[Federal Register Volume 62, Number 93 (Wednesday, May 14, 1997)]
[Notices]
[Pages 26577-26594]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12683]
=======================================================================
-----------------------------------------------------------------------
OFFICE OF MANAGEMENT AND BUDGET
Governmentwide Grants Management Requirements
AGENCY: Office of Management and Budget.
ACTION: Proposed Revision of OMB Circulars A-21, A-87, A-102, A-110 and
A-122.
-----------------------------------------------------------------------
SUMMARY: The Office of Management and Budget (OMB) proposes to revise
OMB Circulars A-21, ``Cost Principles for Educational Institutions,''
A-87, ``Cost Principles for State and Local Governments,'' A-102,
``Grants and Cooperative Agreements with State and Local Governments,''
A-110, ``Uniform Administrative Requirements for Grants and Agreements
with Institutions of Higher Education, Hospitals, and Other Non-Profit
Organizations,'' and A-122, ``Cost Principles for Non-Profit
Organizations,'' to provide a conditional exemption from OMB's grants
management requirements and a conditional class deviation from the
agencies' Grants Management Common Rule for certain Federal grant
programs with statutorily-authorized consolidated planning and
consolidated administrative funding, that are identified by a Federal
agency and approved by the head of the Executive department or
establishment. A recompiled Circular A-122 is also provided.
DATES: All comments on this proposal should be in writing and must be
received by July 14, 1997. Late comments will be considered to the
extent practicable.
ADDRESSES: Comments should be mailed to Grants Management Exemption
Docket, Office of Federal Financial Management, Office of Management
and Budget, Room 6025 New Executive Office Building, Washington, DC
20503. Electronic mail (E-mail) comments may be submitted via the
Internet to kahlow__b@a1.eop.gov. Please include the full body of E-
mail comments in the text of the message and not as an attachment.
Please include the name, title, organization, postal address, and E-
mail address in the text of the message.
FOR FURTHER INFORMATION CONTACT: Barbara F. Kahlow, Office of Federal
Financial Management, Office of Management and Budget, (202) 395-3053.
The text of this proposed revision and of the current OMB Circulars A-
21, A-87, A-102, and A-110 are available electronically on the OMB Home
Page at http://www.whitehouse.gov/WH/EOP/omb. The text of a fully
recompiled Circular A-122 is appended to this proposal and will also be
available electronically on the OMB Home Page. The current version of
OMB Circulars A-21, A-87, A-102, and A-110 are available in paper
format by contacting the OMB Publications Office at (202) 395-7332.
SUPPLEMENTARY INFORMATION: The Administration believes in greater
[[Page 26578]]
flexibility for State-administered grant programs in return for greater
accountability. Therefore, the Office of Management and Budget (OMB)
proposes to revise OMB Circulars A-21, ``Cost Principles for
Educational Institutions,'' A-87, ``Cost Principles for State and Local
Governments,'' A-102, ``Grants and Cooperative Agreements with State
and Local Governments,'' A-110, ``Uniform Administrative Requirements
for Grants and Agreements with Institutions of Higher Education,
Hospitals, and Other Non-Profit Organizations,'' and A-122, ``Cost
Principles for Non-Profit Organizations,'' to provide a conditional
exemption from OMB's grants management requirements and a conditional
class deviation from the agencies' Grants Management Common Rule (GMCR)
for certain Federal grant programs with statutorily-authorized
consolidated planning and consolidated administrative funding, that are
identified by a Federal agency and approved by the head of the
Executive department or establishment.
This exemption could be granted to related Federal non-entitlement
grant programs which are administered by State and local governments
and which have the following characteristics: the related programs (1)
serve a common program purpose, (2) have specific statutorily-
authorized consolidated planning and consolidated administrative
funding, and (3) are administered by State agencies which are funded
mostly by non-Federal sources. In order to promote efficiency in the
State and local program administration of such related programs,
Federal agencies could exempt these covered State-administered, non-
entitlement grant programs from Federal grants management requirements
in OMB Circulars A-21, A-87, A-110, and A-122, and the GMCR. The
exemptions would be from all but the allocability-of-costs provisions
of Circulars A-21 (Section C, subpart 4), A-87 (Attachment A,
subsection C.3), and A-122 (Attachment A, subsection A.4), and from all
of the administrative requirements provisions of Circular A-110 and the
GMCR.
A Federal agency would have the discretion to exempt a Federal
grant program from the Federal grants management requirements. A
Federal agency shall consult with OMB during its consideration of
whether to grant such an exemption.
If a Federal agency exempts a Federal grant program from these
requirements, a State would only qualify if it adopts its own written
fiscal and administrative requirements for expending and accounting for
all funds, which are consistent with the provisions of OMB Circular A-
87, and extends such requirements to all subrecipients. These fiscal
and administrative requirements must be sufficiently specific to ensure
that: funds are used in compliance with all applicable Federal
statutory and regulatory provisions, costs are reasonable and necessary
for operating these programs, and funds are not to be used for general
expenses required to carry out other responsibilities of a State or its
subrecipients. If a State does not adopt such fiscal and administrative
requirements, then it would continue to be subject to the Federal
grants management requirements.
To provide such a conditional exemption, Section A.3 of Circular A-
21, Attachment A Section A.3 of Circular A-87, Section 2 of Circular A-
102, Subpart C of Circular A-110, and Attachment A Section A of
Circular A-122 are proposed for amendment.
Franklin D. Raines,
Director.
OMB proposes to add the following language: (1) As a new paragraph
d under A.3 Purpose and Scope, Application of Circular A-21; (2) as a
new paragraph e under Attachment A, A.3 Purpose and Scope, Application
of Circular A-87; (3) as a new paragraph j under Section 2, Post-award
Policies of Circular A-102; (4) as a new Section __.45 under Subpart C,
Post-award Requirements of Circular A-110; and, (5) as a new paragraph
7 under Attachment A, A. Basic Considerations of Circular A-122:
Conditional exemptions. OMB authorizes conditional exemption from
OMB administrative requirements and cost principles circulars for
certain Federal programs with statutorily-authorized consolidated
planning and consolidated administrative funding, that are identified
by a Federal agency and approved by the head of the Executive
department or establishment. A Federal agency shall consult with OMB
during its consideration of whether to grant such an exemption.
To promote efficiency in State and local program administration,
when Federal non-entitlement programs with common purposes have
specific statutorily-authorized consolidated planning and consolidated
administrative funding and where most of the State agency's resources
come from non-Federal sources, Federal agencies may exempt these
covered State-administered, non-entitlement grant programs from certain
OMB grants management requirements. The exemptions would be from all
but the allocability of costs provisions of OMB Circulars A-87
(Attachment A, subsection C.3), ``Cost Principles for State, Local, and
Indian Tribal Governments,'' A-21 (Section C, subpart 4), ``Cost
Principles for Educational Institutions,'' and A-122 (Attachment A,
subsection A.4), ``Cost Principles for Non-Profit Organizations,'' and
from all of the administrative requirements provisions of OMB Circular
A-110, ``Uniform Administrative Requirements for Grants and Agreements
with Institutions of Higher Education, Hospitals, and Other Non-Profit
Organizations,'' and the agencies' grants management common rule.
When a Federal agency provides this flexibility, as a prerequisite
to a State's exercising this option, a State must adopt its own written
fiscal and administrative requirements for expending and accounting for
all funds, which are consistent with the provisions of OMB Circular A-
87, and extend such policies to all subrecipients. These fiscal and
administrative requirements must be sufficiently specific to ensure
that: funds are used in compliance with all applicable Federal
statutory and regulatory provisions, costs are reasonable and necessary
for operating these programs, and funds are not to be used for general
expenses required to carry out other responsibilities of a State or its
subrecipients.
Appendix
OMB originally issued Circular A-122 on June 27, 1980 (45 FR
46022). OMB amended the Circular on April 25, 1984 (49 FR 18260), on
May 19, 1987 (52 FR 19788), and on September 29, 1995 (60 FR 52516).
This Appendix presents the fully recompiled Circular A-122. It reflects
all of the amendments and all of OMB's current editorial conventions,
and incorporates various non-substantive technical corrections. In
addition, the recompilation includes the following two clarifying
changes in Attachment B which reflect what has been OMB's
interpretation: (a) Under Idle facilities and idle capacity,
Subparagraph 16.b.(1) now reads ``They are necessary to meet
fluctuations in workload'' instead of ``They are unnecessary to meet
fluctuations in workload;'' and, (b) under Taxes, Subparagraph 47.a now
reads ``* * * based on an exemption afforded the Federal Government''
instead of ``* * * based on an exemption afforded the Government.''
The text of the recompiled Circular follows:
Circular No. A-122
Revised
[[Page 26579]]
Transmittal Memorandum No. 4
To the Heads of Executive Departments and Establishments
SUBJECT: Cost Principles for Non-Profit Organizations
This transmittal memorandum is a recompilation of Circular A-
122, ``Cost Principles for Non-Profit Organizations,'' that consists
of the original Circular published at 45 FR 46022 (June 27, 1980),
as amended by Transmittal Memoranda Numbers 1 through 3, at 49 FR
18260 (April 25, 1984), 52 FR 19788 (May 19, 1987), and 60 FR 52516
(September 29, 1995), respectively. This recompilation reflects all
of the amendments and all of the Office of Management and Budget's
current editorial conventions, and incorporates various non-
substantive technical corrections and two clarifying changes.
Franklin D. Raines
Director
Attachment
Circular No. A-122
Revised
To the Heads of Executive Departments and Establishments
Subject: Cost principles for non-profit organizations
1. Purpose. This Circular establishes principles for determining
costs of grants, contracts and other agreements with non-profit
organizations. It does not apply to colleges and universities which are
covered by Office of Management and Budget (OMB) Circular A-21, ``Cost
Principles for Educational Institutions''; State, local, and federally-
recognized Indian tribal governments which are covered by OMB Circular
A-87, ``Cost Principles for State and Local Governments''; or
hospitals. The principles are designed to provide that the Federal
Government bear its fair share of costs except where restricted or
prohibited by law. The principles do not attempt to prescribe the
extent of cost sharing or matching on grants, contracts, or other
agreements. However, such cost sharing or matching shall not be
accomplished through arbitrary limitations on individual cost elements
by Federal agencies. Provision for profit or other increment above cost
is outside the scope of this Circular.
2. Supersession. This Circular supersedes cost principles issued by
individual agencies for non-profit organizations.
3. Applicability.
a. These principles shall be used by all Federal agencies in
determining the costs of work performed by non-profit organizations
under grants, cooperative agreements, cost reimbursement contracts, and
other contracts in which costs are used in pricing, administration, or
settlement. All of these instruments are hereafter referred to as
awards. The principles do not apply to awards under which an
organization is not required to account to the Federal Government for
actual costs incurred.
b. All cost reimbursement subawards (subgrants, subcontracts, etc.)
are subject to those Federal cost principles applicable to the
particular organization concerned. Thus, if a subaward is to a non-
profit organization, this Circular shall apply; if a subaward is to a
commercial organization, the cost principles applicable to commercial
concerns shall apply; if a subaward is to a college or university,
Circular A-21 shall apply; if a subaward is to a State, local, or
federally-recognized Indian tribal government, Circular A-87 shall
apply.
4. Definitions.
a. Non-profit organization means any corporation, trust,
association, cooperative, or other organization which:
(1) is operated primarily for scientific, educational, service,
charitable, or similar purposes in the public interest;
(2) is not organized primarily for profit; and
(3) uses its net proceeds to maintain, improve, and/or expand its
operations. For this purpose, the term ``non-profit organization''
excludes (i) colleges and universities; (ii) hospitals; (iii) State,
local, and federally-recognized Indian tribal governments; and (iv)
those non-profit organizations which are excluded from coverage of this
Circular in accordance with paragraph 5.
b. Prior approval means securing the awarding agency's permission
in advance to incur cost for those items that are designated as
requiring prior approval by the Circular. Generally this permission
will be in writing. Where an item of cost requiring prior approval is
specified in the budget of an award, approval of the budget constitutes
approval of that cost.
5. Exclusion of some non-profit organizations. Some non-profit
organizations, because of their size and nature of operations, can be
considered to be similar to commercial concerns for purpose of
applicability of cost principles. Such non-profit organizations shall
operate under Federal cost principles applicable to commercial
concerns. A listing of these organizations is contained in Attachment
C. Other organizations may be added from time to time.
6. Responsibilities. Agencies responsible for administering
programs that involve awards to non-profit organizations shall
implement the provisions of this Circular. Upon request, implementing
instruction shall be furnished to OMB. Agencies shall designate a
liaison official to serve as the agency representative on matters
relating to the implementation of this Circular. The name and title of
such representative shall be furnished to OMB within 30 days of the
date of this Circular.
7. Attachments. The principles and related policy guides are set
forth in the following Attachments:
Attachment A--General Principles
Attachment B--Selected Items of Cost
Attachment C--Non-Profit Organizations Not Subject To This Circular
8. Requests for exceptions. OMB may grant exceptions to the
requirements of this Circular when permissible under existing law.
However, in the interest of achieving maximum uniformity, exceptions
will be permitted only in highly unusual circumstances.
9. Effective Date. The provisions of this Circular are effective
immediately. Implementation shall be phased in by incorporating the
provisions into new awards made after the start of the organization's
next fiscal year. For existing awards, the new principles may be
applied if an organization and the cognizant Federal agency agree.
Earlier implementation, or a delay in implementation of individual
provisions, is also permitted by mutual agreement between an
organization and the cognizant Federal agency.
10. Inquiries. Further information concerning this Circular may be
obtained by contacting the Office of Federal Financial Management, OMB,
Washington, DC 20503, telephone (202) 395-3993.
Attachments
Circular No. A-122
Attachment A--General Principles
Table of Contents
A. Basic Considerations
1. Composition of total costs
2. Factors affecting allowability of costs
3. Reasonable costs
4. Allocable costs
5. Applicable credits
6. Advance understandings
B. Direct Costs
C. Indirect Costs
D. Allocation of Indirect Costs and Determination of Indirect Cost
Rates
1. General
2. Simplified allocation method
3. Multiple allocation base method
4. Direct allocation method
5. Special indirect cost rates
E. Negotiation and Approval of Indirect Cost Rates
1. Definitions
2. Negotiations and approval of rates
[[Page 26580]]
Circular No. A-122
Attachment A--General Principles
A. Basic Considerations
1. Composition of total costs. The total cost of an award is the
sum of the allowable direct and allocable indirect costs less any
applicable credits.
2. Factors affecting allowability of costs. To be allowable under
an award, costs must meet the following general criteria:
a. Be reasonable for the performance of the award and be allocable
thereto under these principles.
b. Conform to any limitations or exclusions set forth in these
principles or in the award as to types or amount of cost items.
c. Be consistent with policies and procedures that apply uniformly
to both federally-financed and other activities of the organization.
d. Be accorded consistent treatment.
e. Be determined in accordance with generally accepted accounting
principles (GAAP).
f. Not be included as a cost or used to meet cost sharing or
matching requirements of any other federally-financed program in either
the current or a prior period.
g. Be adequately documented.
3. Reasonable costs. A cost is reasonable if, in its nature or
amount, it does not exceed that which would be incurred by a prudent
person under the circumstances prevailing at the time the decision was
made to incur the costs. The question of the reasonableness of specific
costs must be scrutinized with particular care in connection with
organizations or separate divisions thereof which receive the
preponderance of their support from awards made by Federal agencies. In
determining the reasonableness of a given cost, consideration shall be
given to:
a. Whether the cost is of a type generally recognized as ordinary
and necessary for the operation of the organization or the performance
of the award.
b. The restraints or requirements imposed by such factors as
generally accepted sound business practices, arms length bargaining,
Federal and State laws and regulations, and terms and conditions of the
award.
c. Whether the individuals concerned acted with prudence in the
circumstances, considering their responsibilities to the organization,
its members, employees, and clients, the public at large, and the
Federal Government.
d. Significant deviations from the established practices of the
organization which may unjustifiably increase the award costs.
4. Allocable costs.
a. A cost is allocable to a particular cost objective, such as a
grant, contract, project, service, or other activity, in accordance
with the relative benefits received. A cost is allocable to a Federal
award if it is treated consistently with other costs incurred for the
same purpose in like circumstances and if it:
(1) Is incurred specifically for the award.
(2) Benefits both the award and other work and can be distributed
in reasonable proportion to the benefits received, or
(3) Is necessary to the overall operation of the organization,
although a direct relationship to any particular cost objective cannot
be shown.
b. Any cost allocable to a particular award or other cost objective
under these principles may not be shifted to other Federal awards to
overcome funding deficiencies, or to avoid restrictions imposed by law
or by the terms of the award.
5. Applicable credits.
a. The term applicable credits refers to those receipts, or
reduction of expenditures which operate to offset or reduce expense
items that are allocable to awards as direct or indirect costs. Typical
examples of such transactions are: purchase discounts, rebates or
allowances, recoveries or indemnities on losses, insurance refunds, and
adjustments of overpayments or erroneous charges. To the extent that
such credits accruing or received by the organization relate to
allowable cost, they shall be credited to the Federal Government either
as a cost reduction or cash refund, as appropriate.
b. In some instances, the amounts received from the Federal
Government to finance organizational activities or service operations
should be treated as applicable credits. Specifically, the concept of
netting such credit items against related expenditures should be
applied by the organization in determining the rates or amounts to be
charged to Federal awards for services rendered whenever the facilities
or other resources used in providing such services have been financed
directly, in whole or in part, by Federal funds.
c. For rules covering program income (i.e., gross income earned
from federally-supported activities) see Sec. __.24 of Office of
Management and Budget (OMB) Circular A-110, ``Uniform Administrative
Requirements for Grants and Agreements with Institutions of Higher
Education, Hospitals, and Other Non-Profit Organizations.''
6. Advance understandings. Under any given award, the
reasonableness and allocability of certain items of costs may be
difficult to determine. This is particularly true in connection with
organizations that receive a preponderance of their support from
Federal agencies. In order to avoid subsequent disallowance or dispute
based on unreasonableness or nonallocability, it is often desirable to
seek a written agreement with the cognizant or awarding agency in
advance of the incurrence of special or unusual costs. The absence of
an advance agreement on any element of cost will not, in itself, affect
the reasonableness or allocability of that element.
B. Direct Costs
1. Direct costs are those that can be identified specifically with
a particular final cost objective, i.e., a particular award, project,
service, or other direct activity of an organization. However, a cost
may not be assigned to an award as a direct cost if any other cost
incurred for the same purpose, in like circumstance, has been allocated
to an award as an indirect cost. Costs identified specifically with
awards are direct costs of the awards and are to be assigned directly
thereto. Costs identified specifically with other final cost objectives
of the organization are direct costs of those cost objectives and are
not to be assigned to other awards directly or indirectly.
2. Any direct cost of a minor amount may be treated as an indirect
cost for reasons of practicality where the accounting treatment for
such cost is consistently applied to all final cost objectives.
3. The cost of certain activities are not allowable as charges to
Federal awards (see, for example, fundraising costs in paragraph 19 of
Attachment B). However, even though these costs are unallowable for
purposes of computing charges to Federal awards, they nonetheless must
be treated as direct costs for purposes of determining indirect cost
rates and be allocated their share of the organization's indirect costs
if they represent activities which (1) include the salaries of
personnel, (2) occupy space, and (3) benefit from the organization's
indirect costs.
4. The costs of activities performed primarily as a service to
members, clients, or the general public when significant and necessary
to the organization's mission must be treated as direct costs whether
or not allowable and be allocated an equitable share of indirect costs.
Some examples of these types of activities include:
[[Page 26581]]
a. Maintenance of membership rolls, subscriptions, publications,
and related functions.
b. Providing services and information to members, legislative or
administrative bodies, or the public.
c. Promotion, lobbying, and other forms of public relations.
d. Meetings and conferences except those held to conduct the
general administration of the organization.
e. Maintenance, protection, and investment of special funds not
used in operation of the organization.
f. Administration of group benefits on behalf of members or
clients, including life and hospital insurance, annuity or retirement
plans, financial aid, etc.
C. Indirect Costs
1. Indirect costs are those that have been incurred for common or
joint objectives and cannot be readily identified with a particular
final cost objective. Direct cost of minor amounts may be treated as
indirect costs under the conditions described in subparagraph B.2.
After direct costs have been determined and assigned directly to awards
or other work as appropriate, indirect costs are those remaining to be
allocated to benefiting cost objectives. A cost may not be allocated to
an award as an indirect cost if any other cost incurred for the same
purpose, in like circumstances, has been assigned to an award as a
direct cost.
2. Because of the diverse characteristics and accounting practices
of non-profit organizations, it is not possible to specify the types of
cost which may be classified as indirect cost in all situations.
However, typical examples of indirect cost for many non-profit
organizations may include depreciation or use allowances on buildings
and equipment, the costs of operating and maintaining facilities, and
general administration and general expenses, such as the salaries and
expenses of executive officers, personnel administration, and
accounting.
D. Allocation of Indirect Costs and Determination of Indirect Cost
Rates
1. General.
a. Where a non-profit organization has only one major function, or
where all its major functions benefit from its indirect costs to
approximately the same degree, the allocation of indirect costs and the
computation of an indirect cost rate may be accomplished through
simplified allocation procedures, as described in subparagraph 2.
b. Where an organization has several major functions which benefit
from its indirect costs in varying degrees, allocation of indirect
costs may require the accumulation of such costs into separate cost
groupings which then are allocated individually to benefiting functions
by means of a base which best measures the relative degree of benefit.
The indirect costs allocated to each function are then distributed to
individual awards and other activities included in that function by
means of an indirect cost rate(s).
c. The determination of what constitutes an organization's major
functions will depend on its purpose in being; the types of services it
renders to the public, its clients, and its members; and the amount of
effort it devotes to such activities as fundraising, public information
and membership activities.
d. Specific methods for allocating indirect costs and computing
indirect cost rates along with the conditions under which each method
should be used are described in subparagraphs 2 through 5.
e. The base period for the allocation of indirect costs is the
period in which such costs are incurred and accumulated for allocation
to work performed in that period. The base period normally should
coincide with the organization's fiscal year but, in any event, shall
be so selected as to avoid inequities in the allocation of the costs.
2. Simplified allocation method.
a. Where an organization's major functions benefit from its
indirect costs to approximately the same degree, the allocation of
indirect costs may be accomplished by (i) separating the organization's
total costs for the base period as either direct or indirect, and (ii)
dividing the total allowable indirect costs (net of applicable credits)
by an equitable distribution base. The result of this process is an
indirect cost rate which is used to distribute indirect costs to
individual awards. The rate should be expressed as the percentage which
the total amount of allowable indirect costs bears to the base
selected. This method should also be used where an organization has
only one major function encompassing a number of individual projects or
activities, and may be used where the level of Federal awards to an
organization is relatively small.
b. Both the direct costs and the indirect costs shall exclude
capital expenditures and unallowable costs. However, unallowable costs
which represent activities must be included in the direct costs under
the conditions described in subparagraph B.3.
c. The distribution base may be total direct costs (excluding
capital expenditures and other distorting items, such as major
subcontracts or subgrants), direct salaries and wages, or other base
which results in an equitable distribution. The distribution base shall
generally exclude participant support costs as defined in paragraph 30
of Attachment B.
d. Except where a special rate(s) is required in accordance with
subparagraph 5, the indirect cost rate developed under the above
principles is applicable to all awards at the organization. If a
special rate(s) is required, appropriate modifications shall be made in
order to develop the special rate(s).
3. Multiple allocation base method.
a. Where an organization's indirect costs benefit its major
functions in varying degrees, such costs shall be accumulated into
separate cost groupings. Each grouping shall then be allocated
individually to benefiting functions by means of a base which best
measures the relative benefits.
b. The groupings shall be established so as to permit the
allocation of each grouping on the basis of benefits provided to the
major functions. Each grouping should constitute a pool of expenses
that are of like character in terms of the functions they benefit and
in terms of the allocation base which best measures the relative
benefits provided to each function. The number of separate groupings
should be held within practical limits, taking into consideration the
materiality of the amounts involved and the degree of precision
desired.
c. Actual conditions must be taken into account in selecting the
base to be used in allocating the expenses in each grouping to
benefiting functions. When an allocation can be made by assignment of a
cost grouping directly to the function benefited, the allocation shall
be made in that manner. When the expenses in a grouping are more
general in nature, the allocation should be made through the use of a
selected base which produces results that are equitable to both the
Federal Government and the organization. In general, any cost element
or cost related factor associated with the organization's work is
potentially adaptable for use as an allocation base, provided (i) it
can readily be expressed in terms of dollars or other quantitative
measures (total direct costs, direct salaries and wages, staff hours
applied, square feet used, hours of usage, number of documents
processed, population served, and the like) and (ii) it is common to
the benefiting functions during the base period.
d. Except where a special indirect cost rate(s) is required in
accordance with subparagraph 5, the separate groupings
[[Page 26582]]
of indirect costs allocated to each major function shall be aggregated
and treated as a common pool for that function. The costs in the common
pool shall then be distributed to individual awards included in that
function by use of a single indirect cost rate.
e. The distribution base used in computing the indirect cost rate
for each function may be total direct costs (excluding capital
expenditures and other distorting items such as major subcontracts and
subgrants), direct salaries and wages, or other base which results in
an equitable distribution. The distribution base shall generally
exclude participant support costs as defined in paragraph 30,
Attachment B. An indirect cost rate should be developed for each
separate indirect cost pool developed. The rate in each case should be
stated as the percentage which the amount of the particular indirect
cost pool is of the distribution base identified with that pool.
4. Direct allocation method.
a. Some non-profit organizations treat all costs as direct costs
except general administration and general expenses. These organizations
generally separate their costs into three basic categories: (i) General
administration and general expenses, (ii) fundraising, and (iii) other
direct functions (including projects performed under Federal awards).
Joint costs, such as depreciation, rental costs, operation and
maintenance of facilities, telephone expenses, and the like are
prorated individually as direct costs to each category and to each
award or other activity using a base most appropriate to the particular
cost being prorated.
b. This method is acceptable, provided each joint cost is prorated
using a base which accurately measures the benefits provided to each
award or other activity. The bases must be established in accordance
with reasonable criteria, and be supported by current data. This method
is compatible with the Standards of Accounting and Financial Reporting
for Voluntary Health and Welfare Organizations issued jointly by the
National Health Council, Inc., the National Assembly of Voluntary
Health and Social Welfare Organizations, and the United Way of America.
c. Under this method, indirect costs consist exclusively of general
administration and general expenses. In all other respects, the
organization's indirect cost rates shall be computed in the same manner
as that described in subparagraph 2.
5. Special indirect cost rates. In some instances, a single
indirect cost rate for all activities of an organization or for each
major function of the organization may not be appropriate, since it
would not take into account those different factors which may
substantially affect the indirect costs applicable to a particular
segment of work. For this purpose, a particular segment of work may be
that performed under a single award or it may consist of work under a
group of awards performed in a common environment. These factors may
include the physical location of the work, the level of administrative
support required, the nature of the facilities or other resources
employed, the scientific disciplines or technical skills involved, the
organizational arrangements used, or any combination thereof. When a
particular segment of work is performed in an environment which appears
to generate a significantly different level of indirect costs,
provisions should be made for a separate indirect cost pool applicable
to such work. The separate indirect cost pool should be developed
during the course of the regular allocation process, and the separate
indirect cost rate resulting therefrom should be used, provided it is
determined that (i) the rate differs significantly from that which
would have been obtained under subparagraphs 2, 3, and 4, and (ii) the
volume of work to which the rate would apply is material.
E. Negotiation and Approval of Indirect Cost Rates
1. Definitions. As used in this section, the following terms have
the meanings set forth below:
a. Cognizant agency means the Federal agency responsible for
negotiating and approving indirect cost rates for a non-profit
organization on behalf of all Federal agencies.
b. Predetermined rate means an indirect cost rate, applicable to a
specified current or future period, usually the organization's fiscal
year. The rate is based on an estimate of the costs to be incurred
during the period. A predetermined rate is not subject to adjustment.
c. Fixed rate means an indirect cost rate which has the same
characteristics as a predetermined rate, except that the difference
between the estimated costs and the actual costs of the period covered
by the rate is carried forward as an adjustment to the rate computation
of a subsequent period.
d. Final rate means an indirect cost rate applicable to a specified
past period which is based on the actual costs of the period. A final
rate is not subject to adjustment.
e. Provisional rate or billing rate means a temporary indirect cost
rate applicable to a specified period which is used for funding,
interim reimbursement, and reporting indirect costs on awards pending
the establishment of a final rate for the period.
f. Indirect cost proposal means the documentation prepared by an
organization to substantiate its claim for the reimbursement of
indirect costs. This proposal provides the basis for the review and
negotiation leading to the establishment of an organization's indirect
cost rate.
g. Cost objective means a function, organizational subdivision,
contract, grant, or other work unit for which cost data are desired and
for which provision is made to accumulate and measure the cost of
processes, projects, jobs and capitalized projects.
2. Negotiation and approval of rates.
a. Unless different arrangements are agreed to by the agencies
concerned, the Federal agency with the largest dollar value of awards
with an organization will be designated as the cognizant agency for the
negotiation and approval of the indirect cost rates and, where
necessary, other rates such as fringe benefit and computer charge-out
rates. Once an agency is assigned cognizance for a particular non-
profit organization, the assignment will not be changed unless there is
a major long-term shift in the dollar volume of the Federal awards to
the organization. All concerned Federal agencies shall be given the
opportunity to participate in the negotiation process but, after a rate
has been agreed upon, it will be accepted by all Federal agencies. When
a Federal agency has reason to believe that special operating factors
affecting its awards necessitate special indirect cost rates in
accordance with subparagraph D.5, it will, prior to the time the rates
are negotiated, notify the cognizant agency.
b. A non-profit organization which has not previously established
an indirect cost rate with a Federal agency shall submit its initial
indirect cost proposal immediately after the organization is advised
that an award will be made and, in no event, later than three months
after the effective date of the award.
c. Organizations that have previously established indirect cost
rates must submit a new indirect cost proposal to the cognizant agency
within six months after the close of each fiscal year.
d. A predetermined rate may be negotiated for use on awards where
there is reasonable assurance, based on past experience and reliable
projection of the organization's costs, that the rate is not likely to
exceed a rate based on the organization's actual costs.
[[Page 26583]]
e. Fixed rates may be negotiated where predetermined rates are not
considered appropriate. A fixed rate, however, shall not be negotiated
if (i) all or a substantial portion of the organization's awards are
expected to expire before the carry-forward adjustment can be made;
(ii) the mix of Federal and non-Federal work at the organization is too
erratic to permit an equitable carry-forward adjustment; or (iii) the
organization's operations fluctuate significantly from year to year.
f. Provisional and final rates shall be negotiated where neither
predetermined nor fixed rates are appropriate.
g. The results of each negotiation shall be formalized in a written
agreement between the cognizant agency and the non-profit organization.
The cognizant agency shall distribute copies of the agreement to all
concerned Federal agencies.
h. If a dispute arises in a negotiation of an indirect cost rate
between the cognizant agency and the non-profit organization, the
dispute shall be resolved in accordance with the appeals procedures of
the cognizant agency.
i. To the extent that problems are encountered among the Federal
agencies in connection with the negotiation and approval process, OMB
will lend assistance as required to resolve such problems in a timely
manner.
Circular No. A-122
Attachment B--Selected Items of Cost
Table of Contents
1. Advertising costs
2. Bad debts
3. Bid and proposal costs (reserved)
4. Bonding costs
5. Communication costs
6. Compensation for personal services
7. Contingency provisions
8. Contributions
9. Depreciation and use allowances
10. Donations
11. Employee morale, health, and welfare costs and credits
12. Entertainment costs
13. Equipment and other capital expenditures
14. Fines and penalties
15. Fringe benefits
16. Idle facilities and idle capacity
17. Independent research and development (reserved)
18. Insurance and indemnification
19. Interest, fundraising, and investment management costs
20. Labor relations costs
21. Lobbying
22. Losses on other awards
23. Maintenance and repair costs
24. Materials and supplies
25. Meetings and conferences
26. Membership, subscription, and professional activity costs
27. Organization costs
28. Overtime, extra-pay shift, and multi-shift premiums
29. Page charges in professional journals
30. Participant support costs
31. Patent costs
32. Pension plans
33. Plant security costs
34. Pre-award costs
35. Professional service costs
36. Profits and losses on disposition of depreciable property or
other capital assets
37. Public information service costs
38. Publication and printing costs
39. Rearrangement and alteration costs
40. Reconversion costs
41. Recruiting costs
42. Relocation costs
43. Rental costs
44. Royalties and other costs for use of patents and copyrights
45. Severance pay
46. Specialized service facilities
47. Taxes
48. Termination costs
49. Training and education costs
50. Transportation costs
51. Travel costs
Circular No. A-122
Attachment B--Selected Items of Cost
Paragraphs 1 through 51 provide principles to be applied in
establishing the allowability of certain items of cost. These
principles apply whether a cost is treated as direct or indirect.
Failure to mention a particular item of cost is not intended to imply
that it is unallowable; rather, determination as to allowability in
each case should be based on the treatment or principles provided for
similar or related items of cost.
1. Advertising costs.
a. Advertising costs mean the costs of media services and
associated costs. Media advertising includes magazines, newspapers,
radio and television programs, direct mail, exhibits, and the like.
b. The only advertising costs allowable are those which are solely
for (i) the recruitment of personnel when considered in conjunction
with all other recruitment costs, as set forth in paragraph 41; (ii)
the procurement of goods and services; (iii) the disposal of surplus
materials acquired in the performance of the award except when
organizations are reimbursed for disposals at a predetermined amount in
accordance with Office of Management and Budget (OMB) Circular A-110,
``Uniform Administrative Requirements for Grants and Agreements with
Institutions of Higher Education, Hospitals, and Other Non-Profit
Organizations;'' or (iv) specific requirements of the award.
2. Bad debts. Bad debts, including losses (whether actual or
estimated) arising from uncollectible accounts and other claims,
related collection costs, and related legal costs, are unallowable.
3. Bid and proposal costs. (reserved)
4. Bonding costs.
a. Bonding costs arise when the Federal Government requires
assurance against financial loss to itself or others by reason of the
act or default of the organization. They arise also in instances where
the organization requires similar assurance. Included are such bonds as
bid, performance, payment, advance payment, infringement, and fidelity
bonds.
b. Costs of bonding required pursuant to the terms of the award are
allowable.
c. Costs of bonding required by the organization in the general
conduct of its operations are allowable to the extent that such bonding
is in accordance with sound business practice and the rates and
premiums are reasonable under the circumstances.
5. Communication costs. Costs incurred for telephone services,
local and long distance telephone calls, telegrams, radiograms, postage
and the like are allowable.
6. Compensation for personal services.
a. Definition. Compensation for personal services includes all
compensation paid currently or accrued by the organization for services
of employees rendered during the period of the award (except as
otherwise provided in subparagraph g). It includes, but is not limited
to, salaries, wages, director's and executive committee member's fees,
incentive awards, fringe benefits, pension plan costs, allowances for
off-site pay, incentive pay, location allowances, hardship pay, and
cost of living differentials.
b. Allowability. Except as otherwise specifically provided in this
paragraph, the costs of such compensation are allowable to the extent
that:
(1) Total compensation to individual employees is reasonable for
the services rendered and conforms to the established policy of the
organization consistently applied to both Federal and non-Federal
activities; and
(2) Charges to awards whether treated as direct or indirect costs
are determined and supported as required in this paragraph.
c. Reasonableness.
(1) When the organization is predominantly engaged in activities
other than those sponsored by the Federal Government, compensation for
employees on federally-sponsored work will be considered reasonable to
the extent that it is consistent with that paid for similar work in the
organization's other activities.
[[Page 26584]]
(2) When the organization is predominantly engaged in federally-
sponsored activities and in cases where the kind of employees required
for the Federal activities are not found in the organization's other
activities, compensation for employees on federally-sponsored work will
be considered reasonable to the extent that it is comparable to that
paid for similar work in the labor markets in which the organization
competes for the kind of employees involved.
d. Special considerations in determining allowability. Certain
conditions require special consideration and possible limitations in
determining costs under Federal awards where amounts or types of
compensation appear unreasonable. Among such conditions are the
following:
(1) Compensation to members of non-profit organizations, trustees,
directors, associates, officers, or the immediate families thereof.
Determination should be made that such compensation is reasonable for
the actual personal services rendered rather than a distribution of
earnings in excess of costs.
(2) Any change in an organization's compensation policy resulting
in a substantial increase in the organization's level of compensation,
particularly when it was concurrent with an increase in the ratio of
Federal awards to other activities of the organization or any change in
the treatment of allowability of specific types of compensation due to
changes in Federal policy.
e. Unallowable costs. Costs which are unallowable under other
paragraphs of this Attachment shall not be allowable under this
paragraph solely on the basis that they constitute personal
compensation.
f. Fringe benefits.
(1) Fringe benefits in the form of regular compensation paid to
employees during periods of authorized absences from the job, such as
vacation leave, sick leave, military leave, and the like, are
allowable, provided such costs are absorbed by all organization
activities in proportion to the relative amount of time or effort
actually devoted to each.
(2) Fringe benefits in the form of employer contributions or
expenses for social security, employee insurance, workmen's
compensation insurance, pension plan costs (see subparagraph g), and
the like, are allowable, provided such benefits are granted in
accordance with established written organization policies. Such
benefits whether treated as indirect costs or as direct costs, shall be
distributed to particular awards and other activities in a manner
consistent with the pattern of benefits accruing to the individuals or
group of employees whose salaries and wages are chargeable to such
awards and other activities.
(3) (a) Provisions for a reserve under a self-insurance program for
unemployment compensation or workers' compensation are allowable to the
extent that the provisions represent reasonable estimates of the
liabilities for such compensation, and the types of coverage, extent of
coverage, and rates and premiums would have been allowable had
insurance been purchased to cover the risks. However, provisions for
self-insured liabilities which do not become payable for more than one
year after the provision is made shall not exceed the present value of
the liability.
(b) Where an organization follows a consistent policy of expensing
actual payments to, or on behalf of, employees or former employees for
unemployment compensation or workers' compensation, such payments are
allowable in the year of payment with the prior approval of the
awarding agency, provided they are allocated to all activities of the
organization.
(4) Costs of insurance on the lives of trustees, officers, or other
employees holding positions of similar responsibility are allowable
only to the extent that the insurance represents additional
compensation. The costs of such insurance when the organization is
named as beneficiary are unallowable.
g. Pension plan costs.
(1) Costs of the organization's pension plan which are incurred in
accordance with the established policies of the organization are
allowable, provided:
(a) Such policies meet the test of reasonableness;
(b) The methods of cost allocation are not discriminatory;
(c) The cost assigned to each fiscal year is determined in
accordance with generally accepted accounting principles (GAAP), as
prescribed in Accounting Principles Board Opinion No. 8 issued by the
American Institute of Certified Public Accountants; and
(d) The costs assigned to a given fiscal year are funded for all
plan participants within six months after the end of that year.
However, increases to normal and past service pension costs caused by a
delay in funding the actuarial liability beyond 30 days after each
quarter of the year to which such costs are assignable are unallowable.
(2) Pension plan termination insurance premiums paid pursuant to
the Employee Retirement Income Security Act (ERISA) of 1974 (Pub. L.
93-406) are allowable. Late payment charges on such premiums are
unallowable.
(3) Excise taxes on accumulated funding deficiencies and other
penalties imposed under ERISA are unallowable.
h. Incentive compensation. Incentive compensation to employees
based on cost reduction, or efficient performance, suggestion awards,
safety awards, etc., are allowable to the extent that the overall
compensation is determined to be reasonable and such costs are paid or
accrued pursuant to an agreement entered into in good faith between the
organization and the employees before the services were rendered, or
pursuant to an established plan followed by the organization so
consistently as to imply, in effect, an agreement to make such payment.
i. Overtime, extra pay shift, and multi-shift premiums. See
paragraph 28.
j. Severance pay. See paragraph 45.
k. Training and education costs. See paragraph 49.
l. Support of salaries and wages.
(1) Charges to awards for salaries and wages, whether treated as
direct costs or indirect costs, will be based on documented payrolls
approved by a responsible official(s) of the organization. The
distribution of salaries and wages to awards must be supported by
personnel activity reports, as prescribed in subparagraph (2), except
when a substitute system has been approved in writing by the cognizant
agency. (See subparagraph E.2 of Attachment A.)
(2) Reports reflecting the distribution of activity of each
employee must be maintained for all staff members (professionals and
nonprofessionals) whose compensation is charged, in whole or in part,
directly to awards. In addition, in order to support the allocation of
indirect costs, such reports must also be maintained for other
employees whose work involves two or more functions or activities if a
distribution of their compensation between such functions or activities
is needed in the determination of the organization's indirect cost
rate(s) (e.g., an employee engaged part-time in indirect cost
activities and part-time in a direct function). Reports maintained by
non-profit organizations to satisfy these requirements must meet the
following standards:
(a) The reports must reflect an after-the-fact determination of the
actual activity of each employee. Budget estimates (i.e., estimates
determined before the services are performed) do not qualify as support
for charges to awards.
(b) Each report must account for the total activity for which
employees are
[[Page 26585]]
compensated and which is required in fulfillment of their obligations
to the organization.
(c) The reports must be signed by the individual employee, or by a
responsible supervisory official having first hand knowledge of the
activities performed by the employee, that the distribution of activity
represents a reasonable estimate of the actual work performed by the
employee during the periods covered by the reports.
(d) The reports must be prepared at least monthly and must coincide
with one or more pay periods.
(3) Charges for the salaries and wages of nonprofessional
employees, in addition to the supporting documentation described in
subparagraphs (1) and (2), must also be supported by records indicating
the total number of hours worked each day maintained in conformance
with Department of Labor regulations implementing the Fair Labor
Standards Act (FLSA) (29 CFR Part 516). For this purpose, the term
``nonprofessional employee'' shall have the same meaning as ``nonexempt
employee,'' under FLSA.
(4) Salaries and wages of employees used in meeting cost sharing or
matching requirements on awards must be supported in the same manner as
salaries and wages claimed for reimbursement from awarding agencies.
7. Contingency provisions. Contributions to a contingency reserve
or any similar provision made for events the occurrence of which cannot
be foretold with certainty as to time, intensity, or with an assurance
of their happening, are unallowable. The term ``contingency reserve''
excludes self-insurance reserves (see subparagraphs 6.f (3) and
18.a(2)(d); pension funds (see subparagraph 6.g); and reserves for
normal severance pay (see subparagraph 45.b(1)).
8. Contributions. Contributions and donations by the organization
to others are unallowable.
9. Depreciation and use allowances.
a. Compensation for the use of buildings, other capital
improvements, and equipment on hand may be made through use allowances
or depreciation. However, except as provided in subparagraph f, a
combination of the two methods may not be used in connection with a
single class of fixed assets (e.g., buildings, office equipment,
computer equipment, etc.).
b. The computation of use allowances or depreciation shall be based
on the acquisition cost of the assets involved. The acquisition cost of
an asset donated to the organization by a third party shall be its fair
market value at the time of the donation.
c. The computation of use allowances or depreciation will exclude:
(1) The cost of land;
(2) Any portion of the cost of buildings and equipment borne by or
donated by the Federal Government irrespective of where title was
originally vested or where it presently resides; and
(3) Any portion of the cost of buildings and equipment contributed
by or for the organization in satisfaction of a statutory matching
requirement.
d. Where the use allowance method is followed, the use allowance
for buildings and improvement (including land improvements, such as
paved parking areas, fences, and sidewalks) will be computed at an
annual rate not exceeding two percent of acquisition cost. The use
allowance for equipment will be computed at an annual rate not
exceeding six and two-thirds percent of acquisition cost. When the use
allowance method is used for buildings, the entire building must be
treated as a single asset; the building's components (e.g., plumbing
system, heating and air conditioning, etc.) cannot be segregated from
the building's shell. The two percent limitation, however, need not be
applied to equipment which is merely attached or fastened to the
building but not permanently fixed to it and which is used as
furnishings or decorations or for specialized purposes (e.g., dentist
chairs and dental treatment units, counters, laboratory benches bolted
to the floor, dishwashers, carpeting, etc.). Such equipment will be
considered as not being permanently fixed to the building if it can be
removed without the need for costly or extensive alterations or repairs
to the building or the equipment. Equipment that meets these criteria
will be subject to the six and two-thirds percent equipment use
allowance limitation.
e. Where depreciation method is followed, the period of useful
service (useful life) established in each case for usable capital
assets must take into consideration such factors as type of
construction, nature of the equipment used, technological developments
in the particular program area, and the renewal and replacement
policies followed for the individual items or classes of assets
involved. The method of depreciation used to assign the cost of an
asset (or group of assets) to accounting periods shall reflect the
pattern of consumption of the asset during its useful life. In the
absence of clear evidence indicating that the expected consumption of
the asset will be significantly greater or lesser in the early portions
of its useful life than in the later portions, the straight-line method
shall be presumed to be the appropriate method. Depreciation methods
once used shall not be changed unless approved in advance by the
cognizant Federal agency. When the depreciation method is introduced
for application to assets previously subject to a use allowance, the
combination of use allowances and depreciation applicable to such
assets must not exceed the total acquisition cost of the assets. When
the depreciation method is used for buildings, a building's shell may
be segregated from each building component (e.g., plumbing system,
heating, and air conditioning system, etc.) and each item depreciated
over its estimated useful life; or the entire building (i.e., the shell
and all components) may be treated as a single asset and depreciated
over a single useful life.
f. When the depreciation method is used for a particular class of
assets, no depreciation may be allowed on any such assets that, under
subparagraph e, would be viewed as fully depreciated. However, a
reasonable use allowance may be negotiated for such assets if warranted
after taking into consideration the amount of depreciation previously
charged to the Federal Government, the estimated useful life remaining
at time of negotiation, the effect of any increased maintenance charges
or decreased efficiency due to age, and any other factors pertinent to
the utilization of the asset for the purpose contemplated.
g. Charges for use allowances or depreciation must be supported by
adequate property records and physical inventories must be taken at
least once every two years (a statistical sampling basis is acceptable)
to ensure that assets exist and are usable and needed. When the
depreciation method is followed, adequate depreciation records
indicating the amount of depreciation taken each period must also be
maintained.
10. Donations.
a. Services received.
(1) Donated or volunteer services may be furnished to an
organization by professional and technical personnel, consultants, and
other skilled and unskilled labor. The value of these services is not
reimbursable either as a direct or indirect cost.
(2) The value of donated services utilized in the performance of a
direct cost activity shall be considered in the determination of the
organization's indirect cost rate(s) and, accordingly, shall be
allocated a proportionate share of applicable indirect costs when the
following circumstances exist:
(a) The aggregate value of the services is material;
[[Page 26586]]
(b) The services are supported by a significant amount of the
indirect costs incurred by the organization;
(c) The direct cost activity is not pursued primarily for the
benefit of the Federal Government,
(3) In those instances where there is no basis for determining the
fair market value of the services rendered, the recipient and the
cognizant agency shall negotiate an appropriate allocation of indirect
cost to the services.
(4) Where donated services directly benefit a project supported by
an award, the indirect costs allocated to the services will be
considered as a part of the total costs of the project. Such indirect
costs may be reimbursed under the award or used to meet cost sharing or
matching requirements.
(5) The value of the donated services may be used to meet cost
sharing or matching requirements under conditions described in Sec.
__.23 of Circular A-110. Where donated services are treated as indirect
costs, indirect cost rates will separate the value of the donations so
that reimbursement will not be made.
(6) Fair market value of donated services shall be computed as
follows:
(a) Rates for volunteer services. Rates for volunteers shall be
consistent with those regular rates paid for similar work in other
activities of the organization. In cases where the kinds of skills
involved are not found in other activities of the organization, the
rates used shall be consistent with those paid for similar work in the
labor market in which the organization competes for such skills.
(b) Services donated by other organizations. When an employer
donates the services of an employee, these services shall be valued at
the employee's regular rate of pay (exclusive of fringe benefits and
indirect costs), provided the services are in the same skill for which
the employee is normally paid. If the services are not in the same
skill for which the employee is normally paid, fair market value shall
be computed in accordance with subparagraph (a).
b. Goods and space.
(1) Donated goods; i.e., expendable personal property/supplies, and
donated use of space may be furnished to an organization. The value of
the goods and space is not reimbursable either as a direct or indirect
cost.
(2) The value of the donations may be used to meet cost sharing or
matching share requirements under the conditions described in Sec.
__.23 of Circular A-110. The value of the donations shall be determined
in accordance with Sec. __.23 of Circular A-110. Where donations are
treated as indirect costs, indirect cost rates will separate the value
of the donations so that reimbursement will not be made.
11. Employee morale, health, and welfare costs and credits. The
costs of house publications, health or first-aid clinics, and/or
infirmaries, recreational activities, employees' counseling services,
and other expenses incurred in accordance with the organization's
established practice or custom for the improvement of working
conditions, employer-employee relations, employee morale, and employee
performance are allowable. Such costs will be equitably apportioned to
all activities of the organization. Income generated from any of these
activities will be credited to the cost thereof unless such income has
been irrevocably set over to employee welfare organizations.
12. Entertainment costs. Costs of amusement, diversion, social
activities, ceremonials, and costs relating thereto, such as meals,
lodging, rentals, transportation, and gratuities are unallowable (but
see paragraphs 11 and 26).
13. Equipment and other capital expenditures.
a. As used in this paragraph, the following terms have the meanings
set forth below:
(1) Equipment means an article of nonexpendable tangible personal
property having a useful life of more than two years and an acquisition
cost of $500 or more per unit. An organization may use its own
definition, provided that it at least includes all nonexpendable
tangible personal property as defined herein.
(2) Acquisition cost means the net invoice unit price of an item of
equipment, including the cost of any modifications, attachments,
accessories, or auxiliary apparatus necessary to make it usable for the
purpose for which it is acquired. Ancillary charges, such as taxes,
duty, protective in-transit insurance, freight, and installation shall
be included in or excluded from acquisition cost in accordance with the
organization's regular written accounting practices.
(3) Special purpose equipment means equipment which is usable only
for research, medical, scientific, or technical activities. Examples of
special purpose equipment include microscopes, x-ray machines, surgical
instruments, and spectrometers.
(4) General purpose equipment means equipment which is usable for
other than research, medical, scientific, or technical activities,
whether or not special modifications are needed to make them suitable
for a particular purpose. Examples of general purpose equipment include
office equipment and furnishings, air conditioning equipment,
reproduction and printing equipment, motor vehicles, and automatic data
processing equipment.
b. (1) Capital expenditures for general purpose equipment are
unallowable as a direct cost except with the prior approval of the
awarding agency.
(2) Capital expenditures for special purpose equipment are
allowable as direct costs, provided that items with a unit cost of
$1000 or more have the prior approval of the awarding agency.
c. Capital expenditures for land or buildings are unallowable as a
direct cost except with the prior approval of the awarding agency.
d. Capital expenditures for improvements to land, buildings, or
equipment which materially increase their value or useful life are
unallowable as a direct cost except with the prior approval of the
awarding agency.
e. Equipment and other capital expenditures are unallowable as
indirect costs. However, see paragraph 9 for allowability of use
allowances or depreciation on buildings, capital improvements, and
equipment. Also, see paragraph 43 for allowability of rental costs for
land, buildings, and equipment.
14. Fines and penalties. Costs of fines and penalties resulting
from violations of, or failure of the organization to comply with
Federal, State, and local laws and regulations are unallowable except
when incurred as a result of compliance with specific provisions of an
award or instructions in writing from the awarding agency.
15. Fringe benefits. See subparagraph 6.f.
16. Idle facilities and idle capacity.
a. As used in this paragraph, the following terms have the meanings
set forth below:
(1) Facilities means land and buildings or any portion thereof,
equipment individually or collectively, or any other tangible capital
asset, wherever located, and whether owned or leased by the
organization.
(2) Idle facilities means completely unused facilities that are
excess to the organization's current needs.
(3) Idle capacity means the unused capacity of partially used
facilities. It is the difference between that which a facility could
achieve under 100 percent operating time on a one-shift basis less
operating interruptions resulting from time lost for repairs, setups,
unsatisfactory materials, and other normal delays, and the extent to
which the facility was actually used to meet demands during the
accounting period. A multi-shift basis may be used if it can
[[Page 26587]]
be shown that this amount of usage could normally be expected for the
type of facility involved.
(4) Costs of idle facilities or idle capacity means costs such as
maintenance, repair, housing, rent, and other related costs, e.g.,
property taxes, insurance, and depreciation or use allowances.
b. The costs of idle facilities are unallowable except to the
extent that:
(1) They are necessary to meet fluctuations in workload; or
(2) Although not necessary to meet fluctuations in workload, they
were necessary when acquired and are now idle because of changes in
program requirements, efforts to achieve more economical operations,
reorganization, termination, or other causes which could not have been
reasonably foreseen. Under the exception stated in this subparagraph,
costs of idle facilities are allowable for a reasonable period of time,
ordinarily not to exceed one year, depending upon the initiative taken
to use, lease, or dispose of such facilities (but see subparagraphs
48.b and d).
c. The costs of idle capacity are normal costs of doing business
and are a factor in the normal fluctuations of usage or indirect cost
rates from period to period. Such costs are allowable, provided the
capacity is reasonably anticipated to be necessary or was originally
reasonable and is not subject to reduction or elimination by
subletting, renting, or sale, in accordance with sound business,
economics, or security practices. Widespread idle capacity throughout
an entire facility or among a group of assets having substantially the
same function may be idle facilities.
17. Independent research and development. [Reserved]
18. Insurance and indemnification.
a. Insurance includes insurance which the organization is required
to carry, or which is approved, under the terms of the award and any
other insurance which the organization maintains in connection with the
general conduct of its operations. This paragraph does not apply to
insurance which represents fringe benefits for employees (see
subparagraphs 6.f and 6.g(2)).
(1) Costs of insurance required or approved, and maintained,
pursuant to the award are allowable.
(2) Costs of other insurance maintained by the organization in
connection with the general conduct of its operations are allowable
subject to the following limitations:
(a) Types and extent of coverage shall be in accordance with sound
business practice and the rates and premiums shall be reasonable under
the circumstances.
(b) Costs allowed for business interruption or other similar
insurance shall be limited to exclude coverage of management fees.
(c) Costs of insurance or of any provisions for a reserve covering
the risk of loss or damage to Federal property are allowable only to
the extent that the organization is liable for such loss or damage.
(d) Provisions for a reserve under a self-insurance program are
allowable to the extent that types of coverage, extent of coverage,
rates, and premiums would have been allowed had insurance been
purchased to cover the risks. However, provision for known or
reasonably estimated self-insured liabilities, which do not become
payable for more than one year after the provision is made, shall not
exceed the present value of the liability.
(e) Costs of insurance on the lives of trustees, officers, or other
employees holding positions of similar responsibilities are allowable
only to the extent that the insurance represents additional
compensation (see subparagraph 6.f(4)). The cost of such insurance when
the organization is identified as the beneficiary is unallowable.
(3) Actual losses which could have been covered by permissible
insurance (through the purchase of insurance or a self-insurance
program) are unallowable unless expressly provided for in the award,
except:
(a) Costs incurred because of losses not covered under nominal
deductible insurance coverage provided in keeping with sound business
practice are allowable.
(b) Minor losses not covered by insurance, such as spoilage,
breakage, and disappearance of supplies, which occur in the ordinary
course of operations, are allowable.
b. Indemnification includes securing the organization against
liabilities to third persons and any other loss or damage, not
compensated by insurance or otherwise. The Federal Government is
obligated to indemnify the organization only to the extent expressly
provided in the award.
19. Interest, fundraising, and investment management costs.
a. Interest.
(1) Costs incurred for interest on borrowed capital or temporary
use of endowment funds, however represented, are unallowable. However,
interest on debt incurred after the effective date of this revision to
acquire or replace capital assets (including renovations, alterations,
equipment, land, and capital assets acquired through capital leases),
acquired after the effective date of this revision and used in support
of sponsored agreements is allowable, provided that:
(a) For facilities acquisitions (excluding renovations and
alterations) costing over $10 million where the Federal Government's
reimbursement is expected to equal or exceed 40 percent of an asset's
cost, the non-profit organization prepares, prior to the acquisition or
replacement of the capital asset(s), a justification that demonstrates
the need for the facility in the conduct of federally-sponsored
activities. Upon request, the needs justification must be provided to
the Federal agency with cost cognizance authority as a prerequisite to
the continued allowability of interest on debt and depreciation related
to the facility. The needs justification for the acquisition of a
facility should include, at a minimum, the following:
A statement of purpose and justification for facility
acquisition or replacement.
A statement as to why current facilities are not adequate.
A statement of planned future use of the facility.
A description of the financing agreement to be arranged
for the facility.
A summary of the building contract with estimated cost
information and statement of source and use of funds.
A schedule of planned occupancy dates.
(b) For facilities costing over $500,000, the non-profit
organization prepares, prior to the acquisition or replacement of the
facility, a lease/purchase analysis in accordance with the provisions
of Sec. __.30 through __.37 of Circular A-110, which shows that a
financed purchase or capital lease is less costly to the organization
than other leasing alternatives, on a net present value basis. Discount
rates used should be equal to the non-profit organization's anticipated
interest rates and should be no higher than the fair market rate
available to the non-profit organization from an unrelated (``arm's
length'') third-party. The lease/purchase analysis shall include a
comparison of the net present value of the projected total cost
comparisons of both alternatives over the period the asset is expected
to be used by the non-profit organization. The cost comparisons
associated with purchasing the facility shall include the estimated
purchase price, anticipated operating and maintenance costs (including
property taxes, if applicable) not included in the debt financing, less
any estimated asset salvage value at the end of the period
[[Page 26588]]
defined above. The cost comparison for a capital lease shall include
the estimated total lease payments, any estimated bargain purchase
option, operating and maintenance costs, and taxes not included in the
capital leasing arrangement, less any estimated credits due under the
lease at the end of the period defined above. Projected operating lease
costs shall be based on the anticipated cost of leasing comparable
facilities at fair market rates under rental agreements that would be
renewed or reestablished over the period defined above, and any
expected maintenance costs and allowable property taxes to be borne by
the non-profit organization directly or as part of the lease
arrangement.
(c) The actual interest cost claimed is predicated upon interest
rates that are no higher than the fair market rate available to the
non-profit organization from an unrelated (``arm's length'') third
party.
(d) Investment earnings, including interest income, on bond or loan
principal, pending payment of the construction or acquisition costs,
are used to offset allowable interest cost. Arbitrage earnings
reportable to the Internal Revenue Service are not required to be
offset against allowable interest costs.
(e) Reimbursements are limited to the least costly alternative
based on the total cost analysis required under subparagraph (b). For
example, if an operating lease is determined to be less costly than
purchasing through debt financing, then reimbursement is limited to the
amount determined if leasing had been used. In all cases where a lease/
purchase analysis is performed, Federal reimbursement shall be based
upon the least expensive alternative.
(f) Non-profit organizations are also subject to the following
conditions:
(i) Interest on debt incurred to finance or refinance assets
acquired before or reacquired after the effective date of this Circular
is not allowable.
(ii) For debt arrangements over $1 million, unless the non-profit
organization makes an initial equity contribution to the asset purchase
of 25 percent or more, non-profit organizations shall reduce claims for
interest expense by an amount equal to imputed interest earnings on
excess cash flow, which is to be calculated as follows. Annually, non-
profit organizations shall prepare a cumulative (from the inception of
the project) report of monthly cash flows that includes inflows and
outflows, regardless of the funding source. Inflows consist of
depreciation expense, amortization of capitalized construction
interest, and annual interest expense. For cash flow calculations, the
annual inflow figures shall be divided by the number of months in the
year (usually 12) that the building is in service for monthly amounts.
Outflows consist of initial equity contributions, debt principal
payments (less the pro rata share attributable to the unallowable costs
of land) and interest payments. Where cumulative inflows exceed
cumulative outflows, interest shall be calculated on the excess inflows
for that period and be treated as a reduction to allowable interest
expense. The rate of interest to be used to compute earnings on excess
cash flows shall be the three month Treasury Bill closing rate as of
the last business day of that month.
(iii) Substantial relocation of federally-sponsored activities from
a facility financed by indebtedness, the cost of which was funded in
whole or part through Federal reimbursements, to another facility prior
to the expiration of a period of 20 years requires notice to the
Federal cognizant agency. The extent of the relocation, the amount of
the Federal participation in the financing, and the depreciation and
interest charged to date may require negotiation and/or downward
adjustments of replacement space charged to Federal programs in the
future.
(iv) The allowable costs to acquire facilities and equipment are
limited to a fair market value available to the non-profit organization
from an unrelated (``arm's length'') third party.
(2) For non-profit organizations subject to ``full coverage'' under
the Cost Accounting Standards (CAS) as defined at 48 CFR 9903.201, the
interest allowability provisions of subparagraph a do not apply.
Instead, these organizations' sponsored agreements are subject to CAS
414 (48 CFR 9903.414), cost of money as an element of the cost of
facilities capital, and CAS 417 (48 CFR 9903.417), cost of money as an
element of the cost of capital assets under construction.
(3) The following definitions are to be used for purposes of
paragraph 19:
(a) Re-acquired assets means assets held by the non-profit
organization prior to the effective date of this revision that have
again come to be held by the organization, whether through repurchase
or refinancing. It does not include assets acquired to replace older
assets.
(b) Initial equity contribution means the amount or value of
contributions made by non-Federal entities for the acquisition of the
asset or prior to occupancy of facilities.
(c) Asset costs means the capitalizable costs of an asset,
including construction costs, acquisition costs, and other such costs
capitalized in accordance with GAAP.
b. Costs of organized fundraising, including financial campaigns,
endowment drives, solicitation of gifts and bequests, and similar
expenses incurred solely to raise capital or obtain contributions are
unallowable.
c. Costs of investment counsel and staff and similar expenses
incurred solely to enhance income from investments are unallowable.
d. Fundraising and investment activities shall be allocated an
appropriate share of indirect costs under the conditions described in
subparagraph B.3 of Attachment A.
20. Labor relations costs. Costs incurred in maintaining
satisfactory relations between the organization and its employees,
including costs of labor management committees, employee publications,
and other related activities are allowable.
21. Lobbying.
a. Notwithstanding other provisions of this Circular, costs
associated with the following activities are unallowable:
(1) Attempts to influence the outcomes of any Federal, State, or
local election, referendum, initiative, or similar procedure, through
in kind or cash contributions, endorsements, publicity, or similar
activity;
(2) Establishing, administering, contributing to, or paying the
expenses of a political party, campaign, political action committee, or
other organization established for the purpose of influencing the
outcomes of elections;
(3) Any attempt to influence: (i) The introduction of Federal or
State legislation; or (ii) the enactment or modification of any pending
Federal or State legislation through communication with any member or
employee of the Congress or State legislature (including efforts to
influence State or local officials to engage in similar lobbying
activity), or with any Government official or employee in connection
with a decision to sign or veto enrolled legislation;
(4) Any attempt to influence: (i) The introduction of Federal or
State legislation; or (ii) the enactment or modification of any pending
Federal or State legislation by preparing, distributing or using
publicity or propaganda, or by urging members of the general public or
any segment thereof to contribute to or participate in any mass
demonstration, march, rally, fundraising drive, lobbying campaign or
letter writing or telephone campaign; or
[[Page 26589]]
(5) Legislative liaison activities, including attendance at
legislative sessions or committee hearings, gathering information
regarding legislation, and analyzing the effect of legislation, when
such activities are carried on in support of or in knowing preparation
for an effort to engage in unallowable lobbying.
b. The following activities are excepted from the coverage of
subparagraph a:
(1) Providing a technical and factual presentation of information
on a topic directly related to the performance of a grant, contract or
other agreement through hearing testimony, statements or letters to the
Congress or a State legislature, or subdivision, member, or cognizant
staff member thereof, in response to a documented request (including a
Congressional Record notice requesting testimony or statements for the
record at a regularly scheduled hearing) made by the recipient member,
legislative body or subdivision, or a cognizant staff member thereof;
provided such information is readily obtainable and can be readily put
in deliverable form; and further provided that costs under this section
for travel, lodging or meals are unallowable unless incurred to offer
testimony at a regularly scheduled Congressional hearing pursuant to a
written request for such presentation made by the Chairman or Ranking
Minority Member of the Committee or Subcommittee conducting such
hearing.
(2) Any lobbying made unallowable by subparagraph a(3) to influence
State legislation in order to directly reduce the cost, or to avoid
material impairment of the organization's authority to perform the
grant, contract, or other agreement.
(3) Any activity specifically authorized by statute to be
undertaken with funds from the grant, contract, or other agreement.
c. (1) When an organization seeks reimbursement for indirect costs,
total lobbying costs shall be separately identified in the indirect
cost rate proposal, and thereafter treated as other unallowable
activity costs in accordance with the procedures of subparagraph B.3 of
Attachment A.
(2) Organizations shall submit, as part of the annual indirect cost
rate proposal, a certification that the requirements and standards of
this paragraph have been complied with.
(3) Organizations shall maintain adequate records to demonstrate
that the determination of costs as being allowable or unallowable
pursuant to paragraph 21 complies with the requirements of this
Circular.
(4) Time logs, calendars, or similar records shall not be required
to be created for purposes of complying with this paragraph during any
particular calendar month when: (1) The employee engages in lobbying
(as defined in subparagraphs (a) and (b)) 25 percent or less of the
employee's compensated hours of employment during that calendar month,
and (2) within the preceding five-year period, the organization has not
materially misstated allowable or unallowable costs of any nature,
including legislative lobbying costs. When conditions (1) and (2) are
met, organizations are not required to establish records to support the
allowability of claimed costs in addition to records already required
or maintained. Also, when conditions (1) and (2) are met, the absence
of time logs, calendars, or similar records will not serve as a basis
for disallowing costs by contesting estimates of lobbying time spent by
employees during a calendar month.
(5) Agencies shall establish procedures for resolving in advance,
in consultation with OMB, any significant questions or disagreements
concerning the interpretation or application of paragraph 21. Any such
advance resolution shall be binding in any subsequent settlements,
audits or investigations with respect to that grant or contract for
purposes of interpretation of this Circular; provided, however, that
this shall not be construed to prevent a contractor or grantee from
contesting the lawfulness of such a determination.
22. Losses on other awards. Any excess of costs over income on any
award is unallowable as a cost of any other award. This includes, but
is not limited to, the organization's contributed portion by reason of
cost sharing agreements or any under-recoveries through negotiation of
lump sums for, or ceilings on, indirect costs.
23. Maintenance and repair costs. Costs incurred for necessary
maintenance, repair, or upkeep of buildings and equipment (including
Federal property unless otherwise provided for) which neither add to
the permanent value of the property nor appreciably prolong its
intended life, but keep it in an efficient operating condition, are
allowable. Costs incurred for improvements which add to the permanent
value of the buildings and equipment or appreciably prolong their
intended life shall be treated as capital expenditures (see paragraph
13).
24. Materials and supplies. The costs of materials and supplies
necessary to carry out an award are allowable. Such costs should be
charged at their actual prices after deducting all cash discounts,
trade discounts, rebates, and allowances received by the organization.
Withdrawals from general stores or stockrooms should be charged at cost
under any recognized method of pricing consistently applied. Incoming
transportation charges may be a proper part of material cost. Materials
and supplies charged as a direct cost should include only the materials
and supplies actually used for the performance of the contract or
grant, and due credit should be given for any excess materials or
supplies retained, or returned to vendors.
25. Meetings and conferences.
a. Costs associated with the conduct of meetings and conferences
include the cost of renting facilities, meals, speakers' fees, and the
like. But see paragraph 12, Entertainment costs, and paragraph 30,
Participant support costs.
b. To the extent that these costs are identifiable with a
particular cost objective, they should be charged to that objective
(see paragraph B of Attachment A). These costs are allowable, provided
that they meet the general tests of allowability, shown in paragraph A
of Attachment A to this Circular.
c. Costs of meetings and conferences held to conduct the general
administration of the organization are allowable.
26. Memberships, subscriptions, and professional activity costs.
a. Costs of the organization's membership in civic, business,
technical and professional organizations are allowable.
b. Costs of the organization's subscriptions to civic, business,
professional, and technical periodicals are allowable.
c. Costs of attendance at meetings and conferences sponsored by
others when the primary purpose is the dissemination of technical
information are allowable. This includes costs of meals,
transportation, and other items incidental to such attendance.
27. Organization costs. Expenditures, such as incorporation fees,
brokers' fees, fees to promoters, organizers or management consultants,
attorneys, accountants, or investment counselors, whether or not
employees of the organization, in connection with establishment or
reorganization of an organization, are unallowable except with prior
approval of the awarding agency.
28. Overtime, extra-pay shift, and multi-shift premiums. Premiums
for overtime, extra-pay shifts, and multi-shift work are allowable only
with the
[[Page 26590]]
prior approval of the awarding agency except:
a. When necessary to cope with emergencies, such as those resulting
from accidents, natural disasters, breakdowns of equipment, or
occasional operational bottlenecks of a sporadic nature.
b. When employees are performing indirect functions, such as
administration, maintenance, or accounting.
c. In the performance of tests, laboratory procedures, or other
similar operations which are continuous in nature and cannot reasonably
be interrupted or otherwise completed.
d. When lower overall cost to the Federal Government will result.
29. Page charges in professional journals. Page charges for
professional journal publications are allowable as a necessary part of
research costs, where:
a. The research papers report work supported by the Federal
Government; and
b. The charges are levied impartially on all research papers
published by the journal, whether or not by federally-sponsored
authors.
30. Participant support costs. Participant support costs are direct
costs for items such as stipends or subsistence allowances, travel
allowances, and registration fees paid to or on behalf of participants
or trainees (but not employees) in connection with meetings,
conferences, symposia, or training projects. These costs are allowable
with the prior approval of the awarding agency.
31. Patent costs.
a. Costs of (i) preparing disclosures, reports, and other documents
required by the award and of searching the art to the extent necessary
to make such disclosures, (ii) preparing documents and any other patent
costs in connection with the filing and prosecution of a United States
patent application where title or royalty-free license is required by
the Federal Government to be conveyed to the Federal Government, and
(iii) general counseling services relating to patent and copyright
matters, such as advice on patent and copyright laws, regulations,
clauses, and employee agreements are allowable (but see paragraph 35).
b. Cost of preparing disclosures, reports, and other documents and
of searching the art to the extent necessary to make disclosures, if
not required by the award, are unallowable. Costs in connection with
(i) filing and prosecuting any foreign patent application, or (ii) any
United States patent application, where the award does not require
conveying title or a royalty-free license to the Federal Government,
are unallowable (also see paragraph 44).
32. Pension plans. See subparagraph 6.g.
33. Plant security costs. Necessary expenses incurred to comply
with Federal security requirements or for facilities protection,
including wages, uniforms, and equipment of personnel are allowable.
34. Pre-award costs. Pre-award costs are those incurred prior to
the effective date of the award directly pursuant to the negotiation
and in anticipation of the award where such costs are necessary to
comply with the proposed delivery schedule or period of performance.
Such costs are allowable only to the extent that they would have been
allowable if incurred after the date of the award and only with the
written approval of the awarding agency.
35. Professional service costs.
a. Costs of professional and consultant services rendered by
persons who are members of a particular profession or possess a special
skill, and who are not officers or employees of the organization, are
allowable, subject to subparagraphs b, c, and d when reasonable in
relation to the services rendered and when not contingent upon recovery
of the costs from the Federal Government.
b. In determining the allowability of costs in a particular case,
no single factor or any special combination of factors is necessarily
determinative. However, the following factors are relevant:
(1) The nature and scope of the service rendered in relation to the
service required.
(2) The necessity of contracting for the service, considering the
organization's capability in the particular area.
(3) The past pattern of such costs, particularly in the years prior
to Federal awards.
(4) The impact of Federal awards on the organization's business
(i.e., what new problems have arisen).
(5) Whether the proportion of Federal work to the organization's
total business is such as to influence the organization in favor of
incurring the cost, particularly where the services rendered are not of
a continuing nature and have little relationship to work under Federal
grants and contracts.
(6) Whether the service can be performed more economically by
direct employment rather than contracting.
(7) The qualifications of the individual or concern rendering the
service and the customary fees charged, especially on non-Federal
awards.
(8) Adequacy of the contractual agreement for the service (e.g.,
description of the service, estimate of time required, rate of
compensation, and termination provisions).
c. In addition to the factors in subparagraph b, retainer fees to
be allowable must be supported by evidence of bona fide services
available or rendered.
d. Cost of legal, accounting, and consulting services, and related
costs incurred in connection with defense of antitrust suits, and the
prosecution of claims against the Federal Government, are unallowable.
Costs of legal, accounting and consulting services, and related costs,
incurred in connection with patent infringement litigation,
organization and reorganization, are unallowable unless otherwise
provided for in the award (but see subparagraph 48.e).
36. Profits and losses on disposition of depreciable property or
other capital assets.
a. (1) Gains and losses on sale, retirement, or other disposition
of depreciable property shall be included in the year in which they
occur as credits or charges to cost grouping(s) in which the
depreciation applicable to such property was included. The amount of
the gain or loss to be included as a credit or charge to the
appropriate cost grouping(s) shall be the difference between the amount
realized on the property and the undepreciated basis of the property.
(2) Gains and losses on the disposition of depreciable property
shall not be recognized as a separate credit or charge under the
following conditions:
(a) The gain or loss is processed through a depreciation reserve
account and is reflected in the depreciation allowable under paragraph
9.
(b) The property is given in exchange as part of the purchase price
of a similar item and the gain or loss is taken into account in
determining the depreciation cost basis of the new item.
(c) A loss results from the failure to maintain permissible
insurance, except as otherwise provided in subparagraph 18.a(3).
(d) Compensation for the use of the property was provided through
use allowances in lieu of depreciation in accordance with paragraph 9.
(e) Gains and losses arising from mass or extraordinary sales,
retirements, or other dispositions shall be considered on a case-by-
case basis.
b. Gains or losses of any nature arising from the sale or exchange
of property other than the property covered in subparagraph a shall be
excluded in computing award costs.
[[Page 26591]]
37. Public information service costs.
a. Public information service costs include the costs associated
with pamphlets, news releases, and other forms of information services.
Such costs are normally incurred to:
(1) Inform or instruct individuals, groups, or the general public.
(2) Interest individuals or groups in participating in a service
program of the organization.
(3) Disseminate the results of sponsored and nonsponsored
activities.
b. Public information service costs are allowable as direct costs
with the prior approval of the awarding agency. Such costs are
unallowable as indirect costs.
38. Publication and printing costs.
a. Publication costs include the costs of printing (including the
processes of composition, plate-making, press work, binding, and the
end products produced by such processes), distribution, promotion,
mailing, and general handling.
b. If these costs are not identifiable with a particular cost
objective, they should be allocated as indirect costs to all benefiting
activities of the organization.
c. Publication and printing costs are unallowable as direct costs
except with the prior approval of the awarding agency.
d. The cost of page charges in journals is addressed in paragraph
29.
39. Rearrangement and alteration costs. Costs incurred for ordinary
or normal rearrangement and alteration of facilities are allowable.
Special arrangement and alteration costs incurred specifically for the
project are allowable with the prior approval of the awarding agency.
40. Reconversion costs. Costs incurred in the restoration or
rehabilitation of the organization's facilities to approximately the
same condition existing immediately prior to commencement of Federal
awards, fair wear and tear excepted, are allowable.
41. Recruiting costs. The following recruiting costs are allowable:
cost of ``help wanted'' advertising, operating costs of an employment
office, costs of operating an educational testing program, travel
expenses including food and lodging of employees while engaged in
recruiting personnel, travel costs of applicants for interviews for
prospective employment, and relocation costs incurred incident to
recruitment of new employees (see subparagraph 42.c). Where the
organization uses employment agencies, costs not in excess of standard
commercial rates for such services are allowable.
42. Relocation costs.
a. Relocation costs are costs incident to the permanent change of
duty assignment (for an indefinite period or for a stated period of not
less than 12 months) of an existing employee or upon recruitment of a
new employee. Relocation costs are allowable, subject to the limitation
described in subparagraphs b, c, and d, provided that:
(1) The move is for the benefit of the employer.
(2) Reimbursement to the employee is in accordance with an
established written policy consistently followed by the employer.
(3) The reimbursement does not exceed the employee's actual (or
reasonably estimated) expenses.
b. Allowable relocation costs for current employees are limited to
the following:
(1) The costs of transportation of the employee, members of his
immediate family and his household, and personal effects to the new
location.
(2) The costs of finding a new home, such as advance trips by
employees and spouses to locate living quarters and temporary lodging
during the transition period, up to maximum period of 30 days,
including advance trip time.
(3) Closing costs, such as brokerage, legal, and appraisal fees,
incident to the disposition of the employee's former home. These costs,
together with those described in (4), are limited to 8 per cent of the
sales price of the employee's former home.
(4) The continuing costs of ownership of the vacant former home
after the settlement or lease date of the employee's new permanent
home, such as maintenance of buildings and grounds (exclusive of fixing
up expenses), utilities, taxes, and property insurance.
(5) Other necessary and reasonable expenses normally incident to
relocation, such as the costs of canceling an unexpired lease,
disconnecting and reinstalling household appliances, and purchasing
insurance against loss of or damages to personal property. The cost of
canceling an unexpired lease is limited to three times the monthly
rental.
c. Allowable relocation costs for new employees are limited to
those described in (1) and (2) of subparagraph b. When relocation costs
incurred incident to the recruitment of new employees have been allowed
either as a direct or indirect cost and the employee resigns for
reasons within his control within 12 months after hire, the
organization shall refund or credit the Federal Government for its
share of the cost. However, the costs of travel to an overseas location
shall be considered travel costs in accordance with paragraph 51 and
not relocation costs for the purpose of this paragraph if dependents
are not permitted at the location for any reason and the costs do not
include costs of transporting household goods.
d. The following costs related to relocation are unallowable:
(1) Fees and other costs associated with acquiring a new home.
(2) A loss on the sale of a former home.
(3) Continuing mortgage principal and interest payments on a home
being sold.
(4) Income taxes paid by an employee related to reimbursed
relocation costs.
43. Rental costs.
a. Subject to the limitations described in subparagraphs b through
d, rental costs are allowable to the extent that the rates are
reasonable in light of such factors as: rental costs of comparable
property, if any; market conditions in the area; alternatives
available; and the type, life expectancy, condition, and value of the
property leased.
b. Rental costs under sale and leaseback arrangements are allowable
only up to the amount that would be allowed had the organization
continued to own the property.
c. Rental costs under less-than-arms-length leases are allowable
only up to the amount that would be allowed had title to the property
vested in the organization. For this purpose, a less-than-arms-length
lease is one under which one party to the lease agreement is able to
control or substantially influence the actions of the other. Such
leases include, but are not limited to those between (i) divisions of
an organization; (ii) organizations under common control through common
officers, directors, or members; and (iii) an organization and a
director, trustee, officer, or key employee of the organization or his
immediate family either directly or through corporations, trusts, or
similar arrangements in which they hold a controlling interest.
d. Rental costs under leases which are required to be treated as
capital leases under GAAP, are allowable only up to the amount that
would be allowed had the organization purchased the property on the
date the lease agreement was executed, i.e., to the amount that
minimally would pay for depreciation or use allowances, maintenance,
taxes, and insurance. Interest costs related to capitalized leases are
allowable to the extent they meet criteria in subparagraph 19.a.
Unallowable costs include amounts paid for profit, management fees, and
taxes that would
[[Page 26592]]
not have been incurred had the organization purchased the facility.
44. Royalties and other costs for use of patents and copyrights.
a. Royalties on a patent or copyright or amortization of the cost
of acquiring by purchase a copyright, patent, or rights thereto,
necessary for the proper performance of the award are allowable unless:
(1) The Federal Government has a license or the right to free use
of the patent or copyright.
(2) The patent or copyright has been adjudicated to be invalid, or
has been administratively determined to be invalid.
(3) The patent or copyright is considered to be unenforceable.
(4) The patent or copyright is expired.
b. Special care should be exercised in determining reasonableness
where the royalties may have arrived at as a result of less-than-arm's-
length bargaining, e.g.:
(1) Royalties paid to persons, including corporations, affiliated
with the organization.
(2) Royalties paid to unaffiliated parties, including corporations,
under an agreement entered into in contemplation that a Federal award
would be made.
(3) Royalties paid under an agreement entered into after an award
is made to an organization.
c. In any case involving a patent or copyright formerly owned by
the organization, the amount of royalty allowed should not exceed the
cost which would have been allowed had the organization retained title
thereto.
45. Severance pay.
a. Severance pay, also commonly referred to as dismissal wages, is
a payment in addition to regular salaries and wages, by organizations
to workers whose employment is being terminated. Costs of severance pay
are allowable only to the extent that in each case, it is required by
(i) law, (ii) employer-employee agreement, (iii) established policy
that constitutes, in effect, an implied agreement on the organization's
part, or (iv) circumstances of the particular employment.
b. Costs of severance payments are divided into two categories as
follows:
(1) Actual normal turnover severance payments shall be allocated to
all activities; or, where the organization provides for a reserve for
normal severances, such method will be acceptable if the charge to
current operations is reasonable in light of payments actually made for
normal severances over a representative past period, and if amounts
charged are allocated to all activities of the organization.
(2) Abnormal or mass severance pay is of such a conjectural nature
that measurement of costs by means of an accrual will not achieve
equity to both parties. Thus, accruals for this purpose are not
allowable. However, the Federal Government recognizes its obligation to
participate, to the extent of its fair share, in any specific payment.
Thus, allowability will be considered on a case-by-case basis in the
event or occurrence.
46. Specialized service facilities.
a. The costs of services provided by highly complex or specialized
facilities operated by the organization, such as electronic computers
and wind tunnels, are allowable, provided the charges for the services
meet the conditions of either subparagraph b or c and, in addition,
take into account any items of income or Federal financing that qualify
as applicable credits under subparagraph A.5 of Attachment A.
b. The costs of such services, when material, must be charged
directly to applicable awards based on actual usage of the services on
the basis of a schedule of rates or established methodology that (i)
does not discriminate against federally-supported activities of the
organization, including usage by the organization for internal
purposes, and (ii) is designed to recover only the aggregate costs of
the services. The costs of each service shall consist normally of both
its direct costs and its allocable share of all indirect costs. Advance
agreements pursuant to subparagraph A.6 of Attachment A are
particularly important in this situation.
c. Where the costs incurred for a service are not material, they
may be allocated as indirect costs.
47. Taxes.
a. In general, taxes which the organization is required to pay and
which are paid or accrued in accordance with GAAP, and payments made to
local governments in lieu of taxes which are commensurate with the
local government services received are allowable, except for (i) Taxes
from which exemptions are available to the organization directly or
which are available to the organization based on an exemption afforded
the Federal Government and in the latter case when the awarding agency
makes available the necessary exemption certificates, (ii) special
assessments on land which represent capital improvements, and (iii)
Federal income taxes.
b. Any refund of taxes, and any payment to the organization of
interest thereon, which were allowed as award costs, will be credited
either as a cost reduction or cash refund, as appropriate, to the
Federal Government.
48. Termination costs. Termination of awards generally give rise to
the incurrence of costs, or the need for special treatment of costs,
which would not have arisen had the award not been terminated. Cost
principles covering these items are set forth below. They are to be
used in conjunction with the other provisions of this Circular in
termination situations.
a. Common items. The cost of items reasonably usable on the
organization's other work shall not be allowable unless the
organization submits evidence that it would not retain such items at
cost without sustaining a loss. In deciding whether such items are
reasonably usable on other work of the organization, the awarding
agency should consider the organization's plans and orders for current
and scheduled activity. Contemporaneous purchases of common items by
the organization shall be regarded as evidence that such items are
reasonably usable on the organization's other work. Any acceptance of
common items as allocable to the terminated portion of the award shall
be limited to the extent that the quantities of such items on hand, in
transit, and on order are in excess of the reasonable quantitative
requirements of other work.
b. Costs continuing after termination. If in a particular case,
despite all reasonable efforts by the organization, certain costs
cannot be discontinued immediately after the effective date of
termination, such costs are generally allowable within the limitations
set forth in this Circular, except that any such costs continuing after
termination due to the negligent or willful failure of the organization
to discontinue such costs shall be unallowable.
c. Loss of useful value. Loss of useful value of special tooling,
machinery and equipment which was not charged to the award as a capital
expenditure is generally allowable if:
(1) Such special tooling, machinery, or equipment is not reasonably
capable of use in the other work of the organization.
(2) The interest of the Federal Government is protected by transfer
of title or by other means deemed appropriate by the awarding agency;
d. Rental costs. Rental costs under unexpired leases are generally
allowable where clearly shown to have been reasonably necessary for the
performance of the terminated award less the residual value of such
leases, if (i) the amount of such rental claimed does not exceed the
reasonable use value of the property leased for the
[[Page 26593]]
period of the award and such further period as may be reasonable, and
(ii) the organization makes all reasonable efforts to terminate,
assign, settle, or otherwise reduce the cost of such lease. There also
may be included the cost of alterations of such leased property,
provided such alterations were necessary for the performance of the
award, and of reasonable restoration required by the provisions of the
lease.
e. Settlement expenses. Settlement expenses including the following
are generally allowable:
(1) Accounting, legal, clerical, and similar costs reasonably
necessary for:
(a) The preparation and presentation to awarding agency of
settlement claims and supporting data with respect to the terminated
portion of the award, unless the termination is for default (see Sec.
__.61 of Circular A-110); and
(b) The termination and settlement of subawards.
(2) Reasonable costs for the storage, transportation, protection,
and disposition of property provided by the Federal Government or
acquired or produced for the award, except when grantees or contractors
are reimbursed for disposals at a predetermined amount in accordance
with Sec. __.30 through __.37 of Circular A-110.
(3) Indirect costs related to salaries and wages incurred as
settlement expenses in subparagraphs (1) and (2). Normally, such
indirect costs shall be limited to fringe benefits, occupancy cost, and
immediate supervision.
f. Claims under subawards. Claims under subawards, including the
allocable portion of claims which are common to the award, and to other
work of the organization are generally allowable. An appropriate share
of the organization's indirect expense may be allocated to the amount
of settlements with subcontractors and/or subgrantees, provided that
the amount allocated is otherwise consistent with the basic guidelines
contained in Attachment A. The indirect expense so allocated shall
exclude the same and similar costs claimed directly or indirectly as
settlement expenses.
49. Training and education costs.
a. Costs of preparation and maintenance of a program of instruction
including but not limited to on-the-job, classroom, and apprenticeship
training, designed to increase the vocational effectiveness of
employees, including training materials, textbooks, salaries or wages
of trainees (excluding overtime compensation which might arise
therefrom), and (i) salaries of the director of training and staff when
the training program is conducted by the organization; or (ii) tuition
and fees when the training is in an institution not operated by the
organization, are allowable.
b. Costs of part-time education, at an undergraduate or post-
graduate college level, including that provided at the organization's
own facilities, are allowable only when the course or degree pursued is
relative to the field in which the employee is now working or may
reasonably be expected to work, and are limited to:
(1) Training materials.
(2) Textbooks.
(3) Fees charges by the educational institution.
(4) Tuition charged by the educational institution or, in lieu of
tuition, instructors' salaries and the related share of indirect costs
of the educational institution to the extent that the sum thereof is
not in excess of the tuition which would have been paid to the
participating educational institution.
(5) Salaries and related costs of instructors who are employees of
the organization.
(6) Straight-time compensation of each employee for time spent
attending classes during working hours not in excess of 156 hours per
year and only to the extent that circumstances do not permit the
operation of classes or attendance at classes after regular working
hours; otherwise, such compensation is unallowable.
c. Costs of tuition, fees, training materials, and textbooks (but
not subsistence, salary, or any other emoluments) in connection with
full-time education, including that provided at the organization's own
facilities, at a post-graduate (but not undergraduate) college level,
are allowable only when the course or degree pursued is related to the
field in which the employee is now working or may reasonably be
expected to work, and only where the costs receive the prior approval
of the awarding agency. Such costs are limited to the costs
attributable to a total period not to exceed one school year for each
employee so trained. In unusual cases the period may be extended.
d. Costs of attendance of up to 16 weeks per employee per year at
specialized programs specifically designed to enhance the effectiveness
of executives or managers or to prepare employees for such positions
are allowable. Such costs include enrollment fees, training materials,
textbooks and related charges, employees' salaries, subsistence, and
travel. Costs allowable under this paragraph do not include those for
courses that are part of a degree-oriented curriculum, which are
allowable only to the extent set forth in subparagraphs b and c.
e. Maintenance expense, and normal depreciation or fair rental, on
facilities owned or leased by the organization for training purposes
are allowable to the extent set forth in paragraphs 9, 23, and 43.
f. Contributions or donations to educational or training
institutions, including the donation of facilities or other properties,
and scholarships or fellowships, are unallowable.
g. Training and education costs in excess of those otherwise
allowable under subparagraphs b and c may be allowed with prior
approval of the awarding agency. To be considered for approval, the
organization must demonstrate that such costs are consistently incurred
pursuant to an established training and education program, and that the
course or degree pursued is relative to the field in which the employee
is now working or may reasonably be expected to work.
50. Transportation costs. Transportation costs include freight,
express, cartage, and postage charges relating either to goods
purchased, in process, or delivered. These costs are allowable. When
such costs can readily be identified with the items involved, they may
be directly charged as transportation costs or added to the cost of
such items (see paragraph 24). Where identification with the materials
received cannot readily be made, transportation costs may be charged to
the appropriate indirect cost accounts if the organization follows a
consistent, equitable procedure in this respect.
51. Travel costs.
a. Travel costs are the expenses for transportation, lodging,
subsistence, and related items incurred by employees who are in travel
status on official business of the organization. Travel costs are
allowable subject to subparagraphs b through e, when they are directly
attributable to specific work under an award or are incurred in the
normal course of administration of the organization.
b. Such costs may be charged on an actual basis, on a per diem or
mileage basis in lieu of actual costs incurred, or on a combination of
the two, provided the method used results in charges consistent with
those normally allowed by the organization in its regular operations.
c. The difference in cost between first-class air accommodations
and less than first-class air accommodations is unallowable except when
less than first-class air accommodations are not reasonably available
to meet necessary mission requirements, such as where
[[Page 26594]]
less than first-class accommodations would (i) require circuitous
routing, (ii) require travel during unreasonable hours, (iii) greatly
increase the duration of the flight, (iv) result in additional costs
which would offset the transportation savings, or (v) offer
accommodations which are not reasonably adequate for the medical needs
of the traveler.
d. Necessary and reasonable costs of family movements and personnel
movements of a special or mass nature are allowable, pursuant to
paragraphs 41 and 42, subject to allocation on the basis of work or
time period benefited when appropriate. Advance agreements are
particularly important.
e. Direct charges for foreign travel costs are allowable only when
the travel has received prior approval of the awarding agency. Each
separate foreign trip must be approved. For purposes of this provision,
foreign travel is defined as any travel outside of Canada and the
United States and its territories and possessions. However, for an
organization located in foreign countries, the term ``foreign travel''
means travel outside that country.
Circular No. A-122
Attachment C--Non-Profit Organizations Not Subject to This Circular
Aerospace Corporation, El Segundo, California
Argonne Universities Association, Chicago, Illinois
Associated Universities, Incorporated, Washington, D.C.
Associated Universities for Research and Astronomy, Tucson, Arizona
Atomic Casualty Commission, Washington, D.C.
Battelle Memorial Institute, Headquartered in Columbus, Ohio
Brookhaven National Laboratory, Upton, New York
Center for Energy and Environmental Research (CEER), (University of
Puerto Rico), Commonwealth of Puerto Rico
Charles Stark Draper Laboratory, Incorporated, Cambridge, Massachusetts
Comparative Animal Research Laboratory (CARL), (University of
Tennessee), Oak Ridge, Tennessee
Environmental Institute of Michigan, Ann Arbor, Michigan
Hanford Environmental Health Foundation, Richland, Washington
IIT Research Institute, Chicago, Illinois
Institute for Defense Analysis, Arlington, Virginia
Institute of Gas Technology, Chicago, Illinois
Midwest Research Institute, Headquartered in Kansas City, Missouri
Mitre Corporation, Bedford, Massachusetts
Montana Energy Research and Development Institute, Inc. (MERDI), Butte,
Montana
National Radiological Astronomy Observatory, Green Bank, West Virginia
Oak Ridge Associated Universities, Oak Ridge, Tennessee
Project Management Corporation, Oak Ridge, Tennessee
Rand Corporation, Santa Monica, California
Research Triangle Institute, Research Triangle Park, North Carolina
Riverside Research Institute, New York, New York
Sandia Corporation, Albuquerque, New Mexico
Southern Research Institute, Birmingham, Alabama
Southwest Research Institute, San Antonio, Texas
SRI International, Menlo Park, California
Syracuse Research Corporation, Syracuse, New York
Universities Research Association, Incorporated (National Acceleration
Lab), Argonne, Illinois
Universities Corporation for Atmospheric Research, Boulder, Colorado
Non-profit insurance companies, such as Blue Cross and Blue Shield
Organizations
Other non-profit organizations as negotiated with awarding agencies
[FR Doc. 97-12683 Filed 5-13-97; 8:45 am]
BILLING CODE 3110-01-P
