments: A few commenters thought that the definition of a
training grant was ambiguous and too broad. One suggested that it be
limited to grants that were designated as training grants by statute or
where the grant includes such costs as tuition and fees (so-called
``flow-through'' funds) that are used by the recipient to cover a
portion of its indirect costs. Another asked if the Secretary would be
using this definition in determining which grants are training grants,
as stated in Sec. 75.562(b).
Discussion: The fact that the proposed definition of a training
grant is broad and comprehensive is a reflection of the great variety
of grants administered by the Department that are training grants. The
definition suggested by the commenter would overly limit the
designation of training grants and exclude certain programs that
clearly are primarily for the provision of training. The intent of the
definition is to provide the public with the criteria used by the
Secretary in determining what is a training grant and a change has been
made to make this clear.
Changes: Section 75.562(b) has been revised to indicate that the
Secretary does use the definition of a training grant in paragraph (a)
in determining which grants are educational training grants.
Comments: Several commenters objected to the Department's use of
the eight percent limit on training grants and thought the rate
negotiated by the recipient with its cognizant agency should be
employed instead.
Discussion: Since its inception, the Department has consistently
maintained the necessity of limiting the indirect cost rate on training
grants. This policy was originally established when the Department was
a component of the Department of Health, Education, and Welfare, now
the Department of Health and Human Services (HHS). This policy is still
in effect at HHS and is intended in part to maximize the number of
projects funded under these programs. In addition, a number of training
projects contain significant amounts of flow-through funds and
therefore do not carry the same burden of overhead or administrative
costs as do other projects. The Secretary does not agree that the
recipients of training grants should be reimbursed at their full
negotiated rates and no change in this section has been made.
Changes: None.
Comments: Nine comments were received on the proposed revision to
Sec. 75.562(c) that would require the training rate of eight percent to
be applied to a modified total direct cost base, instead of using a
base of total direct costs as in the current regulation. Commenters
opposed this change on grounds that it would further reduce a grantee's
ability to recover legitimate indirect costs under training grants and
reduce the number of organizations that could afford to apply for those
grants. Several commenters also asked for a definition of ``modified
total direct cost base.''
Discussion: There is general agreement in the grants community that
indirect costs should not be charged to activities that do not have
significant administrative costs associated with them, such as ``flow-
through funds'' (e.g., tuition, fees, and stipends). The Secretary
proposed to revise these regulations to be consistent with this
principle and to clarify for all interested parties what base should be
used in computing indirect costs under a training grant. Though this
change will reduce the indirect costs charged to the Department's
grants for some recipients, the Secretary does not agree that the
indirect cost base for training grants should include activities or
costs that do not generate significant administrative expenses.
However, the Secretary has made a change to clarify the term ``modified
total direct cost base.''
Changes: Section 75.562(c) has been revised to include a definition
of ``modified total direct cost base.'' It has also been reworded to
make it clearer that the paragraph is referring to the lesser amount of
funds, not the lesser rate.
Comments: One commenter stated that the eight percent limitation
should not apply to contractors under training grants, as required by
Sec. 75.562(c)(1), since not all contractors are in a position to
absorb the costs not covered by the limited rate.
Discussion: If the contractor is not conducting training
activities, the eight percent limitation would not apply and the
contractor could use its negotiated rate. However, a contractor that is
conducting training under a training grant would still be subject to
the limitation of eight percent. No change has been made in this
paragraph.
Changes: None.
Comments: Thirteen commenters objected to the requirement in
Sec. 75.562(c)(3) that indirect costs in excess of the eight percent
limitation may not be used to satisfy cost-sharing or matching
requirements. Many cited the new provision in OMB Circular A-110 that
allows the use of unrecovered indirect costs for this purpose, with the
approval of the granting agency. Commenters were concerned that this
limitation would make it difficult for many competent applicants to
qualify for grants that require cost-sharing or matching.
Discussion: The Department has a long-standing practice not to
allow the use of unrecovered indirect costs under training grants as
matching or cost-sharing. This practice was required because under a
previous version of OMB Circular A-110 and the Department's
implementing regulations in 34 CFR Part 74, only allowable costs could
be used for matching or cost-sharing purposes. Since training grants
are limited to an eight percent indirect cost rate, all indirect costs
over that limit were considered unallowable and thus could not be used
as matching or cost-sharing. The practice also had the result of
maximizing the funds that support project activities, because the use
of unrecovered indirect costs to meet matching or cost-sharing
requirements would reduce the amount of direct cost funds being put
into the project by the recipient.
The Department recently revised 34 CFR Part 74 to implement
revisions to OMB Circular A-110. The circular and Part 74 now allow
institutions of higher education, non-profit organizations, and
hospitals that receive funds under Federal programs to use unrecovered
indirect costs for matching or cost-sharing, but only with the approval
of the awarding agency. In light of this change and in response to the
concerns expressed by commenters, the Secretary re-examined this
practice but decided not to change it because it maximizes the impact
of the limited funds available for training grant programs.
Changes: None.
Comments: The Department received comments suggesting that
applicants be notified as early as possible in the application process
that a program is subject to the training rate or to the restricted
rate based on a statutory supplement-not-supplant requirement.
Commenters thought this information should be included in the
application packages and also on the grant award notices.
Discussion: Many programs already include this information in
application packages and notices, but, in an effort to assist
applicants as much as possible, the Department will do this for the
other programs as well. The issue is somewhat complicated by the fact
that some, but not all, grants awarded under certain programs may be
training grants. In this case the Department will include in the
application package and notice a statement that some grants awarded
under the program could be training grants subject to the eight percent
limitation on indirect costs, depending upon the type of project
proposed. The Department is already taking steps to include information
in the Catalog of Federal Domestic Assistance that identifies those
programs subject to the restricted rate based on the supplement-not-
supplant requirement. As for placing the information on the award
notices, the Department is currently redesigning its core financial
systems, including the grants management system, and this information
will be on award notices produced under the new system. These
notification issues were not addressed in the proposed regulations and
no change has been made to include them in the final regulations.
Changes: None.
Comments: A few commenters thought that the Department should
exclude training grants and their indirect costs from the process used
by the Department to establish indirect cost rates. This would have the
effect of increasing the organization's negotiated rate and would
offset somewhat the loss of indirect costs under the training grants.
Discussion: This issue was not included in the proposed regulations
but will be considered by the Department during its periodic reviews of
administrative procedures.
Changes: None.
Section 75.563 Restricted Indirect Cost Rate--Programs Covered
Comments: One commenter said that the restricted rates applicable
to programs with the supplement-not-supplant requirement should not be
applied to universities that have a negotiated indirect cost rate. They
suggested that Secs. 75.563 and 75.564(f) be deleted.
Discussion: The Department applies a restricted rate only to grants
made under programs that have a statutory requirement that Federal
funds be used to supplement, not supplant, institutional funds. If a
recipient happens to be an institution of higher education, the
restricted rate must be applied--the Department has no choice on the
matter because the rate implements a statutory limitation. However, as
a matter of practice, the recipients of grants under these programs are
predominately State educational agencies or local educational agencies;
very few institutions of higher education receive grants under
restricted rate programs.
Changes: None.
Section 75.564 Reimbursement of Indirect Costs
Comments: Several commenters thought the language in Sec. 75.564(a)
was confusing and contradicts Sec. 75.564(b) and Sec. 75.560(d). They
thought Sec. 75.564(a) should be revised to make it clear that the
Department accepts the rate negotiated with an applicant's cognizant
agency.
Discussion: This section addresses the issue of reimbursement of
indirect costs and the opening paragraph is a general statement of the
Department's policies in this area. As stated in the first sentence,
there are administrative and statutory restrictions that affect the
reimbursement of indirect costs under programs administered by ED.
There are also situations, though infrequent, when indirect costs are
not reimbursed due to a lack of funds. This usually occurs when a
grantee is seeking reimbursement of indirect costs because the
applicable rate was adjusted upwards during or after the performance of
the grant. The Secretary agrees that the second sentence in this
section is somewhat confusing and has made a change.
Changes: The second sentence in Sec. 75.564(a), ``The extent to
which indirect costs are reimbursed is a matter for determination
between the Secretary and the grantee,'' has been deleted from the
final regulation.
Comments: The Department received comments that construction grants
and grants in support of conferences should not be included in the list
of grants in Sec. 75.564(c) for which indirect costs are unallowable.
The commenters think these types of grants do carry considerable
administrative costs and ED should reimburse recipients for their
indirect costs. One commenter suggested that the language concerning
conferences be revised to apply to grants made exclusively to support
conferences.
Discussion: The Department does not agree that construction grants
carry the same administrative costs as other types of grants. Most of
the construction work funded by those grants is carried out under
subcontracts, a practice which results in recipients incurring
relatively little overhead expense in comparison to other types of
grants. Also, unlike other products of grant-supported activities, the
costs of a building can be recovered through depreciation or use
allowances. Therefore no change has been made concerning construction
grants, but the language on grants for conferences has been revised.
Changes: Section 75.564(c)(6) has been revised to apply to grants
made exclusively to support conferences.
Comments: Several commenters thought Sec. 75.564(e) prohibits the
use of indirect costs to satisfy matching or cost-sharing requirements
and so should be revised or deleted as inconsistent with OMB Circulars
A-21 and A-110.
Discussion: The OMB circulars that serve as cost principles or
administrative guidance for grant recipients all contain the
requirement that only allowable costs may be charged to a Federal grant
as either direct or indirect costs. The same principle applies to funds
used for matching or cost-sharing. However, the re-statement of this
principle in these regulations has caused some confusion, particularly
since a change to OMB Circular A-110, recently adopted by the
Department as 34 CFR Part 74, gives granting agencies the option of
approving unrecovered indirect costs to satisfy matching or cost-
sharing requirements. The Department has therefore decided to delete
the proposed Sec. 75.564(e) from the final regulations.
As discussed elsewhere in this document, the Department is
continuing its practice of prohibiting the use of unrecovered indirect
costs to satisfy matching or cost-sharing requirements under training
and restricted rate grants. For grantees subject to 34 CFR Part 74, the
Department will consider on a case-by-case basis requests to use
unrecovered indirect costs as matching or cost-sharing when the grant
in question is not a training grant or a grant subject to a restricted
indirect cost rate.
Changes: The proposed Sec. 75.564(e) has been deleted.
Comments: The Department received one comment that Sec. 75.564(f)
should be deleted and each member of a group of eligible parties be
allowed to apply its own indirect cost rate to its portion of the grant
funds.
Discussion: It has been the Department's policy on certain indirect
cost matters--for example, the eight percent training rate--to maximize
the Federal funds going to support program activities. If the official
recipient of the grant applies its rate to the full award amount and
each member of the group applies its full rate to its portion of the
grant, as has happened in such situations, a disproportionate amount of
the grant is spent on indirect costs. Since the Department wishes to
maximize the funds supporting the direct costs of a project, it is
limiting the indirect costs for grants made to groups of eligible
parties to the rate of the official grant recipient, the fiscal agent
for the group. The members of the group can decide among themselves how
the funds should be divided within the group.
Changes: No change was made to the text of this paragraph, but,
since the proposed Sec. 75.564(e) has been deleted, this paragraph has
been redesignated as Sec. 75.564(e) in these final regulations.
Section 76.560 General indirect cost rates; exceptions.
Since the Department recently adopted the revised OMB Circular A-
110 as 34 CFR Part 74, references in this section have been revised to
be consistent with the new 34 CFR Part 74.
Section 76.561 Approval of indirect cost rates.
The Department has revised this section to be consistent with the
corresponding section of 34 CFR Part 75 so that State educational
agencies may approve multi-year indirect cost rates for recipients
subject to 34 CFR Part 76.
Section 76.564 Restricted indirect cost rate--formula.
The Department has made a revision to this section to make its
requirements consistent with similar requirements in 34 CFR Part 75.
Specifically, Sec. 76.564(d) has been revised to prohibit the use of
unrecovered indirect costs under a restricted rate grant to satisfy
matching or cost-sharing requirements. This change is consistent with
current departmental practices and with the restriction placed on
training grants in Sec. 75.562(c)(3).
Section 76.565 General management costs--restricted rate.
Comments: Several commenters found the language in Sec. 76.565
concerning organization-wide activities to be unclear. Some of the
commenters thought that the proposed regulations did not make it clear
that some activities considered divisional administration may in fact
be organization-wide activities, such as payroll or personnel
functions.
Discussion: The Department agrees with these commenters and has
changed the wording in an attempt to make the final version clearer to
readers.
Changes: The wording of Sec. 76.565(a) has been changed to clarify
the meaning of the term organization-wide. Section 76.565(c) has been
revised to clarify the use of the term divisional administration.
Comments: One commenter said a deputy chief executive officer who
oversees general management activities should not be excluded as
required in Sec. 76.565 (c) and (d). Another said that chief executive
officers should be excluded only if their activities are limited to one
component.
Discussion: Chief executive officers and their deputies are
positions that would exist whether or not the organization received
Federal funds. To support them with Federal funds would be supplanting,
which is prohibited under restricted rate programs.
Changes: None.
Comments: One commenter disagreed with the definition of component
in Sec. 76.565(d)(2), saying it conflicts with the generally accepted
accounting standard that an agency is a component of a State. The
commenter maintains that the proposed definition of a component as an
organizational unit within an agency would prohibit States from
charging legitimate administrative costs to a grant.
Discussion: As stated in Sec. 76.563, this section applies to
``agencies of State and local governments,'' most commonly the State
educational agency, not to the State itself. In this context, the
component would be an organizational unit within a State agency, as
described in the regulation. No change has been made in this section.
Changes: None.
Section 76.567 Other expenditures--restricted rate.
Comments: The Department received one comment that subgrants should
be excluded from other expenditures, since their inclusion would
distort the indirect cost calculation and subgrants are already
excluded from the base in the formula in Sec. 76.569.
Discussion: The Department agrees with this comment and has made a
change.
Changes: Section 76.567(b) has been revised to exclude subgrants
from other expenditures.
Section 76.568 Occupancy and space maintenance costs--restricted rate.
Comments: One commenter thought the last two sentences of
Sec. 76.568(c) should be deleted as inconsistent with other Federal
guidance in OMB Circular A-87 and OASC-10, that States cannot afford to
pay for the office space occupied by Federal program staff.
Discussion: The sentences in question are not intended to indicate
that the costs of office space for Federal program staff must be borne
by the States, nor are they inconsistent with other Federal guidance.
Costs of space can be charged as indirect or direct costs as
appropriate, but Federal funds cannot be used to supplant local funds
under programs with statutory prohibitions of supplanting. The last
sentence merely reiterates the standard practice that the Secretary
approves the budgets of projects supported by grant funds. No changes
have been made to this section.
Changes: None.
Paperwork Reduction Act of 1980
These regulations have been examined under the Paperwork Reduction
Act of 1980 and have been found to contain no information collection
requirements.
Assessment of Educational Impact
In the notice of proposed rulemaking, the Secretary requested
comments on whether the proposed regulations would require transmission
of information that is being gathered by or is available from any other
agency or authority of the United States.
Based on the response to the proposed rules and on its own review,
the Department has determined that the regulations in this document do
not require transmission of information that is being gathered by or is
available from any other agency or authority of the United States.
List of Subjects 34 CFR Part 75
Education Department, Grant programs--education, Grant
administration, Incorporation by reference.
List of Subjects in 34 CFR Part 76
Education Department, Grant programs--education, Grant
administration, Intergovernmental relations, State-administered
programs.
(Catalog of Federal Domestic Assistance Number does not apply.)
Dated: November 10, 1994.
Richard W. Riley,
Secretary of Education.
The Secretary amends Parts 75 and 76 of Title 34 of the Code of
Federal Regulations as follows:
PART 75--DIRECT GRANT PROGRAMS
1. The authority citation for Part 75 continues to read as follows:
Authority: 20 U.S.C. 1221e-3(a)(1) and 3474, unless otherwise
noted.
2. Section 75.129 is amended by revising paragraphs (a) (1) and (2)
and adding paragraph (a)(3), to read as follows:
Sec. 75.129 Legal responsibilities of each member of the group.
(a) * * *
(1) The use of all grant funds;
(2) Ensuring that the project is carried out by the group in
accordance with Federal requirements; and
(3) Ensuring that indirect cost funds are determined as required
under Sec. 75.564(e).
* * * * *
3. Section 75.560 is amended by revising paragraphs (a) (1), (2),
(3), (4), and (5), by revising paragraph (b), by adding new paragraphs
(c) and (d), by and revising the authority citation at the end of the
section, to read as follows:
Sec. 75.560 General indirect cost rates; exceptions.
(a) * * *
(1) Institutions of higher education, at 34 CFR 74.27;
(2) Hospitals, at 34 CFR 74.27;
(3) Other nonprofit organizations, at 34 CFR 74.27;
(4) Commercial (for-profit) organizations, at 34 CFR 74.27; and
(5) State and local governments and federally-recognized Indian
tribal organizations, at 34 CFR 80.22.
(b) A grantee must have a current indirect cost rate agreement to
charge indirect costs to a grant. To obtain an indirect cost rate, a
grantee must submit an indirect cost proposal to its cognizant agency
and negotiate an indirect cost rate agreement.
(c) The Secretary may establish a temporary indirect cost rate for
a grantee that does not have an indirect cost rate agreement with its
cognizant agency.
(d) The Secretary accepts an indirect cost rate negotiated by a
grantee's cognizant agency, but may establish a restricted indirect
cost rate for a grantee to satisfy the statutory requirements of
certain programs administered by the Department.
(Authority: 20 U.S.C. 1221e-3(a)(1) and 3474)
4. Section 75.561 is revised to read as follows:
Sec. 75.561 Approval of indirect cost rates.
(a) If the Department of Education is the cognizant agency, the
Secretary approves an indirect cost rate for a grantee other than a
local educational agency. For the purposes of this section, the term
local educational agency does not include a State agency.
(b) Each State educational agency, on the basis of a plan approved
by the Secretary, shall approve an indirect cost rate for each local
educational agency that requests it to do so. These rates may be for
periods longer than a year if rates are sufficiently stable to justify
a longer period.
(c) The Secretary generally approves indirect cost rate agreements
annually. Indirect cost rate agreements may be approved for periods
longer than a year if the Secretary determines that rates will be
sufficiently stable to justify a longer rate period.
(Authority: 20 U.S.C. 1221e-3(a)(1) and 3474)
5. Section 75.562 is revised to read as follows:
Sec. 75.562 Indirect cost rates for educational training projects.
(a) Educational training grants provide funding for training or
other educational services. Examples of the work supported by training
grants are summer institutes, training programs for selected
participants, the introduction of new or expanded courses, and similar
instructional undertakings that are separately budgeted and accounted
for by the sponsoring institution. These grants do not usually support
activities involving research, development, and dissemination of new
educational materials and methods. Training grants largely implement
previously developed materials and methods and require no significant
adaptation of techniques or instructional services to fit different
circumstances.
(b) The Secretary uses the definition in paragraph (a) to determine
which grants are educational training grants.
(c) Indirect cost reimbursement on a training grant is limited to
the recipient's actual indirect costs, as determined by its negotiated
indirect cost rate agreement, or eight percent of a modified total
direct cost base, whichever amount is less. For the purposes of this
section, a modified total direct cost base is defined as total direct
costs less stipends, tuition and related fees, and capital expenditures
of $5,000 or more.
(1) The eight percent limit also applies to cost-type contracts
under grants, if these contracts are for training as defined in this
section.
(2) The eight percent limit does not apply to agencies of State or
local governments, including federally recognized Indian tribal
governments, as defined in 34 CFR 80.3.
(3) Indirect costs in excess of the eight percent limit may not be
charged directly, used to satisfy matching or cost-sharing
requirements, or charged to another Federal award.
(d) A grantee using the training rate of eight percent is required
to have documentation available for audit that shows that its
negotiated indirect cost rate is at least eight percent.
(Authority: 20 U.S.C. 1221e-3(a)(1) and 3474)
6. Section 75.563 is revised to read as follows:
Sec. 75.563 Restricted indirect cost rate--programs covered.
If a grantee decides to charge indirect costs to a program that has
a statutory requirement prohibiting the use of Federal funds to
supplant non-Federal funds, the grantee shall use a restricted indirect
cost rate computed under 34 CFR 76.564 through 76.569.
(Authority: 20 U.S.C. 1221e-3(a)(1) and 3474)
7. Sections 75.564 through 75.568 are removed.
8. A new Sec. 75.564 is added to read as follows:
Sec. 75.564 Reimbursement of indirect costs.
(a) Reimbursement of indirect costs is subject to the availability
of funds and statutory or administrative restrictions.
(b) The application of the rates and the determination of the
direct cost base by a grantee must be in accordance with the indirect
cost rate agreement approved by the grantee's cognizant agency.
(c) Indirect cost reimbursement is not allowable under grants for--
(1) Fellowships and similar awards if Federal financing is
exclusively in the form of fixed amounts such as scholarships, stipend
allowances, or the tuition and fees of an institution;
(2) Construction grants;
(3) Grants to individuals;
(4) Grants to organizations located outside the territorial limits
of the United States;
(5) Grants to Federal organizations; and
(6) Grants made exclusively to support conferences.
(d) Indirect cost reimbursement on grants received under programs
with statutory restrictions or other limitations on indirect costs must
be made in accordance with the restrictions in 34 CFR 76.564 through
76.569.
(e) Indirect costs for a group of eligible parties (see
Secs. 75.127-75.129) are limited to the amount derived by applying the
rate of the applicant, or a restricted rate when applicable, to the
grant in keeping with the terms of the applicant's indirect cost rate
agreement.
(Authority: 20 U.S.C. 1221e-3(a)(1) and 3474)
PART 76--STATE-ADMINISTERED PROGRAMS
9. The authority citation for Part 76 continues to read as follows:
Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474,
unless otherwise noted.
10. Section 76.560 is amended by revising paragraphs (a)(1), (2),
(3), (4), and (5), by revising paragraph (b), by adding new paragraphs
(c) and (d), and revising the authority citation at the end of the
section, to read as follows:
Sec. 76.560 General indirect cost rates; exceptions.
(a) * * *
(1) Institutions of higher education, at 34 CFR 74.27;
(2) Hospitals, at 34 CFR 74.27;
(3) Other nonprofit organizations, at 34 CFR 74.27;
(4) Commercial (for-profit) organizations, at 34 CFR 74.27; and
(5) State and local governments and federally-recognized Indian
tribal organizations, at 34 CFR 80.22.
(b) A grantee must have a current indirect cost rate agreement to
charge indirect costs to a grant. To obtain an indirect cost rate, a
grantee must submit an indirect cost proposal to its cognizant agency
and negotiate an indirect cost rate agreement.
(c) The Secretary may establish a temporary indirect cost rate for
a grantee that does not have an indirect cost rate agreement with its
cognizant agency.
(d) The Secretary accepts an indirect cost rate negotiated by a
grantee's cognizant agency, but may establish a restricted indirect
cost rate for a grantee to satisfy the statutory requirements of
certain programs administered by the Department.
(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)
11. Section 76.561 is revised to read as follows:
Sec. 76.561 Approval of indirect cost rates.
(a) If the Department of Education is the cognizant agency, the
Secretary approves an indirect cost rate for a State agency and for a
subgrantee other than a local educational agency. For the purposes of
this section, the term local educational agency does not include a
State agency.
(b) Each State educational agency, on the basis of a plan approved
by the Secretary, shall approve an indirect cost rate for each local
educational agency that requests it to do so. These rates may be for
periods longer than a year if rates are sufficiently stable to justify
a longer period.
(c) The Secretary generally approves indirect cost rate agreements
annually. Indirect cost rate agreements may be approved for periods
longer than a year if the Secretary determines that rates will be
sufficiently stable to justify a longer rate period.
(Authority: 20 U.S.C. 1221e-3(a)(1), 2381(a), and 3474)
12. Section 76.563 is revised to read as follows:
Sec. 76.563 Restricted indirect cost rate--programs covered.
Sections 76.564 through 76.569 apply to agencies of State and local
governments that are grantees under programs with a statutory
requirement prohibiting the use of Federal funds to supplant non-
Federal funds, and to their subgrantees under these programs.
(Authority: 20 U.S.C. 1221e(a)(1), 2831(a), 2974(b), and 3474)
13. A new Sec. 76.564 is added to read as follows:
Sec. 76.564 Restricted indirect cost rate--formula.
(a) An indirect cost rate for a grant covered by Sec. 76.563 or 34
CFR 75.563 is determined by the following formula:
Restricted indirect cost rate = (General management costs + Fixed
costs) (Other expenditures)
(b) General management costs, fixed costs, and other expenditures
must be determined under Secs. 76.565 through 76.567.
(c) Under the programs covered by Sec. 76.563, a subgrantee of an
agency of a State or a local government (as those terms are defined in
34 CFR 80.3) or a grantee subject to 34 CFR 75.563 that is not a State
or local government agency may use--
(1) An indirect cost rate computed under paragraph (a) of this
section; or
(2) An indirect cost rate of eight percent unless the Secretary
determines that the subgrantee or grantee would have a lower rate under
paragraph (a) of this section.
(d) Indirect costs that are unrecovered as a result of these
restrictions may not be charged directly, used to satisfy matching or
cost-sharing requirements, or charged to another Federal award.
(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)
14. A new Sec. 76.565 is added to read as follows:
Sec. 76.565 General management costs--restricted rate.
(a) As used in Sec. 76.564, general management costs means the
costs of activities that are for the direction and control of the
grantee's affairs that are organization-wide. An activity is not
organization-wide if it is limited to one activity, one component of
the grantee, one subject, one phase of operations, or other single
responsibility.
(b) General management costs include the costs of performing a
service function, such as accounting, payroll preparation, or personnel
management, that is normally at the grantee's level even if the
function is physically located elsewhere for convenience or better
management. The term also includes certain occupancy and space
maintenance costs as determined under Sec. 76.568.
(c) The term does not include expenditures for--
(1) Divisional administration that is limited to one component of
the grantee;
(2) The governing body of the grantee;
(3) Compensation of the chief executive officer of the grantee;
(4) Compensation of the chief executive officer of any component of
the grantee; and
(5) Operation of the immediate offices of these officers.
(d) For purposes of this section--
(1) The chief executive officer of the grantee is the individual
who is the head of the executive office of the grantee and exercises
overall responsibility for the operation and management of the
organization. The chief executive officer's immediate office includes
any deputy chief executive officer or similar officer along with
immediate support staff of these individuals. The term does not include
the governing body of the grantee, such as a board or a similar elected
or appointed governing body; and
(2) Components of the grantee are those organizational units
supervised directly or indirectly by the chief executive officer. These
organizational units generally exist one management level below the
executive office of the grantee. The term does not include the office
of the chief executive officer or a deputy chief executive officer or
similar position.
(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)
15. A new Sec. 76.566 is added to read as follows:
Sec. 76.566 Fixed costs--restricted rate.
As used in Sec. 76.564, fixed costs means contributions of the
grantee to fringe benefits and similar costs, but only those associated
with salaries and wages that are charged as indirect costs, including--
(a) Retirement, including State, county, or local retirement funds,
Social Security, and pension payments;
(b) Unemployment compensation payments; and
(c) Property, employee, health, and liability insurance.
(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)
16. A new Sec. 76.567 is added to read as follows:
Sec. 76.567 Other expenditures--restricted rate.
(a) As used in Sec. 76.564, other expenditures means the grantee's
total expenditures for its federally- and non-federally-funded
activities in the most recent year for which data are available. The
term also includes direct occupancy and space maintenance costs as
determined under Sec. 76.568 and costs related to the chief executive
officers of the grantee and components of the grantee and their offices
(see Sec. 76.565(c) and (d)).
(b) The term does not include--
(1) General management costs determined under Sec. 76.565;
(2) Fixed costs determined under Sec. 76.566;
(3) Subgrants;
(4) Capital outlay;
(5) Debt service;
(6) Fines and penalties;
(7) Contingencies; and
(8) Election expenses. However, the term does include election
expenses that result from elections required by an applicable Federal
statute.
(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)
17. A new Sec. 76.568 is added to read as follows:
Sec. 76.568 Occupancy and space maintenance costs--restricted rate.
(a) As used in the calculation of a restricted indirect cost rate,
occupancy and space maintenance costs means such costs as--
(1) Building costs whether owned or rented;
(2) Janitorial services and supplies;
(3) Building, grounds, and parking lot maintenance;
(4) Guard services;
(5) Light, heat, and power;
(6) Depreciation, use allowances, and amortization; and
(7) All other related space costs.
(b) Occupancy and space maintenance costs associated with
organization-wide service functions (accounting, payroll, personnel)
may be included as general management costs if a space allocation or
use study supports the allocation.
(c) Occupancy and space maintenance costs associated with functions
that are not organization-wide must be included with other expenditures
in the indirect cost formula. These costs may be charged directly to
affected programs only to the extent that statutory supplanting
prohibitions are not violated. This reimbursement must be approved in
advance by the Secretary.
(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)
18. A new Sec. 76.569 is added to read as follows:
Sec. 76.569 Using the restricted indirect cost rate.
(a) Under the programs referenced in Sec. 76.563, the maximum
amount of indirect costs under a grant is determined by the following
formula:
Indirect costs=(Restricted indirect cost rate) x (Total direct costs of
the grant minus capital outlays, subgrants, and other distorting or
unallowable items as specified in the grantee's indirect cost rate
agreement)
(b) If a grantee uses a restricted indirect cost rate, the general
management and fixed costs covered by that rate must be excluded by the
grantee from the direct costs it charges to the grant.
(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)
[FR Doc. 94-28368 Filed 11-16-94; 8:45 am]
BILLING CODE 4000-01-P
