Federal Grants Financial Management Compliance

What are Grants?

• Grants are the means by which money, property, services, or anything of value can be transferred from one entity to another in order to facilitate the accomplishment of a broadly identified public purpose.

PURPOSE OF AWARDS

• To carry out a public purpose.

• The awarding of a grant means that the grant objectives matched a broadly identified pppurpose to serve a public need.

• To delegate a portion of funding AND responsibility to those with the knowledge and ability to achieve the purpose.

1 Overall Grants Cycle

• Needs Assessment • Program Planning • Funding Acquisition • Program Establishment • Subrecipient Solicitation • Subrecipient Selection • Program Operations (Sub & Self) – Monitoring and Project Modification –Payments –Reporting • Audits • Closeout

RESPONSIBILITIES OF GRANTORS

• To carry out a purpose authorized in law

• To select awardees who show the most ability to achieve the purpose

• To provide guidance and assistance (communication)

• To perform oversight of:

– Financial and operational compliance

– Program performance

– Overall progress toward achievement of grant purpose and objectives

RESPONSIBILITIES OF GRANTORS

• To collect, store, and compile data to provide evidence of:

– Compliance

– Performance (activities/outputs)

–Results (()outcomes)

• To ensure that information is accurate, current, available, and accessible.

2 RESPONSIBILITIES OF GRANTEES

• Implement award objectives

• Adhere to award terms and conditions and to all applicable regulations

• Exercise fiduciary responsibility

• Manage project and funds effectively and efficiently

• Maintain and provide access to all records/documentation required

• Maintain open and full communication with all parties

FIDUCIARY RESPONSIBILITY

• To have a fiduciary responsibility means to hold something in trust; to be given something for safekeeping.

• Everyone – gggrantee and grantor – who has a hand in how/where/why grant funds are spent is charged with safeguarding the public trust.

• Every Federal dollar should be spent in a way that upholds that trust.

RESPONSIBILITIES OF ALL

• To ensure that all parties are aware of transparency, accountability, and reporting requirements.

• To collect, store, and compile data as needed for all parties throughout the grant to provide evidence of:

– Compliance

– Performance (activities/outputs)

– Results (outcomes)

• To ensure that information is accurate, current, available, and accessible.

3 Post-Award Administrative Requirements

Requirements relating to financial management of grants begins with the post-award administrative requirements. with and able to research:

Universities, Hospitals, and Non-profits: • 2 CFR Part 215 Uniform Administrative Requirements for Grants and Agreements with Organizations (formerly A-110)

State and Local Governments: • A-102 – Grants and Cooperative Agreements with State and Local Governments • Common Rule for each agency (formerly attachments to A-102)

PURPOSE

• Intended to provides for consistency and uniformity among Federal agencies in administering grants to named organizations

STRUCTURAL DIFFERENCE

• 2 CFR 215 ((yformerly A-110) -one generalized set of regulations (easy to reference for this course)

• A-102 – minimal overview of selected guidance with more specific implementation by agency codified through common rule (for reference purposes, we will use the example of 49 CFR 18)

COMMON RULE

• Specific implementation of A-102

• Found in each agency’s regulations

• Codified in the CFR

• Contains definitions, applicability (listing of agency programs)

4 STANDARDS FOR FINANCIAL MANAGEMENT SYSTEMS 45 CFR §92.20; 2 CFR §215.21

• A state must expend and account for grant funds in accordance with state laws and procedures

• Recippypients’ financial systems shall provide for certain data and shall have special characteristics – primarily sufficient to be able to comply with required levels of reporting and monitoring

• Internal controls – safeguarding of assets

PAYMENT 45 CFR §92.21; 2 CFR §215.22

• Grantees and subgrantees shall be paid in advance IF they demonstrate ability to minimize time (transfer/disbursement)

• State agencies may advance/not required

• Agencies may not withhold payments unless: conditions not met or money owed

ALLOWABLE COSTS 45 CFR §92.22; 2 CFR §215.27

• Allowability of costs shall be determined in accordance with the cost principles applicable to the entity incurring the costs (see following slide).

• What about costs not covered by published guidance?

5 APPLICABLE COST PRINCIPLES GUIDANCE

• State, local, Indian 2 CFR §225 formerly A-87 tribal governments

• Educational 2 CFR §220 formerly A-21 institutions

• Non-profit orgs. 2 CFR §230 formerly A-122 other than hospitals

• For-profit orgs. 48 CFR Part 31/FAR 31.2 other than hospitals

MATCHING or COST-SHARING 45 CFR §92.24; 2 CFR §215.23

• Matching or cost-sharing allowed according to terms of agreement

• Costs and contributions from third parties OKO.K.

• Not allowed: costs borne by other Federal grant agreements

PROGRAM INCOME 45 CFR §92.25; 2 CFR §215.24

• Program income: gross income generated by grant supported activity, or earned only as a result of the grant

• Grantees encouraged to earn income

• Earnings attributable to Federal funds may only be used according to Federal laws and regulations

6 CHANGES / REVISION OF BUDGET AND PROGRAM PLANS 45 CFR §92.30; 2 CFR §215.25 • The budget plan is the financial expression of the project as approved during the award process.

• Limited direct cost budget changes may be made, BUT certain types of changes require written prior approval:

• Budget – Need for additional funds

• Program: – Revised scope or objectives

REPORTS AND RECORDS 45 CFR §92.40 - _.42; 2 CFR §215.50 - _.53

• Grantees must monitor grant and subgrant activities to assure: – compliance with Federal and State requirements – that program performance goals are being achieved

FINANCIAL REPORTS 45 CFR §92.41; 2 CFR §215.52

• Each Federal agency shall require recipients to report status of funds

• The Federal or State awarding agency shall determine the frequency

7 RETENTION AND ACCESS REQUIREMENTS FOR RECORDS 45 CFR §92.42; 2 CFR §215.53

Financial records, supporting documents, and all other records pertinent to an award shall be retained for 3 years from the date of the final expenditure report.

Cost Principles The cost principles address what can or cannot (on a very broad scale) be purchased with the federal grant funds. The budget within the formal grant agreement should have far more detail relating to how the funds are to be spent. Educational Institutions: • 2 CFR Part 220 Cost Principles for Educational Institutions (formerly A-21)

State and Local Governments: • 2 CFR Part 225 Cost Principles for State, Local, and Indian Tribal Governments (formerly A-87) Non-Profit Organizations: • 2 CFR Part 230 Cost Principles for Non-Profit Organizations (formerly A-122) 23

PRINCIPLE of REASONABLENESS

• 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 cost.

• COMMON SENSE!

8 DIRECT COSTS

• 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.

• Question to ask: Does the type of activity supported by the cost uniquely contribute to accomplishing project objectives?

INDIRECT COSTS

• Indirect costs are those incurred for common objectives and which cannot be readily identified with a particular final cost objective.

• They are allocated to the benefiting cost objectives.

• Classified as “facilities” or “administration”

ALLOCABILITY

A cost is allocable if it is assignable or chargeable to one or more cost objectives on the basis of benefits received or other eqqpuitable relationship.

9 SELECTED ITEMS OF COST

• Appendix A to Part 220, Section J; Appendix B to Part 225; Appendix B to Part 230; and FAR 31.205 provide principles to be applied in establishing the allowability of certain items of cost

• Applies whether direct or indirect cost

• Failure to mention a particular item of cost does not imply status as to allowability

DETERMINING ALLOWABILITY

• Factors to be considered to determine if contract costs are allowable: – Reasonableness – Allocability – Standards of the Cost Accounting Standards (CAS) Board – GAAP – Terms of the contract

LEGEND FOR CITATIONS on FOLLOWING COST PRINCIPLE SLIDES

• S = 2 CFR Part 225 Appendix B (A-87 - State)

• J = 2 CFR Part 220 Appendix A Section J (A-21 - Universities)

• B = 2 CFR Part 230 Appendix B (A-122 - Non- profits)

• F = Fed. Acquisition Regulation 31.205

10 ADVERTISING and PUBLIC RELATONS COSTS

The only allowable advertising costs are for: – recruitment of personnel – procurement of goods and services – other purposes specifically necessary to meet requirements of the award – some public relations

S.1/J.1/B.1/F-1

ALCOHOLIC BEVERAGES

Costs of alcoholic beverages are UNALLOWABLE.

S.3/J.3/B.3/F-51

COMPENSATION for PERSONNEL SERVICES

• Compensation for personal services of employees rendered during the period of the award are allowable • They are allowable to the extent that they are: –reasonable – conform to established policies of the organization consistently applied to Federal and State activities

S.8/ J.10/B.8/F-6

11 ENTERTAINMENT

Costs of amusements, diversions, social activities, ceremonials, and costs relating thereto, such as meals, lodging, rentals, transportation, and gratuities are UNALLOWABLE.

S.14/J.17/B.14/F-14

EQUIPMENT and OTHER CAPITAL

• “Equipment” means nonexpendable, tangible personal property having a useful life over 1 year and an acquisition cost of the lesser of the organization’s capitalization level, or $5,000 (S.15/J.18/B.15)

• Goods for personal use are unallowable. (S.20/J.22/B.19)

INSURANCE

Insurance which the organization is required to carry, or which is approved under the terms of the award (dir. cost), and any other insurance which the organization maintains in connection with its general operations (indir. cost) is allowable.

S.22/J.25/B.22/F-19

12 MAINTENANCE and REPAIR

Such costs which neither add to the permanent value of the property nor appreciably extend its life are allowable.

S.29/J.30/B.27

PROFESSIONAL and CONSULTANT SERVICES

Costs of professional and consultant services rendered by members of a particular profession or who possess a special skill are allowable when reasonable: – nature and scope of the service rendered – necessity of contracting out – economic feasibility

S.32/J.37/B.37/F-33

TRAVEL

Travel costs are the reasonable expenses for transportation, lodging, subsistence, and related items incurred by employees who are in travel status on official business of the organization.

S.43/J.53/B.51/F-46

13 Recovery Act Funds

• Oct 10, 2009 Recipient reporting begins, with subsequent quarterly reports due 10 days after the end of each calendar quarter

• Implementation Guidance from OMB http://www.whitehouse.gov/omb/recovery_ default/

Keys to Compliance

• Transparency – Reporting requirements will change – Descriptions become more critical • Accountability – Assess risks (document and prioritize) – Assess and enhance controls (waste, fraud, and abuse) – Priority to least-developed control – monitoring – Don’t pass the accountability buck up to the grantor

Personal Commitment to Excellence

• Considering your office’s resources and workload, and considering all of the information covered in this introductory course, write down one specific change you will make upon arriving back at your desk. • This should be a practical tool/technique/solution intended to improve or build upon your existing grant management system. • Begin your statement with the words “I will…”

Administrative Requirements

2 CFR Part 215 Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non‐Profit Organizations

PARTS 200–214 [RESERVED] 215.36 Intangible property. 215.37 Property trust relationship.

PART 215—UNIFORM ADMINISTRA- PROCUREMENT STANDARDS TIVE REQUIREMENTS FOR GRANTS 215.40 Purpose of procurement standards. AND AGREEMENTS WITH INSTITU- 215.41 Recipient responsibilities. TIONS OF HIGHER EDUCATION, 215.42 Codes of conduct. 215.43 Competition. HOSPITALS, AND OTHER NON- 215.44 Procurement procedures. PROFIT ORGANIZATIONS (OMB 215.45 Cost and price analysis. CIRCULAR A–110) 215.46 Procurement records. 215.47 Contract administration. 215.48 Contract provisions. Sec. 215.0 About this part. REPORTS AND RECORDS Subpart A—General 215.50 Purpose of reports and records. 215.51 Monitoring and reporting program 215.1 Purpose. performance. 215.2 Definitions. 215.52 Financial reporting. 215.3 Effect on other issuances. 215.53 Retention and access requirements 215.4 Deviations. for records. 215.5 Subawards. TERMINATION AND ENFORCEMENT Subpart B—Pre-Award Requirements 215.60 Purpose of termination and enforcement. 215.10 Purpose. 215.61 Termination. 215.11 Pre-award policies. 215.62 Enforcement. 215.12 Forms for applying for Federal assistance. Subpart D—After-the-Award Requirements 215.13 Debarment and suspension. 215.14 Special award conditions. 215.70 Purpose. 215.15 Metric system of measurement. 215.71 Closeout procedures. 215.16 Resource Conservation and Recovery 215.72 Subsequent adjustments and con- Act. tinuing responsibilities. 215.17 Certifications and representations. 215.73 Collection of amounts due. APPENDIX A TO PART 215—CONTRACT PROVI- Subpart C—Post-Award Requirements SIONS

FINANCIAL AND PROGRAM MANAGEMENT AUTHORITY: 31 U.S.C. 503; 31 U.S.C. 1111; 41 215.20 Purpose of financial and program U.S.C. 405; Reorganization Plan No. 2 of 1970; management. E.O. 11541, 35 FR 10737, 3 CFR, 1966–1970, p. 215.21 Standards for financial management 939. systems. SOURCE: 69 FR 26281, May 11, 2004, unless 215.22 Payment. otherwise noted. 215.23 Cost sharing or matching. 215.24 Program income. § 215.0 About this part. 215.25 Revision of budget and program plans. (a) Purpose. This part contains OMB 215.26 Non-Federal audits. guidance to Federal agencies on the ad- 215.27 Allowable costs. ministration of grants to and agree- 215.28 Period of availability of funds. ments with institutions of higher edu- 215.29 Conditional exemptions. cation, hospitals, and other non-profit organizations. The guidance sets forth PROPERTY STANDARDS standards for obtaining consistency 215.30 Purpose of property standards. and uniformity in the agencies’ admin- 215.31 Insurance coverage. istration of those grants and agree- 215.32 Real property. ments. 215.33 Federally-owned and exempt property. (b) Applicability. (1) Except as pro- 215.34 Equipment. vided herein, the standards set forth in 215.35 Supplies and other expendable prop- this part are applicable to all Federal erty. agencies. If any statute specifically

39 § 215.1 2 CFR Ch. II (1–1–06 Edition) prescribes policies or specific require- where adequate justification is pre- ments that differ from the standards sented. provided in this part, the provisions of (5) Conducting broad oversight of the statute shall govern. government-wide compliance with the (2) The provisions of subparts A guidance in this part. through D of this part shall be applied (d) Federal agency responsibilities. The by Federal agencies to recipients. Re- head of each Federal agency that cipients shall apply the provisions of awards and administers grants and those subparts to subrecipients per- agreements subject to the guidance in forming substantive work under grants this part is responsible for: and agreements that are passed (1) Implementing the guidance in through or awarded by the primary re- subparts A through D of this part by cipient, if such subrecipients are orga- adopting the language in those sub- nizations described in paragraph (a) of parts unless different provisions are re- this section. quired by Federal statute or are ap- (3) This part does not apply to grants, proved by OMB. contracts, or other agreements be- (2) Ensuring that the agency’s com- tween the Federal Government and ponents and subcomponents comply units of State or local governments with the agency’s implementation of covered by OMB Circular A–102, the guidance in subparts A through D ‘‘Grants and Cooperative Agreements of this part. with State and Local Governments’’ 1 (3) Requesting approval from OMB and the Federal agencies’ grants man- for deviations from the guidance in agement common rule (see § 215.5) subparts A through D of this part in which standardize the administrative situations where the guidance requires requirements Federal agencies impose that approval. on State and local grantees. In addi- (4) Performing other functions speci- tion, subawards and contracts to State fied in this part. or local governments are not covered (e) Relationship to previous issuance. by this part. However, this part applies The guidance in this part previously to subawards made by State and local was issued as OMB Circular A–110. Sub- governments to organizations covered parts A through D of this part contain by this part. the guidance that was in the attach- (4) Federal agencies may apply the ment to the OMB circular. Appendix A provisions of subparts A through D of to this part contains the guidance that this part to commercial organizations, was in the appendix to the attachment. foreign governments, organizations (f) Information Contact. Further infor- under the jurisdiction of foreign gov- mation concerning this part may be ob- ernments, and international organiza- tained by contacting the Office of Fed- tions. eral Financial Management, Office of (c) OMB responsibilities. OMB is re- Management and Budget, Washington, sponsible for: DC 20503, telephone (202) 395–3993. (1) Issuing and maintaining the guid- (g) Termination Review Date. This part ance in this part. will have a policy review three years (2) Interpreting the policy require- from the date of issuance. ments in this part and providing assistance to ensure effective and efficient implementation. Subpart A—General (3) Reviewing Federal agency regulations implementing the guidance in § 215.1 Purpose. this part, as required by Executive This part establishes uniform admin- Order 12866. istrative requirements for Federal (4) Granting any deviations to Fed- grants and agreements awarded to in- eral agencies from the guidance in this stitutions of higher education, hos- part, as provided in § 215.4. Exceptions pitals, and other non-profit organiza- will only be made in particular cases tions. Federal awarding agencies shall not impose additional or inconsistent 1 See 5 CFR 1310.9 for availability of OMB requirements, except as provided in circulars. § 215.4, and § 215.14 or unless specifically

40 OMB Circulars and Guidance § 215.2 required by Federal statute or execu- money; other assistance in the form of tive order. Non-profit organizations loans, loan guarantees, interest sub- that implement Federal programs for sidies, or insurance; direct payments of the States are also subject to State re- any kind to individuals; and, contracts quirements. which are required to be entered into and administered under procurement § 215.2 Definitions. laws and regulations. (a) Accrued expenditures means the (f) Cash contributions means the re- charges incurred by the recipient dur- cipient’s cash outlay, including the ing a given period requiring the provi- outlay of money contributed to the re- sion of funds for: cipient by third parties. (1) Goods and other tangible property (g) Closeout means the process by received; which a Federal awarding agency de- (2) Services performed by employees, termines that all applicable adminis- contractors, subrecipients, and other trative actions and all required work of payees; and, (3) Other amounts becoming owed the award have been completed by the under programs for which no current recipient and Federal awarding agency. services or performance is required. (h) Contract means a procurement (b) Accrued income means the sum of: contract under an award or subaward, (1) Earnings during a given period and a procurement subcontract under a from: recipient’s or subrecipient’s contract. (i) Services performed by the recipi- (i) Cost sharing or matching means ent, and that portion of project or program (ii) Goods and other tangible prop- costs not borne by the Federal Govern- erty delivered to purchasers, and ment. (2) Amounts becoming owed to the (j) Date of completion means the date recipient for which no current services on which all work under an award is or performance is required by the re- completed or the date on the award cipient. document, or any supplement or (c) Acquisition cost of equipment means amendment thereto, on which Federal the net invoice price of the equipment, sponsorship ends. including the cost of modifications, at- (k) Disallowed costs means those tachments, accessories, or auxiliary charges to an award that the Federal apparatus necessary to make the prop- awarding agency determines to be un- erty usable for the purpose for which it allowable, in accordance with the ap- was acquired. Other charges, such as plicable Federal cost principles or the cost of installation, transportation, other terms and conditions contained taxes, duty or protective in-transit in- in the award. surance, shall be included or excluded (l) Equipment means tangible non- from the unit acquisition cost in ac- expendable personal property including cordance with the recipient’s regular exempt property charged directly to accounting practices. the award having a useful life of more (d) Advance means a payment made by Treasury check or other appropriate than one year and an acquisition cost payment mechanism to a recipient of $5,000 or more per unit. However, upon its request either before outlays consistent with recipient policy, lower are made by the recipient or through limits may be established. the use of predetermined payment (m) Excess property means property schedules. under the control of any Federal (e) Award means financial assistance awarding agency that, as determined that provides support or stimulation to by the head thereof, is no longer re- accomplish a public purpose. Awards quired for its needs or the discharge of include grants and other agreements in its responsibilities. the form of money or property in lieu (n) Exempt property means tangible of money, by the Federal Government personal property acquired in whole or to an eligible recipient. The term does in part with Federal funds, where the not include: technical assistance, Federal awarding agency has statutory which provides services instead of authority to vest title in the recipient

41 § 215.2 2 CFR Ch. II (1–1–06 Edition) without further obligation to the Fed- bursements for direct charges for goods eral Government. An example of ex- and services, the amount of indirect exempt property authority is contained pense incurred, the value of in-kind in the Federal Grant and Cooperative contributions applied, and the net in- Agreement Act (31 U.S.C. 6306), for crease (or decrease) in the amounts property acquired under an award to owed by the recipient for goods and conduct basic or applied research by a other property received, for services non-profit institution of higher edu- performed by employees, contractors, cation or non-profit organization subrecipients and other payees and whose principal purpose is conducting other amounts becoming owed under scientific research. programs for which no current services (o) Federal awarding agency means or performance are required. the Federal agency that provides an (v) Personal property means property award to the recipient. of any kind except real property. It (p) Federal funds authorized means the may be tangible, having physical exist- total amount of Federal funds obli- ence, or intangible, having no physical gated by the Federal Government for existence, such as copyrights, patents, use by the recipient. This amount may or securities. include any authorized carryover of un- (w) Prior approval means written ap- obligated funds from prior funding pe- proval by an authorized official evi- riods when permitted by agency regula- dencing prior consent. tions or agency implementing instruc- (x) Program income means gross in- tions. come earned by the recipient that is di- (q) Federal share of real property, rectly generated by a supported activ- equipment, or supplies means that per- ity or earned as a result of the award centage of the property’s acquisition (see exclusions in § 215.24(e) and (h)). costs and any improvement expendi- Program income includes, but is not tures paid with Federal funds. limited to, income from fees for serv- (r) Funding period means the period of ices performed, the use or rental of real time when Federal funding is available or personal property acquired under for obligation by the recipient. federally-funded projects, the sale of (s) Intangible property and debt instru- commodities or items fabricated under ments means, but is not limited to, an award, license fees and royalties on trademarks, copyrights, patents and patents and copyrights, and interest on patent applications and such property loans made with award funds. Interest as loans, notes and other debt instru- earned on advances of Federal funds is ments, lease agreements, stock and not program income. Except as other- other instruments of property owner- wise provided in Federal awarding ship, whether considered tangible or in- agency regulations or the terms and tangible. conditions of the award, program in- (t) Obligations means the amounts of come does not include the receipt of orders placed, contracts and grants principal on loans, rebates, credits, dis- awarded, services received and similar counts, etc., or interest earned on any transactions during a given period that of them. require payment by the recipient dur- (y) Project costs means all allowable ing the same or a future period. costs, as set forth in the applicable (u) Outlays or expenditures means Federal cost principles, incurred by a charges made to the project or pro- recipient and the value of the contribu- gram. They may be reported on a cash tions made by third parties in accom- or accrual basis. For reports prepared plishing the objectives of the award on a cash basis, outlays are the sum of during the project period. cash disbursements for direct charges (z) Project period means the period es- for goods and services, the amount of tablished in the award document dur- indirect expense charged, the value of ing which Federal sponsorship begins third party in-kind contributions ap- and ends. plied and the amount of cash advances (aa) Property means, unless otherwise and payments made to subrecipients. stated, real property, equipment, in- For reports prepared on an accrual tangible property and debt instru- basis, outlays are the sum of cash dis- ments.

42 OMB Circulars and Guidance § 215.2

(bb) Real property means land, includ- money, or property in lieu of money, ing land improvements, structures and made under an award by a recipient to appurtenances thereto, but excludes an eligible subrecipient or by a sub- movable machinery and equipment. recipient to a lower tier subrecipient. (cc) Recipient means an organization The term includes financial assistance receiving financial assistance directly when provided by any legal agreement, from Federal awarding agencies to even if the agreement is called a con- carry out a project or program. The tract, but does not include procure- term includes public and private insti- ment of goods and services nor does it tutions of higher education, public and include any form of assistance which is private hospitals, and other quasi-pub- excluded from the definition of lic and private non-profit organizations ‘‘award’’ in § 215.2(e). such as, but not limited to, community (gg) Subrecipient means the legal enti- action agencies, research institutes, ty to which a subaward is made and educational associations, and health which is accountable to the recipient centers. The term may include com- for the use of the funds provided. The mercial organizations, foreign or inter- term may include foreign or international organizations (such as agen- national organizations (such as agencies of the United Nations) which are cies of the United Nations) at the dis- recipients, subrecipients, or contrac- cretion of the Federal awarding agen- tors or subcontractors of recipients or cy. subrecipients at the discretion of the (hh) Supplies means all personal prop- Federal awarding agency. The term erty excluding equipment, intangible does not include government-owned property, and debt instruments as de- contractor-operated facilities or re- fined in this section, and inventions of search centers providing continued a contractor conceived or first actually support for mission-oriented, large- reduced to practice in the performance scale programs that are government- of work under a funding agreement owned or controlled, or are designated (‘‘subject inventions’’), as defined in 37 as federally-funded research and devel- CFR part 401, ‘‘Rights to Inventions opment centers. Made by Nonprofit Organizations and (dd) Research and development means Small Business Firms Under Govern- all research activities, both basic and ment Grants, Contracts, and Coopera- applied, and all development activities tive Agreements.’’ that are supported at universities, col- (ii) Suspension means an action by a leges, and other non-profit institu- Federal awarding agency that tempo- tions. ‘‘Research’’ is defined as a sys- rarily withdraws Federal sponsorship tematic study directed toward fuller under an award, pending corrective ac- scientific knowledge or understanding tion by the recipient or pending a deci- of the subject studied. ‘‘Development’’ sion to terminate the award by the is the systematic use of knowledge and Federal awarding agency. Suspension understanding gained from research di- of an award is a separate action from rected toward the production of useful suspension under Federal agency regu- materials, devices, systems, or meth- lations implementing E.O. 12549 (51 FR ods, including design and development 6370, 3 CFR, 1986 Comp., p. 189) and E.O. of prototypes and processes. The term 12689 (54 FR 34131, 3 CFR, 1989 Comp., p. research also includes activities in- 235), ‘‘Debarment and Suspension.’’ volving the training of individuals in (jj) Termination means the cancella- research techniques where such activi- tion of Federal sponsorship, in whole or ties utilize the same facilities as other in part, under an agreement at any research and development activities time prior to the date of completion. and where such activities are not in- (kk) Third party in-kind contributions cluded in the instruction function. means the value of non-cash contribu- (ee) Small awards means a grant or tions provided by non-Federal third cooperative agreement not exceeding parties. Third party in-kind contribu- the small purchase threshold fixed at tions may be in the form of real prop- 41 U.S.C. 403(11) (currently $25,000). erty, equipment, supplies and other ex- (ff) Subaward means an award of fi- pendable property, and the value of nancial assistance in the form of goods and services directly benefiting

43 § 215.3 2 CFR Ch. II (1–1–06 Edition) and specifically identifiable to the utory. Exceptions on a case-by-case project or program. basis may also be made by Federal (ll) Unliquidated obligations, for finan- awarding agencies. cial reports prepared on a cash basis, means the amount of obligations in- § 215.5 Subawards. curred by the recipient that have not Unless sections of this part specifi- been paid. For reports prepared on an cally exclude subrecipients from cov- accrued expenditure basis, they rep- erage, the provisions of this part shall resent the amount of obligations in- be applied to subrecipients performing curred by the recipient for which an work under awards if such subrecipi- outlay has not been recorded. ents are institutions of higher edu- (mm) Unobligated balance means the cation, hospitals or other non-profit or- portion of the funds authorized by the ganizations. State and local govern- Federal awarding agency that has not ment subrecipients are subject to the been obligated by the recipient and is provisions of regulations implementing determined by deducting the cumu- the grants management common rule, lative obligations from the cumulative ‘‘Uniform Administrative Require- funds authorized. ments for Grants and Cooperative (nn) Unrecovered indirect cost means Agreements to State and Local Gov- the difference between the amount ernments,’’ published at 7 CFR parts awarded and the amount which could 3015 and 3016, 10 CFR part 600, 13 CFR have been awarded under the recipi- part 143, 15 CFR part 24, 20 CFR part ent’s approved negotiated indirect cost 437, 22 CFR part 135, 24 CFR parts 44, 85, rate. 111, 511, 570, 571, 575, 590, 850, 882, 905, (oo) Working capital advance means a 941, 968, 970, and 990, 28 CFR part 66, 29 procedure whereby funds are advanced CFR parts 97 and 1470, 32 CFR part 278, to the recipient to cover its estimated 34 CFR parts 74 and 80, 36 CFR part disbursement needs for a given initial 1207, 38 CFR part 43, 40 CFR parts 30, 31, period. and 33, 43 CFR part 12, 44 CFR part 13, 45 CFR parts 74, 92, 602, 1157, 1174, 1183, § 215.3 Effect on other issuances. 1234, and 2015, and 49 CFR part 18. For awards subject to this part, all administrative requirements of codi- [69 FR 26281, May 11, 2004, as amended at 70 FR 51880, Aug. 31, 2005] fied program regulations, program manuals, handbooks and other nonregulatory materials which are incon- Subpart B—Pre-Award sistent with the requirements of this Requirements part shall be superseded, except to the extent they are required by statute, or § 215.10 Purpose. authorized in accordance with the devi- Sections 215.11 through 215.17 pre- ations provision in § 215.4. scribe forms and instructions and other pre-award matters to be used in apply- § 215.4 Deviations. ing for Federal awards. The Office of Management and Budg- et (OMB) may grant exceptions for § 215.11 Pre-award policies. classes of grants or recipients subject (a) Use of Grants and Cooperative to the requirements of this part when Agreements, and Contracts. In each in- exceptions are not prohibited by stat- stance, the Federal awarding agency ute. However, in the interest of max- shall decide on the appropriate award imum uniformity, exceptions from the instrument (i.e., grant, cooperative requirements of this part shall be per- agreement, or contract). The Federal mitted only in unusual circumstances. Grant and Cooperative Agreement Act Federal awarding agencies may apply (31 U.S.C. 6301–08) governs the use of more restrictive requirements to a grants, cooperative agreements and class of recipients when approved by contracts. A grant or cooperative OMB. Federal awarding agencies may agreement shall be used only when the apply less restrictive requirements principal purpose of a transaction is to when awarding small awards, except accomplish a public purpose of support for those requirements which are stat- or stimulation authorized by Federal

44 OMB Circulars and Guidance § 215.15 statute. The statutory criterion for agency regulations implementing E.O.s choosing between grants and coopera- 12549 and 12689, ‘‘Debarment and Sus- tive agreements is that for the latter, pension.’’ Under those regulations, cer- ‘‘substantial involvement is expected tain parties who are debarred, sus- between the executive agency and the pended or otherwise excluded may not State, local government, or other re- be participants or principals in Federal cipient when carrying out the activity assistance awards and subawards, and contemplated in the agreement.’’ Con- in certain contracts under those tracts shall be used when the principal awards and subawards. purpose is acquisition of property or [70 FR 51879, Aug. 31, 2005] services for the direct benefit or use of the Federal Government. § 215.14 Special award conditions. (b) Public Notice and Priority Set- If an applicant or recipient: has a his- ting. Federal awarding agencies shall tory of poor performance, is not finan- notify the public of its intended fund- cially stable, has a management sys- ing priorities for discretionary grant tem that does not meet the standards programs, unless funding priorities are prescribed in this part, has not con- established by Federal statute. formed to the terms and conditions of § 215.12 Forms for applying for Fed- a previous award, or is not otherwise eral assistance. responsible, Federal awarding agencies may impose additional requirements as (a) Federal awarding agencies shall needed, provided that such applicant or comply with the applicable report recipient is notified in writing as to: clearance requirements of 5 CFR part the nature of the additional require- 1320, ‘‘Controlling Paperwork Burdens ments, the reason why the additional on the Public,’’ with regard to all requirements are being imposed, the forms used by the Federal awarding nature of the corrective action needed, agency in place of or as a supplement the time allowed for completing the to the Standard Form 424 (SF–424) se- corrective actions, and the method for ries. requesting reconsideration of the addi- (b) Applicants shall use the SF–424 tional requirements imposed. Any spe- series or those forms and instructions cial conditions shall be promptly re- prescribed by the Federal awarding moved once the conditions that agency. prompted them have been corrected. (c) For Federal programs covered by E.O. 12372, ‘‘Intergovernmental Review § 215.15 Metric system of measure- of Federal Programs,’’ (47 FR 30959, 3 ment. CFR, 1982 Comp., p. 197) the applicant The Metric Conversion Act, as shall complete the appropriate sections amended by the Omnibus Trade and of the SF–424 (Application for Federal Competitiveness Act (15 U.S.C. 205) de- Assistance) indicating whether the ap- clares that the metric system is the plication was subject to review by the preferred measurement system for U.S. State Single Point of Contact (SPOC). trade and commerce. The Act requires The name and address of the SPOC for each Federal agency to establish a date a particular State can be obtained from or dates in consultation with the Sec- the Federal awarding agency or the retary of Commerce, when the metric Catalog of Federal Domestic Assistance. system of measurement will be used in The SPOC shall advise the applicant the agency’s procurements, grants, and whether the program for which applica- other business-related activities. Met- tion is made has been selected by that ric implementation may take longer State for review. where the use of the system is initially (d) Federal awarding agencies that do impractical or likely to cause signifi- not use the SF–424 form should indi- cant inefficiencies in the accomplish- cate whether the application is subject ment of federally-funded activities. to review by the State under E.O. 12372. Federal awarding agencies shall follow the provisions of E.O. 12770, ‘‘Metric § 215.13 Debarment and suspension. Usage in Federal Government Pro- Federal awarding agencies and re- grams’’ (56 FR 35801, 3 CFR, 1991 Comp., cipients shall comply with Federal p. 343).

45 § 215.16 2 CFR Ch. II (1–1–06 Edition)

§ 215.16 Resource Conservation and data to performance data and develop Recovery Act. unit cost information whenever prac- Under the Act, any State agency or tical. agency of a political subdivision of a (b) Recipients’ financial management State which is using appropriated Fed- systems shall provide for the following. eral funds must comply with section (1) Accurate, current and complete 6002. Section 6002 requires that pref- disclosure of the financial results of erence be given in procurement pro- each federally-sponsored project or grams to the purchase of specific prod- program in accordance with the report- ucts containing recycled materials ing requirements set forth in § 215.52. If identified in guidelines developed by a Federal awarding agency requires re- the Environmental Protection Agency porting on an accrual basis from a re- (EPA) (40 CFR parts 247–254). Accord- cipient that maintains its records on ingly, State and local institutions of other than an accrual basis, the recipi- higher education, hospitals, and non- ent shall not be required to establish profit organizations that receive direct an accrual accounting system. These Federal awards or other Federal funds recipients may develop such accrual shall give preference in their procure- data for its reports on the basis of an ment programs funded with Federal analysis of the documentation on hand. funds to the purchase of recycled prod- (2) Records that identify adequately ucts pursuant to the EPA guidelines. the source and application of funds for federally-sponsored activities. These § 215.17 Certifications and representa- records shall contain information per- tions. taining to Federal awards, authoriza- Unless prohibited by statute or codi- tions, obligations, unobligated bal- fied regulation, each Federal awarding ances, assets, outlays, income and in- agency is authorized and encouraged to terest. allow recipients to submit certifi- (3) Effective control over and ac- cations and representations required countability for all funds, property and by statute, executive order, or regula- other assets. Recipients shall ade- tion on an annual basis, if the recipi- quately safeguard all such assets and ents have ongoing and continuing rela- assure they are used solely for author- tionships with the agency. Annual cer- ized purposes. tifications and representations shall be (4) Comparison of outlays with budg- signed by responsible officials with the et amounts for each award. Whenever authority to ensure recipients’ compli- appropriate, financial information ance with the pertinent requirements. should be related to performance and unit cost data. Subpart C—Post Award (5) Written procedures to minimize Requirements the time elapsing between the transfer of funds to the recipient from the U.S. FINANCIAL AND PROGRAM MANAGEMENT Treasury and the issuance or redemption of checks, warrants or payments § 215.20 Purpose of financial and pro- by other means for program purposes gram management. by the recipient. To the extent that the Sections 215.21 through 215.28 pre- provisions of the Cash Management Im- scribe standards for financial manage- provement Act (CMIA) (Pub. L. 101–453) ment systems, methods for making govern, payment methods of State payments and rules for: satisfying cost agencies, instrumentalities, and fiscal sharing and matching requirements, agents shall be consistent with CMIA accounting for program income, budget Treasury-State Agreements or the revision approvals, making audits, de- CMIA default procedures codified at 31 termining allowability of cost, and es- CFR part 205, ‘‘Withdrawal of Cash tablishing fund availability. from the Treasury for Advances under Federal Grant and Other Programs.’’ § 215.21 Standards for financial man- (6) Written procedures for deter- agement systems. mining the reasonableness, allocability (a) Federal awarding agencies shall and allowability of costs in accordance require recipients to relate financial with the provisions of the applicable

46 OMB Circulars and Guidance § 215.22

Federal cost principles and the terms the actual disbursements by the recipi- and conditions of the award. ent organization for direct program or (7) Accounting records including cost project costs and the proportionate accounting records that are supported share of any allowable indirect costs. by source documentation. (c) Whenever possible, advances shall (c) Where the Federal Government be consolidated to cover anticipated guarantees or insures the repayment of cash needs for all awards made by the money borrowed by the recipient, the Federal awarding agency to the recipi- Federal awarding agency, at its discre- ent. tion, may require adequate bonding (1) Advance payment mechanisms in- and insurance if the bonding and insur- clude, but are not limited to, Treasury ance requirements of the recipient are check and electronic funds transfer. not deemed adequate to protect the in- (2) Advance payment mechanisms are terest of the Federal Government. subject to 31 CFR part 205. (d) The Federal awarding agency may (3) Recipients shall be authorized to require adequate fidelity bond coverage submit requests for advances and reim- where the recipient lacks sufficient bursements at least monthly when coverage to protect the Federal Gov- electronic fund transfers are not used. ernment’s interest. (d) Requests for Treasury check ad- (e) Where bonds are required in the vance payment shall be submitted on situations described above, the bonds SF–270, ‘‘Request for Advance or Reim- shall be obtained from companies hold- bursement,’’ or other forms as may be ing certificates of authority as accept- authorized by OMB. This form is not to able sureties, as prescribed in 31 CFR be used when Treasury check advance part 223, ‘‘Surety Companies Doing payments are made to the recipient Business with the United States.’’ automatically through the use of a predetermined payment schedule or if pre- § 215.22 Payment. cluded by special Federal awarding (a) Payment methods shall minimize agency instructions for electronic the time elapsing between the transfer funds transfer. of funds from the United States Treas- (e) Reimbursement is the preferred ury and the issuance or redemption of method when the requirements in checks, warrants, or payment by other § 215.12(b) cannot be met. Federal means by the recipients. Payment awarding agencies may also use this methods of State agencies or instru- method on any construction agree- mentalities shall be consistent with ment, or if the major portion of the Treasury-State CMIA agreements or construction project is accomplished default procedures codified at 31 CFR through private market financing or part 205. Federal loans, and the Federal assist- (b) Recipients are to be paid in ad- ance constitutes a minor portion of the vance, provided they maintain or dem- project. onstrate the willingness to maintain: (1) When the reimbursement method (1) Written procedures that minimize is used, the Federal awarding agency the time elapsing between the transfer shall make payment within 30 days of funds and disbursement by the re- after receipt of the billing, unless the cipient, and billing is improper. (2) Financial management systems (2) Recipients shall be authorized to that meet the standards for fund con- submit request for reimbursement at trol and accountability as established least monthly when electronic funds in § 215.21. Cash advances to a recipient transfers are not used. organization shall be limited to the (f) If a recipient cannot meet the cri- minimum amounts needed and be teria for advance payments and the timed to be in accordance with the ac- Federal awarding agency has deter- tual, immediate cash requirements of mined that reimbursement is not fea- the recipient organization in carrying sible because the recipient lacks suffi- out the purpose of the approved pro- cient working capital, the Federal gram or project. The timing and awarding agency may provide cash on a amount of cash advances shall be as working capital advance basis. Under close as is administratively feasible to this procedure, the Federal awarding

47 § 215.22 2 CFR Ch. II (1–1–06 Edition) agency shall advance cash to the re- (2) Advances of Federal funds shall be cipient to cover its estimated disburse- deposited and maintained in insured ment needs for an initial period gen- accounts whenever possible. erally geared to the awardee’s dis- (j) Consistent with the national goal bursing cycle. Thereafter, the Federal of expanding the opportunities for awarding agency shall reimburse the women-owned and minority-owned recipient for its actual cash disburse- business enterprises, recipients shall be ments. The working capital advance encouraged to use women-owned and method of payment shall not be used minority-owned banks (a bank which is for recipients unwilling or unable to owned at least 50 percent by women or provide timely advances to their sub- minority group members). recipient to meet the subrecipient’s ac- (k) Recipients shall maintain ad- tual cash disbursements. vances of Federal funds in interest (g) To the extent available, recipi- bearing accounts, unless paragraphs ents shall disburse funds available from (k)(1), (2) or (3) of this section apply. repayments to and interest earned on a (1) The recipient receives less than revolving fund, program income, re- $120,000 in Federal awards per year. bates, refunds, contract settlements, (2) The best reasonably available in- audit recoveries and interest earned on terest bearing account would not be ex- such funds before requesting additional pected to earn interest in excess of $250 cash payments. per year on Federal cash balances. (h) Unless otherwise required by stat- (3) The depository would require an ute, Federal awarding agencies shall average or minimum balance so high not withhold payments for proper that it would not be feasible within the charges made by recipients at any time expected Federal and non-Federal cash during the project period unless para- resources. graphs (h)(1) or (2) of this section (l) For those entities where CMIA apply. and its implementing regulations at 31 (1) A recipient has failed to comply CFR part 205 do not apply, interest with the project objectives, the terms earned on Federal advances deposited and conditions of the award, or Federal in interest bearing accounts shall be reporting requirements. remitted annually to Department of (2) The recipient or subrecipient is Health and Human Services, Payment delinquent in a debt to the United Management System, Rockville, MD States as defined in OMB Circular A– 20852. Interest amounts up to $250 per 129, ‘‘Managing Federal Credit Pro- year may be retained by the recipient grams.’’ Under such conditions, the for administrative expense. State uni- Federal awarding agency may, upon versities and hospitals shall comply reasonable notice, inform the recipient with CMIA, as it pertains to interest. If that payments shall not be made for an entity subject to CMIA uses its own obligations incurred after a specified funds to pay pre-award costs for discre- date until the conditions are corrected tionary awards without prior written or the indebtedness to the Federal Gov- approval from the Federal awarding ernment is liquidated. agency, it waives its right to recover (i) Standards governing the use of the interest under CMIA. banks and other institutions as deposi- (m) Except as noted elsewhere in this tories of funds advanced under awards part, only the following forms shall be are as follows. authorized for the recipients in re- (1) Except for situations described in questing advances and reimburse- paragraph (i)(2) of this section, Federal ments. Federal agencies shall not re- awarding agencies shall not require quire more than an original and two separate depository accounts for funds copies of these forms. provided to a recipient or establish any (1) SF–270, Request for Advance or eligibility requirements for deposi- Reimbursement. Each Federal award- tories for funds provided to a recipient. ing agency shall adopt the SF–270 as a However, recipients must be able to ac- standard form for all nonconstruction count for the receipt, obligation and programs when electronic funds trans- expenditure of funds. fer or predetermined advance methods

48 OMB Circulars and Guidance § 215.23 are not used. Federal awarding agen- (1) The certified value of the remain- cies, however, have the option of using ing life of the property recorded in the this form for construction programs in recipient’s accounting records at the lieu of the SF–271, ‘‘Outlay Report and time of donation. Request for Reimbursement for Con- (2) The current fair market value. struction Programs.’’ However, when there is sufficient jus- (2) SF–271, Outlay Report and Re- tification, the Federal awarding agen- quest for Reimbursement for Construc- cy may approve the use of the current tion Programs. Each Federal awarding fair market value of the donated prop- agency shall adopt the SF–271 as the erty, even if it exceeds the certified standard form to be used for requesting value at the time of donation to the reimbursement for construction pro- project. grams. However, a Federal awarding (d) Volunteer services furnished by agency may substitute the SF–270 professional and technical personnel, when the Federal awarding agency de- consultants, and other skilled and un- termines that it provides adequate in- skilled labor may be counted as cost formation to meet Federal needs. sharing or matching if the service is an integral and necessary part of an ap- § 215.23 Cost sharing or matching. proved project or program. Rates for (a) All contributions, including cash volunteer services shall be consistent and third party in-kind, shall be ac- with those paid for similar work in the cepted as part of the recipient’s cost recipient’s organization. In those in- sharing or matching when such con- stances in which the required skills are tributions meet all of the following cri- not found in the recipient organization, teria. rates shall be consistent with those (1) Are verifiable from the recipient’s paid for similar work in the labor mar- records. ket in which the recipient competes for (2) Are not included as contributions the kind of services involved. In either for any other federally-assisted project case, paid fringe benefits that are rea- or program. sonable, allowable, and allocable may (3) Are necessary and reasonable for be included in the valuation. proper and efficient accomplishment of (e) When an employer other than the project or program objectives. recipient furnishes the services of an (4) Are allowable under the applica- employee, these services shall be val- ble cost principles. ued at the employee’s regular rate of (5) Are not paid by the Federal Gov- pay (plus an amount of fringe benefits ernment under another award, except that are reasonable, allowable, and al- where authorized by Federal statute to locable, but exclusive of overhead be used for cost sharing or matching. costs), provided these services are in (6) Are provided for in the approved the same skill for which the employee budget when required by the Federal is normally paid. awarding agency. (f) Donated supplies may include (7) Conform to other provisions of such items as expendable equipment, this part, as applicable. office supplies, laboratory supplies or (b) Unrecovered indirect costs may be workshop and classroom supplies. included as part of cost sharing or Value assessed to donated supplies in- matching only with the prior approval cluded in the cost sharing or matching of the Federal awarding agency. share shall be reasonable and shall not (c) Values for recipient contributions exceed the fair market value of the of services and property shall be estab- property at the time of the donation. lished in accordance with the applica- (g) The method used for determining ble cost principles. If a Federal award- cost sharing or matching for donated ing agency authorizes recipients to do- equipment, buildings and land for nate buildings or land for construction/ which title passes to the recipient may facilities acquisition projects or long- differ according to the purpose of the term use, the value of the donated award, if paragraphs (g)(1) or (2) of this property for cost sharing or matching section apply. shall be the lesser of paragraphs (c)(1) (1) If the purpose of the award is to or (2) of this section. assist the recipient in the acquisition

49 § 215.24 2 CFR Ch. II (1–1–06 Edition) of equipment, buildings or land, the related to projects financed in whole or total value of the donated property in part with Federal funds. may be claimed as cost sharing or (b) Except as provided in paragraph matching. (h) of this section, program income (2) If the purpose of the award is to earned during the project period shall support activities that require the use be retained by the recipient and, in ac- of equipment, buildings or land, nor- cordance with Federal awarding agency mally only depreciation or use charges regulations or the terms and condi- for equipment and buildings may be tions of the award, shall be used in one made. However, the full value of equip- or more of the ways listed in the fol- ment or other capital assets and fair lowing. rental charges for land may be allowed, (1) Added to funds committed to the provided that the Federal awarding project by the Federal awarding agency agency has approved the charges. and recipient and used to further eligi- (h) The value of donated property ble project or program objectives. shall be determined in accordance with (2) Used to finance the non-Federal the usual accounting policies of the re- share of the project or program. cipient, with the following qualifica- (3) Deducted from the total project or tions. program allowable cost in determining (1) The value of donated land and the net allowable costs on which the buildings shall not exceed its fair mar- Federal share of costs is based. ket value at the time of donation to (c) When an agency authorizes the the recipient as established by an inde- disposition of program income as dependent appraiser (e.g., certified real scribed in paragraphs (b)(1) or (b)(2) of property appraiser or General Services this section, program income in excess Administration representative) and of any limits stipulated shall be used in certified by a responsible official of the accordance with paragraph (b)(3) of recipient. this section. (2) The value of donated equipment (d) In the event that the Federal shall not exceed the fair market value awarding agency does not specify in its of equipment of the same age and con- regulations or the terms and condi- dition at the time of donation. tions of the award how program income (3) The value of donated space shall is to be used, paragraph (b)(3) of this not exceed the fair rental value of com- section shall apply automatically to parable space as established by an inde- all projects or programs except re- pendent appraisal of comparable space search. For awards that support re- and facilities in a privately-owned search, paragraph (b)(1) of this section building in the same locality. shall apply automatically unless the (4) The value of loaned equipment awarding agency indicates in the terms shall not exceed its fair rental value. and conditions another alternative on (5) The following requirements per- the award or the recipient is subject to tain to the recipient’s supporting special award conditions, as indicated records for in-kind contributions from in § 215.14. third parties. (e) Unless Federal awarding agency (i) Volunteer services shall be docu- regulations or the terms and condi- mented and, to the extent feasible, sup- tions of the award provide otherwise, ported by the same methods used by recipients shall have no obligation to the recipient for its own employees. the Federal Government regarding pro- (ii) The basis for determining the gram income earned after the end of valuation for personal service, mate- the project period. rial, equipment, buildings and land (f) If authorized by Federal awarding shall be documented. agency regulations or the terms and conditions of the award, costs incident § 215.24 Program income. to the generation of program income (a) Federal awarding agencies shall may be deducted from gross income to apply the standards set forth in this determine program income, provided section in requiring recipient organiza- these costs have not been charged to tions to account for program income the award.

50 OMB Circulars and Guidance § 215.25

(g) Proceeds from the sale of property (6) The inclusion, unless waived by shall be handled in accordance with the the Federal awarding agency, of costs requirements of the Property Stand- that require prior approval in accord- ards (see § 215.30 through § 215.37). ance with any of the following, as ap- (h) Unless Federal awarding agency plicable: regulations or the terms and condition (i) 2 CFR part 220, ‘‘Cost Principles of the award provide otherwise, recipi- for Educational Institutions (OMB Cir- ents shall have no obligation to the cular A–21);’’ Federal Government with respect to (ii) 2 CFR part 230, ‘‘Cost Principles program income earned from license for Non-Profit Organizations (OMB Cir- fees and royalties for copyrighted ma- cular A–122);’’ terial, patents, patent applications, (iii) 45 CFR part 74, Appendix E, trademarks, and inventions produced ‘‘Principles for Determining Costs Ap- under an award. However, Patent and plicable to Research and Development Trademark Amendments (35 U.S.C. 18) under Grants and Contracts with Hos- apply to inventions made under an ex- pitals;’’ and perimental, developmental, or research (iv) 48 CFR part 31, ‘‘Contract Cost award. Principles and Procedures.’’ (7) The transfer of funds allotted for § 215.25 Revision of budget and program plans. training allowances (direct payment to trainees) to other categories of ex- (a) The budget plan is the financial pense. expression of the project or program as (8) Unless described in the applica- approved during the award process. It tion and funded in the approved may include either the Federal and awards, the subaward, transfer or con- non-Federal share, or only the Federal tracting out of any work under an share, depending upon Federal award- award. This provision does not apply to ing agency requirements. It shall be re- the purchase of supplies, material, lated to performance for program eval- equipment or general support services. uation purposes whenever appropriate. (d) No other prior approval require- (b) Recipients are required to report ments for specific items may be im- deviations from budget and program posed unless a deviation has been ap- plans, and request prior approvals for proved by OMB. budget and program plan revisions, in (e) Except for requirements listed in accordance with this section. paragraphs (c)(1) and (c)(4) of this sec- (c) For nonconstruction awards, re- tion, Federal awarding agencies are au- cipients shall request prior approvals thorized, at their option, to waive cost- from Federal awarding agencies for one related and administrative prior writ- or more of the following program or ten approvals required by 2 CFR parts budget related reasons. 220 and 230 (OMB Circulars A–21 and A– (1) Change in the scope or the objec- 122). Such waivers may include author- tive of the project or program (even if izing recipients to do any one or more there is no associated budget revision of the following. requiring prior written approval). (1) Incur pre-award costs 90 calendar (2) Change in a key person specified days prior to award or more than 90 in the application or award document. calendar days with the prior approval (3) The absence for more than three of the Federal awarding agency. All months, or a 25 percent reduction in pre-award costs are incurred at the re- time devoted to the project, by the ap- cipient’s risk (i.e., the Federal award- proved project director or principal in- ing agency is under no obligation to re- vestigator. imburse such costs if for any reason (4) The need for additional Federal the recipient does not receive an award funding. or if the award is less than anticipated (5) The transfer of amounts budgeted and inadequate to cover such costs). for indirect costs to absorb increases in (2) Initiate a one-time extension of direct costs, or vice versa, if approval the expiration date of the award of up is required by the Federal awarding to 12 months unless one or more of the agency. following conditions apply. For one-

51 § 215.26 2 CFR Ch. II (1–1–06 Edition) time extensions, the recipient must no- (3) A revision is desired which in- tify the Federal awarding agency in volves specific costs for which prior writing with the supporting reasons written approval requirements may be and revised expiration date at least 10 imposed consistent with applicable days before the expiration date speci- OMB cost principles listed in § 215.27. fied in the award. This one-time exten- (i) No other prior approval require- sion may not be exercised merely for ments for specific items may be im- the purpose of using unobligated bal- posed unless a deviation has been ap- ances. proved by OMB. (i) The terms and conditions of award (j) When a Federal awarding agency prohibit the extension. makes an award that provides support (ii) The extension requires additional for both construction and nonconstruc- Federal funds. tion work, the Federal awarding agen- (iii) The extension involves any cy may require the recipient to request change in the approved objectives or prior approval from the Federal award- scope of the project. ing agency before making any fund or (3) Carry forward unobligated bal- budget transfers between the two types ances to subsequent funding periods. of work supported. (4) For awards that support research, (k) For both construction and non- unless the Federal awarding agency construction awards, Federal awarding provides otherwise in the award or in agencies shall require recipients to no- the agency’s regulations, the prior ap- tify the Federal awarding agency in proval requirements described in this writing promptly whenever the amount paragraph (e) are automatically waived of Federal authorized funds is expected (i.e., recipients need not obtain such to exceed the needs of the recipient for prior approvals) unless one of the con- the project period by more than $5000 ditions included in paragraph (e)(2) ap- or five percent of the Federal award, plies. whichever is greater. This notification (f) The Federal awarding agency shall not be required if an application may, at its option, restrict the transfer for additional funding is submitted for of funds among direct cost categories a continuation award. or programs, functions and activities (l) When requesting approval for for awards in which the Federal share budget revisions, recipients shall use of the project exceeds $100,000 and the the budget forms that were used in the cumulative amount of such transfers application unless the Federal award- exceeds or is expected to exceed 10 per- ing agency indicates a letter of request cent of the total budget as last ap- suffices. proved by the Federal awarding agen- (m) Within 30 calendar days from the cy. No Federal awarding agency shall date of receipt of the request for budg- permit a transfer that would cause any et revisions, Federal awarding agencies Federal appropriation or part thereof shall review the request and notify the to be used for purposes other than recipient whether the budget revisions those consistent with the original in- have been approved. If the revision is tent of the appropriation. still under consideration at the end of (g) All other changes to nonconstruc- 30 calendar days, the Federal awarding tion budgets, except for the changes de- agency shall inform the recipient in scribed in paragraph (j) of this section, writing of the date when the recipient do not require prior approval. may expect the decision. (h) For construction awards, recipi- [69 FR 26281, May 11, 2004, as amended at 70 ents shall request prior written ap- FR 51880, Aug. 31, 2005] proval promptly from Federal awarding agencies for budget revisions whenever § 215.26 Non-Federal audits. paragraphs (h)(1), (2) or (3) of this sec- (a) Recipients and subrecipients that tion apply. are institutions of higher education or (1) The revision results from changes other non-profit organizations (includ- in the scope or the objective of the ing hospitals) shall be subject to the project or program. audit requirements contained in the (2) The need arises for additional Single Audit Act Amendments of 1996 Federal funds to complete the project. (31 U.S.C. 7501–7507) and revised OMB

52 OMB Circulars and Guidance § 215.29

Circular A–133, ‘‘Audits of States, visions of the Federal Acquisition Reg- Local Governments, and Non-Profit Or- ulation (FAR) at 48 CFR part 31. ganizations.’’ [70 FR 51880, Aug. 31, 2005] (b) State and local governments shall be subject to the audit requirements § 215.28 Period of availability of funds. contained in the Single Audit Act Amendments of 1996 (31 U.S.C. 7501– Where a funding period is specified, a 7507) and revised OMB Circular A–133, recipient may charge to the grant only ‘‘Audits of States, Local Governments, allowable costs resulting from obligations incurred during the funding pe- and Non-Profit Organizations.’’ riod and any pre-award costs author- (c) For-profit hospitals not covered ized by the Federal awarding agency. by the audit provisions of revised OMB Circular A–133 shall be subject to the § 215.29 Conditional exemptions. audit requirements of the Federal awarding agencies. (a) OMB authorizes conditional exemption from OMB administrative re- (d) Commercial organizations shall quirements and cost principles circu- be subject to the audit requirements of lars for certain Federal programs with the Federal awarding agency or the statutorily-authorized consolidated prime recipient as incorporated into planning and consolidated administra- the award document. tive funding, that are identified by a § 215.27 Allowable costs. Federal agency and approved by the head of the Executive department or For each kind of recipient, there is a establishment. A Federal agency shall set of Federal principles for deter- consult with OMB during its consider- mining allowable costs. Allowability of ation of whether to grant such an ex- costs shall be determined in accord- emption. ance with the cost principles applicable (b) To promote efficiency in State to the entity incurring the costs. Thus, and local program administration, allowability of costs incurred by State, when Federal non-entitlement pro- local or federally-recognized Indian grams with common purposes have spe- tribal governments is determined in cific statutorily-authorized consoli- accordance with the provisions of 2 dated planning and consolidated ad- CFR part 225, ‘‘Cost Principles for ministrative funding and where most of State, Local, and Indian Tribal Govern- the State agency’s resources come ments (OMB Circular A–87.’’ The allow- from non-Federal sources, Federal ability of costs incurred by non-profit agencies may exempt these covered organizations is determined in accord- State-administered, non-entitlement ance with the provisions of 2 CFR part grant programs from certain OMB 230, ‘‘Cost Principles for Non-Profit Or- grants management requirements. The ganizations (OMB Circular A–122).’’ The exemptions would be from: allowability of costs incurred by insti- (1) The requirements in 2 CFR part tutions of higher education is deter- 225, ‘‘Cost Principles for State, Local, mined in accordance with the provi- and Indian Tribal Governments (OMB sions of 2 CFR part 220, ‘‘Cost Prin- Circular A–87)’’ other than the ciples for Educational Institutions allocability of costs provisions that are (OMB Circular A–21).’’ The allowability contained in subsection C.3 of Appendix of costs incurred by hospitals is deter- A to that part; mined in accordance with the provi- (2) The requirements in 2 CFR part sions of Appendix E of 45 CFR part 74, 220, ‘‘Cost Principles for Educational ‘‘Principles for Determining Costs Ap- Institutions (OMB Circular A–21)’’ plicable to Research and Development other than the allocability of costs pro- Under Grants and Contracts with Hos- visions that are contained in paragraph pitals.’’ The allowability of costs in- C.4 in section C of the Appendix to that curred by commercial organizations part; and those non-profit organizations list- (3) The requirements in 2 CFR part ed in Attachment C to Circular A–122 is 230, ‘‘Cost Principles for Non-Profit Or- determined in accordance with the pro- ganizations (OMB Circular A–122)’’

53 § 215.30 2 CFR Ch. II (1–1–06 Edition) other than the allocability of costs pro- § 215.31 Insurance coverage. visions that are in paragraph A.4 in Recipients shall, at a minimum, pro- section A of Appendix A to that part; vide the equivalent insurance coverage (4) The administrative requirements for real property and equipment ac- provisions of part 215 (OMB Circular A– quired with Federal funds as provided 110, ‘‘Uniform Administrative Require- to property owned by the recipient. ments for Grants and Agreements with Federally-owned property need not be Institutions of Higher Education, Hos- insured unless required by the terms pitals, and Other Non-Profit Organiza- and conditions of the award. tions,’’); and (5) The agencies’ grants management § 215.32 Real property. common rule (see § 215.5). Each Federal awarding agency shall (c) When a Federal agency provides prescribe requirements for recipients this flexibility, as a prerequisite to a concerning the use and disposition of State’s exercising this option, a State real property acquired in whole or in must adopt its own written fiscal and part under awards. Unless otherwise administrative requirements for ex- provided by statute, such require- pending and accounting for all funds, ments, at a minimum, shall contain which are consistent with the provi- the following. sions of 2 CFR part 225, ‘‘Cost Prin- (a) Title to real property shall vest in ciples for State, Local, and Indian the recipient subject to the condition Tribal Governments (OMB Circular A– that the recipient shall use the real 87)’’ and extend such policies to all sub- property for the authorized purpose of recipients. These fiscal and administra- the project as long as it is needed and tive requirements must be sufficiently shall not encumber the property with- specific to ensure that: funds are used out approval of the Federal awarding in compliance with all applicable Fed- agency. eral statutory and regulatory provi- (b) The recipient shall obtain written sions, costs are reasonable and nec- approval by the Federal awarding agen- essary for operating these programs, cy for the use of real property in other and funds are not be used for general federally-sponsored projects when the expenses required to carry out other recipient determines that the property responsibilities of a State or its sub- is no longer needed for the purpose of recipients. the original project. Use in other projects shall be limited to those under [69 FR 26281, May 11, 2004, as amended at 70 federally-sponsored projects (i.e., FR 51881, Aug. 31, 2005] awards) or programs that have pur- PROPERTY STANDARDS poses consistent with those authorized for support by the Federal awarding § 215.30 Purpose of property stand- agency. ards. (c) When the real property is no Sections 215.31 through 215.37 set longer needed as provided in para- forth uniform standards governing graphs (a) and (b) of this section, the recipient shall request disposition in- management and disposition of prop- structions from the Federal awarding erty furnished by the Federal Govern- agency or its successor Federal award- ment whose cost was charged to a ing agency. The Federal awarding project supported by a Federal award. agency shall observe one or more of the Federal awarding agencies shall re- following disposition instructions. quire recipients to observe these stand- (1) The recipient may be permitted to ards under awards and shall not impose retain title without further obligation additional requirements, unless specifi- to the Federal Government after it cally required by Federal statute. The compensates the Federal Government recipient may use its own property for that percentage of the current fair management standards and procedures market value of the property attrib- provided it observes the provisions of utable to the Federal participation in § 215.31 through § 215.37. the project.

54 OMB Circulars and Guidance § 215.34

(2) The recipient may be directed to (b) Exempt property. When statutory sell the property under guidelines pro- authority exists, the Federal awarding vided by the Federal awarding agency agency has the option to vest title to and pay the Federal Government for property acquired with Federal funds that percentage of the current fair in the recipient without further obliga- market value of the property attrib- tion to the Federal Government and utable to the Federal participation in under conditions the Federal awarding the project (after deducting actual and agency considers appropriate. Such reasonable selling and fix-up expenses, property is ‘‘exempt property.’’ Should if any, from the sales proceeds). When a Federal awarding agency not estab- the recipient is authorized or required lish conditions, title to exempt prop- to sell the property, proper sales proce- erty upon acquisition shall vest in the dures shall be established that provide recipient without further obligation to for competition to the extent prac- the Federal Government. ticable and result in the highest pos- § 215.34 Equipment. sible return. (3) The recipient may be directed to (a) Title to equipment acquired by a transfer title to the property to the recipient with Federal funds shall vest Federal Government or to an eligible in the recipient, subject to conditions third party provided that, in such of this section. cases, the recipient shall be entitled to (b) The recipient shall not use equip- compensation for its attributable per- ment acquired with Federal funds to centage of the current fair market provide services to non-Federal outside value of the property. organizations for a fee that is less than private companies charge for equiva- § 215.33 Federally-owned and exempt lent services, unless specifically au- property. thorized by Federal statute, for as long as the Federal Government retains an (a) Federally-owned property. (1) Title interest in the equipment. to federally-owned property remains (c) The recipient shall use the equip- vested in the Federal Government. Re- ment in the project or program for cipients shall submit annually an in- which it was acquired as long as need- ventory listing of federally-owned ed, whether or not the project or pro- property in their custody to the Fed- gram continues to be supported by Fed- eral awarding agency. Upon completion eral funds and shall not encumber the of the award or when the property is no property without approval of the Fed- longer needed, the recipient shall re- eral awarding agency. When no longer port the property to the Federal award- needed for the original project or pro- ing agency for further Federal agency gram, the recipient shall use the equip- utilization. ment in connection with its other fed- (2) If the Federal awarding agency erally-sponsored activities, in the fol- has no further need for the property, it lowing order of priority: shall be declared excess and reported to (1) Activities sponsored by the Fed- the General Services Administration, eral awarding agency which funded the unless the Federal awarding agency original project, then has statutory authority to dispose of (2) Activities sponsored by other Fed- the property by alternative methods eral awarding agencies. (e.g., the authority provided by the (d) During the time that equipment Federal Technology Transfer Act (15 is used on the project or program for U.S.C. 3710 (I)) to donate research which it was acquired, the recipient equipment to educational and non-prof- shall make it available for use on other it organizations in accordance with projects or programs if such other use E.O. 12821, ‘‘Improving Mathematics will not interfere with the work on the and Science Education in Support of project or program for which the equip- the National Education Goals’’ (57 FR ment was originally acquired. First 54285, 3 CFR, 1992 Comp., p. 323)). Ap- preference for such other use shall be propriate instructions shall be issued given to other projects or programs to the recipient by the Federal award- sponsored by the Federal awarding ing agency. agency that financed the equipment;

55 § 215.34 2 CFR Ch. II (1–1–06 Edition) second preference shall be given to ferences between quantities deter- projects or programs sponsored by mined by the physical inspection and other Federal awarding agencies. If the those shown in the accounting records equipment is owned by the Federal shall be investigated to determine the Government, use on other activities causes of the difference. The recipient not sponsored by the Federal Govern- shall, in connection with the inven- ment shall be permissible if authorized tory, verify the existence, current uti- by the Federal awarding agency. User lization, and continued need for the charges shall be treated as program in- equipment. come. (4) A control system shall be in effect (e) When acquiring replacement to insure adequate safeguards to pre- equipment, the recipient may use the vent loss, damage, or theft of the equipment to be replaced as trade-in or equipment. Any loss, damage, or theft sell the equipment and use the pro- of equipment shall be investigated and ceeds to offset the costs of the replace- fully documented; if the equipment was ment equipment subject to the ap- owned by the Federal Government, the proval of the Federal awarding agency. recipient shall promptly notify the (f) The recipient’s property manage- Federal awarding agency. ment standards for equipment acquired (5) Adequate maintenance procedures with Federal funds and federally-owned shall be implemented to keep the equipment shall include all of the fol- equipment in good condition. lowing: (6) Where the recipient is authorized (1) Equipment records shall be main- or required to sell the equipment, prop- tained accurately and shall include the er sales procedures shall be established following information. (i) A description of the equipment. which provide for competition to the (ii) Manufacturer’s serial number, extent practicable and result in the model number, Federal stock number, highest possible return. national stock number, or other identi- (g) When the recipient no longer fication number. needs the equipment, the equipment (iii) Source of the equipment, includ- may be used for other activities in ac- ing the award number. cordance with the following standards. (iv) Whether title vests in the recipi- For equipment with a current per unit ent or the Federal Government. fair market value of $5000 or more, the (v) Acquisition date (or date re- recipient may retain the equipment for ceived, if the equipment was furnished other uses provided that compensation by the Federal Government) and cost. is made to the original Federal award- (vi) Information from which one can ing agency or its successor. The calculate the percentage of Federal amount of compensation shall be com- participation in the cost of the equip- puted by applying the percentage of ment (not applicable to equipment fur- Federal participation in the cost of the nished by the Federal Government). original project or program to the cur- (vii) Location and condition of the rent fair market value of the equip- equipment and the date the informa- ment. If the recipient has no need for tion was reported. the equipment, the recipient shall re- (viii) Unit acquisition cost. quest disposition instructions from the (ix) Ultimate disposition data, in- Federal awarding agency. The Federal cluding date of disposal and sales price awarding agency shall determine or the method used to determine cur- whether the equipment can be used to rent fair market value where a recipi- meet the agency’s requirements. If no ent compensates the Federal awarding requirement exists within that agency, agency for its share. the availability of the equipment shall (2) Equipment owned by the Federal be reported to the General Services Ad- Government shall be identified to indi- ministration by the Federal awarding cate Federal ownership. agency to determine whether a require- (3) A physical inventory of equipment ment for the equipment exists in other shall be taken and the results rec- Federal agencies. The Federal award- onciled with the equipment records at ing agency shall issue instructions to least once every two years. Any dif- the recipient no later than 120 calendar

56 OMB Circulars and Guidance § 215.36 days after the recipient’s request and the equipment shall be subject to the the following procedures shall govern. provisions for federally-owned equip- (1) If so instructed or if disposition ment. instructions are not issued within 120 calendar days after the recipient’s re- § 215.35 Supplies and other expend- quest, the recipient shall sell the able property. equipment and reimburse the Federal (a) Title to supplies and other ex- awarding agency an amount computed pendable property shall vest in the re- by applying to the sales proceeds the cipient upon acquisition. If there is a percentage of Federal participation in residual inventory of unused supplies the cost of the original project or pro- exceeding $5000 in total aggregate gram. However, the recipient shall be value upon termination or completion permitted to deduct and retain from of the project or program and the sup- the Federal share $500 or ten percent of plies are not needed for any other fed- the proceeds, whichever is less, for the erally-sponsored project or program, recipient’s selling and handling expenses. the recipient shall retain the supplies (2) If the recipient is instructed to for use on non-Federal sponsored ac- ship the equipment elsewhere, the re- tivities or sell them, but shall, in ei- cipient shall be reimbursed by the Fed- ther case, compensate the Federal Gov- eral Government by an amount which ernment for its share. The amount of is computed by applying the percent- compensation shall be computed in the age of the recipient’s participation in same manner as for equipment. the cost of the original project or pro- (b) The recipient shall not use sup- gram to the current fair market value plies acquired with Federal funds to of the equipment, plus any reasonable provide services to non-Federal outside shipping or interim storage costs in- organizations for a fee that is less than curred. private companies charge for equiva- (3) If the recipient is instructed to lent services, unless specifically au- otherwise dispose of the equipment, the thorized by Federal statute as long as recipient shall be reimbursed by the the Federal Government retains an in- Federal awarding agency for such costs terest in the supplies. incurred in its disposition. (4) The Federal awarding agency may § 215.36 Intangible property. reserve the right to transfer the title (a) The recipient may copyright any to the Federal Government or to a work that is subject to copyright and third party named by the Federal Gov- was developed, or for which ownership ernment when such third party is oth- was purchased, under an award. The erwise eligible under existing statutes. Federal awarding agency(ies) reserve a Such transfer shall be subject to the royalty-free, nonexclusive and irrev- following standards. ocable right to reproduce, publish, or (i) The equipment shall be appro- otherwise use the work for Federal pur- priately identified in the award or oth- poses, and to authorize others to do so. erwise made known to the recipient in (b) Recipients are subject to applica- writing. (ii) The Federal awarding agency ble regulations governing patents and shall issue disposition instructions inventions, including government-wide within 120 calendar days after receipt regulations issued by the Department of a final inventory. The final inven- of Commerce at 37 CFR part 401, tory shall list all equipment acquired ‘‘Rights to Inventions Made by Non- with grant funds and federally-owned profit Organizations and Small Busi- equipment. If the Federal awarding ness Firms Under Government Grants, agency fails to issue disposition in- Contracts and Cooperative Agree- structions within the 120 calendar day ments.’’ period, the recipient shall apply the (c) The Federal Government has the standards of this section, as appro- right to: priate. (1) Obtain, reproduce, publish or oth- (iii) When the Federal awarding erwise use the data first produced agency exercises its right to take title, under an award.

57 § 215.37 2 CFR Ch. II (1–1–06 Edition)

(2) Authorize others to receive, repro- (B) A Federal agency publicly and of- duce, publish, or otherwise use such ficially cites the research findings in data for Federal purposes. support of an agency action that has (d) (1) In addition, in response to a the force and effect of law. Freedom of Information Act (FOIA) re- (iii) Used by the Federal Government quest for research data relating to pub- in developing an agency action that lished research findings produced under has the force and effect of law is de- an award that was used by the Federal fined as when an agency publicly and Government in developing an agency officially cites the research findings in action that has the force and effect of support of an agency action that has law, the Federal awarding agency shall the force and effect of law. request, and the recipient shall pro- (e) Title to intangible property and vide, within a reasonable time, the re- debt instruments acquired under an search data so that they can be made award or subaward vests upon acquisi- available to the public through the pro- tion in the recipient. The recipient cedures established under the FOIA. If shall use that property for the origi- the Federal awarding agency obtains the research data solely in response to nally-authorized purpose, and the re- a FOIA request, the agency may charge cipient shall not encumber the prop- the requester a reasonable fee equaling erty without approval of the Federal the full incremental cost of obtaining awarding agency. When no longer need- the research data. This fee should re- ed for the originally authorized pur- flect costs incurred by the agency, the pose, disposition of the intangible prop- recipient, and the applicable subrecipi- erty shall occur in accordance with the ents. This fee is in addition to any fees provisions of § 215.34(g). the agency may assess under the FOIA [69 FR 26281, May 11, 2004, as amended at 70 (5 U.S.C. 552(a)(4)(A)). FR 51881, Aug. 31, 2005] (2) The following definitions apply for purposes of paragraph (d) of this § 215.37 Property trust relationship. section: Real property, equipment, intangible (i) Research data is defined as the re- property and debt instruments that are corded factual material commonly ac- acquired or improved with Federal cepted in the scientific community as funds shall be held in trust by the re- necessary to validate research findings, cipient as trustee for the beneficiaries but not any of the following: Prelimi- of the project or program under which nary analyses, drafts of scientific papers, plans for future research, peer re- the property was acquired or improved. views, or communications with col- Agencies may require recipients to leagues. This ‘‘recorded’’ material ex- record liens or other appropriate no- cludes physical objects (e.g., laboratory tices of record to indicate that per- samples). Research data also do not in- sonal or real property has been ac- clude: quired or improved with Federal funds (A) Trade secrets, commercial infor- and that use and disposition conditions mation, materials necessary to be held apply to the property. confidential by a researcher until they are published, or similar information PROCUREMENT STANDARDS which is protected under law; and § 215.40 Purpose of procurement (B) Personnel and medical informa- standards. tion and similar information the disclosure of which would constitute a Sections 215.41 through 215.48 set clearly unwarranted invasion of per- forth standards for use by recipients in sonal privacy, such as information that establishing procedures for the pro- could be used to identify a particular curement of supplies and other expend- person in a research study. able property, equipment, real property (ii) Published is defined as either and other services with Federal funds. when: These standards are furnished to en- (A) Research findings are published sure that such materials and services in a peer-reviewed scientific or tech- are obtained in an effective manner nical journal; or and in compliance with the provisions

58 OMB Circulars and Guidance § 215.44 of applicable Federal statutes and ex- § 215.43 Competition. ecutive orders. No additional procure- All procurement transactions shall ment standards or requirements shall be conducted in a manner to provide, be imposed by the Federal awarding to the maximum extent practical, open agencies upon recipients, unless spe- and free competition. The recipient cifically required by Federal statute or shall be alert to organizational con- executive order or approved by OMB. flicts of interest as well as noncompeti- § 215.41 Recipient responsibilities. tive practices among contractors that may restrict or eliminate competition The standards contained in this sec- or otherwise restrain trade. In order to tion do not relieve the recipient of the ensure objective contractor perform- contractual responsibilities arising ance and eliminate unfair competitive under its contract(s). The recipient is advantage, contractors that develop or the responsible authority, without re- draft specifications, requirements, course to the Federal awarding agency, statements of work, invitations for regarding the settlement and satisfac- bids and/or requests for proposals shall tion of all contractual and administra- be excluded from competing for such tive issues arising out of procurements procurements. Awards shall be made to entered into in support of an award or the bidder or offeror whose bid or offer other agreement. This includes dis- is responsive to the solicitation and is putes, claims, protests of award, source most advantageous to the recipient, evaluation or other matters of a con- price, quality and other factors consid- tractual nature. Matters concerning ered. Solicitations shall clearly set violation of statute are to be referred forth all requirements that the bidder to such Federal, State or local author- or offeror shall fulfill in order for the ity as may have proper jurisdiction. bid or offer to be evaluated by the recipient. Any and all bids or offers may § 215.42 Codes of conduct. be rejected when it is in the recipient’s The recipient shall maintain written interest to do so. standards of conduct governing the performance of its employees engaged § 215.44 Procurement procedures. in the award and administration of (a) All recipients shall establish writ- contracts. No employee, officer, or ten procurement procedures. These agent shall participate in the selection, procedures shall provide for, at a min- award, or administration of a contract imum, that paragraphs (a)(1), (2) and supported by Federal funds if a real or (3) of this section apply. apparent conflict of interest would be (1) Recipients avoid purchasing un- involved. Such a conflict would arise necessary items. when the employee, officer, or agent, (2) Where appropriate, an analysis is any member of his or her immediate made of lease and purchase alter- family, his or her partner, or an orga- natives to determine which would be nization which employs or is about to the most economical and practical pro- employ any of the parties indicated curement for the Federal Government. herein, has a financial or other interest (3) Solicitations for goods and serv- in the firm selected for an award. The ices provide for all of the following. officers, employees, and agents of the (i) A clear and accurate description recipient shall neither solicit nor ac- of the technical requirements for the cept gratuities, favors, or anything of material, product or service to be pro- monetary value from contractors, or cured. In competitive procurements, parties to subagreements. However, re- such a description shall not contain cipients may set standards for situa- features which unduly restrict com- tions in which the financial interest is petition. not substantial or the gift is an unso- (ii) Requirements which the bidder/ licited item of nominal value. The offeror must fulfill and all other fac- standards of conduct shall provide for tors to be used in evaluating bids or disciplinary actions to be applied for proposals. violations of such standards by offi- (iii) A description, whenever prac- cers, employees, or agents of the re- ticable, of technical requirements in cipient. terms of functions to be performed or

59 § 215.45 2 CFR Ch. II (1–1–06 Edition) performance required, including the propriate for the particular procure- range of acceptable characteristics or ment and for promoting the best inter- minimum acceptable standards. est of the program or project involved. (iv) The specific features of ‘‘brand The ‘‘cost-plus-a-percentage-of-cost’’ name or equal’’ descriptions that bid- or ‘‘percentage of construction cost’’ ders are required to meet when such methods of contracting shall not be items are included in the solicitation. used. (v) The acceptance, to the extent (d) Contracts shall be made only with practicable and economically feasible, responsible contractors who possess of products and services dimensioned in the potential ability to perform suc- the metric system of measurement. cessfully under the terms and condi- (vi) Preference, to the extent prac- tions of the proposed procurement. ticable and economically feasible, for Consideration shall be given to such products and services that conserve matters as contractor integrity, record natural resources and protect the envi- of past performance, financial and ronment and are energy efficient. technical resources or accessibility to (b) Positive efforts shall be made by other necessary resources. In certain recipients to utilize small businesses, circumstances, contracts with certain minority-owned firms, and women’s parties are restricted by agencies’ im- business enterprises, whenever pos- plementation of E.O.s 12549 and 12689, sible. Recipients of Federal awards ‘‘Debarment and Suspension.’’ shall take all of the following steps to (e) Recipients shall, on request, make further this goal. available for the Federal awarding (1) Ensure that small businesses, mi- agency, pre-award review and procure- nority-owned firms, and women’s busi- ment documents, such as request for ness enterprises are used to the fullest proposals or invitations for bids, inde- extent practicable. pendent cost estimates, etc., when any (2) Make information on forthcoming of the following conditions apply. opportunities available and arrange (1) A recipient’s procurement proce- time frames for purchases and con- dures or operation fails to comply with tracts to encourage and facilitate par- the procurement standards in the Fed- ticipation by small businesses, minor- eral awarding agency’s implementation ity-owned firms, and women’s business of this part. enterprises. (2) The procurement is expected to (3) Consider in the contract process exceed the small purchase threshold whether firms competing for larger fixed at 41 U.S.C. 403 (11) (currently contracts intend to subcontract with $25,000) and is to be awarded without small businesses, minority-owned competition or only one bid or offer is firms, and women’s business enter- received in response to a solicitation. prises. (3) The procurement, which is ex- (4) Encourage contracting with con- pected to exceed the small purchase sortiums of small businesses, minority- threshold, specifies a ‘‘brand name’’ owned firms and women’s business en- product. terprises when a contract is too large for one of these firms to handle individ- (4) The proposed award over the ually. small purchase threshold is to be (5) Use the services and assistance, as awarded to other than the apparent appropriate, of such organizations as low bidder under a sealed bid procure- the Small Business Administration and ment. the Department of Commerce’s Minor- (5) A proposed contract modification ity Business Development Agency in changes the scope of a contract or in- the solicitation and utilization of creases the contract amount by more small businesses, minority-owned firms than the amount of the small purchase and women’s business enterprises. threshold. (c) The type of procuring instruments used (e.g., fixed price contracts, cost re- § 215.45 Cost and price analysis. imbursable contracts, purchase orders, Some form of cost or price analysis and incentive contracts) shall be deter- shall be made and documented in the mined by the recipient but shall be ap- procurement files in connection with

60 OMB Circulars and Guidance § 215.48 every procurement action. Price anal- conditions where the contract may be ysis may be accomplished in various terminated because of circumstances ways, including the comparison of beyond the control of the contractor. price quotations submitted, market (c) Except as otherwise required by prices and similar indicia, together statute, an award that requires the with discounts. Cost analysis is the re- contracting (or subcontracting) for view and evaluation of each element of construction or facility improvements cost to determine reasonableness, shall provide for the recipient to follow allocability and allowability. its own requirements relating to bid guarantees, performance bonds, and § 215.46 Procurement records. payment bonds unless the construction Procurement records and files for contract or subcontract exceeds purchases in excess of the small pur- $100,000. For those contracts or sub- chase threshold shall include the fol- contracts exceeding $100,000, the Fed- lowing at a minimum: eral awarding agency may accept the (a) Basis for contractor selection; bonding policy and requirements of the (b) Justification for lack of competi- recipient, provided the Federal award- tion when competitive bids or offers ing agency has made a determination are not obtained; and that the Federal Government’s interest (c) Basis for award cost or price. is adequately protected. If such a determination has not been made, the § 215.47 Contract administration. minimum requirements shall be as fol- A system for contract administration lows. shall be maintained to ensure con- (1) A bid guarantee from each bidder tractor conformance with the terms, equivalent to five percent of the bid conditions and specifications of the price. The ‘‘bid guarantee’’ shall con- contract and to ensure adequate and sist of a firm commitment such as a timely follow up of all purchases. Re- bid bond, certified check, or other ne- cipients shall evaluate contractor per- gotiable instrument accompanying a formance and document, as appro- bid as assurance that the bidder shall, priate, whether contractors have met upon acceptance of his bid, execute the terms, conditions and specifica- such contractual documents as may be tions of the contract. required within the time specified. (2) A performance bond on the part of § 215.48 Contract provisions. the contractor for 100 percent of the The recipient shall include, in addi- contract price. A ‘‘performance bond’’ tion to provisions to define a sound and is one executed in connection with a complete agreement, the following pro- contract to secure fulfillment of all the visions in all contracts. The following contractor’s obligations under such provisions shall also be applied to subcontract. contracts. (3) A payment bond on the part of the (a) Contracts in excess of the small contractor for 100 percent of the con- purchase threshold shall contain contract price. A ‘‘payment bond’’ is one tractual provisions or conditions that executed in connection with a contract allow for administrative, contractual, to assure payment as required by stat- or legal remedies in instances in which ute of all persons supplying labor and a contractor violates or breaches the material in the execution of the work contract terms, and provide for such provided for in the contract. remedial actions as may be appro- (4) Where bonds are required in the priate. situations described herein, the bonds (b) All contracts in excess of the shall be obtained from companies hold- small purchase threshold shall contain ing certificates of authority as accept- suitable provisions for termination by able sureties pursuant to 31 CFR part the recipient, including the manner by 223, ‘‘Surety Companies Doing Business which termination shall be effected with the United States.’’ and the basis for settlement. In addi- (d) All negotiated contracts (except tion, such contracts shall describe con- those for less than the small purchase ditions under which the contract may threshold) awarded by recipients shall be terminated for default as well as include a provision to the effect that

61 § 215.50 2 CFR Ch. II (1–1–06 Edition) the recipient, the Federal awarding (d) When required, performance re- agency, the Comptroller General of the ports shall generally contain, for each United States, or any of their duly au- award, brief information on each of the thorized representatives, shall have ac- following. cess to any books, documents, papers (1) A comparison of actual accom- and records of the contractor which are plishments with the goals and objec- directly pertinent to a specific pro- tives established for the period, the gram for the purpose of making audits, findings of the investigator, or both. examinations, excerpts and tran- Whenever appropriate and the output scriptions. of programs or projects can be readily (e) All contracts, including small quantified, such quantitative data purchases, awarded by recipients and should be related to cost data for com- their contractors shall contain the pro- putation of unit costs. curement provisions of appendix A to (2) Reasons why established goals this part, as applicable. were not met, if appropriate. (3) Other pertinent information in- REPORTS AND RECORDS cluding, when appropriate, analysis and explanation of cost overruns or § 215.50 Purpose of reports and high unit costs. records. (e) Recipients shall not be required to Sections 215.51 through 215.53 set submit more than the original and two forth the procedures for monitoring copies of performance reports. and reporting on the recipient’s finan- (f) Recipients shall immediately no- cial and program performance and the tify the Federal awarding agency of de- necessary standard reporting forms. velopments that have a significant im- They also set forth record retention re- pact on the award-supported activities. quirements. Also, notification shall be given in the case of problems, delays, or adverse § 215.51 Monitoring and reporting pro- conditions which materially impair the gram performance. ability to meet the objectives of the award. This notification shall include a (a) Recipients are responsible for statement of the action taken or con- managing and monitoring each project, templated, and any assistance needed program, subaward, function or activ- to resolve the situation. ity supported by the award. Recipients (g) Federal awarding agencies may shall monitor subawards to ensure sub- make site visits, as needed. recipients have met the audit require- (h) Federal awarding agencies shall ments as delineated in § 215.26. comply with clearance requirements of (b) The Federal awarding agency 5 CFR part 1320 when requesting per- shall prescribe the frequency with formance data from recipients. which the performance reports shall be submitted. Except as provided in § 215.52 Financial reporting. § 215.51(f), performance reports shall (a) The following forms or such other not be required more frequently than forms as may be approved by OMB are quarterly or, less frequently than an- authorized for obtaining financial in- nually. Annual reports shall be due 90 formation from recipients. calendar days after the grant year; (1) SF–269 or SF–269A, Financial Sta- quarterly or semi-annual reports shall tus Report. be due 30 days after the reporting pe- (i) Each Federal awarding agency riod. The Federal awarding agency may shall require recipients to use the SF– require annual reports before the anni- 269 or SF–269A to report the status of versary dates of multiple year awards funds for all nonconstruction projects in lieu of these requirements. The final or programs. A Federal awarding agen- performance reports are due 90 cal- cy may, however, have the option of endar days after the expiration or ter- not requiring the SF–269 or SF–269A mination of the award. when the SF–270, Request for Advance (c) If inappropriate, a final technical or Reimbursement, or SF–272, Report or performance report shall not be re- of Federal Cash Transactions, is deter- quired after completion of the project. mined to provide adequate information

62 OMB Circulars and Guidance § 215.52 to meet its needs, except that a final days. Recipients shall provide short SF–269 or SF–269A shall be required at narrative explanations of actions taken the completion of the project when the to reduce the excess balances. SF–270 is used only for advances. (iv) Recipients shall be required to (ii) The Federal awarding agency submit not more than the original and shall prescribe whether the report shall two copies of the SF–272 15 calendar be on a cash or accrual basis. If the days following the end of each quarter. Federal awarding agency requires ac- The Federal awarding agencies may re- crual information and the recipient’s quire a monthly report from those re- accounting records are not normally cipients receiving advances totaling $1 kept on the accrual basis, the recipient million or more per year. shall not be required to convert its ac- (v) Federal awarding agencies may counting system, but shall develop waive the requirement for submission such accrual information through best of the SF–272 for any one of the fol- estimates based on an analysis of the lowing reasons: documentation on hand. (A) When monthly advances do not (iii) The Federal awarding agency exceed $25,000 per recipient, provided shall determine the frequency of the that such advances are monitored Financial Status Report for each through other forms contained in this project or program, considering the section; size and complexity of the particular (B) If, in the Federal awarding agen- project or program. However, the re- cy’s opinion, the recipient’s accounting port shall not be required more fre- controls are adequate to minimize ex- quently than quarterly or less fre- cessive Federal advances; or, quently than annually. A final report shall be required at the completion of (C) When the electronic payment the agreement. mechanisms provide adequate data. (iv) The Federal awarding agency (b) When the Federal awarding agen- shall require recipients to submit the cy needs additional information or SF–269 or SF–269A (an original and no more frequent reports, the following more than two copies) no later than 30 shall be observed. days after the end of each specified re- (1) When additional information is porting period for quarterly and semi- needed to comply with legislative re- annual reports, and 90 calendar days quirements, Federal awarding agencies for annual and final reports. Exten- shall issue instructions to require re- sions of reporting due dates may be ap- cipients to submit such information proved by the Federal awarding agency under the ‘‘Remarks’’ section of the re- upon request of the recipient. ports. (2) SF–272, Report of Federal Cash (2) When a Federal awarding agency Transactions. determines that a recipient’s account- (i) When funds are advanced to re- ing system does not meet the standards cipients the Federal awarding agency in § 215.21, additional pertinent infor- shall require each recipient to submit mation to further monitor awards may the SF–272 and, when necessary, its be obtained upon written notice to the continuation sheet, SF–272a. The Fed- recipient until such time as the system eral awarding agency shall use this re- is brought up to standard. The Federal port to monitor cash advanced to re- awarding agency, in obtaining this in- cipients and to obtain disbursement information, shall comply with report formation for each agreement with the clearance requirements of 5 CFR part recipients. 1320. (ii) Federal awarding agencies may (3) Federal awarding agencies are en- require forecasts of Federal cash re- couraged to shade out any line item on quirements in the ‘‘Remarks’’ section any report if not necessary. of the report. (4) Federal awarding agencies may (iii) When practical and deemed nec- accept the identical information from essary, Federal awarding agencies may the recipients in machine readable for- require recipients to report in the mat or computer printouts or elec- ‘‘Remarks’’ section the amount of cash tronic outputs in lieu of prescribed for- advances received in excess of three mats.

63 § 215.53 2 CFR Ch. II (1–1–06 Edition)

(5) Federal awarding agencies may (e) The Federal awarding agency, the provide computer or electronic outputs Inspector General, Comptroller Gen- to recipients when such expedites or eral of the United States, or any of contributes to the accuracy of report- their duly authorized representatives, ing. have the right of timely and unre- stricted access to any books, docu- § 215.53 Retention and access requirements, papers, or other records of re- ments for records. cipients that are pertinent to the (a) This section sets forth require- awards, in order to make audits, ex- ments for record retention and access aminations, excerpts, transcripts and to records for awards to recipients. copies of such documents. This right Federal awarding agencies shall not also includes timely and reasonable ac- impose any other record retention or cess to a recipient’s personnel for the access requirements upon recipients. purpose of interview and discussion re- (b) Financial records, supporting doc- lated to such documents. The rights of uments, statistical records, and all access in this paragraph are not lim- other records pertinent to an award ited to the required retention period, shall be retained for a period of three but shall last as long as records are re- years from the date of submission of tained. the final expenditure report or, for (f) Unless required by statute, no awards that are renewed quarterly or Federal awarding agency shall place annually, from the date of the submis- restrictions on recipients that limit sion of the quarterly or annual finan- public access to the records of recipi- cial report, as authorized by the Fed- ents that are pertinent to an award, ex- eral awarding agency. The only excep- cept when the Federal awarding agency tions are the following. can demonstrate that such records (1) If any litigation, claim, or audit is shall be kept confidential and would started before the expiration of the 3- have been exempted from disclosure year period, the records shall be re- pursuant to the Freedom of Informa- tained until all litigation, claims or tion Act (5 U.S.C. 552) if the records audit findings involving the records had belonged to the Federal awarding have been resolved and final action agency. taken. (g) Indirect cost rate proposals, cost al- (2) Records for real property and locations plans, etc. Paragraphs (g)(1) equipment acquired with Federal funds and (g)(2) of this section apply to the shall be retained for 3 years after final following types of documents, and their disposition. supporting records: indirect cost rate (3) When records are transferred to or computations or proposals, cost alloca- maintained by the Federal awarding tion plans, and any similar accounting agency, the 3-year retention require- computations of the rate at which a ment is not applicable to the recipient. particular group of costs is chargeable (4) Indirect cost rate proposals, cost (such as computer usage chargeback allocations plans, etc. as specified in rates or composite fringe benefit § 215.53(g). rates). (c) Copies of original records may be (1) If submitted for negotiation. If the substituted for the original records if recipient submits to the Federal authorized by the Federal awarding awarding agency or the subrecipient agency. submits to the recipient the proposal, (d) The Federal awarding agency plan, or other computation to form the shall request transfer of certain basis for negotiation of the rate, then records to its custody from recipients the 3-year retention period for its sup- when it determines that the records porting records starts on the date of possess long term retention value. such submission. However, in order to avoid duplicate (2) If not submitted for negotiation. If recordkeeping, a Federal awarding the recipient is not required to submit agency may make arrangements for re- to the Federal awarding agency or the cipients to retain any records that are subrecipient is not required to submit continuously needed for joint use. to the recipient the proposal, plan, or

64 OMB Circulars and Guidance § 215.62 other computation for negotiation pur- the terms and conditions of an award, poses, then the 3-year retention period whether stated in a Federal statute, for the proposal, plan, or other com- regulation, assurance, application, or putation and its supporting records notice of award, the Federal awarding starts at the end of the fiscal year (or agency may, in addition to imposing other accounting period) covered by any of the special conditions outlined the proposal, plan, or other computa- in § 215.14, take one or more of the fol- tion. lowing actions, as appropriate in the circumstances. TERMINATION AND ENFORCEMENT (1) Temporarily withhold cash payments pending correction of the defi- § 215.60 Purpose of termination and ciency by the recipient or more severe enforcement. enforcement action by the Federal Sections 215.61 and 215.62 set forth awarding agency. uniform suspension, termination and (2) Disallow (that is, deny both use of enforcement procedures. funds and any applicable matching credit for) all or part of the cost of the § 215.61 Termination. activity or action not in compliance. (a) Awards may be terminated in (3) Wholly or partly suspend or ter- whole or in part only if paragraphs minate the current award. (a)(1), (2) or (3) of this section apply. (4) Withhold further awards for the (1) By the Federal awarding agency, project or program. if a recipient materially fails to com- (5) Take other remedies that may be ply with the terms and conditions of an legally available. award. (b) Hearings and appeals. In taking an (2) By the Federal awarding agency enforcement action, the awarding with the consent of the recipient, in agency shall provide the recipient an which case the two parties shall agree opportunity for hearing, appeal, or upon the termination conditions, in- other administrative proceeding to cluding the effective date and, in the which the recipient is entitled under case of partial termination, the portion any statute or regulation applicable to to be terminated. the action involved. (3) By the recipient upon sending to (c) Effects of suspension and termi- the Federal awarding agency written nation. Costs of a recipient resulting notification setting forth the reasons from obligations incurred by the re- for such termination, the effective cipient during a suspension or after date, and, in the case of partial termi- termination of an award are not allow- nation, the portion to be terminated. able unless the awarding agency ex- However, if the Federal awarding agen- pressly authorizes them in the notice cy determines in the case of partial of suspension or termination or subse- termination that the reduced or modi- quently. Other recipient costs during fied portion of the grant will not ac- suspension or after termination which complish the purposes for which the are necessary and not reasonably grant was made, it may terminate the avoidable are allowable if paragraphs grant in its entirety under either para- (c)(1) and (2) of this section apply. graphs (a)(1) or (2) of this section. (1) The costs result from obligations (b) If costs are allowed under an which were properly incurred by the re- award, the responsibilities of the recipient before the effective date of sus- cipient referred to in § 215.71(a), includ- pension or termination, are not in an- ing those for property management as ticipation of it, and in the case of a ter- applicable, shall be considered in the mination, are noncancellable. termination of the award, and provi- (2) The costs would be allowable if sion shall be made for continuing re- the award were not suspended or ex- sponsibilities of the recipient after ter- pired normally at the end of the fund- mination, as appropriate. ing period in which the termination takes effect. § 215.62 Enforcement. (d) Relationship to debarment and sus- (a) Remedies for noncompliance. If a re- pension. The enforcement remedies cipient materially fails to comply with identified in this section, including

65 § 215.70 2 CFR Ch. II (1–1–06 Edition) suspension and termination, do not an award, the Federal awarding agency preclude a recipient from being subject shall retain the right to recover an ap- to debarment and suspension under propriate amount after fully consid- E.O.s 12549 and 12689 and the Federal ering the recommendations on dis- awarding agency implementing regula- allowed costs resulting from the final tions (see § 215.13). audit.

§ 215.72 Subsequent adjustments and Subpart D—After-the-Award continuing responsibilities. Requirements (a) The closeout of an award does not § 215.70 Purpose. affect any of the following: (1) The right of the Federal awarding Sections 215.71 through 215.73 contain agency to disallow costs and recover closeout procedures and other proce- funds on the basis of a later audit or dures for subsequent disallowances and other review. adjustments. (2) The obligation of the recipient to § 215.71 Closeout procedures. return any funds due as a result of later refunds, corrections, or other (a) Recipients shall submit, within 90 transactions. calendar days after the date of comple- (3) Audit requirements in § 215.26. tion of the award, all financial, per- (4) Property management require- formance, and other reports as required ments in § 215.31 through § 215.37. by the terms and conditions of the (5) Records retention as required in award. The Federal awarding agency § 215.53. may approve extensions when re- (b) After closeout of an award, a rela- quested by the recipient. tionship created under an award may (b) Unless the Federal awarding agen- be modified or ended in whole or in cy authorizes an extension, a recipient part with the consent of the Federal shall liquidate all obligations incurred awarding agency and the recipient, under the award not later than 90 cal- provided the responsibilities of the re- endar days after the funding period or cipient referred to in paragraph (a) of the date of completion as specified in this section, including those for prop- the terms and conditions of the award erty management as applicable, are or in agency implementing instructions. considered and provisions made for (c) The Federal awarding agency continuing responsibilities of the re- shall make prompt payments to a recipient, as appropriate. cipient for allowable reimbursable [69 FR 26281, May 11, 2004, as amended at 70 costs under the award being closed out. FR 51881, Aug. 31, 2005] (d) The recipient shall promptly refund any balances of unobligated cash § 215.73 Collection of amounts due. that the Federal awarding agency has (a) Any funds paid to a recipient in advanced or paid and that is not au- excess of the amount to which the re- thorized to be retained by the recipient cipient is finally determined to be enti- for use in other projects. OMB Circular tled under the terms and conditions of A–129 governs unreturned amounts that the award constitute a debt to the Fed- become delinquent debts. eral Government. If not paid within a (e) When authorized by the terms and reasonable period after the demand for conditions of the award, the Federal payment, the Federal awarding agency awarding agency shall make a settle- may reduce the debt by paragraphs ment for any upward or downward ad- (a)(1), (2) or (3) of this section. justments to the Federal share of costs (1) Making an administrative offset after closeout reports are received. against other requests for reimburse- (f) The recipient shall account for ments. any real and personal property ac- (2) Withholding advance payments quired with Federal funds or received otherwise due to the recipient. from the Federal Government in ac- (3) Taking other action permitted by cordance with § 215.31 through § 215.37. statute. (g) In the event a final audit has not (b) Except as otherwise provided by been performed prior to the closeout of law, the Federal awarding agency shall

66 OMB Circulars and Guidance Pt. 215, App. A

charge interest on an overdue debt in port all suspected or reported violations to accordance with 4 CFR Chapter II, the Federal awarding agency. ‘‘Federal Claims Collection Stand- 4. Contract Work Hours and Safety Standards Act (40 U.S.C. 327–333)—Where applicable, all ards.’’ contracts awarded by recipients in excess of $2000 for construction contracts and in ex- APPENDIX A TO PART 215—CONTRACT cess of $2500 for other contracts that involve PROVISIONS the employment of mechanics or laborers shall include a provision for compliance with All contracts, awarded by a recipient in- sections 102 and 107 of the Contract Work cluding small purchases, shall contain the Hours and Safety Standards Act (40 U.S.C. following provisions as applicable: 327–333), as supplemented by Department of 1. Equal Employment Opportunity—All con- Labor regulations (29 CFR part 5). Under sec- tracts shall contain a provision requiring tion 102 of the Act, each contractor shall be compliance with E.O. 11246, ‘‘Equal Employ- required to compute the wages of every me- ment Opportunity’’ (30 FR 12319, 12935, 3 chanic and laborer on the basis of a standard CFR, 1964–1965 Comp., p. 339), as amended by work week of 40 hours. Work in excess of the E.O. 11375, ‘‘Amending Executive Order 11246 standard work week is permissible provided Relating to Equal Employment Oppor- that the worker is compensated at a rate of tunity,’’ and as supplemented by regulations not less than 11⁄2 times the basic rate of pay at 41 CFR part 60, ‘‘Office of Federal Con- for all hours worked in excess of 40 hours in tract Compliance Programs, Equal Employ- the work week. Section 107 of the Act is ap- ment Opportunity, Department of Labor.’’ plicable to construction work and provides 2. Copeland ‘‘Anti-Kickback’’ Act (18 U.S.C. that no laborer or mechanic shall be required 874 and 40 U.S.C. 276c)—All contracts and sub- to work in surroundings or under working grants in excess of $2000 for construction or conditions which are unsanitary, hazardous repair awarded by recipients and subrecipi- or dangerous. These requirements do not ents shall include a provision for compliance apply to the purchases of supplies or mate- with the Copeland ‘‘Anti-Kickback’’ Act (18 rials or articles ordinarily available on the U.S.C. 874), as supplemented by Department open market, or contracts for transportation or transmission of intelligence. of Labor regulations (29 CFR part 3, ‘‘Con- 5. Rights to Inventions Made Under a Con- tractors and Subcontractors on Public Build- tract or Agreement—Contracts or agreements ing or Public Work Financed in Whole or in for the performance of experimental, devel- Part by Loans or Grants from the United opmental, or research work shall provide for States’’). The Act provides that each con- the rights of the Federal Government and tractor or subrecipient shall be prohibited the recipient in any resulting invention in from inducing, by any means, any person accordance with 37 CFR part 401, ‘‘Rights to employed in the construction, completion, or Inventions Made by Nonprofit Organizations repair of public work, to give up any part of and Small Business Firms Under Govern- the compensation to which he is otherwise ment Grants, Contracts and Cooperative entitled. The recipient shall report all sus- Agreements,’’ and any implementing regula- pected or reported violations to the Federal tions issued by the awarding agency. awarding agency. 6. Clean Air Act (42 U.S.C. 7401 et seq.) and 3. Davis-Bacon Act, as amended (40 U.S.C. the Federal Water Pollution Control Act (33 276a to a–7)—When required by Federal pro- U.S.C. 1251 et seq.), as amended—Contracts gram legislation, all construction contracts and subgrants of amounts in excess of awarded by the recipients and subrecipients $100,000 shall contain a provision that re- of more than $2000 shall include a provision quires the recipient to agree to comply with for compliance with the Davis-Bacon Act (40 all applicable standards, orders or regula- U.S.C. 276a to a–7) and as supplemented by tions issued pursuant to the Clean Air Act Department of Labor regulations (29 CFR (42 U.S.C. 7401 et seq.) and the Federal Water part 5, ‘‘Labor Standards Provisions Applica- Pollution Control Act as amended (33 U.S.C. ble to Contracts Governing Federally Fi- 1251 et seq.). Violations shall be reported to nanced and Assisted Construction’’). Under the Federal awarding agency and the Re- this Act, contractors shall be required to pay gional Office of the Environmental Protec- wages to laborers and mechanics at a rate tion Agency (EPA). not less than the minimum wages specified 7. Byrd Anti-Lobbying Amendment (31 U.S.C. in a wage determination made by the Sec- 1352)—Contractors who apply or bid for an retary of Labor. In addition, contractors award of $100,000 or more shall file the re- shall be required to pay wages not less than quired certification. Each tier certifies to once a week. The recipient shall place a copy the tier above that it will not and has not of the current prevailing wage determination used Federal appropriated funds to pay any issued by the Department of Labor in each person or organization for influencing or at- solicitation and the award of a contract shall tempting to influence an officer or employee be conditioned upon the acceptance of the of any agency, a member of Congress, officer wage determination. The recipient shall re- or employee of Congress, or an employee of a

67 Pt. 220 2 CFR Ch. II (1–1–06 Edition) member of Congress in connection with ob- § 220.10 Scope. taining any Federal contract, grant or any other award covered by 31 U.S.C. 1352. Each The principles in this part deal with tier shall also disclose any lobbying with the subject of cost determination, and non-Federal funds that takes place in con- make no attempt to identify the cir- nection with obtaining any Federal award. cumstances or dictate the extent of Such disclosures are forwarded from tier to agency and institutional participation tier up to the recipient. in the financing of a particular project. 8. Debarment and Suspension (E.O.s 12549 Provision for profit or other increment and 12689)—A contract award with an above cost is outside the scope of this amount expected to equal or exceed $25,000 part. and certain other contract awards (see 2 CFR 180.220) shall not be made to parties listed on § 220.15 Policy. the government-wide Excluded Parties List System, in accordance with the OMB guide- The principles in this part are de- lines at 2 CFR part 180 that implement E.O.s signed to provide that the Federal Gov- 12549 (3 CFR, 1986 Comp., p. 189) and 12689 (3 ernment bear its fair share of total CFR, 1989 Comp., p. 235), ‘‘Debarment and costs, determined in accordance with Suspension.’’ The Excluded Parties List Sys- generally accepted accounting prin- tem contains the names of parties debarred, ciples, except where restricted or pro- suspended, or otherwise excluded by agen- hibited by law. Agencies are not ex- cies, as well as parties declared ineligible pected to place additional restrictions under statutory or regulatory authority on individual items of cost. The suc- other than E.O. 12549. cessful application of cost accounting [69 FR 26281, May 11, 2004, as amended at 70 principles requires development of mu- FR 51879, Aug. 31, 2005] tual understanding between representatives of educational institutions and PARTS 216–219 [RESERVED] of the Federal Government as to their scope, implementation, and interpreta- PART 220—COST PRINCIPLES FOR tion. EDUCATIONAL INSTITUTIONS § 220.20 Applicability. (OMB CIRCULAR A–21) (a) All Federal agencies that sponsor research and development, training, Sec. and other work at educational institu- 220.5 Purpose. tions shall apply the provisions of Ap- 220.10 Scope. pendix A to this part in determining 220.15 Policy. the costs incurred for such work. The 220.20 Applicability. principles shall also be used as a guide 220.25 OMB responsibilities. in the pricing of fixed price or lump 220.30 Federal agency responsibilities. sum agreements. 220.35 Effective date of changes. (b) Each federal agency that awards 220.40 Relationship to previous issuance. defense-related contracts to a Feder- 220.45 Information contact. ally Funded Research and Development APPENDIX A TO PART 220—PRINCIPLES FOR DE- Center (FFRDC) associated with an TERMINING COSTS APPLICABLE TO GRANTS, educational institution shall require CONTRACTS, AND OTHER AGREEMENTS WITH the FFRDC to comply with the Cost EDUCATIONAL INSTITUTIONS Accounting Standards and with the AUTHORITY: 31 U.S.C. 503; 31 U.S.C. 1111; 41 rules and regulations issued by the U.S.C. 405; Reorganization Plan No. 2 of 1970; Cost Accounting Standards Board and E.O. 11541, 35 FR 10737, 3 CFR, 1966–1970, p. set forth in 47 CFR part 99. 939.

SOURCE: 70 FR 51881, Aug. 31, 2005, unless § 220.25 OMB responsibilities. otherwise noted. OMB is responsible for: (a) Issuing and maintaining the guid- § 220.5 Purpose. ance in this part. This part establishes principles for (b) Interpreting the policy require- determining costs applicable to grants, ments in this part and providing assist- contracts, and other agreements with ance to ensure effective and efficient educational institutions. implementation.

Administrative Requirements

49 CFR Part 18 Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments

§ 18.1 49 CFR Subtitle A (10–1–08 Edition)

Subpart C—Post-Award Requirements Accrued expenditures mean the charges incurred by the grantee during FINANCIAL ADMINISTRATION a given period requiring the provision 18.20 Standards for financial management of funds for: (1) Goods and other tan- systems. gible property received; (2) services 18.21 Payment. performed by employees, contractors, 18.22 Allowable costs. 18.23 Period of availability of funds. subgrantees, subcontractors, and other 18.24 Matching or cost sharing. payees; and (3) other amounts becom- 18.25 Program income. ing owed under programs for which no 18.26 Non-Federal audits. current services or performance is required, such as annuities, insurance CHANGES, PROPERTY, AND SUBAWARDS claims, and other benefit payments. 18.30 Changes. Accrued income means the sum of: (1) 18.31 Real property. 18.32 Equipment. Earnings during a given period from 18.33 Supplies. services performed by the grantee and 18.34 Copyrights. goods and other tangible property de- 18.35 Subawards to debarred and suspended livered to purchasers, and (2) amounts parties. becoming owed to the grantee for 18.36 Procurement. which no current services or perform- 18.37 Subgrants. ance is required by the grantee. REPORTS, RECORDS, RETENTION, AND Acquisition cost of an item of pur- ENFORCEMENT chased equipment means the net in- 18.40 Monitoring and reporting program voice unit price of the property includ- performance. ing the cost of modifications, attach- 18.41 Financial reporting. ments, accessories, or auxiliary appa- 18.42 Retention and access requirements for ratus necessary to make the property records. usable for the purpose for which it was 18.43 Enforcememt. 18.44 Termination for convenience. acquired. Other charges such as the cost of installation, transportation, Subpart D—After-The-Grant Requirements taxes, duty or protective in-transit insurance, shall be included or excluded 18.50 Closeout. from the unit acquisition cost in ac- 18.51 Later disallowances and adjustments. 18.52 Collection of amounts due. cordance with the grantee’s regular accounting practices. Subpart E—Entitlements [Reserved] Administrative requirements mean those matters common to grants in AUTHORITY: 49 U.S.C. 322(a). general, such as financial management, SOURCE: 53 FR 8086, 8087, Mar. 11, 1988, un- kinds and frequency of reports, and re- less otherwise noted. tention of records. These are distin- guished from ‘‘programmatic’’ require- Subpart A—General ments, which concern matters that can be treated only on a program-by-pro- § 18.1 Purpose and scope of this part. gram or grant-by-grant basis, such as This part establishes uniform admin- kinds of activities that can be sup- istrative rules for Federal grants and ported by grants under a particular cooperative agreements and subawards program. to State, local and Indian tribal gov- Awarding agency means (1) with re- ernments. spect to a grant, the Federal agency, and (2) with respect to a subgrant, the § 18.2 Scope of subpart. party that awarded the subgrant. This subpart contains general rules Cash contributions means the grant- pertaining to this part and procedures ee’s cash outlay, including the outlay for control of exceptions from this of money contributed to the grantee or part. subgrantee by other public agencies and institutions, and private organiza- § 18.3 Definitions. tions and individuals. When authorized As used in this part: by Federal legislation, Federal funds

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received from other assistance agree- of revenue sharing, loans, loan guaran- ments may be considered as grantee or tees, interest subsidies, insurance, or subgrantee cash contributions. direct appropriations. Also, the term Contract means (except as used in the does not include assistance, such as a definitions for ‘‘grant’’ and ‘‘subgrant’’ fellowship or other lump sum award, in this section and except where quali- which the grantee is not required to ac- fied by ‘‘Federal’’) a procurement con- count for. tract under a grant or subgrant, and Grantee means the government to means a procurement subcontract which a grant is awarded and which is under a contract. accountable for the use of the funds Cost sharing or matching means the provided. The grantee is the entire value of the third party in-kind con- legal entity even if only a particular tributions and the portion of the costs component of the entity is designated of a federally assisted project or pro- in the grant award document. gram not borne by the Federal Govern- Local government means a county, ment. municipality, city, town, township, Cost-type contract means a contract or local public authority (including any subcontract under a grant in which the public and Indian housing agency contractor or subcontractor is paid on under the United States Housing Act of the basis of the costs it incurs, with or 1937) school district, special district, without a fee. intrastate district, council of govern- Equipment means tangible, non- ments (whether or not incorporated as expendable, personal property having a a nonprofit corporation under state useful life of more than one year and law), any other regional or interstate an acquisition cost of $5,000 or more government entity, or any agency or per unit. A grantee may use its own instrumentality of a local government. definition of equipment provided that Obligations means the amounts of or- such definition would at least include ders placed, contracts and subgrants all equipment defined above. awarded, goods and services received, Expenditure report means: (1) For non- and similar transactions during a given construction grants, the SF–269 ‘‘Fi- period that will require payment by nancial Status Report’’ (or other equiv- the grantee during the same or a future alent report); (2) for construction period. grants, the SF–271 ‘‘Outlay Report and OMB means the United States Office Request for Reimbursement’’ (or other of Management and Budget. equivalent report). Outlays (expenditures) mean charges Federally recognized Indian tribal gov- made to the project or program. They ernment means the governing body or a may be reported on a cash or accrual governmental agency of any Indian basis. For reports prepared on a cash tribe, band, nation, or other organized basis, outlays are the sum of actual group or community (including any cash disbursement for direct charges Native village as defined in section 3 of for goods and services, the amount of the Alaska Native Claims Settlement indirect expense incurred, the value of Act, 85 Stat 688) certified by the Sec- in-kind contributions applied, and the retary of the Interior as eligible for the amount of cash advances and payments special programs and services provided made to contractors and subgrantees. by him through the Bureau of Indian For reports prepared on an accrued ex- Affairs. penditure basis, outlays are the sum of Government means a State or local actual cash disbursements, the amount government or a federally recognized of indirect expense incurred, the value Indian tribal government. of inkind contributions applied, and Grant means an award of financial as- the new increase (or decrease) in the sistance, including cooperative agree- amounts owed by the grantee for goods ments, in the form of money, or prop- and other property received, for serv- erty in lieu of money, by the Federal ices performed by employees, contrac- Government to an eligible grantee. The tors, subgrantees, subcontractors, and term does not include technical assist- other payees, and other amounts be- ance which provides services instead of coming owed under programs for which money, or other assistance in the form no current services or performance are

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required, such as annuities, insurance by the grantee or subgrantee or a deci- claims, and other benefit payments. sion to terminate the grant, or (2) an Percentage of completion method refers action taken by a suspending official in to a system under which payments are accordance with agency regulations made for construction work according implementing E.O. 12549 to imme- to the percentage of completion of the diately exclude a person from partici- work, rather than to the grantee’s cost pating in grant transactions for a pe- incurred. riod, pending completion of an inves- Prior approval means documentation tigation and such legal or debarment evidencing consent prior to incurring proceedings as may ensue. specific cost. Termination means permanent with- Real property means land, including drawal of the authority to obligate pre- land improvements, structures and ap- viously-awarded grant funds before purtenances thereto, excluding mov- that authority would otherwise expire. able machinery and equipment. It also means the voluntary relinquish- Share, when referring to the awarding ment of that authority by the grantee agency’s portion of real property, or subgrantee. ‘‘Termination’’ does not equipment or supplies, means the same include: (1) Withdrawal of funds award- percentage as the awarding agency’s ed on the basis of the grantee’s under- portion of the acquiring party’s total estimate of the unobligated balance in costs under the grant to which the ac- a prior period; (2) Withdrawal of the quisition costs under the grant to unobligated balance as of the expira- which the acquisition cost of the prop- tion of a grant; (3) Refusal to extend a erty was charged. Only costs are to be grant or award additional funds, to counted—not the value of third-party make a competing or noncompeting in-kind contributions. continuation, renewal, extension, or State means any of the several States supplemental award; or (4) voiding of a of the United States, the District of grant upon determination that the Columbia, the Commonwealth of Puer- award was obtained fraudulently, or to Rico, any territory or possession of was otherwise illegal or invalid from the United States, or any agency or in- inception. strumentality of a State exclusive of Terms of a grant or subgrant mean all local governments. The term does not requirements of the grant or subgrant, include any public and Indian housing whether in statute, regulations, or the agency under United States Housing award document. Act of 1937. Subgrant means an award of financial Third party in-kind contributions mean assistance in the form of money, or property or services which benefit a property in lieu of money, made under federally assisted project or program a grant by a grantee to an eligible sub- and which are contributed by non-Fed- grantee. The term includes financial eral third parties without charge to the assistance when provided by contrac- grantee, or a cost-type contractor tual legal agreement, but does not in- under the grant agreement. clude procurement purchases, nor does Unliquidated obligations for reports it include any form of assistance which prepared on a cash basis mean the is excluded from the definition of amount of obligations incurred by the ‘‘grant’’ in this part. grantee that has not been paid. For re- Subgrantee means the government or ports prepared on an accrued expendi- other legal entity to which a subgrant ture basis, they represent the amount is awarded and which is accountable to of obligations incurred by the grantee the grantee for the use of the funds for which an outlay has not been re- provided. corded. Supplies means all tangible personal Unobligated balance means the por- property other than ‘‘equipment’’ as tion of the funds authorized by the defined in this part. Federal agency that has not been obli- Suspension means depending on the gated by the grantee and is determined context, either (1) temporary with- by deducting the cumulative obliga- drawal of the authority to obligate tions from the cumulative funds au- grant funds pending corrective action thorized.

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§ 18.4 Applicability. (i) School Lunch (section 4 of the Act), (a) General. Subparts A through D of (ii) Commodity Assistance (section 6 this part apply to all grants and sub- of the Act), grants to governments, except where (iii) Special Meal Assistance (section inconsistent with Federal statutes or 11 of the Act), with regulations authorized in accord- (iv) Summer Food Service for Chil- ance with the exception provision of dren (section 13 of the Act), and § 18.6, or: (v) Child Care Food Program (section (1) Grants and subgrants to State and 17 of the Act). local institutions of higher education (5) Entitlement grants under the fol- or State and local hospitals. lowing programs of The Child Nutri- (2) The block grants authorized by tion Act of 1966: the Omnibus Budget Reconciliation (i) Special Milk (section 3 of the Act), Act of 1981 (Community Services; Pre- and ventive Health and Health Services; Al- (ii) School Breakfast (section 4 of the cohol, Drug Abuse, and Mental Health Act). Services; Maternal and Child Health (6) Entitlement grants for State Ad- Services; Social Services; Low-Income ministrative expenses under The Food Home Energy Assistance; States’ Pro- Stamp Act of 1977 (section 16 of the gram of Community Development Act). Block Grants for Small Cities; and Ele- (7) A grant for an experimental, pilot, mentary and Secondary Education or demonstration project that is also other than programs administered by supported by a grant listed in para- the Secretary of Education under title graph (a)(3) of this section; V, subtitle D, chapter 2, Section 583— (8) Grant funds awarded under sub- the Secretary’s discretionary grant section 412(e) of the Immigration and program) and titles I-III of the Job Nationality Act (8 U.S.C. 1522(e)) and Training Partnership Act of 1982 and subsection 501(a) of the Refugee Edu- under the Public Health Services Act cation Assistance Act of 1980 (Pub. L. (Section 1921), Alcohol and Drug Abuse 96–422, 94 Stat. 1809), for cash assist- Treatment and Rehabilitation Block ance, medical assistance, and supple- Grant and part C of title V, Mental mental security income benefits to ref- Health Service for the Homeless Block ugees and entrants and the administra- Grant). tive costs of providing the assistance (3) Entitlement grants to carry out and benefits; the following programs of the Social (9) Grants to local education agencies Security Act: under 20 U.S.C. 236 through 241–1(a), (i) Aid to Needy Families with De- and 242 through 244 (portions of the Im- pendent Children (title IV-A of the Act, pact Aid program), except for 20 U.S.C. not including the Work Incentive Pro- 238(d)(2)(c) and 240(f) (Entitlement In- gram (WIN) authorized by section crease for Handicapped Children); and 402(a)19(G); HHS grants for WIN are (10) Payments under the Veterans subject to this part); Administration’s State Home Per Diem (ii) Child Support Enforcement and Program (38 U.S.C. 641(a)). Establishment of Paternity (title IV-D (b) Entitlement programs. Entitlement of the Act); programs enumerated above in § 18.4(a) (iii) Foster Care and Adoption Assist- (3) through (8) are subject to subpart E. ance (title IV-E of the Act); (iv) Aid to the Aged, Blind, and Dis- § 18.5 Effect on other issuances. abled (titles I, X, XIV, and XVI-AABD All other grants administration pro- of the Act); and visions of codified program regula- (v) Medical Assistance (Medicaid) tions, program manuals, handbooks (title XIX of the Act) not including the and other nonregulatory materials State Medicaid Fraud Control program which are inconsistent with this part authorized by section 1903(a)(6)(B). are superseded, except to the extent (4) Entitlement grants under the fol- they are required by statute, or au- lowing programs of The National thorized in accordance with the excep- School Lunch Act: tion provision in § 18.6.

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§ 18.6 Additions and exceptions. the approval of OMB under the Paper- (a) For classes of grants and grantees work Reduction Act of 1980. subject to this part, Federal agencies (2) Applicants are not required to may not impose additional administra- submit more than the original and two tive requirements except in codified copies of preapplications or applica- regulations published in the FEDERAL tions. REGISTER. (3) Applicants must follow all appli- (b) Exceptions for classes of grants or cable instructions that bear OMB grantees may be authorized only by clearance numbers. Federal agencies OMB. may specify and describe the programs, (1) All Departmental requests for ex- functions, or activities that will be ceptions shall be processed through the used to plan, budget, and evaluate the Assistant Secretary of Administration. work under a grant. Other supple- (2) [Reserved] mentary instructions may be issued (c) Exceptions on a case-by-case basis only with the approval of OMB to the and for subgrantees may be authorized extent required under the Paperwork by the affected Federal agencies. Reduction Act of 1980. For any stand- (1) All case-by-case exceptions may ard form, except the SF–424 facesheet, be authorized by the affected operating Federal agencies may shade out or in- administrations or departmental of- struct the applicant to disregard any fices, with the concurrence of the As- line item that is not needed. sistant Secretary for Administration. (4) When a grantee applies for addi- (2) [Reserved] tional funding (such as a continuation [53 FR 8086 and 8087, Mar. 11, 1988, as amend- or supplemental award) or amends a ed at 60 FR 19646, Apr. 19, 1995] previously submitted application, only the affected pages need be submitted. Subpart B—Pre-Award Previously submitted pages with infor- Requirements mation that is still current need not be resubmitted. § 18.10 Forms for applying for grants. [53 FR 8086 and 8087, Mar. 11, 1988, as amend- (a) Scope. (1) This section prescribes ed at 53 FR 8086, Mar. 11, 1988] forms and instructions to be used by governmental organizations (except § 18.11 State plans. hospitals and institutions of higher (a) Scope. The statutes for some pro- education operated by a government) grams require States to submit plans in applying for grants. This section is not applicable, however, to formula before receiving grants. Under regula- grant programs which do not require tions implementing Executive Order applicants to apply for funds on a 12372, ‘‘Intergovernmental Review of project basis. Federal Programs,’’ States are allowed (2) This section applies only to appli- to simplify, consolidate and substitute cations to Federal agencies for grants, plans. This section contains additional and is not required to be applied by provisions for plans that are subject to grantees in dealing with applicants for regulations implementing the Execu- subgrants. However, grantees are en- tive order. couraged to avoid more detailed or bur- (b) Requirements. A State need meet densome application requirements for only Federal administrative or pro- subgrants. grammatic requirements for a plan (3) Forms and procedures for Federal that are in statutes or codified regula- Highway Administration (FHWA) tions. projects are contained in 23 CFR part (c) Assurances. In each plan the State 630, subpart B, 23 CFR part 420, subpart will include an assurance that the A, and 49 CFR part 450. State shall comply with all applicable (b) Authorized forms and instructions Federal statutes and regulations in ef- for governmental organizations. (1) In ap- fect with respect to the periods for plying for grants, applicants shall only which it receives grant funding. For use standard application forms or those this assurance and other assurances re- prescribed by the granting agency with quired in the plan, the State may:

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(1) Cite by number the statutory or grantee as early as possible, in writing, regulatory provisions requiring the as- of: surances and affirm that it gives the (1) The nature of the special condi- assurances required by those provi- tions/restrictions; sions, (2) The reason(s) for imposing them; (2) Repeat the assurance language in (3) The corrective actions which must the statutes or regulations, or be taken before they will be removed (3) Develop its own language to the and the time allowed for completing extent permitted by law. the corrective actions; and (d) Amendments. A State will amend a (4) The method of requesting recon- plan whenever necessary to reflect: (1) sideration of the conditions/restric- New or revised Federal statutes or reg- tions imposed. ulations or (2) a material change in any State law, organization, policy, or State agency operation. The State will Subpart C—Post-Award obtain approval for the amendment and Requirements its effective date but need submit for FINANCIAL ADMINISTRATION approval only the amended portions of the plan. § 18.20 Standards for financial management systems. § 18.12 Special grant or subgrant conditions for ‘‘high-risk’’ grantees. (a) A State must expand and account (a) A grantee or subgrantee may be for grant funds in accordance with considered ‘‘high risk’’ if an awarding State laws and procedures for expend- agency determines that a grantee or ing and accounting for its own funds. subgrantee: Fiscal control and accounting proce- (1) Has a history of unsatisfactory dures of the State, as well as its sub- performance, or grantees and cost-type contractors, (2) Is not financially stable, or must be sufficient to— (3) Has a management system which (1) Permit preparation of reports re- does not meet the management stand- quired by this part and the statutes au- ards set forth in this part, or thorizing the grant, and (4) Has not conformed to terms and (2) Permit the tracing of funds to a conditions of previous awards, or level of expenditures adequate to es- (5) Is otherwise not responsible; and tablish that such funds have not been if the awarding agency determines that used in violation of the restrictions an award will be made, special condi- and prohibitions of applicable statutes. tions and/or restrictions shall cor- (b) The financial management sys- respond to the high risk condition and tems of other grantees and subgrantees shall be included in the award. must meet the following standards: (b) Special conditions or restrictions (1) Financial reporting. Accurate, cur- may include: rent, and complete disclosure of the fi- (1) Payment on a reimbursement nancial results of financially assisted basis; activities must be made in accordance (2) Withholding authority to proceed with the financial reporting require- to the next phase until receipt of evi- ments of the grant or subgrant. dence of acceptable performance within (2) Accounting records. Grantees and a given funding period; subgrantees must maintain records (3) Requiring additional, more de- which adequately identify the source tailed financial reports; and application of funds provided for fi- (4) Additional project monitoring; nancially-assisted activities. These (5) Requiring the grante or sub- records must contain information per- grantee to obtain technical or manage- taining to grant or subgrant awards ment assistance; or and authorizations, obligations, unobli- (6) Establishing additional prior ap- gated balances, assets, liabilities, out- provals. lays or expenditures, and income. (c) If an awarding agency decides to (3) Internal control. Effective control impose such conditions, the awarding and accountability must be maintained official will notify the grantee or sub- for all grant and subgrant cash, real

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and personal property, and other as- (d) Certain Urban Mass Transpor- sets. Grantees and subgrantees must tation Administration (UMTA) grant- adequately safeguard all such property ees shall comply with the requirements and must assure that it is used solely of section 15 of the Urban Mass Trans- for authorized purposes. portation (UMT) Act of 1964, as amend- (4) Budget control. Actual expendi- ed, as implemented by 49 CFR part 630, tures or outlays must be compared regarding a uniform system of ac- with budgeted amounts for each grant counts and records and a uniform re- or subgrant. Financial information porting system for certain grantees. must be related to performance or pro- [53 FR 8086 and 8087, Mar. 11, 1988, as amend- ductivity data, including the developed at 53 FR 8086, Mar. 11, 1988] ment of unit cost information whenever appropriate or specifically re- § 18.21 Payment. quired in the grant or subgrant agree- (a) Scope. This section prescribes the ment. If unit cost data are required, es- basic standard and the methods under timates based on available documenta- which a Federal agency will make pay- tion will be accepted whenever pos- ments to grantees, and grantees will sible. make payments to subgrantees and (5) Allowable cost. Applicable OMB contractors. cost principles, agency program regula- (b) Basic standard. Methods and pro- tions, and the terms of grant and cedures for payment shall minimize subgrant agreements will be followed the time elapsing between the transfer in determining the reasonableness, al- of funds and disbursement by the lowability, and allocability of costs. grantee or subgrantee, in accordance (6) Source documentation. Accounting with Treasury regulations at 31 CFR records must be supported by such part 205. source documentation as cancelled (c) Advances. Grantees and sub- checks, paid bills, payrolls, time and grantees shall be paid in advance, pro- attendance records, contract and vided they maintain or demonstrate subgrant award documents, etc. the willingness and ability to maintain (7) Cash management. Procedures for procedures to minimize the time elaps- minimizing the time elapsing between ing between the transfer of the funds the transfer of funds from the U.S. and their disbursement by the grantee Treasury and disbursement by grantees or subgrantee. and subgrantees must be followed (d) Reimbursement. Reimbursement whenever advance payment procedures shall be the preferred method when the are used. Grantees must establish rea- requirements in paragraph (c) of this sonable procedures to ensure the re- section are not met. Grantees and sub- ceipt of reports on subgrantees’ cash grantees may also be paid by reim- balances and cash disbursements in bursement for any construction grant. sufficient time to enable them to pre- Except as otherwise specified in regula- pare complete and accurate cash trans- tion, Federal agencies shall not use the actions reports to the awarding agen- percentage of completion method to cy. When advances are made by letter- pay construction grants. The grantee of-credit or electronic transfer of funds or subgrantee may use that method to methods, the grantee must make pay its construction contractor, and if drawdowns as close as possible to the it does, the awarding agency’s pay- time of making disbursements. Grant- ments to the grantee or subgrantee ees must monitor cash drawdowns by will be based on the grantee’s or sub- their subgrantees to assure that they grantee’s actual rate of disbursement. conform substantially to the same (e) Working capital advances. If a standards of timing and amount as grantee cannot meet the criteria for apply to advances to the grantees. advance payments described in para- (c) An awarding agency may review graph (c) of this section, and the Fed- the adequacy of the financial manage- eral agency has determined that reim- ment system of any applicant for fi- bursement is not feasible because the nancial assistance as part of a grantee lacks sufficient working cap- preaward review or at any time subse- ital, the awarding agency may provide quent to award. cash or a working capital advance

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basis. Under this procedure the award- (h) Cash depositories. (1) Consistent ing agency shall advance cash to the with the national goal of expanding the grantee to cover its estimated dis- opportunities for minority business en- bursement needs for an initial period terprises, grantees and subgrantees are generally geared to the grantee’s dis- encouraged to use minority banks (a bursing cycle. Thereafter, the awarding bank which is owned at least 50 percent agency shall reimburse the grantee for by minority group members). A list of its actual cash disbursements. The minority owned banks can be obtained working capital advance method of from the Minority Business Develop- payment shall not be used by grantees ment Agency, Department of Com- or subgrantees if the reason for using merce, Washington, DC 20230. such method is the unwillingness or in- (2) A grantee or subgrantee shall ability of the grantee to provide timely maintain a separate bank account only advances to the subgrantee to meet the when required by Federal-State agree- subgrantee’s actual cash disbursement. ments. (i) Interest earned on advances. Except (f) Effect of program income, refunds, for interest earned on advances of and audit recoveries on payment. (1) funds exempt under the Intergovern- Grantees and subgrantees shall dis- mental Cooperation Act (31 U.S.C. 6501 burse repayments to and interest et seq.) and the Indian Self-Determina- earned on a revolving fund before re- tion Act (23 U.S.C. 450), grantees and questing additional cash payments for subgrantees shall promptly, but at the same activity. least quarterly, remit interest earned (2) Except as provided in paragraph on advances to the Federal agency. The (f)(1) of this section, grantees and subgrantee or subgrantee may keep inter- grantees shall disburse program in- est amounts up to $100 per year for ad- come, rebates, refunds, contract settle- ministrative expenses. ments, audit recoveries and interest (j) 23 U.S.C. 121 limits payments to earned on such funds before requesting States for highway construction additional cash payments. projects to the Federal share of the (g) Withholding payments. (1) Unless costs of construction incurred to date, otherwise required by Federal statute, plus the Federal share of the value of awarding agencies shall not withhold stockpiled materials. payments for proper charges incurred (k) Section 404 of the Surface Trans- by grantees or subgrantees unless— portation Assistance Act of 1982 directs the Secretary to reimburse States for (i) The grantee or subgrantee has the Federal share of costs incurred. failed to comply with grant award conditions or [53 FR 8086 and 8087, Mar. 11, 1988, as amend- (ii) The grantee or subgrantee is in- ed at 53 FR 8086, Mar. 11, 1988] debted to the United States. (2) Cash withheld for failure to com- § 18.22 Allowable costs. ply with grant award condition, but (a) Limitation on use of funds. Grant without suspension of the grant, shall funds may be used only for: be released to the grantee upon subse- (1) The allowable costs of the grant- quent compliance. When a grant is sus- ees, subgrantees and cost-type contrac- pended, payment adjustments will be tors, including allowable costs in the made in accordance with § 18.43(c). form of payments to fixed-price con- (3) A Federal agency shall not make tractors; and payment to grantees for amounts that (2) Reasonable fees or profit to cost- are withheld by grantees or sub- type contractors but not any fee or grantees from payment to contractors profit (or other increment above allow- to assure satisfactory completion of able costs) to the grantee or sub- work. Payments shall be made by the grantee. Federal agency when the grantees or (b) Applicable cost principles. For each subgrantees actually disburse the with- kind of organization, there is a set of held funds to the contractors or to es- Federal principles for determining al- crow accounts established to assure lowable costs. Allowable costs will be satisfactory completion of work. determined in accordance with the cost

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principles applicable to the organiza- curred under the award not later than tion incurring the costs. The following 90 days after the end of the funding pe- chart lists the kinds of organizations riod (or as specified in a program regu- and the applicable cost principles. lation) to coincide with the submission of the annual Financial Status Report For the costs of a— Use the principles in— (SF–269). The Federal agency may ex- State, local or Indian tribal OMB Circular A–87. tend this deadline at the request of the government. grantee. Private nonprofit organization OMB Circular A–122. other than an (1) institution § 18.24 Matching or cost sharing. of higher education, (2) hospital, or (3) organization (a) Basic rule: Costs and contributions named in OMB Circular A– acceptable. With the qualifications and 122 as not subject to that circular. exceptions listed in paragraph (b) of Educational institutions...... OMB Circular A–21. this section, a matching or cost shar- For-profit organization other 48 CFR part 31. Contract ing requirement may be satisfied by ei- than a hospital and an or- Cost Principles and Proce- ther or both of the following: ganization named in OBM dures, or uniform cost ac- Circular A–122 as not sub- counting standards that (1) Allowable costs incurred by the ject to that circular. comply with cost principles grantee, subgrantee or a cost-type con- acceptable to the Federal tractor under the assistance agree- agency. ment. This includes allowable costs (c) The overhead cost principles of borne by non-Federal grants or by oth- OMB Circular A–87 shall not apply to ers cash donations from non-Federal State highway agencies for FHWA third parties. funded grants. (2) The value of third party in-kind contributions applicable to the period (d) Sections 3(1) and 9(p) of the UMT to which the cost sharing or matching Act of 1964, as amended, authorize the requirements applies. Secretary to include in the net project (b) Qualifications and exceptions—(1) cost eligible for Federal assistance, the Costs borne by other Federal grant agree- amount of interest earned and payable ments. Except as provided by Federal on bonds issued by the State or local statute, a cost sharing or matching re- public body to the extent that the pro- quirement may not be met by costs ceeds of such bonds have actually been borne by another Federal grant. This expended in carrying out such project prohibition does not apply to income or portion thereof. Limitations are es- earned by a grantee or subgrantee from tablished in sections 3 and 9 of the a contract awarded under another Fed- UMT Act of 1964, as amended. eral grant. (e) Section 9 of the UMT Act of 1964, (2) General revenue sharing. For the as amended, authorizes grants to fi- purpose of this section, general revenue nance the leasing of facilities and sharing funds distributed under 31 equipment for use in mass transpor- U.S.C. 6702 are not considered Federal tation services provided leasing is grant funds. more cost effective than acquisition or (3) Cost or contributions counted to- construction. wards other Federal costs-sharing require- [53 FR 8086 and 8087, Mar. 11, 1988, as amendments. Neither costs nor the values of ed at 53 FR 8086, Mar. 11, 1988] third party in-kind contributions may count towards satisfying a cost sharing § 18.23 Period of availability of funds. or matching requirement of a grant (a) General. Where a funding period is agreement if they have been or will be specified, a grantee may charge to the counted towards satisfying a cost shar- award only costs resulting from obliga- ing or matching requirement of an- tions of the funding period unless car- other Federal grant agreement, a Fed- ryover of unobligated balances is per- eral procurement contract, or any mitted, in which case the carryover other award of Federal funds. balances may be charged for costs re- (4) Costs financed by program income. sulting from obligations of the subse- Costs financed by program income, as quent funding period. defined in § 18.25, shall not count to- (b) Liquidation of obligations. A grant- wards satisfying a cost sharing or ee must liquidate all obligations in- matching requirement unless they are

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expressly permitted in the terms of the (without additional cost to the grantee assistance agreement. (This use of gen- or subgrantee) or eral program income is described in (B) A cost savings to the grantee or § 18.25(g).) subgrantee. (5) Services or property financed by in- (iv) The values placed on third party come earned by contractors. Contractors in-kind contributions for cost sharing under a grant may earn income from or matching purposes will conform to the activities carried out under the the rules in the succeeding sections of contract in addition to the amounts this part. If a third party in-kind con- earned from the party awarding the tribution is a type not treated in those contract. No costs of services or prop- sections, the value placed upon it shall erty supported by this income may be fair and reasonable. count toward satisfying a cost sharing (8) 23 U.S.C. 121(a) permits reimburse- or matching requirement unless other ment for actual construction cost in- provisions of the grant agreement ex- curred by States for highway construc- pressly permit this kind of income to tion projects. Except for private dona- be used to meet the requirement. tions of right-of-way, contributions (6) Records. Costs and third party in- and donations shall not be considered kind contributions counting towards State costs, and shall not be allowable satisfying a cost sharing or matching for matching purposes for highway con- requirement must be verifiable from struction contracts. 23 U.S.C. 323 per- the records of grantees and subgrantee mits private donations of right-of-way or cost-type contractors. These records to be used for a State’s matching must show how the value placed on share, and establishes procedures for third party in-kind contributions was determining the fair market value of derived. To the extent feasible, volun- such donated right-of-way. teer services will be supported by the (9) Section 4(a) of the UMT Act of 1964, as amended, provides that the same methods that the organization Federal grant for any project to be as- uses to support the allocability of reg- sisted under section 3 of the UMT Act ular personnel costs. of 1964, as amended, shall be in an (7) Special standards for third party in- amount equal to 75 percent of the net kind contributions. (i) Third party in- project costs. Net project cost is de- kind contributions count towards sat- fined as that portion of the cost of the isfying a cost sharing or matching re- project which cannot be reasonably fi- quirement only where, if the party re- nanced from revenues. ceiving the contributions were to pay (10) Section 18(e) of the UMT Act of for them, the payments would be allow- 1964, as amended, limits the Federal able costs. share to 80 percent of the net cost of (ii) Some third party in-kind con- construction, as determined by the tributions are goods and services that, Secretary of Transportation. The Fed- if the grantee, subgrantee, or con- eral share for the payment of subsidies tractor receiving the contribution had for operating expenses, as defined by to pay for them, the payments would the Secretary, shall not exceed 50 per- have been an indirect costs. Costs shar- cent of the net cost of such operating ing or matching credit for such con- expense projects. tributions shall be given only if the (c) Valuation of donated services—(1) grantee, subgrantee, or contractor has Volunteer services. Unpaid services pro- established, along with its regular indi- vided to a grantee or subgrantee by in- rect cost rate, a special rate for allo- dividuals will be valued at rates con- cating to individual projects or pro- sistent with those ordinarily paid for grams the value of the contributions. similar work in the grantee’s or sub- (iii) A third party in-kind contribu- grantee’s organization. If the grantee tion to a fixed-price contract may or subgrantee does not have employees count towards satisfying a cost sharing performing similar work, the rates will or matching requirement only if it re- be consistent with those ordinarily sults in: paid by other employers for similar (A) An increase in the services or work in the same labor market. In ei- property provided under the contract ther case, a reasonable amount for

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fringe benefits may be included in the In the case of a subgrant, the terms of valuation. the grant agreement may require that (2) Employees of other organizations. the approval be obtained from the Fed- When an employer other than a grant- eral agency as well as the grantee. In ee, subgrantee, or cost-type contractor all cases, the approval may be given furnishes free of charge the services of only if a purchase of the equipment or an employee in the employee’s normal rental of the land would be approved as line of work, the services will be valued an allowable direct cost. If any part of at the employee’s regular rate of pay the donated property was acquired exclusive of the employee’s fringe ben- with Federal funds, only the non-fed- efits and overhead costs. If the services eral share of the property may be are in a different line of work, para- counted as cost-sharing or matching. graph (c)(1) of this section applies. (ii) If approval is not obtained under (3) Section 5(g) of the Department of paragraph (e)(2)(i) of this section, no Transportation Act (49 U.S.C. 1654(g)) amount may be counted for donated limits in-kind service contributions land, and only depreciation or use al- under the local Rail Service Assistance lowances may be counted for donated Program to ‘‘the cash equivalent of equipment and buildings. The deprecia- State salaries for State public employ- tion or use allowances for this property ees working in the State rail assistance are not treated as third party in-kind program, but not including overhead contributions. Instead, they are treat- and general administrative costs.’’ ed as costs incurred by the grantee or (d) Valuation of third party donated subgrantee. They are computed and al- supplies and loaned equipment or space. located (usually as indirect costs) in (1) If a third party donates supplies, accordance with the cost principles the contribution will be valued at the specified in § 18.22, in the same way as market value of the supplies at the depreciation or use allowances for pur- time of donation. chased equipment and buildings. The (2) If a third party donates the use of amount of depreciation or use allow- equipment or space in a building but ances for donated equipment and build- retains title, the contribution will be ings is based on the property’s market valued at the fair rental rate of the value at the time it was donated. equipment or space. (f) Valuation of grantee or subgrantee (e) Valuation of third party donated donated real property for construction/ac- equipment, buildings, and land. If a third quisition. If a grantee or subgrantee do- party donates equipment, buildings, or nates real property for a construction land, and title passes to a grantee or or facilities acquisition project, the subgrantee, the treatment of the do- current market value of that property nated property will depend upon the may be counted as cost sharing or purpose of the grant or subgrant, as matching. If any part of the donated follows: property was acquired with Federal (1) Awards for capital expenditures. If funds, only the non-federal share of the the purpose of the grant or subgrant is property may be counted as cost shar- to assist the grantee or subgrantee in ing or matching. the acquisition of property, the market value of that property at the time of (g) Appraisal of real property. In some donation may be counted as cost shar- cases under paragraphs (d), (e) and (f) ing or matching, of this section, it will be necessary to (2) Other awards. If assisting in the establish the market value of land or a acquisition of property is not the pur- building or the fair rental rate of land pose of the grant or subgrant, para- or of space in a building. In these cases, graphs (e)(2) (i) and (ii) of this section the Federal agency may require the apply: market value or fair rental value be set (i) If approval is obtained from the by an independent appraiser, and that awarding agency, the market value at the value or rate be certified by the the time of donation of the donated grantee. This requirement will also be equipment or buildings and the fair imposed by the grantee on subgrantees. rental rate of the donated land may be [53 FR 8086 and 8087, Mar. 11, 1988, as amend- counted as cost sharing or matching. ed at 53 FR 8086, Mar. 11, 1988]

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§ 18.25 Program income. grant agreement specify another alter- (a) General. Grantees are encouraged native (or a combination of the alter- to earn income to defray program natives). In specifying alternatives, the costs. Program income includes income Federal agency may distinguish be- from fees for services performed, from tween income earned by the grantee the use or rental of real or personal and income earned by subgrantees and property acquired with grant funds, between the sources, kinds, or amounts from the sale of commodities or items of income. When Federal agencies au- fabricated under a grant agreement, thorize the alternatives in paragraphs and from payments of principal and in- (g) (2) and (3) of this section, program terest on loans made with grant funds. income in excess of any limits stipu- Except as otherwise provided in regula- lated shall also be deducted from out- tions of the Federal agency, program lays. income does not include interest on (1) Deduction. Ordinarily program in- grant funds, rebates, credits, discounts, come shall be deducted from total al- refunds, etc. and interest earned on lowable costs to determine the net al- any of them. lowable costs. Program income shall be (b) Definition of program income. Pro- used for current costs unless the Fed- gram income means gross income re- eral agency authorizes otherwise. Pro- ceived by the grantee or subgrantee di- gram income which the grantee did not rectly generated by a grant supported anticipate at the time of the award activity, or earned only as a result of shall be used to reduce the Federal the grant agreement during the grant agency and grantee contributions rath- period. ‘‘During the grant period’’ is er than to increase the funds com- the time between the effective date of mitted to the project. the award and the ending date of the (2) Addition. When authorized, pro- award reflected in the final financial gram income may be added to the report. funds committed to the grant agree- (c) Cost of generating program income. ment by the Federal agency and the If authorized by Federal regulations or grantee. The program income shall be the grant agreement, costs incident to used for the purposes and under the the generation of program income may conditions of the grant agreement. be deducted from gross income to de- (3) Cost sharing or matching. When au- termine program income. thorized, program income may be used (d) Governmental revenues. Taxes, spe- to meet the cost sharing or matching cial assessments, levies, fines, and other such revenues raised by a grantee requirement of the grant agreement. or subgrantee are not program income The amount of the Federal grant award unless the revenues are specifically remains the same. identified in the grant agreement or (4) Section 3(a)(1)(D) of the UMT Act Federal agency regulations as program of 1964, as amended, provides that the income. Secretary shall establish requirements (e) Royalties. Income from royalties for the use of income derived from ap- and license fees for copyrighted mate- preciated land values for certain UMTA rial, patents, and inventions developed grants. Specific requirements shall be by a grantee or subgrantee is program contained in grant agreements. income only if the revenues are specifi- (5) UMTA grantees may retain pro- cally identified in the grant agreement gram income for allowable capital or or Federal agency regulations as pro- operating expenses. gram income. (See § 18.34.) (6) For grants awarded under section (f) Property. Proceeds from the sale of 9 of the UMT Act of 1964, as amended, real property or equipment will be han- any revenues received from the sale of dled in accordance with the require- advertising and concessions in excess ments of §§ 18.31 and 18.32. of fiscal year 1985 levels shall be ex- (g) Use of program income. Program cluded from program income. income shall be deducted from outlays (7) 23 U.S.C. 156 requires that States which may be both Federal and non- shall charge fair market value for the Federal as described below, unless the sale, lease, or use of right-of-way air- Federal agency regulations or the space for non-transportation purposes

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and that such income shall be used for complished by reviewing an audit of projects eligible under 23 U.S.C. the subgrantee made in accordance (h) Income after the award period. with the Act, Circular A–110, or There are no Federal requirements gov- through other means (e.g., program re- erning the disposition of program in- views) if the subgrantee has not had come earned after the end of the award such an audit; period (i.e., until the ending date of the (3) Ensure that appropriate correc- final financial report, see paragraph (a) tive action is taken within six months of this section), unless the terms of the after receipt of the audit report in in- agreement or the Federal agency regu- stance of noncompliance with Federal lations provide otherwise. laws and regulations; [53 FR 8086 and 8087, Mar. 11, 1988, as amend- (4) Consider whether subgrantee au- ed at 53 FR 8087, Mar. 11, 1988] dits necessitate adjustment of the grantee’s own records; and § 18.26 Non-Federal audits. (5) Require each subgrantee to permit (a) Basic rule. Grantees and sub- independent auditors to have access to grantees are responsible for obtaining the records and financial statements. audits in accordance with the Single (c) Auditor selection. In arranging for Audit Act Amendments of 1996 (31 audit services, § 18.36 shall be followed. U.S.C. 7501–7507) and revised OMB Cir- [53 FR 8086 and 8087, Mar. 11, 1988, as amend- cular A–133, ‘‘Audits of States, Local ed at 61 FR 21387, May 10, 1996; 62 FR 45939, Governments, and Non-Profit Organi- 45947, Aug. 29, 1997] zations.’’ The audits shall be made by an independent auditor in accordance CHANGES, PROPERTY, AND SUBAWARDS with generally accepted government auditing standards covering financial § 18.30 Changes. audits. (a) General. Grantees and subgrantees (b) Subgrantees. State or local govern- are permitted to rebudget within the ments, as those terms are defined for approved direct cost budget to meet purposes of the Single Audit Act unanticipated requirements and may Amendments of 1996, that provide Fed- make limited program changes to the eral awards to a subgrantee, which ex- approved project. However, unless pends $300,000 or more (or other waived by the awarding agency, certain amount as specified by OMB) in Fed- types of post-award changes in budgets eral awards in a fiscal year, shall: and projects shall require the prior (1) Determine whether State or local written approval of the awarding agen- subgrantees have met the audit re- cy. quirements of the Act and whether sub- (b) Relation to cost principles. The ap- grantees covered by OMB Circular A– plicable cost principles (see § 18.22) con- 110, ‘‘Uniform Administrative Require- tain requirements for prior approval of ments for Grants and Agreements with certain types of costs. Except where Institutions of Higher Education, Hos- waived, those requirements apply to all pitals, and Other Non-Profit Organiza- grants and subgrants even if para- tions,’’ have met the audit require- graphs (c) through (f) of this section do ments of the Act. Commercial contrac- not. tors (private for-profit and private and (c) Budget changes—(1) Nonconstruc- governmental organizations) providing tion projects. Except as stated in other goods and services to State and local regulations or an award document, governments are not required to have a grantees or subgrantees shall obtain single audit performed. State and local the prior approval of the awarding governments should use their own pro- agency whenever any of the following cedures to ensure that the contractor changes is anticipated under a non- has complied with laws and regulations construction award: affecting the expenditure of Federal (i) Any revision which would result funds; in the need for additional funding. (2) Determine whether the sub- (ii) Unless waived by the awarding grantee spent Federal assistance funds agency, cumulative transfers among di- provided in accordance with applicable rect cost categories, or, if applicable, laws and regulations. This may be ac- among separately budgeted programs,

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projects, functions, or activities which (f) Requesting prior approval. (1) A re- exceed or are expected to exceed ten quest for prior approval of any budget percent of the current total approved revision will be in the same budget for- budget, whenever the awarding agen- mal the grantee used in its application cy’s share exceeds $100,000. and shall be accompanied by a nar- (iii) Transfer of funds allotted for rative justification for the proposed re- training allowances (i.e., from direct vision. payments to trainees to other expense (2) A request for a prior approval categories). under the applicable Federal cost prin- (2) Construction projects. Grantees and ciples (see § 18.22) may be made by let- subgrantees shall obtain prior written ter. approval for any budget revision which (3) A request by a subgrantee for would result in the need for additional prior approval will be addressed in funds. writing to the grantee. The grantee (3) Combined construction and non- will promptly review such request and shall approve or disapprove the request construction projects. When a grant or in writing. A grantee will not approve subgrant provides funding for both con- any budget or project revision which is struction and nonconstruction activi- inconsistent with the purpose or terms ties, the grantee or subgrantee must and conditions of the Federal grant to obtain prior written approval from the the grantee. If the revision, requested awarding agency before making any by the subgrantee would result in a fund or budget transfer from non- change to the grantee’s approved construction to construction or vice project which requires Federal prior versa. approval, the grantee will obtain the (d) Programmatic changes. Grantees or Federal agency’s approval before ap- subgrantees must obtain the prior approving the subgrantee’s request. proval of the awarding agency whenever any of the following actions is an- § 18.31 Real property. ticipated: (a) Title. Subject to the obligations (1) Any revision of the scope or objec- and conditions set forth in this section, tives of the project (regardless of title to real property acquired under a whether there is an associated budget grant or subgrant will vest upon acqui- revision requiring prior approval). sition in the grantee or subgrantee re- (2) Need to extend the period of avail- spectively. ability of funds. (b) Use. Except as otherwise provided (3) Changes in key persons in cases by Federal statutes, real property will where specified in an application or a be used for the originally authorized grant award. In research projects, a purposes as long as needed for that pur- change in the project director or prin- poses, and the grantee or subgrantee cipal investigator shall always require shall not dispose of or encumber its approval unless waived by the award- title or other interests. ing agency. (c) Disposition. When real property is (4) Under nonconstruction projects, no longer needed for the originally au- contracting out, subgranting (if authorized purpose, the grantee or sub- thorized by law) or otherwise obtaining grantee will request disposition in- the services of a third party to perform structions from the awarding agency. activities which are central to the pur- The instructions will provide for one of poses of the award. This approval re- the following alternatives: quirement is in addition to the ap- (1) Retention of title. Retain title after proval requirements of § 18.36 but does compensating the awarding agency. not apply to the procurement of equip- The amount paid to the awarding agen- ment, supplies, and general support cy will be computed by applying the services. awarding agency’s percentage of par- (e) Additional prior approval require- ticipation in the cost of the original ments. The awarding agency may not purchase to the fair market value of require prior approval for any budget the property. However, in those situa- revision which is not described in para- tions where a grantee or subgrantee is graph (c) of this section. disposing of real property acquired

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with grant funds and acquiring replace- program or project for which it was ac- ment real property under the same pro- quired as long as needed, whether or gram, the net proceeds from the dis- not the project or program continues position may be used as an offset to the to be supported by Federal funds. When cost of the replacement property. no longer needed for the original pro- (2) Sale of property. Sell the property gram or project, the equipment may be and compensate the awarding agency. used in other activities currently or The amount due to the awarding agen- previously supported by a Federal cy will be calculated by applying the agency. awarding agency’s percentage of participation in the cost of the original (2) The grantee or subgrantee shall purchase to the proceeds of the sale also make equipment available for use after deduction of any actual and rea- on other projects or programs cur- sonable selling and fixing-up expenses. rently or previously supported by the If the grant is still active, the net pro- Federal Government, providing such ceeds from sale may be offset against use will not interfere with the work on the original cost of the property. When the projects or program for which it a grantee or subgrantee is directed to was originally acquired. First pref- sell property, sales procedures shall be erence for other use shall be given to followed that provide for competition other programs or projects supported to the extent practicable and result in by the awarding agency. User fees the highest possible return. should be considered if appropriate. (3) Transfer of title. Transfer title to (3) Notwithstanding the encourage- the awarding agency or to a third- ment in § 18.25(a) to earn program in- party designated/approved by the come, the grantee or subgrantee must awarding agency. The grantee or sub- not use equipment acquired with grant grantee shall be paid an amount cal- funds to provide services for a fee to culated by applying the grantee or sub- compete unfairly with private compa- grantee’s percentage of participation in the purchase of the real property to nies that provide equivalent services, the current fair market value of the unless specifically permitted or con- property. templated by Federal statute. (d) If the conditions in 23 U.S.C. (4) When acquiring replacement 103(e) (5), (6), or (7), as appropriate, are equipment, the grantee or subgrantee met and approval is given by the Sec- may use the equipment to be replaced retary, States shall not be required to as a trade-in or sell the property and repay the Highway Trust Fund for the use the proceeds to offset the cost of cost of right-of-way and other items the replacement property, subject to when certain segments of the Inter- the approval of the awarding agency. state System are withdrawn. (d) Management requirements. Proce- [53 FR 8086 and 8087, Mar. 11, 1988, as amend- dures for managing equipment (included at 53 FR 8087, Mar. 11, 1988] ing replacement equipment), whether acquired in whole or in part with grant § 18.32 Equipment. funds, until disposition takes place (a) Title. Subject to the obligations will, as a minimum, meet the following and conditions set forth in this section, requirements: title to equipment acquired under a (1) Property records must be main- grant or subgrant will vest upon acqui- tained that include a description of the sition in the grantee or subgrantee re- property, a serial number or other spectively. identification number, the source of (b) States. A State will use, manage, property, who holds title, the acquisi- and dispose of equipment acquired tion date, and cost of the property, per- under a grant by the State in accord- centage of Federal participation in the ance with State laws and procedures. cost of the property, the location, use Other grantees and subgrantees will and condition of the property, and any follow paragraphs (c) through (e) of ultimate disposition data including the this section. (c) Use. (1) Equipment shall be used date of disposal and sale price of the by the grantee or subgrantee in the property.

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(2) A physical inventory of the prop- to transfer title to the Federal Govern- erty must be taken and the results rec- ment or a third part named by the onciled with the property records at awarding agency when such a third least once every two years. party is otherwise eligible under exist- (3) A control system must be devel- ing statutes. Such transfers shall be oped to ensure adequate safeguards to subject to the following standards: prevent loss, damage, or theft of the (1) The property shall be identified in property. Any loss, damage, or theft the grant or otherwise made known to shall be investigated. the grantee in writing. (4) Adequate maintenance procedures (2) The Federal awarding agency must be developed to keep the property shall issue disposition instruction in good condition. (5) If the grantee or subgrantee is au- within 120 calendar days after the end thorized or required to sell the prop- of the Federal support of the project erty, proper sales procedures must be for which it was acquired. If the Fed- established to ensure the highest pos- eral awarding agency fails to issue dis- sible return. position instructions within the 120 (e) Disposition. When original or re- calendar-day period the grantee shall placement equipment acquired under a follow § 18.32(e). grant or subgrant is no longer needed (3) When title to equipment is trans- for the original project or program or ferred, the grantee shall be paid an for other activities currently or pre- amount calculated by applying the per- viously supported by a Federal agency, centage of participation in the pur- disposition of the equipment will be chase to the current fair market value made as follows: of the property. (1) Items of equipment with a current per-unit fair market value of less than § 18.33 Supplies. $5,000 may be retained, sold or other- (a) Title. Title to supplies acquired wise disposed of with no further obliga- under a grant or subgrant will vest, tion to the awarding agency. upon acquisition, in the grantee or sub- (2) Items of equipment with a current per unit fair market value in excess of grantee respectively. $5,000 may be retained or sold and the (b) Disposition. If there is a residual awarding agency shall have a right to inventory of unused supplies exceeding an amount calculated by multiplying $5,000 in total aggregate fair market the current market value or proceeds value upon termination or completion from sale by the awarding agency’s of the award, and if the supplies are share of the equipment. not needed for any other federally (3) In cases where a grantee or sub- sponsored programs or projects, the grantee fails to take appropriate dis- grantee or subgrantee shall composition actions, the awarding agency pensate the awarding agency for its may direct the grantee or subgrantee share. to take excess and disposition actions. (f) Federal equipment. In the event a § 18.34 Copyrights. grantee or subgrantee is provided fed- The Federal awarding agency re- erally-owned equipment: serves a royalty-free, nonexclusive, and (1) Title will remain vested in the irrevocable license to reproduce, pub- Federal Government. lish or otherwise use, and to authorize (2) Grantees or subgrantees will man- others to use, for Federal Government age the equipment in accordance with Federal agency rules and procedures, purposes: and submit an annual inventory list- (a) The copyright in any work devel- ing. oped under a grant, subgrant, or con- (3) When the equipment is no longer tract under a grant or subgrant; and needed, the grantee or subgrantee will (b) Any rights of copyright to which request disposition instructions from a grantee, subgrantee or a contractor the Federal agency. purchases ownership with grant sup- (g) Right to transfer title. The Federal port. awarding agency may reserve the right

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§ 18.35 Subawards to debarred and grantee’s or subgrantee’s officers, em- suspended parties. ployees or agents will neither solicit Grantees and subgrantees must not nor accept gratuities, favors or any- make any award or permit any award thing of monetary value from contrac- (subgrant or contract) at any tier to tors, potential contractors, or parties any party which is debarred or sus- to subagreements. Grantee and sub- pended or is otherwise excluded from or grantees may set minimum rules where ineligible for participation in Federal the financial interest is not substantial assistance programs under Executive or the gift is an unsolicited item of Order 12549, ‘‘Debarment and Suspen- nominal intrinsic value. To the extent sion.’’ permitted by State or local law or regulations, such standards or conduct § 18.36 Procurement. will provide for penalties, sanctions, or (a) States. When procuring property other disciplinary actions for viola- and services under a grant, a State will tions of such standards by the grant- follow the same policies and procedures ee’s and subgrantee’s officers, employ- it uses for procurements from its non- ees, or agents, or by contractors or Federal funds. The State will ensure their agents. The awarding agency may that every purchase order or other con- in regulation provide additional prohi- tract includes any clauses required by bitions relative to real, apparent, or Federal statutes and executive orders potential conflicts of interest. and their implementing regulations. (4) Grantee and subgrantee proce- Other grantees and subgrantees will dures will provide for a review of pro- follow paragraphs (b) through (i) in posed procurements to avoid purchase this section. of unnecessary or duplicative items. (b) Procurement standards. (1) Grant- Consideration should be given to con- ees and subgrantees will use their own solidating or breaking out procure- procurement procedures which reflect ments to obtain a more economical applicable State and local laws and purchase. Where appropriate, an anal- regulations, provided that the procure- ysis will be made of lease versus pur- ments conform to applicable Federal chase alternatives, and any other ap- law and the standards identified in this propriate analysis to determine the section. most economical approach. (2) Grantees and subgrantees will (5) To foster greater economy and ef- maintain a contract administration ficiency, grantees and subgrantees are system which ensures that contractors encouraged to enter into State and perform in accordance with the terms, local intergovernmental agreements conditions, and specifications of their for procurement or use of common contracts or purchase orders. goods and services. (3) Grantees and subgrantees will (6) Grantees and subgrantees are en- maintain a written code of standards of couraged to use Federal excess and sur- conduct governing the performance of plus property in lieu of purchasing new their employees engaged in the award equipment and property whenever such and administration of contracts. No use is feasible and reduces project employee, officer or agent of the grant- costs. ee or subgrantee shall participate in se- (7) Grantees and subgrantees are en- lection, or in the award or administra- couraged to use value engineering tion of a contract supported by Federal clauses in contracts for construction funds if a conflict of interest, real or projects of sufficient size to offer rea- apparent, would be involved. Such a sonable opportunities for cost reduc- conflict would arise when: tions. Value engineering is a system- (i) The employee, officer or agent, atic and creative anaylsis of each con- (ii) Any member of his immediate tract item or task to ensure that its es- family, sential function is provided at the (iii) His or her partner, or overall lower cost. (iv) An organization which employs, (8) Grantees and subgrantees will or is about to employ, any of the make awards only to responsible con- above, has a financial or other interest tractors possessing the ability to per- in the firm selected for award. The form successfully under the terms and

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conditions of a proposed procurement. (ii) Violations of the grantee’s or sub- Consideration will be given to such grantee’s protest procedures for failure matters as contractor integrity, com- to review a complaint or protest. Pro- pliance with public policy, record of tests received by the Federal agency past performance, and financial and other than those specified above will be technical resources. referred to the grantee or subgrantee. (9) Grantees and subgrantees will (c) Competition. (1) All procurement maintain records sufficient to detail transactions will be conducted in a the significant history of a procure- manner providing full and open com- ment. These records will include, but petition consistent with the standards are not necessarily limited to the fol- of § 18.36. Some of the situations con- lowing: rationale for the method of sidered to be restrictive of competition procurement, selection of contract include but are not limited to: type, contractor selection or rejection, (i) Placing unreasonable require- and the basis for the contract price. ments on firms in order for them to (10) Grantees and subgrantees will qualify to do business, use time and material type contracts (ii) Requiring unnecessary experience only— and excessive bonding, (i) After a determination that no (iii) Noncompetitive pricing practices other contract is suitable, and between firms or between affiliated companies, (ii) If the contract includes a ceiling (iv) Noncompetitive awards to con- price that the contractor exceeds at its sultants that are on retainer contracts, own risk. (v) Organizational conflicts of inter- (11) Grantees and subgrantees alone est, will be responsible, in accordance with (vi) Specifying only a ‘‘brand name’’ good administrative practice and sound product instead of allowing ‘‘an equal’’ business judgment, for the settlement product to be offered and describing of all contractual and administrative the performance of other relevant re- issues arising out of procurements. quirements of the procurement, and These issues include, but are not lim- (vii) Any arbitrary action in the pro- ited to source evaluation, protests, dis- curement process. putes, and claims. These standards do (2) Grantees and subgrantees will not relieve the grantee or subgrantee conduct procurements in a manner of any contractual responsibilities that prohibits the use of statutorily or under its contracts. Federal agencies administratively imposed in-State or will not substitute their judgment for local geographical preferences in the that of the grantee or subgrantee un- evaluation of bids or proposals, except less the matter is primarily a Federal in those cases where applicable Federal concern. Violations of law will be re- statutes expressly mandate or encour- ferred to the local, State, or Federal age geographic preference. Nothing in authority having proper jurisdiction. this section preempts State licensing (12) Grantees and subgrantees will laws. When contracting for architec- have protest procedures to handle and tural and engineering (A/E) services, resolve disputes relating to their pro- geographic location may be a selection curements and shall in all instances criteria provided its application leaves disclose information regarding the pro- an appropriate number of qualified test to the awarding agency. A firms, given the nature and size of the protestor must exhaust all administra- project, to compete for the contract. tive remedies with the grantee and sub- (3) Grantees will have written selec- grantee before pursuing a protest with tion procedures for procurement trans- the Federal agency. Reviews of pro- actions. These procedures will ensure tests by the Federal agency will be lim- that all solicitations: ited to: (i) Incorporate a clear and accurate (i) Violations of Federal law or regu- description of the technical require- lations and the standards of this sec- ments for the material, product, or tion (violations of State or local law service to be procured. Such descrip- will be under the jurisdiction of State tion shall not, in competitive procure- or local authorities) and ments, contain features which unduly

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restrict competition. The description (i) In order for sealed bidding to be may include a statement of the quali- feasible, the following conditions tative nature of the material, product should be present: or service to be procured, and when (A) A complete, adequate, and real- necessary, shall set forth those min- istic specification or purchase descrip- imum essential characteristics and tion is available; standards to which it must conform if (B) Two or more responsible bidders it is to satisfy its intended use. De- are willing and able to compete effec- tailed product specifications should be tively and for the business; and avoided if at all possible. When it is (C) The procurement lends itself to a impractical or uneconomical to make a firm fixed price contract and the selec- clear and accurate description of the tion of the successful bidder can be technical requirements, a ‘‘brand name made principally on the basis of price. or equal’’ description may be used as a (ii) If sealed bids are used, the following requirements apply: means to define the performance or (A) The invitation for bids will be other salient requirements of a pro- publicly advertised and bids shall be curement. The specific features of the solicited from an adequate number of named brand which must be met by known suppliers, providing them suffi- offerors shall be clearly stated; and cient time prior to the date set for (ii) Identify all requirements which opening the bids; the offerors must fulfill and all other (B) The invitation for bids, which factors to be used in evaluating bids or will include any specifications and per- proposals. tinent attachments, shall define the (4) Grantees and subgrantees will en- items or services in order for the bidder sure that all prequalified lists of per- to properly respond; sons, firms, or products which are used (C) All bids will be publicly opened at in acquiring goods and services are cur- the time and place prescribed in the in- rent and include enough qualified vitation for bids; sources to ensure maximum open and (D) A firm fixed-price contract award free competition. Also, grantees and will be made in writing to the lowest subgrantees will not preclude potential responsive and responsible bidder. bidders from qualifying during the so- Where specified in bidding documents, licitation period. factors such as discounts, transpor- (d) Methods of procurement to be fol- tation cost, and life cycle costs shall be lowed—(1) Procurement by small purchase considered in determining which bid is procedures. Small purchase procedures lowest. Payment discounts will only be are those relatively simple and infor- used to determine the low bid when mal procurement methods for securing prior experience indicates that such services, supplies, or other property discounts are usually taken advantage of; and that do not cost more than the sim- (E) Any or all bids may be rejected if plified acquisition threshold fixed at 41 there is a sound documented reason. U.S.C. 403(11) (currently set at $100,000). (3) Procurement by competitive pro- If small purchase procedures are used, posals. The technique of competitive price or rate quotations shall be ob- proposals is normally conducted with tained from an adequate number of more than one source submitting an qualified sources. offer, and either a fixed-price or cost- (2) Procurement by sealed bids (for- reimbursement type contract is award- mal advertising). Bids are publicly so- ed. It is generally used when conditions licited and a firm-fixed-price contract are not appropriate for the use of (lump sum or unit price) is awarded to sealed bids. If this method is used, the the responsible bidder whose bid, con- following requirements apply: forming with all the material terms (i) Requests for proposals will be pub- and conditions of the invitation for licized and identify all evaluation fac- bids, is the lowest in price. The sealed tors and their relative importance. Any bid method is the preferred method for response to publicized requests for pro- procuring construction, if the condi- posals shall be honored to the max- tions in § 18.36(d)(2)(i) apply. imum extent practical;

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(ii) Proposals will be solicited from pre-award review in accordance with an adequate number of qualified paragraph (g) of this section. sources; (e) Contracting with small and minority (iii) Grantees and subgrantees will firms, women’s business enterprise and have a method for conducting tech- labor surplus area firms. (1) The grantee nical evaluations of the proposals re- and subgrantee will take all necessary ceived and for selecting awardees; affirmative steps to assure that minor- (iv) Awards will be made to the re- ity firms, women’s business enter- sponsible firm whose proposal is most prises, and labor surplus area firms are advantageous to the program, with used when possible. price and other factors considered; and (2) Affirmative steps shall include: (v) Grantees and subgrantees may (i) Placing qualified small and minor- use competitive proposal procedures ity businesses and women’s business for qualifications-based procurement of enterprises on solicitation lists; architectural/engineering (A/E) profes- (ii) Assuring that small and minority sional services whereby competitors’ businesses, and women’s business en- qualifications are evaluated and the terprises are solicited whenever they most qualified competitor is selected, are potential sources; subject to negotiation of fair and rea- (iii) Dividing total requirements, sonable compensation. The method, when economically feasible, into small- where price is not used as a selection er tasks or quantities to permit max- factor, can only be used in procure- imum participation by small and mi- ment of A/E professional services. It nority business, and women’s business cannot be used to purchase other types enterprises; of services though A/E firms are a po- (iv) Establishing delivery schedules, tential source to perform the proposed where the requirement permits, which effort. encourage participation by small and (4) Procurement by noncompetitive minority business, and women’s busi- proposals is procurement through solic- ness enterprises; itation of a proposal from only one (v) Using the services and assistance source, or after solicitation of a num- of the Small Business Administration, ber of sources, competition is deter- and the Minority Business Develop- mined inadequate. ment Agency of the Department of Commerce; and (i) Procurement by noncompetitive (vi) Requiring the prime contractor, proposals may be used only when the if subcontracts are to be let, to take award of a contract is infeasible under the affirmative steps listed in para- small purchase procedures, sealed bids graphs (e)(2) (i) through (v) of this sec- or competitive proposals and one of the tion. following circumstances applies: (f) Contract cost and price. (1) Grant- (A) The item is available only from a ees and subgrantees must perform a single source; cost or price analysis in connection (B) The public exigency or emergency with every procurement action includ- for the requirement will not permit a ing contract modifications. The meth- delay resulting from competitive solic- od and degree of analysis is dependent itation; on the facts surrounding the particular (C) The awarding agency authorizes procurement situation, but as a start- noncompetitive proposals; or ing point, grantees must make inde- (D) After solicitation of a number of pendent estimates before receiving bids sources, competition is determined in- or proposals. A cost analysis must be adequate. performed when the offeror is required (ii) Cost analysis, i.e., verifying the to submit the elements of his esti- proposed cost data, the projections of mated cost, e.g., under professional, the data, and the evaluation of the spe- consulting, and architectural engineer- cific elements of costs and profits, is ing services contracts. A cost analysis required. will be necessary when adequate price (iii) Grantees and subgrantees may competition is lacking, and for sole be required to submit the proposed pro- source procurements, including con- curement to the awarding agency for tract modifications or change orders,

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unless price resonableness can be es- documents, such as requests for pro- tablished on the basis of a catalog or posals or invitations for bids, inde- market price of a commercial product pendent cost estimates, etc. when: sold in substantial quantities to the (i) A grantee’s or subgrantee’s pro- general public or based on prices set by curement procedures or operation fails law or regulation. A price analysis will to comply with the procurement stand- be used in all other instances to deter- ards in this section; or mine the reasonableness of the pro- (ii) The procurement is expected to posed contract price. exceed the simplified acquisition (2) Grantees and subgrantees will ne- threshold and is to be awarded without gotiate profit as a separate element of competition or only one bid or offer is the price for each contract in which received in response to a solicitation; there is no price competition and in all or cases where cost analysis is performed. To establish a fair and reasonable prof- (iii) The procurement, which is ex- it, consideration will be given to the pected to exceed the simplified acquisi- complexity of the work to be per- tion threshold, specifies a ‘‘brand formed, the risk borne by the con- name’’ product; or tractor, the contractor’s investment, (iv) The proposed award is more than the amount of subcontracting, the the simplified acquisition threshold quality of its record of past perform- and is to be awarded to other than the ance, and industry profit rates in the apparent low bidder under a sealed bid surrounding geographical area for procurement; or similar work. (v) A proposed contract modification (3) Costs or prices based on estimated changes the scope of a contract or in- costs for contracts under grants will be creases the contract amount by more allowable only to the extent that costs than the simplified acquisition thresh- incurred or cost estimates included in old. negotiated prices are consistent with (3) A grantee or subgrantee will be Federal cost principles (see § 18.22). exempt from the pre-award review in Grantees may reference their own cost paragraph (g)(2) of this section if the principles that comply with the appli- awarding agency determines that its cable Federal cost principles. procurement systems comply with the (4) The cost plus a percentage of cost standards of this section. and percentage of construction cost (i) A grantee or subgrantee may re- methods of contracting shall not be quest that its procurement system be used. reviewed by the awarding agency to de- (g) Awarding agency review. (1) Grant- termine whether its system meets ees and subgrantees must make avail- these standards in order for its system able, upon request of the awarding to be certified. Generally, these re- agency, technical specifications on proposed procurements where the award- views shall occur where there is a con- ing agency believes such review is tinuous high-dollar funding, and third- needed to ensure that the item and/or party contracts are awarded on a reg- service specified is the one being pro- ular basis. posed for purchase. This review gen- (ii) A grantee or subgrantee may self- erally will take place prior to the time certify its procurement system. Such the specification is incorporated into a self-certification shall not limit the solicitation document. However, if the awarding agency’s right to survey the grantee or subgrantee desires to have system. Under a self-certification pro- the review accomplished after a solici- cedure, awarding agencies may wish to tation has been developed, the award- rely on written assurances from the ing agency may still review the speci- grantee or subgrantee that it is com- fications, with such review usually lim- plying with these standards. A grantee ited to the technical aspects of the pro- or subgrantee will cite specific proce- posed purchase. dures, regulations, standards, etc., as (2) Grantees and subgrantees must on being in compliance with these require- request make available for awarding ments and have its system available agency pre-award review procurement for review.

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(h) Bonding requirements. For con- tlement. (All contracts in excess of struction or facility improvement con- $10,000) tracts or subcontracts exceeding the (3) Compliance with Executive Order simplified acquisition threshold, the 11246 of September 24, 1965, entitled awarding agency may accept the bond- ‘‘Equal Employment Opportunity,’’ as ing policy and requirements of the amended by Executive Order 11375 of grantee or subgrantee provided the October 13, 1967, and as supplemented awarding agency has made a deter- in Department of Labor regulations (41 mination that the awarding agency’s CFR chapter 60). (All construction con- interest is adequately protected. If tracts awarded in excess of $10,000 by such a determination has not been grantees and their contractors or sub- made, the minimum requirements shall grantees) be as follows: (4) Compliance with the Copeland (1) A bid guarantee from each bidder ‘‘Anti-Kickback’’ Act (18 U.S.C. 874) as equivalent to five percent of the bid price. supplemented in Department of Labor The ‘‘bid guarantee’’ shall consist of a regulations (29 CFR part 3). (All con- firm commitment such as a bid bond, tracts and subgrants for construction certified check, or other negotiable in- or repair) strument accompanying a bid as assur- (5) Compliance with the Davis-Bacon ance that the bidder will, upon accept- Act (40 U.S.C. 276a to 276a–7) as supple- ance of his bid, execute such contrac- mented by Department of Labor regu- tual documents as may be required lations (29 CFR part 5). (Construction within the time specified. contracts in excess of $2000 awarded by (2) A performance bond on the part of grantees and subgrantees when re- the contractor for 100 percent of the con- quired by Federal grant program legis- tract price. A ‘‘performance bond’’ is lation) one executed in connection with a con- (6) Compliance with Sections 103 and tract to secure fulfillment of all the 107 of the Contract Work Hours and contractor’s obligations under such Safety Standards Act (40 U.S.C. 327–330) contract. as supplemented by Department of (3) A payment bond on the part of the Labor regulations (29 CFR part 5). contractor for 100 percent of the contract (Construction contracts awarded by price. A ‘‘payment bond’’ is one exe- grantees and subgrantees in excess of cuted in connection with a contract to $2000, and in excess of $2500 for other assure payment as required by law of contracts which involve the employ- all persons supplying labor and mate- ment of mechanics or laborers) rial in the execution of the work pro- (7) Notice of awarding agency re- vided for in the contract. quirements and regulations pertaining (i) Contract provisions. A grantee’s to reporting. and subgrantee’s contracts must con- (8) Notice of awarding agency retain provisions in paragraph (i) of this quirements and regulations pertaining section. Federal agencies are permitted to patent rights with respect to any to require changes, remedies, changed discovery or invention which arises or conditions, access and records reten- is developed in the course of or under tion, suspension of work, and other such contract. clauses approved by the Office of Fed- (9) Awarding agency requirements eral Procurement Policy. and regulations pertaining to copy- (1) Administrative, contractual, or rights and rights in data. legal remedies in instances where con- (10) Access by the grantee, the sub- tractors violate or breach contract grantee, the Federal grantor agency, terms, and provide for such sanctions the Comptroller General of the United and penalties as may be appropriate. States, or any of their duly authorized (Contracts more than the simplified ac- representatives to any books, docu- quisition threshold) ments, papers, and records of the con- (2) Termination for cause and for tractor which are directly pertinent to convenience by the grantee or sub- that specific contract for the purpose grantee including the manner by which of making audit, examination, ex- it will be effected and the basis for set- cerpts, and transcriptions.

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(11) Retention of all required records quirements for highway construction for three years after grantees or subcontracts in emergency situations. grantees make final payments and all (q) 23 U.S.C. 112 requires concurrence other pending matters are closed. by the Secretary before highway con- (12) Compliance with all applicable struction contracts can be awarded, ex- standards, orders, or requirements cept for projects authorized under the issued under section 306 of the Clean provisions of 23 U.S.C. 17l. Air Act (42 U.S.C. 1857(h)), section 508 (r) 23 U.S.C. 112(e) requires standard- of the Clean Water Act (33 U.S.C. 1368), ized contract clauses concerning site Executive Order 11738, and Environ- conditions, suspension or work, and mental Protection Agency regulations material changes in the scope of the (40 CFR part 15). (Contracts, sub- work for highway construction con- contracts, and subgrants of amounts in tracts. excess of $100,000) (s) 23 U.S.C. 140(b) authorizes the preferential employment of Indians on (13) Mandatory standards and policies Indian Reservation road projects and relating to energy efficiency which are contracts. contained in the state energy conserva- (t) FHWA, UMTA, and Federal Avia- tion plan issued in compliance with the tion Administration (FAA) grantees Energy Policy and Conservation Act and subgrantees shall extend the use of (Pub. L. 94–163, 89 Stat. 871). qualifications-based (e.g., architectural (j) 23 U.S.C. 112(a) directs the Sec- and engineering services) contract se- retary to require recipients of highway lection procedures to certain other reconstruction grants to use bidding lated areas and shall award such con- methods that are ‘‘effective in securing tracts in the same manner as Federal competition.’’ Detailed construction contracts for architectural and engi- contracting procedures are contained neering services are negotiated under in 23 CFR part 635, subpart A. Title IX of the Federal Property and (k) Section 3(a)(2)(C) of the UMT Act Administrative Services Act of 1949, or of 1964, as amended, prohibits the use equivalent State (or airport sponsor for of grant or loan funds to support pro- FAA) qualifications-based require- curements utilizing exclusionary or ments. For FHWA and UMTA pro- discriminatory specifications. grams, this provision applies except to (l) 46 U.S.C. 1241(b)(1) and 46 CFR part the extent that a State adopts or has 381 impose cargo preference require- adopted by statute a formal procedure ments on the shipment of foreign made for the procurement of such services. goods. [53 FR 8086 and 8087, Mar. 11, 1988, as amend- (m) Section 165 of the Surface Trans- ed at 53 FR 8087, Mar. 11, 1988; 60 FR 19639, portation Assistance Act of 1982, 49 19647, Apr. 19, 1995] U.S.C. 1601, section 337 of the Surface Transportation and Uniform Reloca- § 18.37 Subgrants. tion Assistance Act of 1987, and 49 CFR (a) States. States shall follow state parts 660 and 661 impose Buy America law and procedures when awarding and provisions on the procurement of for- administering subgrants (whether on a eign products and materials. cost reimbursement or fixed amount (n) Section 105(f) of the Surface basis) of financial assistance to local Transportation Assistance Act of 1982, and Indian tribal governments. States section 106(c) of the Surface Transpor- shall: tation and Uniform Relocation Assist- (1) Ensure that every subgrant in- ance Act of 1987, and 49 CFR part 23 im- cludes any clauses required by Federal pose requirements for the participation statute and executive orders and their of disadvantaged business enterprises. implementing regulations; (o) Section 308 of the Surface Trans- (2) Ensure that subgrantees are portation Assistance Act of 1982, 49 aware of requirements imposed upon U.S.C. 1068(b)(2), authorizes the use of them by Federal statute and regula- competitive negotiation for the pur- tion; chase of rolling stock as appropriate. (3) Ensure that a provision for com- (p) 23 U.S.C. 112(b) provides for an ex- pliance with § 18.42 is placed in every emption to competitive bidding re- cost reimbursement subgrant; and

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(4) Conform any advances of grant nation of grant support. Unless waived funds to subgrantees substantially to by the Federal agency this report will the same standards of timing and be due on the same date as the final Fi- amount that apply to cash advances by nancial Status Report. Federal agencies. (1) Grantees shall submit annual per- (b) All other grantees. All other grant- formance reports unless the awarding ees shall follow the provisions of this agency requires quarterly or semi-an- part which are applicable to awarding nual reports. However, performance re- agencies when awarding and admin- ports will not be required more fre- istering subgrants (whether on a cost quently than quarterly. Annual reports reimbursement or fixed amount basis) shall be due 90 days after the grant of financial assistance to local and In- year, quarterly or semi-annual reports dian tribal governments. Grantees shall be due 30 days after the reporting shall: period. The final performance report (1) Ensure that every subgrant in- will be due 90 days after the expiration cludes a provision for compliance with or termination of grant support. If a this part; justified request is submitted by a (2) Ensure that every subgrant in- grantee, the Federal agency may excludes any clauses required by Federal tend the due date for any performance statute and executive orders and their report. Additionally, requirements for implementing regulations; and unnecessary performance reports may (3) Ensure that subgrantees are be waived by the Federal agency. aware of requirements imposed upon (2) Performance reports will contain, them by Federal statutes and regula- for each grant, brief information on the tions. following: (c) Exceptions. By their own terms, (i) A comparison of actual accom- certain provisions of this part do not plishments to the objectives estab- apply to the award and administration lished for the period. Where the output of subgrants: of the project can be quantified, a com- (1) Section 18.10; putation of the cost per unit of output (2) Section 18.11; may be required if that information (3) The letter-of-credit procedures will be useful. specified in Treasury Regulations at 31 (ii) The reasons for slippage if estab- CFR part 205, cited in § 18.21; and lished objectives were not met. (4) Section 18.50. (iii) Additional pertinent information REPORTS, RECORDS, RETENTION, AND including, when appropriate, analysis ENFORCEMENT and explanation of cost overruns or high unit costs. § 18.40 Monitoring and reporting pro- (3) Grantees will not be required to gram performance. submit more than the original and two (a) Monitoring by grantees. Grantees copies of performance reports. are responsible for managing the day- (4) Grantees will adhere to the stand- to-day operations of grant and ards in this section in prescribing per- subgrant supported activities. Grantees formance reporting requirements for must monitor grant and subgrant sup- subgrantees. ported activities to assure compliance (c) Construction performance reports. with applicable Federal requirements For the most part, on-site technical in- and that performance goals are being spections and certified percentage-of- achieved. Grantee monitoring must completion data are relied on heavily cover each program, function or activ- by Federal agencies to monitor ity. progress under construction grants and (b) Nonconstruction performance re- subgrants. The Federal agency will reports. The Federal agency may, if it de- quire additional formal performance cides that performance information reports only when considered nec- available from subsequent applications essary, and never more frequently than contains sufficient information to quarterly. meet its programmatic needs, require (1) Section 12(h) of the UMT Act of the grantee to submit a performance 1964, as amended, requires pre-award report only upon expiration or termi- testing of new buses models.

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(2) [Reserved] agency instructions approved by OMB (d) Significant developments. Events to the extent required under the Paper- may occur between the scheduled per- work Reduction Act of 1980 for use in formance reporting dates which have connection with forms specified in significant impact upon the grant or paragraphs (b) through (e) of this sec- subgrant supported activity. In such tion. Federal agencies may issue sub- cases, the grantee must inform the stantive supplementary instructions Federal agency as soon as the following only with the approval of OMB. Federal types of conditions become known: agencies may shade out or instruct the (1) Problems, delays, or adverse con- grantee to disregard any line item that ditions which will materially impair the Federal agency finds unnecessary the ability to meet the objective of the for its decisionmaking purposes. award. This disclosure must include a (4) Grantees will not be required to statement of the action taken, or con- submit more than the original and two templated, and any assistance needed copies of forms required under this to resolve the situation. part. (2) Favorable developments which en- (5) Federal agencies may provide able meeting time schedules and objec- computer outputs to grantees to expe- tives sooner or at less cost than antici- dite or contribute to the accuracy of pated or producing more beneficial re- reporting. Federal agencies may accept sults than originally planned. the required information from grantees (e) Federal agencies may make site in machine usable format or computer visits as warranted by program needs. printouts instead of prescribed forms. (f) Waivers, extensions. (1) Federal (6) Federal agencies may waive any agencies may waive any performance report required by this section if not report required by this part if not need- needed. ed. (7) Federal agencies may extend the (2) The grantee may waive any per- due date of any financial report upon formance report from a subgrantee receiving a justified request from a when not needed. The grantee may ex- grantee. tend the due date for any performance (b) Financial Status Report—(1) Form. report from a subgrantee if the grantee Grantees will use Standard Form 269 or will still be able to meet its perform- 269A, Financial Status Report, to re- ance reporting obligations to the Fed- port the status of funds for all non- eral agency. construction grants and for construc- [53 FR 8086 and 8087, Mar. 11, 1988, as amend- tion grants when required in accorded at 53 FR 8087, Mar. 11, 1988] ance with § 18.41(e)(2)(iii). (2) Accounting basis. Each grantee will § 18.41 Financial reporting. report program outlays and program (a) General. (1) Except as provided in income on a cash or accrual basis as paragraphs (a) (2) and (5) of this sec- prescribed by the awarding agency. If tion, grantees will use only the forms the Federal agency requires accrual in- specified in paragraphs (a) through (e) formation and the grantee’s accounting of this section, and such supple- records are not normally kept on the mentary or other forms as may from accural basis, the grantee shall not be time to time be authorized by OMB, required to convert its accounting sys- for: tem but shall develop such accrual in- (i) Submitting financial reports to formation through and analysis of the Federal agencies, or documentation on hand. (ii) Requesting advances or reim- (3) Frequency. The Federal agency bursements when letters of credit are may prescribe the frequency of the re- not used. port for each project or program. How- (2) Grantees need not apply the forms ever, the report will not be required prescribed in this section in dealing more frequently than quarterly. If the with their subgrantees. However, Federal agency does not specify the grantees shall not impose more burden- frequency of the report, it will be sub- some requirements on subgrantees. mitted annually. A final report will be (3) Grantees shall follow all applica- required upon expiration or termi- ble standard and supplemental Federal nation of grant support.

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(4) Due date. When reports are re- ment. (This form will not be used for quired on a quarterly or semiannual drawdowns under a letter of credit, basis, they will be due 30 days after the electronic funds transfer or when reporting period. When required on an Treasury check advance payments are annual basis, they will be due 90 days made to the grantee automatically on after the grant year. Final reports will a predetermined basis.) be due 90 days after the expiration or (2) Reimbursements. Requests for reim- termination of grant support. bursement under nonconstruction (c) Federal Cash Transactions Report— grants will also be submitted on Stand- (1) Form. (i) For grants paid by letter or ard Form 270. (For reimbursement re- credit, Treasury check advances or quests under construction grants, see electronic transfer of funds, the grant- paragraph (e)(1) of this section.) ee will submit the Standard Form 272, Federal Cash Transactions Report, and (3) The frequency for submitting pay- when necessary, its continuation sheet, ment requests is treated in § 18.41(b)(3). Standard Form 272a, unless the terms (e) Outlay report and request for reim- of the award exempt the grantee from bursement for construction programs—(1) this requirement. Grants that support construction activi- (ii) These reports will be used by the ties paid by reimbursement method. (i) Federal agency to monitor cash ad- Requests for reimbursement under con- vanced to grantees and to obtain dis- struction grants will be submitted on bursement or outlay information for Standard Form 271, Outlay Report and each grant from grantees. The format Request for Reimbursement for Con- of the report may be adapted as appro- struction Programs. Federal agencies priate when reporting is to be accom- may, however, prescribe the Request plished with the assistance of auto- for Advance or Reimbursement form, matic data processing equipment pro- specified in § 18.41(d), instead of this vided that the information to be sub- form. mitted is not changed in substance. (ii) The frequency for submitting re- (2) Forecasts of Federal cash require- imbursement requests is treated in ments. Forecasts of Federal cash re- § 18.41(b)(3). quirements may be required in the (2) ‘‘Remarks’’ section of the report. Grants that support construction ac- (3) Cash in hands of subgrantees. When tivities paid by letter of credit, electronic considered necessary and feasible by funds transfer or Treasury check ad- the Federal agency, grantees may be vance. (i) When a construction grant is required to report the amount of cash paid by letter of credit, electronic advances in excess of three days needs funds transfer or Treasury check ad- in the hands of their subgrantees or vances, the grantee will report its out- contractors and to provide short nar- lays to the Federal agency using rative explanations of actions taken by Standard Form 271, Outlay Report and the grantee to reduce the excess bal- Request for Reimbursement for Con- ances. struction Programs. The Federal agen- (4) Frequency and due date. Grantees cy will provide any necessary special must submit the report no later than 15 instruction. However, frequency and working days following the end of each due date shall be governed by § 18.41(b) quarter. However, where an advance ei- (3) and (4). ther by letter of credit or electronic (ii) When a construction grant is paid transfer of funds is authorized at an by Treasury check advances based on annualized rate of one million dollars periodic requests from the grantee, the or more, the Federal agency may re- advances will be requested on the form quire the report to be submitted within specified in § 18.41(d). 15 working days following the end of (iii) The Federal agency may sub- each month. (d) Request for advance or reimburse- stitute the Financial Status Report ment—(1) Advance payments. Requests specified in § 18.41(b) for the Outlay Re- for Treasury check advance payments port and Request for Reimbursement will be submitted on Standard Form for Construction Programs. 270, Request for Advance or Reimburse-

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(3) Accounting basis. The accounting year retention requirement is not ap- basis for the Outlay Report and Re- plicable to the grantee or subgrantee. quest for Reimbursement for Construc- (c) Starting date of retention period—(1) tion Programs shall be governed by General. When grant support is contin- § 18.41(b)(2). ued or renewed at annual or other in- (f) Notwithstanding the provisions of tervals, the retention period for the paragraphs (a)(1) of this section, recipi- records of each funding period starts on ents of FHWA and National Highway the day the grantee or subgrantee sub- Traffic Safety Administration mits to the awarding agency its single (NHTSA) grants shall use FHWA, or last expenditure report for that pe- NHTSA or State financial reports. riod. However, if grant support is continued or renewed quarterly, the reten- [53 FR 8086 and 8087, Mar. 11, 1988, as amend- tion period for each year’s records ed at 53 FR 8087, Mar. 11, 1988] starts on the day the grantee submits § 18.42 Retention and access require- its expenditure report for the last quar- ments for records. ter of the Federal fiscal year. In all other cases, the retention period starts (a) Applicability. (1) This section ap- on the day the grantee submits its plies to all financial and programmatic final expenditure report. If an expendi- records, supporting documents, statis- ture report has been waived, the reten- tical records, and other records of tion period starts on the day the report grantees or subgrantees which are: would have been due. (i) Required to be maintained by the (2) Real property and equipment terms of this part, program regulations records. The retention period for real or the grant agreement, or property and equipment records starts (ii) Otherwise reasonably considered from the date of the disposition or re- as pertinent to program regulations or placement or transfer at the direction the grant agreement. of the awarding agency. (2) This section does not apply to (3) Records for income transactions records maintained by contractors or after grant or subgrant support. In some subcontractors. For a requirement to cases grantees must report income place a provision concerning records in after the period of grant support. certain kinds of contracts, see Where there is such a requirement, the § 18.36(i)(10). retention period for the records per- (b) Length of retention period. (1) Ex- taining to the earning of the income cept as otherwise provided, records starts from the end of the grantee’s fis- must be retained for three years from cal year in which the income is earned. the starting date specified in paragraph (4) Indirect cost rate proposals, cost al- (c) of this section. locations plans, etc. This paragraph ap- (2) If any litigation, claim, negotia- plies to the following types of docu- tion, audit or other action involving ments, and their supporting records: the records has been started before the indirect cost rate computations or pro- expiration of the 3-year period, the posals, cost allocation plans, and any records must be retained until comple- similar accounting computations of tion of the action and resolution of all the rate at which a particular group of issues which arise from it, or until the costs is chargeable (such as computer end of the regular 3-year period, which- usage chargeback rates or composite ever is later. fringe benefit rates). (3) To avoid duplicate recordkeeping, (i) If submitted for negotiation. If the awarding agencies may make special proposal, plan, or other computation is arrangements with grantees and sub- required to be submitted to the Federal grantees to retain any records which Government (or to the grantee) to form are continuously needed for joint use. the basis for negotiation of the rate, The awarding agency will request then the 3-year retention period for its transfer of records to its custody when supporting records starts from the date it determines that the records possess of such submission. long-term retention value. When the (ii) If not submitted for negotiation. If records are transferred to or main- the proposal, plan, or other computa- tained by the Federal agency, the 3- tion is not required to be submitted to

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the Federal Government (or to the (4) Withhold further awards for the grantee) for negotiation purposes, then program, or the 3-year retention period for the pro- (5) Take other remedies that may be posal plan, or computation and its sup- legally available. porting records starts from theend of (b) Hearings, appeals. In taking an en- the fiscal year (or other accounting pe- forcement action, the awarding agency riod) covered by the proposal, plan, or will provide the grantee or subgrantee other computation. an opportunity for such hearing, ap- (d) Substitution of microfilm. Copies peal, or other administrative pro- made by microfilming, photocopying, ceeding to which the grantee or sub- or similar methods may be substituted grantee is entitled under any statute for the original records. or regulation applicable to the action (e) Access to records—(1) Records of involved. grantees and subgrantees. The awarding agency and the Comptroller General of (c) Effects of suspension and termi- the United States, or any of their au- nation. Costs of grantee or subgrantee thorized representatives, shall have the resulting from obligations incurred by right of access to any pertinent books, the grantee or subgrantee during a sus- documents, papers, or other records of pension or after termination of an grantees and subgrantees which are award are not allowable unless the pertinent to the grant, in order to awarding agency expressly authorizes make audits, examinations, excerpts, them in the notice of suspension or ter- and transcripts. mination or subsequently. Other grant- (2) Expiration of right of access. The ee or subgrantee costs during suspen- right of access in this section must not sion or after termination which are be limited to the required retention pe- necessary and not reasonably avoidable riod but shall last as long as the are allowable if: records are retained. (1) The costs result from obligations (f) Restrictions on public access. The which were properly incurred by the Federal Freedom of Information Act (5 grantee or subgrantee before the effec- U.S.C. 552) does not apply to records tive date of suspension or termination, unless required by Federal, State, or are not in anticipation of it, and, in the local law, grantees and subgrantees are case of a termination, are not required to permit public access to noncancellable, and, their records. (2) The costs would be allowable if the award were not suspended or ex- § 18.43 Enforcement. pired normally at the end of the fund- (a) Remedies for noncompliance. If a ing period in which the termination grantee or subgrantee materially fails takes effect. to comply with any term of an award, (d) Relationship to debarment and sus- whether stated in a Federal statute or pension. The enforcement remedies regulation, an assurance, in a State identified in this section, including plan or application, a notice of award, suspension and termination, do not or elsewhere, the awarding agency may preclude grantee or subgrantee from take one or more of the following ac- being subject to ‘‘Debarment and Sus- tions, as appropriate in the cir- pension’’ under E.O. 12549 (see § 18.35). cumstances: (1) Temporarily withhold cash pay- § 18.44 Termination for convenience. ments pending correction of the defi- ciency by the grantee or subgrantee or Except as provided in § 18.43 awards more severe enforcement action by the may be terminated in whole or in part awarding agency, only as follows: (2) Disallow (that is, deny both use of (a) By the awarding agency with the funds and matching credit for) all or consent of the grantee or subgrantee in part of the cost of the activity or ac- which case the two parties shall agree tion not in compliance, upon the termination conditions, in- (3) Wholly or partly suspend or ter- cluding the effective date and in the minate the current award for the case of partial termination, the portion grantee’s or subgrantee’s program, to be terminated, or

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(b) By the grantee or subgrantee (2) The grantee must immediately re- upon written notification to the award- fund to the Federal agency any balance ing agency, setting forth the reasons of unobligated (unencumbered) cash for such termination, the effective advanced that is not authorized to be date, and in the case of partial termi- retained for use on other grants. nation, the portion to be terminated. However, if, in the case of a partial ter- § 18.51 Later disallowances and adjust- mination, the awarding agency deter- ments. mines that the remaining portion of The closeout of a grant does not af- the award will not accomplish the pur- fect: poses for which the award was made, the awarding agency may terminate (a) The Federal agency’s right to dis- the award in its entirety under either allow costs and recover funds on the § 18.43 or paragraph (a) of this section. basis of a later audit or other review; (b) The grantee’s obligation to return Subpart D—After-The-Grant any funds due as a result of later re- Requirements funds, corrections, or other transactions; § 18.50 Closeout. (c) Records retention as required in (a) General. The Federal agency will § 18.42; close out the award when it determines (d) Property management require- that all applicable administrative ac- ments in §§ 18.31 and 18.32; and tions and all required work of the (e) Audit requirements in § 18.26. grant has been completed. (b) Reports. Within 90 days after the § 18.52 Collection of amounts due. expiration or termination of the grant, (a) Any funds paid to a grantee in ex- the grantee must submit all financial, cess of the amount to which the grant- performance, and other reports re- ee is finally determined to be entitled quired as a condition of the grant. under the terms of the award con- Upon request by the grantee, Federal agencies may extend this timeframe. stitute a debt to the Federal Govern- These may include but are not limited ment. If not paid within a reasonable to: period after demand, the Federal agen- (1) Final performance or progress re- cy may reduce the debt by: port. (1) Making an adminstrative offset (2) Financial Status Report (SF 269) or against other requests for reimburse- Outlay Report and Request for Reim- ments, bursement for Construction Programs (2) Withholding advance payments (SF–271) (as applicable). otherwise due to the grantee, or (3) Final request for payment (SF–270) (3) Other action permitted by law. (if applicable). (b) Except where otherwise provided (4) Invention disclosure (if applicable). by statutes or regulations, the Federal (5) Federally-owned property report: agency will charge interest on an over- In accordance with § 18.32(f), a grantee due debt in accordance with the Fed- must submit an inventory of all feder- eral Claims Collection Standards (4 ally owned property (as distinct from CFR Ch. II). The date from which inter- property acquired with grant funds) for est is computed is not extended by liti- which it is accountable and request dis- gation or the filing of any form of ap- position instructions from the Federal agency of property no longer needed. peal. (c) Cost adjustment. The Federal agency will, within 90 days after receipt of Subpart E—Entitlements reports in paragraph (b) of this section, [Reserved] make upward or downward adjustments to the allowable costs. (d) Cash adjustments. (1) The Federal agency will make prompt payment to the grantee for allowable reimbursable costs.

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Cost Principles

2 CFR Part 225 Cost Principles for State, Local, and Indian Tribal Governments (OMB Circular A‐87)

51910 Federal Register / Vol. 70, No. 168 /Wednesday, August 31, 2005 /Rules and Regulations

OFFICE OF MANAGEMENT AND Circular A–87 as revised by the May 10, § 225.15 Background. BUDGET 2004 notice. As part of the government-wide grant List of Subjects in 2 CFR Part 225 streamlining effort under Public Law 2 CFR Part 225 106–107, Federal Financial Award Accounting, Grant administration, Management Improvement Act of 1999, Cost Principles for State, Local, and Grant programs, Reporting and OMB led an interagency workgroup to Indian Tribal Governments (OMB recordkeeping requirements, State, simplify and make consistent, to the Circular A–87) local, and Indian tribal governments. extent feasible, the various rules used to AGENCY: Office of Management and Dated: August 8, 2005. award Federal grants. An interagency Budget Joshua B. Bolten, task force was established in 2001 to ACTION: Relocation of policy guidance to Director. review existing cost principles for 2 CFR chapter II. Federal awards to State, local, and Authority and Issuance Indian tribal governments; colleges and SUMMARY: The Office of Management ■ For the reasons set forth above, the universities; and non-profit and Budget (OMB) is relocating Circular Office of Management and Budget organizations. The task force studied A–87, ‘‘Cost Principles for State, Local, amends 2 CFR Subtitle A, Chapter II, by ‘‘Selected Items of Cost’’ in each of the and Indian Tribal Governments,’’ to adding a part 225 as set forth below. three cost principles to determine which Title 2 in the Code of Federal items of costs could be stated Regulations (2 CFR), Subtitle A, Chapter PART 225—COST PRINCIPLES FOR consistently and/or more clearly. II, part 225 as part of an initiative to STATE, LOCAL, AND INDIAN TRIBAL provide the public with a central GOVERNMENTS (OMB CIRCULAR § 225.20 Policy. location for Federal government policies A–87) This part establishes principles and on grants and other financial assistance standards to provide a uniform Sec. and nonprocurement agreements. approach for determining costs and to 225.5 Purpose. promote effective program delivery, Consolidating the OMB guidance and 225.10 Authority co-locating the agency regulations 225.15 Background efficiency, and better relationships provides a good foundation for 225.20 Policy. between governmental units and the streamlining and simplifying the policy 225.25 Definitions. Federal Government. The principles are framework for grants and agreements as 225.30 OMB responsibilities. for determining allowable costs only. part of the efforts to implement the 225.35 Federal agency responsibilities. They are not intended to identify the Federal Financial Assistance 225.40 Effective date of changes. circumstances or to dictate the extent of 225.45 Relationship to previous issuance. Management Improvement Act of 1999 Federal and governmental unit 225.50 Policy review date. participation in the financing of a (Pub. L. 106–107). 225.55 Information Contact. DATES: This document is effective Appendix A to Part 225—General Principles particular Federal award. Provision for August 31, 2005. This document for Determining Allowable Costs profit or other increment above cost is republishes the existing OMB Circular Appendix B to Part 225—Selected Items of outside the scope of this part. A–87, which already is in effect. Cost Appendix C to Part 225—State/Local-Wide § 225.25 Definitions. FOR FURTHER INFORMATION CONTACT: Gil Central Service Cost Allocation Plans Definitions of key terms used in this Tran, Office of Federal Financial Appendix D to Part 225—Public Assistance part are contained in Appendix A to this Management, Office of Management and Cost Allocation Plans part, Section B. Budget, telephone 202–395–3052 Appendix E to Part 225—State and Local (direct) or 202–395–3993 (main office) Indirect Cost Rate Proposals § 225.30 OMB responsibilities. and e-mail: [email protected]. Authority: 31 U.S.C. 503; 31 U.S.C. 1111; The Office of Management and Budget SUPPLEMENTARY INFORMATION: On May 41 U.S.C. 405; Reorganization Plan No. 2 of (OMB) will review agency regulations 10, 2004 [69 FR 25970], we revised the 1970; E.O. 11541, 35 FR 10737, 3 CFR, 1966– and implementation of this part, and three OMB circulars containing Federal 1970, p. 939. will provide policy interpretations and cost principles. The purpose of those § 225.5 Purpose. assistance to insure effective and efficient implementation. Any revisions was to simplify the cost This part establishes principles and principles by making the descriptions of standards for determining costs for exceptions will be subject to approval similar cost items consistent across the Federal awards carried out through by OMB. Exceptions will only be made circulars where possible, thereby grants, cost reimbursement contracts, in particular cases where adequate reducing the possibility of and other agreements with State and justification is presented. misinterpretation. Those revisions, a local governments and federally- § 225.35 Federal agency responsibilities. result of OMB and Federal agency recognized Indian tribal governments Agencies responsible for efforts to implement Public Law 106– (governmental units). administering programs that involve 107, were effective on June 9, 2004. In this document, we relocate OMB § 225.10 Authority. cost reimbursement contracts, grants, Circular A–87 to the CFR, in Title 2 This part is issued under the authority and other agreements with which was established on May 11, 2004 of the Budget and Accounting Act of governmental units shall issue [69 FR 26276] as a central location for 1921, as amended; the Budget and regulations to implement the provisions OMB and Federal agency policies on Accounting Procedures Act of 1950, as of this part and its appendices. grants and agreements. amended; the Chief Financial Officers § 225.40 Effective date of changes. Our relocation of OMB Circular A–87 Act of 1990; Reorganization Plan No. 2 This part is effective August 31, 2005. does not change the substance of the of 1970; and Executive Order No. 11541 circular. Other than adjustments needed (‘‘Prescribing the Duties of the Office of § 225.45 Relationship to previous to conform to the formatting Management and Budget and the issuance. requirements of the CFR, this notice Domestic Policy Council in the (a) The guidance in this part relocates in 2 CFR the version of OMB Executive Office of the President’’). previously was issued as OMB Circular Federal Register / Vol. 70, No. 168 /Wednesday, August 31, 2005 /Rules and Regulations 51911

A–87. Appendix A to this part contains 3. Minor items Federal awards (including subawards) except the guidance that was in Attachment A F. Indirect Costs those with (1) publicly-financed educational (general principles) to the OMB circular; 1. General institutions subject to, 2 CFR part 220, Cost Appendix B contains the guidance that 2. Cost allocation plans and indirect cost Principles for Educational Institutions (OMB proposals Circular A–21), and (2) programs was in Attachment B (selected items of 3. Limitation on indirect or administrative administered by publicly-owned hospitals cost); Appendix C contains the costs and other providers of medical care that are information that was in Attachment C G. Interagency Services subject to requirements promulgated by the (state/local-wide central service cost H. Required Certifications sponsoring Federal agencies. However, 2 CFR allocation plans); Appendix D contains General Principles for Determining part 225 does apply to all central service and the guidance that was in Attachment D Allowable Costs department/agency costs that are allocated or (public assistance cost allocation plans); A. Purpose and Scope billed to those educational institutions, and Appendix E contains the guidance 1. Objectives. This Appendix establishes hospitals, and other providers of medical principles for determining the allowable care or services by other State and local that was in Attachment E (state and government departments and agencies. local indirect cost rate proposals). costs incurred by State, local, and federally- recognized Indian tribal governments b. All subawards are subject to those (b) This part supersedes OMB Circular (governmental units) under grants, cost Federal cost principles applicable to the A–87, as amended May 10, 2004, which reimbursement contracts, and other particular organization concerned. Thus, if a superseded Circular A–87, as amended agreements with the Federal Government subaward is to a governmental unit (other and issued May 4, 1995. (collectively referred to in this appendix and than a college, university or hospital), 2 CFR other appendices to 2 CFR part 225 as part 225 shall apply; if a subaward is to a § 225.50 Policy review date. ‘‘Federal awards’’). The principles are for the commercial organization, the cost principles This part will have a policy review purpose of cost determination and are not applicable to commercial organizations shall three years from the date of issuance. intended to identify the circumstances or apply; if a subaward is to a college or dictate the extent of Federal or governmental university, 2 CFR part 220 (Circular A–21) § 225.55 Information contact. unit participation in the financing of a shall apply; if a subaward is to a hospital, the cost principles used by the Federal awarding Further information concerning this particular program or project. The principles are designed to provide that Federal awards agency for awards to hospitals shall apply, part may be obtained by contacting the bear their fair share of cost recognized under subject to the provisions of subsection A.3.a. Office of Federal Financial these principles except where restricted or of this Appendix; if a subaward is to some Management, Financial Standards and prohibited by law. Provision for profit or other non-profit organization, 2 CFR part 230, Reporting Branch, Office of other increment above cost is outside the Cost Principles for Non-Profit Organizations Management and Budget, Washington, scope of 2 CFR part 225. (Circular A–122), shall apply. DC 20503, telephone 202–395–3993. 2. Policy guides. c. These principles shall be used as a guide a. The application of these principles is in the pricing of fixed price arrangements Appendix A to Part 225—General based on the fundamental premises that: where costs are used in determining the Principles for Determining Allowable (1) Governmental units are responsible for appropriate price. Costs the efficient and effective administration of d. Where a Federal contract awarded to a Federal awards through the application of governmental unit incorporates a Cost Table of Contents sound management practices. Accounting Standards (CAS) clause, the A. Purpose and Scope (2) Governmental units assume requirements of that clause shall apply. In 1. Objectives responsibility for administering Federal such cases, the governmental unit and the 2. Policy guides funds in a manner consistent with cognizant Federal agency shall establish an 3. Application underlying agreements, program objectives, appropriate advance agreement on how the B. Definitions and the terms and conditions of the Federal governmental unit will comply with 1. Approval or authorization of the award. applicable CAS requirements when awarding or cognizant Federal agency (3) Each governmental unit, in recognition estimating, accumulating and reporting costs 2. Award of its own unique combination of staff, under CAS-covered contracts. The agreement 3. Awarding agency facilities, and experience, will have the shall indicate that 2 CFR part 225 (OMB 4. Central service cost allocation plan primary responsibility for employing Circular A–87) requirements will be applied 5. Claim whatever form of organization and to other Federal awards. In all cases, only one 6. Cognizant agency management techniques may be necessary to set of records needs to be maintained by the 7. Common rule assure proper and efficient administration of governmental unit. 8. Contract Federal awards. e. Conditional exemptions. 9. Cost b. Federal agencies should work with (1) OMB authorizes conditional exemption 10. Cost allocation plan States or localities which wish to test from OMB administrative requirements and 11. Cost objective alternative mechanisms for paying costs for cost principles for certain Federal programs 12. Federally-recognized Indian tribal administering Federal programs. The Office with statutorily-authorized consolidated government of Management and Budget (OMB) planning and consolidated administrative 13. Governmental unit encourages Federal agencies to test fee-for- funding, that are identified by a Federal 14. Grantee department or agency service alternatives as a replacement for agency and approved by the head of the 15. Indirect cost rate proposal current cost-reimbursement payment Executive department or establishment. A 16. Local government methods in response to the National Federal agency shall consult with OMB 17. Public assistance cost allocation plan Performance Review’s (NPR) during its consideration of whether to grant 18. State recommendation. The NPR recommended the such an exemption. C. Basic Guidelines fee-for-service approach to reduce the burden (2) To promote efficiency in State and local 1. Factors affecting allowability of costs associated with maintaining systems for program administration, when Federal non- 2. Reasonable costs charging administrative costs to Federal entitlement programs with common purposes 3. Allocable costs programs and preparing and approving cost have specific statutorily-authorized 4. Applicable credits allocation plans. This approach should also consolidated planning and consolidated D. Composition of Cost increase incentives for administrative administrative funding and where most of 1. Total cost efficiencies and improve outcomes. the State agency’s resources come from non- 2. Classification of costs 3. Application. Federal sources, Federal agencies may E. Direct Costs a. These principles will be applied by all exempt these covered State-administered, 1. General Federal agencies in determining costs non-entitlement grant programs from certain 2. Application incurred by governmental units under OMB grants management requirements. The 51912 Federal Register / Vol. 70, No. 168 /Wednesday, August 31, 2005 /Rules and Regulations exemptions would be from all but the decision is made by the Federal awarding cost rate as described in Appendix E of 2 CFR allocability of costs provisions of Appendix agency. part 225. A subsection C.3 of 2 CFR part 225, Cost 6. ‘‘Cognizant agency’’ means the Federal 16. ‘‘Local government’’ means a county, Principles for State, Local, and Indian Tribal agency responsible for reviewing, municipality, city, town, township, local Governments (OMB Circular A–87); negotiating, and approving cost allocation public authority, school district, special Appendix A, Section C.4 of 2 CFR 220, Cost plans or indirect cost proposals developed district, intrastate district, council of Principles for Educational Institutions under 2 CFR part 225 on behalf of all Federal governments (whether or not incorporated as (Circular A–21); Appendix A, subsection A.4 agencies. OMB publishes a listing of a non-profit corporation under State law), of 2 CFR 230 Cost Principles for Non-Profit cognizant agencies. any other regional or interstate government Organizations (Circular A–122); and from all 7. ‘‘Common Rule’’ means the ‘‘Uniform entity, or any agency or instrumentality of a of the administrative requirements provisions Administrative Requirements for Grants and local government. of 2 CFR part 215, Uniform Administrative Cooperative Agreements to State and Local 17. ‘‘Public assistance cost allocation plan’’ Requirements for Grants and Agreements Governments; Final Rule’’ originally issued means a narrative description of the with Institutions of Higher Education, at 53 FR 8034–8103 (March 11, 1988). Other procedures that will be used in identifying, Hospitals, and Other Non-Profit common rules will be referred to by their measuring and allocating all administrative Organizations (Circular A–110), and the specific titles. costs to all of the programs administered or agencies’ grants management common rule. 8. ‘‘Contract’’ means a mutually binding supervised by State public assistance (3) When a Federal agency provides this legal relationship obligating the seller to agencies as described in Appendix D of 2 flexibility, as a prerequisite to a State’s furnish the supplies or services (including CFR part 225. exercising this option, a State must adopt its construction) and the buyer to pay for them. 18. ‘‘State’’ means any of the several States own written fiscal and administrative It includes all types of commitments that of the United States, the District of Columbia, requirements for expending and accounting obligate the government to an expenditure of the Commonwealth of Puerto Rico, any for all funds, which are consistent with the appropriated funds and that, except as territory or possession of the United States, provisions of 2 CFR part 225 (OMB Circular otherwise authorized, are in writing. In or any agency or instrumentality of a State A–87), and extend such policies to all addition to bilateral instruments, contracts exclusive of local governments. subrecipients. These fiscal and include (but are not limited to): Awards and C. Basic Guidelines administrative requirements must be notices of awards; job orders or task orders 1. Factors affecting allowability of costs. To sufficiently specific to ensure that: Funds are issued under basic ordering agreements; be allowable under Federal awards, costs used in compliance with all applicable letter contracts; orders, such as purchase must meet the following general criteria: Federal statutory and regulatory provisions, orders, under which the contract becomes a. Be necessary and reasonable for proper and efficient performance and administration costs are reasonable and necessary for effective by written acceptance or of Federal awards. operating these programs, and funds are not performance; and, bilateral contract b. Be allocable to Federal awards under the used for general expenses required to carry modifications. Contracts do not include provisions of 2 CFR part 225. out other responsibilities of a State or its grants and cooperative agreements covered c. Be authorized or not prohibited under subrecipients. by 31 U.S.C. 6301 et seq. State or local laws or regulations. 9. ‘‘Cost’’ means an amount as determined B. Definitions d. Conform to any limitations or exclusions 1. ‘‘Approval or authorization of the on a cash, accrual, or other basis acceptable set forth in these principles, Federal laws, awarding or cognizant Federal agency’’ to the Federal awarding or cognizant agency. terms and conditions of the Federal award, means documentation evidencing consent It does not include transfers to a general or or other governing regulations as to types or prior to incurring a specific cost. If such costs similar fund. amounts of cost items. are specifically identified in a Federal award 10. ‘‘Cost allocation plan’’ means central e. Be consistent with policies, regulations, document, approval of the document service cost allocation plan, public assistance and procedures that apply uniformly to both constitutes approval of the costs. If the costs cost allocation plan, and indirect cost rate Federal awards and other activities of the are covered by a State/local-wide cost proposal. Each of these terms is further governmental unit. allocation plan or an indirect cost proposal, defined in this section. f. Be accorded consistent treatment. A cost approval of the plan constitutes the approval. 11. ‘‘Cost objective’’ means a function, may not be assigned to a Federal award as 2. ‘‘Award’’ means grants, cost organizational subdivision, contract, grant, or a direct cost if any other cost incurred for the reimbursement contracts and other other activity for which cost data are needed same purpose in like circumstances has been agreements between a State, local and Indian and for which costs are incurred. allocated to the Federal award as an indirect tribal government and the Federal 12. ‘‘Federally-recognized Indian tribal cost. Government. government’’ means the governing body or a g. Except as otherwise provided for in 2 3. ‘‘Awarding agency’’ means (a) with governmental agency of any Indian tribe, CFR part 225, be determined in accordance respect to a grant, cooperative agreement, or band, nation, or other organized group or with generally accepted accounting cost reimbursement contract, the Federal community (including any native village as principles. agency, and (b) with respect to a subaward, defined in Section 3 of the Alaska Native h. Not be included as a cost or used to meet the party that awarded the subaward. Claims Settlement Act, 85 Stat. 688) certified cost sharing or matching requirements of any 4. ‘‘Central service cost allocation plan’’ by the Secretary of the Interior as eligible for other Federal award in either the current or means the documentation identifying, the special programs and services provided a prior period, except as specifically accumulating, and allocating or developing through the Bureau of Indian Affairs. provided by Federal law or regulation. billing rates based on the allowable costs of 13. ‘‘Governmental unit’’ means the entire i. Be the net of all applicable credits. services provided by a governmental unit on State, local, or federally-recognized Indian j. Be adequately documented. a centralized basis to its departments and tribal government, including any component 2. Reasonable costs. A cost is reasonable if, agencies. The costs of these services may be thereof. Components of governmental units in its nature and amount, it does not exceed allocated or billed to users. may function independently of the that which would be incurred by a prudent 5. ‘‘Claim’’ means a written demand or governmental unit in accordance with the person under the circumstances prevailing at written assertion by the governmental unit or term of the award. the time the decision was made to incur the grantor seeking, as a matter of right, the 14. ‘‘Grantee department or agency’’ means cost. The question of reasonableness is payment of money in a sum certain, the the component of a State, local, or federally- particularly important when governmental adjustment or interpretation of award terms, recognized Indian tribal government which is units or components are predominately or other relief arising under or relating to the responsible for the performance or federally-funded. In determining award. A voucher, invoice or other routine administration of all or some part of a reasonableness of a given cost, consideration request for payment that is not a dispute Federal award. shall be given to: when submitted is not a claim. Appeals, such 15. ‘‘Indirect cost rate proposal’’ means the a. Whether the cost is of a type generally as those filed by a governmental unit in documentation prepared by a governmental recognized as ordinary and necessary for the response to questioned audit costs, are not unit or component thereof to substantiate its operation of the governmental unit or the considered claims until a final management request for the establishment of an indirect performance of the Federal award. Federal Register / Vol. 70, No. 168 /Wednesday, August 31, 2005 /Rules and Regulations 51913

b. The restraints or requirements imposed either direct or indirect under every of the direct salary and wage cost of by such factors as: Sound business practices; accounting system. A cost may be direct with providing the service (excluding overtime, arm’s-length bargaining; Federal, State and respect to some specific service or function, shift premiums, and fringe benefits) may be other laws and regulations; and, terms and but indirect with respect to the Federal used in lieu of determining the actual conditions of the Federal award. award or other final cost objective. Therefore, indirect costs of the service. These services c. Market prices for comparable goods or it is essential that each item of cost be treated do not include centralized services included services. consistently in like circumstances either as a in central service cost allocation plans as d. Whether the individuals concerned direct or an indirect cost. Guidelines for described in Appendix C to this part. acted with prudence in the circumstances determining direct and indirect costs charged H. Required Certifications. Each cost considering their responsibilities to the to Federal awards are provided in the allocation plan or indirect cost rate proposal governmental unit, its employees, the public sections that follow. required by Appendices C and E to this part at large, and the Federal Government. E. Direct Costs must comply with the following: e. Significant deviations from the 1. General. Direct costs are those that can 1. No proposal to establish a cost allocation established practices of the governmental be identified specifically with a particular plan or an indirect cost rate, whether unit which may unjustifiably increase the final cost objective. submitted to a Federal cognizant agency or Federal award’s cost. 2. Application. Typical direct costs maintained on file by the governmental unit, 3. Allocable costs. chargeable to Federal awards are: shall be acceptable unless such costs have a. A cost is allocable to a particular cost a. Compensation of employees for the time been certified by the governmental unit using objective if the goods or services involved are devoted and identified specifically to the the Certificate of Cost Allocation Plan or chargeable or assignable to such cost performance of those awards. Certificate of Indirect Costs as set forth in objective in accordance with relative benefits b. Cost of materials acquired, consumed, or Appendices C and E to this part. The received. expended specifically for the purpose of certificate must be signed on behalf of the b. All activities which benefit from the those awards. governmental unit by an individual at a level governmental unit’s indirect cost, including c. Equipment and other approved capital no lower than chief financial officer of the unallowable activities and services donated expenditures. governmental unit that submits the proposal to the governmental unit by third parties, d. Travel expenses incurred specifically to or component covered by the proposal. will receive an appropriate allocation of carry out the award. 2. No cost allocation plan or indirect cost indirect costs. 3. Minor items. Any direct cost of a minor rate shall be approved by the Federal c. Any cost allocable to a particular Federal amount may be treated as an indirect cost for Government unless the plan or rate proposal award or cost objective under the principles reasons of practicality where such accounting has been certified. Where it is necessary to provided for in 2 CFR part 225 may not be treatment for that item of cost is consistently establish a cost allocation plan or an indirect charged to other Federal awards to overcome applied to all cost objectives. cost rate and the governmental unit has not fund deficiencies, to avoid restrictions F. Indirect Costs submitted a certified proposal for imposed by law or terms of the Federal 1. General. Indirect costs are those: establishing such a plan or rate in accordance awards, or for other reasons. Incurred for a common or joint purpose with the requirements, the Federal d. Where an accumulation of indirect costs benefiting more than one cost objective, and Government may either disallow all indirect will ultimately result in charges to a Federal costs or unilaterally establish such a plan or award, a cost allocation plan will be required not readily assignable to the cost objectives specifically benefitted, without effort rate. Such a plan or rate may be based upon as described in Appendices C, D, and E to audited historical data or such other data that this part. disproportionate to the results achieved. The term ‘‘indirect costs,’’ as used herein, applies have been furnished to the cognizant Federal 4. Applicable credits. agency and for which it can be demonstrated a. Applicable credits refer to those receipts to costs of this type originating in the grantee department, as well as those incurred by that all unallowable costs have been or reduction of expenditure-type transactions excluded. When a cost allocation plan or that offset or reduce expense items allocable other departments in supplying goods, services, and facilities. To facilitate equitable indirect cost rate is unilaterally established to Federal awards as direct or indirect costs. by the Federal Government because of failure Examples of such transactions are: Purchase distribution of indirect expenses to the cost objectives served, it may be necessary to of the governmental unit to submit a certified discounts, rebates or allowances, recoveries proposal, the plan or rate established will be or indemnities on losses, insurance refunds establish a number of pools of indirect costs within a governmental unit department or in set to ensure that potentially unallowable or rebates, and adjustments of overpayments costs will not be reimbursed. or erroneous charges. To the extent that such other agencies providing services to a credits accruing to or received by the governmental unit department. Indirect cost Appendix B to Part 225—Selected Items governmental unit relate to allowable costs, pools should be distributed to benefitted cost of Cost they shall be credited to the Federal award objectives on bases that will produce an either as a cost reduction or cash refund, as equitable result in consideration of relative Table of Contents appropriate. benefits derived. 1. Advertising and public relations costs b. In some instances, the amounts received 2. Cost allocation plans and indirect cost 2. Advisory councils from the Federal Government to finance proposals. Requirements for development 3. Alcoholic beverages activities or service operations of the and submission of cost allocation plans and 4. Audit costs and related services governmental unit should be treated as indirect cost rate proposals are contained in 5. Bad debts applicable credits. Specifically, the concept Appendices C, D, and E to this part. 6. Bonding costs of netting such credit items (including any 3. Limitation on indirect or administrative 7. Communication costs amounts used to meet cost sharing or costs. 8. Compensation for personal services matching requirements) should be recognized a. In addition to restrictions contained in 9. Contingency provisions in determining the rates or amounts to be 2 CFR part 225, there may be laws that 10. Defense and prosecution of criminal and charged to Federal awards. (See Appendix B further limit the amount of administrative or civil proceedings, and claims to this part, item 11, ‘‘Depreciation and use indirect cost allowed. 11. Depreciation and use allowances allowances,’’ for areas of potential b. Amounts not recoverable as indirect 12. Donations and contributions application in the matter of Federal financing costs or administrative costs under one 13. Employee morale, health, and welfare of activities.) Federal award may not be shifted to another costs D. Composition of Cost Federal award, unless specifically authorized 14. Entertainment costs 1. Total cost. The total cost of Federal by Federal legislation or regulation. 15. Equipment and other capital awards is comprised of the allowable direct G. Interagency Services. The cost of expenditures cost of the program, plus its allocable portion services provided by one agency to another 16. Fines and penalties of allowable indirect costs, less applicable within the governmental unit may include 17. Fund raising and investment management credits. allowable direct costs of the service plus a costs 2. Classification of costs. There is no pro rate share of indirect costs. A standard 18. Gains and losses on disposition of universal rule for classifying certain costs as indirect cost allowance equal to ten percent depreciable property and other capital 51914 Federal Register / Vol. 70, No. 168 /Wednesday, August 31, 2005 /Rules and Regulations

assets and substantial relocation of (1) Costs specifically required by the uncollectable accounts and other claims, Federal programs Federal award; related collection costs, and related legal 19. General government expenses (2) Costs of communicating with the public costs, are unallowable. 20. Goods or services for personal use and press pertaining to specific activities or 6. Bonding costs. 21. Idle facilities and idle capacity accomplishments which result from a. Bonding costs arise when the Federal 22. Insurance and indemnification performance of Federal awards (these costs Government requires assurance against 23. Interest are considered necessary as part of the financial loss to itself or others by reason of 24. Lobbying outreach effort for the Federal award); or the act or default of the governmental unit. 25. Maintenance, operations, and repairs (3) Costs of conducting general liaison with They arise also in instances where the 26. Materials and supplies costs news media and government public relations governmental unit requires similar assurance. 27. Meetings and conferences officers, to the extent that such activities are Included are such bonds as bid, performance, 28. Memberships, subscriptions, and limited to communication and liaison payment, advance payment, infringement, professional activity costs necessary keep the public informed on and fidelity bonds. 29. Patent costs matters of public concern, such as notices of b. Costs of bonding required pursuant to 30. Plant and homeland security costs Federal contract/grant awards, financial the terms of the award are allowable. 31. Pre-award costs matters, etc. c. Costs of bonding required by the 32. Professional service costs e. Costs identified in subsections c and d governmental unit in the general conduct of 33. Proposal costs if incurred for more than one Federal award its operations are allowable to the extent that 34. Publication and printing costs or for both sponsored work and other work such bonding is in accordance with sound 35. Rearrangement and alteration costs of the governmental unit, are allowable to the business practice and the rates and premiums 36. Reconversion costs extent that the principles in Appendix A to are reasonable under the circumstances. 37. Rental costs of building and equipment this part, sections E. (‘‘Direct Costs’’) and F. 7. Communication costs. Costs incurred for 38. Royalties and other costs for the use of (‘‘Indirect Costs’’) are observed. telephone services, local and long distance patents f. Unallowable advertising and public telephone calls, telegrams, postage, 39. Selling and marketing relations costs include the following: messenger, electronic or computer 40. Taxes (1) All advertising and public relations transmittal services and the like are 41. Termination costs applicable to costs other than as specified in subsections allowable. sponsored agreements 1.c, d, and e of this appendix; 8. Compensation for personal services. 42. Training costs (2) Costs of meetings, conventions, a. General. Compensation for personnel 43. Travel costs convocations, or other events related to other services includes all remuneration, paid Sections 1 through 43 provide principles to activities of the governmental unit, currently or accrued, for services rendered be applied in establishing the allowability or including: during the period of performance under unallowability of certain items of cost. These (a) Costs of displays, demonstrations, and Federal awards, including but not necessarily principles apply whether a cost is treated as exhibits; limited to wages, salaries, and fringe benefits. direct or indirect. A cost is allowable for (b) Costs of meeting rooms, hospitality The costs of such compensation are Federal reimbursement only to the extent of suites, and other special facilities used in allowable to the extent that they satisfy the benefits received by Federal awards and its conjunction with shows and other special specific requirements of this and other conformance with the general policies and events; and appendices under 2 CFR Part 225, and that principles stated in Appendix A to this part. (c) Salaries and wages of employees the total compensation for individual Failure to mention a particular item of cost engaged in setting up and displaying employees: in these sections is not intended to imply exhibits, making demonstrations, and (1) Is reasonable for the services rendered that it is either allowable or unallowable; providing briefings; and conforms to the established policy of the rather, determination of allowability in each (3) Costs of promotional items and governmental unit consistently applied to case should be based on the treatment or memorabilia, including models, gifts, and both Federal and non-Federal activities; standards provided for similar or related souvenirs; (2) Follows an appointment made in items of cost. (4) Costs of advertising and public relations accordance with a governmental unit’s laws 1. Advertising and public relations costs. designed solely to promote the governmental and rules and meets merit system or other a. The term advertising costs means the unit. requirements required by Federal law, where costs of advertising media and corollary 2. Advisory councils. Costs incurred by applicable; and administrative costs. Advertising media advisory councils or committees are (3) Is determined and supported as include magazines, newspapers, radio and allowable as a direct cost where authorized provided in subsection h. television, direct mail, exhibits, electronic or by the Federal awarding agency or as an b. Reasonableness. Compensation for computer transmittals, and the like. indirect cost where allocable to Federal employees engaged in work on Federal b. The term public relations includes awards. awards will be considered reasonable to the community relations and means those 3. Alcoholic beverages. Costs of alcoholic extent that it is consistent with that paid for activities dedicated to maintaining the image beverages are unallowable. similar work in other activities of the of the governmental unit or maintaining or 4. Audit costs and related services. governmental unit. In cases where the kinds promoting understanding and favorable a. The costs of audits required by , and of employees required for Federal awards are relations with the community or public at performed in accordance with, the Single not found in the other activities of the large or any segment of the public. Audit Act, as implemented by Circular A– governmental unit, compensation will be c. The only allowable advertising costs are 133, ‘‘Audits of States, Local Governments, considered reasonable to the extent that it is those which are solely for: and Non-Profit Organizations’’ are allowable. comparable to that paid for similar work in (1) The recruitment of personnel required Also see 31 U.S.C. 7505(b) and section 230 the labor market in which the employing for the performance by the governmental unit (‘‘Audit Costs’’) of Circular A–133. government competes for the kind of of obligations arising under a Federal award; b. Other audit costs are allowable if employees involved. Compensation surveys (2) The procurement of goods and services included in a cost allocation plan or indirect providing data representative of the labor for the performance of a Federal award; cost proposal, or if specifically approved by market involved will be an acceptable basis (3) The disposal of scrap or surplus the awarding agency as a direct cost to an for evaluating reasonableness. materials acquired in the performance of a award. c. Unallowable costs. Costs which are Federal award except when governmental c. The cost of agreed-upon procedures unallowable under other sections of these units are reimbursed for disposal costs at a engagements to monitor subrecipients who principles shall not be allowable under this predetermined amount; or are exempted from A–133 under section section solely on the basis that they (4) Other specific purposes necessary to 200(d) are allowable, subject to the constitute personnel compensation. meet the requirements of the Federal award. conditions listed in A–133, section 230 (b)(2). d. Fringe benefits. d. The only allowable public relations 5. Bad debts. Bad debts, including losses (1) Fringe benefits are allowances and costs are: (whether actual or estimated) arising from services provided by employers to their Federal Register / Vol. 70, No. 168 /Wednesday, August 31, 2005 /Rules and Regulations 51915 employees as compensation in addition to agency may agree to an extension of the six (5) To be allowable in the current year, the regular salaries and wages. Fringe benefits month period if an appropriate adjustment is PRHB costs must be paid either to: include, but are not limited to, the costs of made to compensate for the timing of the (a) An insurer or other benefit provider as leave, employee insurance, pensions, and charges to the Federal Government and current year costs or premiums, or unemployment benefit plans. Except as related Federal reimbursement and the (b) An insurer or trustee to maintain a trust provided elsewhere in these principles, the governmental unit’s contribution to the fund or reserve for the sole purpose of costs of fringe benefits are allowable to the pension fund. Adjustments may be made by providing post-retirement benefits to retirees extent that the benefits are reasonable and are cash refund or other equitable procedures to and other beneficiaries. required by law, governmental unit-employee compensate the Federal Government for the (6) The Federal Government shall receive agreement, or an established policy of the time value of Federal reimbursements in an equitable share of any amounts of governmental unit. excess of contributions to the pension fund. previously allowed post-retirement benefit (2) The cost of fringe benefits in the form (3) Amounts funded by the governmental costs (including earnings thereon) which of regular compensation paid to employees unit in excess of the actuarially determined revert or inure to the governmental unit in during periods of authorized absences from amount for a fiscal year may be used as the the form of a refund, withdrawal, or other the job, such as for annual leave, sick leave, governmental unit’s contribution in future credit. holidays, court leave, military leave, and periods. g. Severance pay. other similar benefits, are allowable if: They (4) When a governmental unit converts to (1) Payments in addition to regular salaries are provided under established written leave an acceptable actuarial cost method, as and wages made to workers whose policies; the costs are equitably allocated to defined by GAAP, and funds pension costs employment is being terminated are all related activities, including Federal in accordance with this method, the allowable to the extent that, in each case, awards; and, the accounting basis (cash or unfunded liability at the time of conversion they are required by law, employer-employee accrual) selected for costing each type of shall be allowable if amortized over a period agreement, or established written policy. leave is consistently followed by the of years in accordance with GAAP. (2) Severance payments (but not accruals) governmental unit. (5) The Federal Government shall receive associated with normal turnover are (3) When a governmental unit uses the an equitable share of any previously allowed allowable. Such payments shall be allocated cash basis of accounting, the cost of leave is pension costs (including earnings thereon) to all activities of the governmental unit as recognized in the period that the leave is which revert or inure to the governmental an indirect cost. taken and paid for. Payments for unused unit in the form of a refund, withdrawal, or (3) Abnormal or mass severance pay will leave when an employee retires or terminates other credit. be considered on a case-by-case basis and is employment are allowable in the year of f. Post-retirement health benefits. Post- allowable only if approved by the cognizant Federal agency. payment provided they are allocated as a retirement health benefits (PRHB) refers to costs of health insurance or health services h. Support of salaries and wages. These general administrative expense to all not included in a pension plan covered by standards regarding time distribution are in activities of the governmental unit or subsection 8.e. of this appendix for retirees addition to the standards for payroll component. and their spouses, dependents, and documentation. (4) The accrual basis may be only used for survivors. PRHB costs may be computed (1) Charges to Federal awards for salaries those types of leave for which a liability as using a pay-as-you-go method or an and wages, whether treated as direct or defined by Generally Accepted Accounting acceptable actuarial cost method in indirect costs, will be based on payrolls Principles (GAAP) exists when the leave is accordance with established written polices documented in accordance with generally earned. When a governmental unit uses the of the governmental unit. accepted practice of the governmental unit accrual basis of accounting, in accordance (1) For PRHB financed on a pay as-you-go and approved by a responsible official(s) of with GAAP, allowable leave costs are the method, allowable costs will be limited to the governmental unit. lesser of the amount accrued or funded. those representing actual payments to (2) No further documentation is required (5) The cost of fringe benefits in the form retirees or their beneficiaries. for the salaries and wages of employees who of employer contributions or expenses for (2) PRHB costs calculated using an work in a single indirect cost activity. social security; employee life, health, actuarial cost method recognized by GAAP (3) Where employees are expected to work unemployment, and worker’s compensation are allowable if they are funded for that year solely on a single Federal award or cost insurance (except as indicated in section 22, within six months after the end of that year. objective, charges for their salaries and wages Insurance and indemnification); pension Costs funded after the six month period (or will be supported by periodic certifications plan costs (see subsection e.); and other a later period agreed to by the cognizant that the employees worked solely on that similar benefits are allowable, provided such agency) are allowable in the year funded. The program for the period covered by the benefits are granted under established cognizant agency may agree to an extension certification. These certifications will be written policies. Such benefits, whether of the six month period if an appropriate prepared at least semi-annually and will be treated as indirect costs or as direct costs, adjustment is made to compensate for the signed by the employee or supervisory shall be allocated to Federal awards and all timing of the charges to the Federal official having first hand knowledge of the other activities in a manner consistent with Government and related Federal work performed by the employee. the pattern of benefits attributable to the reimbursements and the governmental unit’s (4) Where employees work on multiple individuals or group(s) of employees whose contributions to the PRHB fund. Adjustments activities or cost objectives, a distribution of salaries and wages are chargeable to such may be made by cash refund, reduction in their salaries or wages will be supported by Federal awards and other activities. current year’s PRHB costs, or other equitable personnel activity reports or equivalent e. Pension plan costs. Pension plan costs procedures to compensate the Federal documentation which meets the standards in may be computed using a pay-as-you-go Government for the time value of Federal subsection 8.h.(5) of this appendix unless a method or an acceptable actuarial cost reimbursements in excess of contributions to statistical sampling system (see subsection method in accordance with established the PRHB fund. 8.h.(6) of this appendix) or other substitute written policies of the governmental unit. (3) Amounts funded in excess of the system has been approved by the cognizant (1) For pension plans financed on a pay- actuarially determined amount for a fiscal Federal agency. Such documentary support as-you-go method, allowable costs will be year may be used as the government’s will be required where employees work on: limited to those representing actual payments contribution in a future period. (a) More than one Federal award, to retirees or their beneficiaries. (4) When a governmental unit converts to (b) A Federal award and a non-Federal (2) Pension costs calculated using an an acceptable actuarial cost method and award, actuarial cost-based method recognized by funds PRHB costs in accordance with this (c) An indirect cost activity and a direct GAAP are allowable for a given fiscal year if method, the initial unfunded liability cost activity, they are funded for that year within six attributable to prior years shall be allowable (d) Two or more indirect activities which months after the end of that year. Costs if amortized over a period of years in are allocated using different allocation bases, funded after the six month period (or a later accordance with GAAP, or, if no such GAAP or period agreed to by the cognizant agency) are period exists, over a period negotiated with (e) An unallowable activity and a direct or allowable in the year funded. The cognizant the cognizant agency. indirect cost activity. 51916 Federal Register / Vol. 70, No. 168 /Wednesday, August 31, 2005 /Rules and Regulations

(5) Personnel activity reports or equivalent claimed as allowable costs under Federal b. The computation of depreciation or use documentation must meet the following awards. allowances shall be based on the acquisition standards: i. Donated services. cost of the assets involved. Where actual cost (a) They must reflect an after-the-fact (1) Donated or volunteer services may be records have not been maintained, a distribution of the actual activity of each furnished to a governmental unit by reasonable estimate of the original employee, professional and technical personnel, acquisition cost may be used. The value of (b) They must account for the total activity consultants, and other skilled and unskilled an asset donated to the governmental unit by for which each employee is compensated, labor. The value of these services is not an unrelated third party shall be its fair (c) They must be prepared at least monthly reimbursable either as a direct or indirect market value at the time of donation. and must coincide with one or more pay cost. However, the value of donated services Governmental or quasi-governmental periods, and may be used to meet cost sharing or matching organizations located within the same State (d) They must be signed by the employee. requirements in accordance with the shall not be considered unrelated third (e) Budget estimates or other distribution provisions of the Common Rule. parties for this purpose. percentages determined before the services (2) The value of donated services utilized c. The computation of depreciation or use are performed do not qualify as support for in the performance of a direct cost activity allowances will exclude: charges to Federal awards but may be used shall, when material in amount, be (1) The cost of land; for interim accounting purposes, provided considered in the determination of the (2) Any portion of the cost of buildings and that: governmental unit’s indirect costs or rate(s) equipment borne by or donated by the (i) The governmental unit’s system for and, accordingly, shall be allocated a Federal Government irrespective of where establishing the estimates produces proportionate share of applicable indirect title was originally vested or where it reasonable approximations of the activity costs. presently resides; and actually performed; (3) To the extent feasible, donated services (3) Any portion of the cost of buildings and (ii) At least quarterly, comparisons of will be supported by the same methods used equipment contributed by or for the actual costs to budgeted distributions based by the governmental unit to support the governmental unit, or a related donor on the monthly activity reports are made. allocability of regular personnel services. organization, in satisfaction of a matching Costs charged to Federal awards to reflect 9. Contingency provisions. Contributions to requirement. adjustments made as a result of the activity a contingency reserve or any similar d. Where the depreciation method is actually performed may be recorded annually provision made for events the occurrence of followed, the following general criteria if the quarterly comparisons show the which cannot be foretold with certainty as to apply: differences between budgeted and actual time, intensity, or with an assurance of their (1) The period of useful service (useful life) costs are less than ten percent; and happening, are unallowable. The term established in each case for usable capital ‘‘contingency reserve’’ excludes self- (iii) The budget estimates or other assets must take into consideration such insurance reserves (see section 22.c. of this distribution percentages are revised at least factors as type of construction, nature of the appendix), pension plan reserves (see section quarterly, if necessary, to reflect changed equipment used, historical usage patterns, 8.e.), and post-retirement health and other circumstances. technological developments, and the renewal benefit reserves (section 8.f.) computed using (6) Substitute systems for allocating and replacement policies of the governmental acceptable actuarial cost methods. salaries and wages to Federal awards may be 10. Defense and prosecution of criminal unit followed for the individual items or used in place of activity reports. These and civil proceedings, and claims. classes of assets involved. In the absence of systems are subject to approval if required by a. The following costs are unallowable for clear evidence indicating that the expected the cognizant agency. Such systems may contracts covered by 10 U.S.C. 2324(k), consumption of the asset will be significantly include, but are not limited to, random ‘‘Allowable costs under defense contracts.’’ greater in the early portions than in the later moment sampling, case counts, or other (1) Costs incurred in defense of any civil portions of its useful life, the straight line quantifiable measures of employee effort. or criminal fraud proceeding or similar method of depreciation shall be used. (a) Substitute systems which use sampling proceeding (including filing of false (2) Depreciation methods once used shall methods (primarily for Temporary Assistance certification brought by the United States not be changed unless approved by the to Needy Families (TANF), Medicaid, and where the contractor is found liable or has Federal cognizant or awarding agency. When other public assistance programs) must meet pleaded nolo contendere to a charge of fraud the depreciation method is introduced for acceptable statistical sampling standards or similar proceeding (including filing of a application to an asset previously subject to including: false certification). a use allowance, the annual depreciation (i) The sampling universe must include all (2) Costs incurred by a contractor in charge thereon may not exceed the amount of the employees whose salaries and wages connection with any criminal, civil or that would have resulted had the are to be allocated based on sample results administrative proceedings commenced by depreciation method been in effect from the except as provided in subsection 8.h.(6)(c) of the United States or a State to the extent date of acquisition of the asset. The this appendix; provided in 10 U.S.C. 2324(k). combination of use allowances and (ii) The entire time period involved must b. Legal expenses required in the depreciation applicable to the asset shall not be covered by the sample; and administration of Federal programs are exceed the total acquisition cost of the asset (iii) The results must be statistically valid allowable. Legal expenses for prosecution of or fair market value at time of donation. and applied to the period being sampled. claims against the Federal Government are e. When the depreciation method is used (b) Allocating charges for the sampled unallowable. for buildings, a building’s shell may be employees’ supervisors, clerical and support 11. Depreciation and use allowances. segregated from the major component of the staffs, based on the results of the sampled a. Depreciation and use allowances are building (e.g., plumbing system, heating, and employees, will be acceptable. means of allocating the cost of fixed assets to air conditioning system, etc.) and each major (c) Less than full compliance with the periods benefiting from asset use. component depreciated over its estimated statistical sampling standards noted in Compensation for the use of fixed assets on useful life, or the entire building (i.e., the subsection 8.h.(6)(a) of this appendix may be hand may be made through depreciation or shell and all components) may be treated as accepted by the cognizant agency if it use allowances. A combination of the two a single asset and depreciated over a single concludes that the amounts to be allocated to methods may not be used in connection with useful life. Federal awards will be minimal, or if it a single class of fixed assets (e.g., buildings, f. Where the use allowance method is concludes that the system proposed by the office equipment, computer equipment, etc.) followed, the following general criteria governmental unit will result in lower costs except as provided for in subsection g. apply: to Federal awards than a system which Except for enterprise funds and internal (1) The use allowance for buildings and complies with the standards. service funds that are included as part of a improvements (including land (7) Salaries and wages of employees used State/local cost allocation plan, classes of improvements, such as paved parking areas, in meeting cost sharing or matching assets shall be determined on the same basis fences, and sidewalks) will be computed at requirements of Federal awards must be used for the government-wide financial an annual rate not exceeding two percent of supported in the same manner as those statements. acquisition costs. Federal Register / Vol. 70, No. 168 /Wednesday, August 31, 2005 /Rules and Regulations 51917

(2) The use allowance for equipment will 13. Employee morale, health, and welfare (2) Capital expenditures for special be computed at an annual rate not exceeding costs. purpose equipment are allowable as direct 62⁄3 percent of acquisition cost. a. The costs of employee information costs, provided that items with a unit cost of (3) When the use allowance method is used publications, health or first-aid clinics and/ $5000 or more have the prior approval of the for buildings, the entire building must be or infirmaries, recreational activities, awarding agency. treated as a single asset; the building’s employee counseling services, and any other (3) Capital expenditures for improvements components (e.g., plumbing system, heating expenses incurred in accordance with the to land, buildings, or equipment which and air condition, etc.) cannot be segregated governmental unit’s established practice or materially increase their value or useful life from the building’s shell. The two percent custom for the improvement of working are unallowable as a direct cost except with limitation, however, need not be applied to conditions, employer-employee relations, the prior approval of the awarding agency. equipment which is merely attached or employee morale, and employee performance (4) When approved as a direct charge fastened to the building but not permanently are allowable. pursuant to section 15.b(1), (2), and (3)of this fixed to it and which is used as furnishings b. Such costs will be equitably apportioned appendix, capital expenditures will be or decorations or for specialized purposes to all activities of the governmental unit. charged in the period in which the (e.g., dentist chairs and dental treatment Income generated from any of these activities expenditure is incurred, or as otherwise units, counters, laboratory benches bolted to will be offset against expenses. determined appropriate and negotiated with the floor, dishwashers, modular furniture, 14. Entertainment. Costs of entertainment, the awarding agency. In addition, Federal carpeting, etc.). Such equipment will be including amusement, diversion, and social awarding agencies are authorized at their considered as not being permanently fixed to activities and any costs directly associated option to waive or delegate the prior the building if it can be removed without the with such costs (such as tickets to shows or approval requirement. destruction of, or need for costly or extensive sports events, meals, lodging, rentals, (5) Equipment and other capital alterations or repairs, to the building or the transportation, and gratuities) are expenditures are unallowable as indirect equipment. Equipment that meets these unallowable. costs. However, see section 11 of this 2 criteria will be subject to the 6 ⁄3 percent 15. Equipment and other capital appendix, Depreciation and use allowance, equipment use allowance limitation. expenditures. for rules on the allowability of use g. A reasonable use allowance may be a. For purposes of this subsection 15, the allowances or depreciation on buildings, negotiated for any assets that are considered following definitions apply: capital improvements, and equipment. Also, to be fully depreciated, after taking into (1) ‘‘Capital Expenditures’’ means see section 37 of this appendix, Rental costs, consideration the amount of depreciation expenditures for the acquisition cost of concerning the allowability of rental costs for previously charged to the government, the capital assets (equipment, buildings, land), or land, buildings, and equipment. estimated useful life remaining at the time of expenditures to make improvements to (6) The unamortized portion of any negotiation, the effect of any increased equipment written off as a result of a change capital assets that materially increase their maintenance charges, decreased efficiency in capitalization levels may be recovered by value or useful life. Acquisition cost means due to age, and any other factors pertinent to continuing to claim the otherwise allowable the cost of the asset including the cost to put the utilization of the asset for the purpose use allowances or depreciation on the it in place. Acquisition cost for equipment, contemplated. equipment, or by amortizing the amount to for example, means the net invoice price of h. Charges for use allowances or be written off over a period of years depreciation must be supported by adequate the equipment, including the cost of any negotiated with the cognizant agency. property records. Physical inventories must modifications, attachments, accessories, or (7) When replacing equipment purchased be taken at least once every two years (a auxiliary apparatus necessary to make it in whole or in part with Federal funds, the statistical sampling approach is acceptable) usable for the purpose for which it is governmental unit may use the equipment to to ensure that assets exist, and are in use. acquired. Ancillary charges, such as taxes, be replaced as a trade-in or sell the property Governmental units will manage equipment duty, protective in transit insurance, freight, and use the proceeds to offset the cost of the in accordance with State laws and and installation may be included in, or replacement property. procedures. When the depreciation method is excluded from the acquisition cost in 16. Fines and penalties. Fines, penalties, followed, depreciation records indicating the accordance with the governmental unit’s damages, and other settlements resulting amount of depreciation taken each period regular accounting practices. from violations (or alleged violations) of, or must also be maintained. (2) ‘‘Equipment’’ means an article of failure of the governmental unit to comply 12. Donations and contributions. nonexpendable, tangible personal property with, Federal, State, local, or Indian tribal a. Contributions or donations rendered. having a useful life of more than one year laws and regulations are unallowable except Contributions or donations, including cash, and an acquisition cost which equals or when incurred as a result of compliance with property, and services, made by the exceeds the lesser of the capitalization level specific provisions of the Federal award or governmental unit, regardless of the established by the governmental unit for written instructions by the awarding agency recipient, are unallowable. financial statement purposes, or $5000. authorizing in advance such payments. b. Donated services received: (3) ‘‘Special purpose equipment’’ means 17. Fund raising and investment (1) Donated or volunteer services may be equipment which is used only for research, management costs. furnished to a governmental unit by medical, scientific, or other technical a. Costs of organized fund raising, professional and technical personnel, activities. Examples of special purpose including financial campaigns, solicitation of consultants, and other skilled and unskilled equipment include microscopes, x-ray gifts and bequests, and similar expenses labor. The value of these services is not machines, surgical instruments, and incurred to raise capital or obtain reimbursable either as a direct or indirect spectrometers. contributions are unallowable, regardless of cost. However, the value of donated services (4) ‘‘General purpose equipment’’ means the purpose for which the funds will be used. may be used to meet cost sharing or matching equipment, which is not limited to research, b. Costs of investment counsel and staff requirements in accordance with the Federal medical, scientific or other technical and similar expenses incurred to enhance Grants Management Common Rule. activities. Examples include office equipment income from investments are unallowable. (2) The value of donated services utilized and furnishings, modular offices, telephone However, such costs associated with in the performance of a direct cost activity networks, information technology equipment investments covering pension, self-insurance, shall, when material in amount, be and systems, air conditioning equipment, or other funds which include Federal considered in the determination of the reproduction and printing equipment, and participation allowed by this and other governmental unit’s indirect costs or rate(s) motor vehicles. appendices of 2 CFR part 225 are allowable. and, accordingly, shall be allocated a b. The following rules of allowability shall c. Fund raising and investment activities proportionate share of applicable indirect apply to equipment and other capital shall be allocated an appropriate share of costs. expenditures: indirect costs under the conditions described (3) To the extent feasible, donated services (1) Capital expenditures for general in subsection C.3.b. of Appendix A to this will be supported by the same methods used purpose equipment, buildings, and land are part. by the governmental unit to support the unallowable as direct charges, except where 18. Gains and losses on disposition of allocability of regular personnel services. approved in advance by the awarding agency. depreciable property and other capital assets 51918 Federal Register / Vol. 70, No. 168 /Wednesday, August 31, 2005 /Rules and Regulations and substantial relocation of Federal the general public, such as fire and police, 22. Insurance and indemnification. programs. unless provided for as a direct cost under a a. Costs of insurance required or approved a. (1) Gains and losses on the sale, program statute or regulation. and maintained, pursuant to the Federal retirement, or other disposition of b. For federally-recognized Indian tribal award, are allowable. depreciable property shall be included in the governments and Councils Of Governments b. Costs of other insurance in connection year in which they occur as credits or charges (COGs), the portion of salaries and expenses with the general conduct of activities are to the asset cost grouping(s) in which the directly attributable to managing and allowable subject to the following property was included. The amount of the operating Federal programs by the chief limitations: gain or loss to be included as a credit or executive and his staff is allowable. (1) Types and extent and cost of coverage charge to the appropriate asset cost 20. Goods or services for personal use. are in accordance with the governmental grouping(s) shall be the difference between Costs of goods or services for personal use of unit’s policy and sound business practice. the amount realized on the property and the the governmental unit’s employees are (2) Costs of insurance or of contributions undepreciated basis of the property. unallowable regardless of whether the cost is to any reserve covering the risk of loss of, or (2) Gains and losses on the disposition of reported as taxable income to the employees. damage to, Federal Government property are depreciable property shall not be recognized 21. Idle facilities and idle capacity. unallowable except to the extent that the as a separate credit or charge under the As used in this section the following terms awarding agency has specifically required or following conditions: have the meanings set forth below: approved such costs. (a) The gain or loss is processed through (1) ‘‘Facilities’’ means land and buildings c. Actual losses which could have been a depreciation account and is reflected in the or any portion thereof, equipment covered by permissible insurance (through a depreciation allowable under sections 11 and individually or collectively, or any other self-insurance program or otherwise) are 15 of this appendix. tangible capital asset, wherever located, and unallowable, unless expressly provided for in (b) The property is given in exchange as whether owned or leased by the the Federal award or as described below. part of the purchase price of a similar item governmental unit. However, the Federal Government will and the gain or loss is taken into account in (2) ‘‘Idle facilities’’ means completely participate in actual losses of a self insurance determining the depreciation cost basis of the unused facilities that are excess to the fund that are in excess of reserves. Costs new item. governmental unit’s current needs. incurred because of losses not covered under (c) A loss results from the failure to (3) ‘‘Idle capacity’’ means the unused nominal deductible insurance coverage maintain permissible insurance, except as capacity of partially used facilities. It is the provided in keeping with sound management otherwise provided in subsection 22.d of this difference between: that which a facility practice, and minor losses not covered by appendix. could achieve under 100 percent operating insurance, such as spoilage, breakage, and (d) Compensation for the use of the time on a one-shift basis less operating disappearance of small hand tools, which property was provided through use interruptions resulting from time lost for occur in the ordinary course of operations, allowances in lieu of depreciation. repairs, setups, unsatisfactory materials, and are allowable. b. Substantial relocation of Federal awards other normal delays; and the extent to which d. Contributions to a reserve for certain from a facility where the Federal Government the facility was actually used to meet self-insurance programs including workers participated in the financing to another demands during the accounting period. A compensation, unemployment compensation, facility prior to the expiration of the useful multi-shift basis should be used if it can be life of the financed facility requires Federal shown that this amount of usage would and severance pay are allowable subject to agency approval. The extent of the relocation, normally be expected for the type of facility the following provisions: the amount of the Federal participation in the involved. (1) The type of coverage and the extent of financing, and the depreciation charged to (4) ‘‘Cost of idle facilities or idle capacity’’ coverage and the rates and premiums would date may require negotiation of space charges means costs such as maintenance, repair, have been allowed had insurance (including for Federal awards. housing, rent, and other related costs, e.g., reinsurance) been purchased to cover the c. Gains or losses of any nature arising insurance, interest, property taxes and risks. However, provision for known or from the sale or exchange of property other depreciation or use allowances. reasonably estimated self-insured liabilities, than the property covered in subsection 18.a. b. The costs of idle facilities are which do not become payable for more than of this appendix, e.g., land or included in the unallowable except to the extent that: one year after the provision is made, shall not fair market value used in any adjustment (1) They are necessary to meet fluctuations exceed the discounted present value of the resulting from a relocation of Federal awards in workload; or liability. The rate used for discounting the covered in subsection b. shall be excluded in (2) Although not necessary to meet liability must be determined by giving computing Federal award costs. fluctuations in workload, they were consideration to such factors as the 19. General government expenses. necessary when acquired and are now idle governmental unit’s settlement rate for those a. The general costs of government are because of changes in program requirements, liabilities and its investment rate of return. unallowable (except as provided in section efforts to achieve more economical (2) Earnings or investment income on 43 of this appendix, Travel costs). These operations, reorganization, termination, or reserves must be credited to those reserves. include: other causes which could not have been (3) Contributions to reserves must be based (1) Salaries and expenses of the Office of reasonably foreseen. Under the exception on sound actuarial principles using historical the Governor of a State or the chief executive stated in this subsection, costs of idle experience and reasonable assumptions. of a political subdivision or the chief facilities are allowable for a reasonable Reserve levels must be analyzed and updated executive of federally-recognized Indian period of time, ordinarily not to exceed one at least biennially for each major risk being tribal government; year, depending on the initiative taken to insured and take into account any (2) Salaries and other expenses of a State use, lease, or dispose of such facilities. reinsurance, coinsurance, etc. Reserve levels legislature, tribal council, or similar local c. The costs of idle capacity are normal related to employee-related coverages will governmental body, such as a county costs of doing business and are a factor in the normally be limited to the value of claims supervisor, city council, school board, etc., normal fluctuations of usage or indirect cost submitted and adjudicated but not paid, whether incurred for purposes of legislation rates from period to period. Such costs are submitted but not adjudicated, and incurred or executive direction; allowable, provided that the capacity is but not submitted. Reserve levels in excess of (3) Costs of the judiciary branch of a reasonably anticipated to be necessary or was the amounts based on the above must be government; originally reasonable and is not subject to identified and justified in the cost allocation (4) Costs of prosecutorial activities unless reduction or elimination by use on other plan or indirect cost rate proposal. treated as a direct cost to a specific program Federal awards, subletting, renting, or sale, in (4) Accounting records, actuarial studies, if authorized by program statute or regulation accordance with sound business, economic, and cost allocations (or billings) must (however, this does not preclude the or security practices. Widespread idle recognize any significant differences due to allowability of other legal activities of the capacity throughout an entire facility or types of insured risk and losses generated by Attorney General); and among a group of assets having substantially the various insured activities or agencies of (5) Costs of other general types of the same function may be considered idle the governmental unit. If individual government services normally provided to facilities. departments or agencies of the governmental Federal Register / Vol. 70, No. 168 /Wednesday, August 31, 2005 /Rules and Regulations 51919 unit experience significantly different levels shall reduce claims for interest cost by an a. Costs incurred for materials, supplies, of claims for a particular risk, those amount equal to imputed interest earnings on and fabricated parts necessary to carry out a differences are to be recognized by the use of excess cash flow, which is to be calculated Federal award are allowable. separate allocations or other techniques as follows. Annually, non-Federal entities b. Purchased materials and supplies shall resulting in an equitable allocation. shall prepare a cumulative (from the be charged at their actual prices, net of (5) Whenever funds are transferred from a inception of the project) report of monthly applicable credits. Withdrawals from general self-insurance reserve to other accounts (e.g., cash flows that includes inflows and stores or stockrooms should be charged at general fund), refunds shall be made to the outflows, regardless of the funding source. their actual net cost under any recognized Federal Government for its share of funds Inflows consist of depreciation expense, method of pricing inventory withdrawals, transferred, including earned or imputed amortization of capitalized construction consistently applied. Incoming transportation interest from the date of transfer. interest, and annual interest cost. For cash charges are a proper part of materials and e. Actual claims paid to or on behalf of flow calculations, the annual inflow figures supplies costs. employees or former employees for workers’ shall be divided by the number of months in c. Only materials and supplies actually compensation, unemployment compensation, the year (i.e., usually 12) that the building is used for the performance of a Federal award severance pay, and similar employee benefits in service for monthly amounts. Outflows may be charged as direct costs. (e.g., subsection 8.f. for post retirement consist of initial equity contributions, debt d. Where federally-donated or furnished health benefits), are allowable in the year of principal payments (less the pro rata share materials are used in performing the Federal payment provided the governmental unit attributable to the unallowable costs of land) award, such materials will be used without follows a consistent costing policy and they and interest payments. Where cumulative charge. are allocated as a general administrative inflows exceed cumulative outflows, interest 27. Meetings and conferences. Costs of expense to all activities of the governmental shall be calculated on the excess inflows for meetings and conferences, the primary unit. that period and be treated as a reduction to purpose of which is the dissemination of f. Insurance refunds shall be credited allowable interest cost. The rate of interest to technical information, are allowable. This against insurance costs in the year the refund be used to compute earnings on excess cash includes costs of meals, transportation, rental is received. flows shall be the three-month Treasury bill of facilities, speakers’ fees, and other items g. Indemnification includes securing the closing rate as of the last business day of that incidental to such meetings or conferences. governmental unit against liabilities to third month. But see section 14, Entertainment costs, of persons and other losses not compensated by (5) Interest attributable to fully depreciated this appendix. insurance or otherwise. The Federal assets is unallowable. 28. Memberships, subscriptions, and Government is obligated to indemnify the 24. Lobbying. professional activity costs. a. Costs of the governmental unit’s governmental unit only to the extent a. General. The cost of certain influencing memberships in business, technical, and expressly provided for in the Federal award, activities associated with obtaining grants, professional organizations are allowable. except as provided in subsection 22.d of this contracts, cooperative agreements, or loans is b. Costs of the governmental unit’s appendix. an unallowable cost. Lobbying with respect subscriptions to business, professional, and h. Costs of commercial insurance that to certain grants, contracts, cooperative technical periodicals are allowable. agreements, and loans shall be governed by protects against the costs of the contractor for c. Costs of membership in civic and correction of the contractor’s own defects in the common rule, ‘‘New Restrictions on community, social organizations are materials or workmanship are unallowable. Lobbying’’ (see Section J.24 of Appendix A allowable as a direct cost with the approval 23. Interest. to 2 CFR part 220), including definitions, and of the Federal awarding agency. a. Costs incurred for interest on borrowed the Office of Management and Budget d. Costs of membership in organizations capital or the use of a governmental unit’s ‘‘Government-wide Guidance for New substantially engaged in lobbying are own funds, however represented, are Restrictions on Lobbying’’ and notices unallowable. unallowable except as specifically provided published at 54 FR 52306 (December 20, 29. Patent costs. in subsection b. or authorized by Federal 1989), 55 FR 24540 (June 15, 1990), and 57 a. The following costs relating to patent legislation. FR 1772 (January 15, 1992), respectively. and copyright matters are allowable: cost of b. Financing costs (including interest) paid b. Executive lobbying costs. Costs incurred preparing disclosures, reports, and other or incurred which are associated with the in attempting to improperly influence either documents required by the Federal award otherwise allowable costs of building directly or indirectly, an employee or officer and of searching the art to the extent acquisition, construction, or fabrication, of the Executive Branch of the Federal necessary to make such disclosures; cost of reconstruction or remodeling completed on Government to give consideration or to act preparing documents and any other patent or after October 1, 1980 is allowable subject regarding a sponsored agreement or a costs in connection with the filing and to the conditions in section 23.b.(1) through regulatory matter are unallowable. Improper prosecution of a United States patent (4) of this appendix. Financing costs influence means any influence that induces application where title or royalty-free license (including interest) paid or incurred on or or tends to induce a Federal employee or is required by the Federal Government to be after September 1, 1995 for land or associated officer to give consideration or to act conveyed to the Federal Government; and with otherwise allowable costs of equipment regarding a federally-sponsored agreement or general counseling services relating to patent is allowable, subject to the conditions in regulatory matter on any basis other than the and copyright matters, such as advice on section 23.b. (1) through (4) of this appendix. merits of the matter. patent and copyright laws, regulations, (1) The financing is provided (from other 25. Maintenance, operations, and repairs. clauses, and employee agreements (but see than tax or user fee sources) by a bona fide Unless prohibited by law, the cost of utilities, sections 32, Professional service costs, and third party external to the governmental unit; insurance, security, janitorial services, 38, Royalties and other costs for use of (2) The assets are used in support of elevator service, upkeep of grounds, patents and copyrights, of this appendix). Federal awards; necessary maintenance, normal repairs and b. The following costs related to patent and (3) Earnings on debt service reserve funds alterations, and the like are allowable to the copyright matter are unallowable: Cost of or interest earned on borrowed funds extent that they: keep property (including preparing disclosures, reports, and other pending payment of the construction or Federal property, unless otherwise provided documents and of searching the art to the acquisition costs are used to offset the for) in an efficient operating condition, do extent necessary to make disclosures not current period’s cost or the capitalized not add to the permanent value of property required by the award; costs in connection interest, as appropriate. Earnings subject to or appreciably prolong its intended life, and with filing and prosecuting any foreign being reported to the Federal Internal are not otherwise included in rental or other patent application; or any United States Revenue Service under arbitrage charges for space. Costs which add to the patent application, where the Federal award requirements are excludable. permanent value of property or appreciably does not require conveying title or a royalty- (4) For debt arrangements over $1 million, prolong its intended life shall be treated as free license to the Federal Government (but unless the governmental unit makes an initial capital expenditures (see sections 11 and 15 see section 38, Royalties and other costs for equity contribution to the asset purchase of of this appendix). use of patents and copyrights, of this 25 percent or more, the governmental unit 26. Materials and supplies costs. appendix). 51920 Federal Register / Vol. 70, No. 168 /Wednesday, August 31, 2005 /Rules and Regulations

30. Plant and homeland security costs. allowable. Proposal costs should normally be limited to those between divisions of a Necessary and reasonable expenses incurred treated as indirect costs and should be governmental unit; governmental units under for routine and homeland security to protect allocated to all activities of the governmental common control through common officers, facilities, personnel, and work products are unit utilizing the cost allocation plan and directors, or members; and a governmental allowable. Such costs include, but are not indirect cost rate proposal. However, unit and a director, trustee, officer, or key limited to, wages and uniforms of personnel proposal costs may be charged directly to employee of the governmental unit or his engaged in security activities; equipment; Federal awards with the prior approval of the immediate family, either directly or through barriers; contractual security services; Federal awarding agency. corporations, trusts, or similar arrangements consultants; etc. Capital expenditures for 34. Publication and printing costs. in which they hold a controlling interest. For homeland and plant security purposes are a. Publication costs include the costs of example, a governmental unit may establish subject to section 15, Equipment and other printing (including the processes of a separate corporation for the sole purpose of capital expenditures, of this appendix. composition, plate-making, press work, owning property and leasing it back to the 31. Pre-award costs. Pre-award costs are binding, and the end products produced by governmental unit. those incurred prior to the effective date of such processes), distribution, promotion, d. Rental costs under leases which are the award directly pursuant to the mailing, and general handling. Publication required to be treated as capital leases under negotiation and in anticipation of the award costs also include page charges in GAAP are allowable only up to the amount where such costs are necessary to comply professional publications. (as explained in subsection 37.b of this with the proposed delivery schedule or b. If these costs are not identifiable with a appendix) that would be allowed had the period of performance. Such costs are particular cost objective, they should be governmental unit purchased the property on allowable only to the extent that they would allocated as indirect costs to all benefiting the date the lease agreement was executed. have been allowable if incurred after the date activities of the governmental unit. The provisions of Financial Accounting of the award and only with the written c. Page charges for professional journal Standards Board Statement 13, Accounting approval of the awarding agency. publications are allowable as a necessary part for Leases, shall be used to determine 32. Professional service costs. of research costs where: whether a lease is a capital lease. Interest a. Costs of professional and consultant (1) The research papers report work costs related to capital leases are allowable to services rendered by persons who are supported by the Federal Government; and the extent they meet the criteria in section 23 members of a particular profession or possess (2) The charges are levied impartially on of this appendix. Unallowable costs include a special skill, and who are not officers or all research papers published by the journal, amounts paid for profit, management fees, employees of the governmental unit, are whether or not by federally-sponsored and taxes that would not have been incurred allowable, subject to subparagraphs b and c authors. had the governmental unit purchased the when reasonable in relation to the services 35. Rearrangement and alteration costs. facility. rendered and when not contingent upon 38. Royalties and other costs for the use of Costs incurred for ordinary and normal recovery of the costs from the Federal patents. rearrangement and alteration of facilities are Government. In addition, legal and related a. Royalties on a patent or copyright or allowable. Special arrangements and services are limited under section 10 of this amortization of the cost of acquiring by alterations costs incurred specifically for a appendix. purchase a copyright, patent, or rights Federal award are allowable with the prior b. In determining the allowability of costs thereto, necessary for the proper performance in a particular case, no single factor or any approval of the Federal awarding agency. of the award are allowable unless: special combination of factors is necessarily 36. Reconversion costs. Costs incurred in (1) The Federal Government has a license determinative. However, the following the restoration or rehabilitation of the or the right to free use of the patent or factors are relevant: governmental unit’s facilities to copyright. (1) The nature and scope of the service approximately the same condition existing (2) The patent or copyright has been rendered in relation to the service required. immediately prior to commencement of adjudicated to be invalid, or has been (2) The necessity of contracting for the Federal awards, less costs related to normal administratively determined to be invalid. service, considering the governmental unit’s wear and tear, are allowable. (3) The patent or copyright is considered capability in the particular area. 37. Rental costs of buildings and to be unenforceable. (3) The past pattern of such costs, equipment. (4) The patent or copyright is expired. particularly in the years prior to Federal a. Subject to the limitations described in b. Special care should be exercised in awards. subsections b. through d. of this section, determining reasonableness where the (4) The impact of Federal awards on the rental costs are allowable to the extent that royalties may have been arrived at as a result governmental unit’s business (i.e., what new the rates are reasonable in light of such of less-than-arm’s-length bargaining, e.g.: problems have arisen). factors as: rental costs of comparable (1) Royalties paid to persons, including (5) Whether the proportion of Federal work property, if any; market conditions in the corporations, affiliated with the to the governmental unit’s total business is area; alternatives available; and the type, life governmental unit. such as to influence the governmental unit in expectancy, condition, and value of the (2) Royalties paid to unaffiliated parties, favor of incurring the cost, particularly where property leased. Rental arrangements should including corporations, under an agreement the services rendered are not of a continuing be reviewed periodically to determine if entered into in contemplation that a Federal nature and have little relationship to work circumstances have changed and other award would be made. under Federal grants and contracts. options are available. (3) Royalties paid under an agreement (6) Whether the service can be performed b. Rental costs under ‘‘sale and lease back’’ entered into after an award is made to a more economically by direct employment arrangements are allowable only up to the governmental unit. rather than contracting. amount that would be allowed had the c. In any case involving a patent or (7) The qualifications of the individual or governmental unit continued to own the copyright formerly owned by the concern rendering the service and the property. This amount would include governmental unit, the amount of royalty customary fees charged, especially on non- expenses such as depreciation or use allowed should not exceed the cost which Federal awards. allowance, maintenance, taxes, and would have been allowed had the (8) Adequacy of the contractual agreement insurance. governmental unit retained title thereto. for the service (e.g., description of the c. Rental costs under ‘‘less-than-arm’s- 39. Selling and marketing. Costs of selling service, estimate of time required, rate of length’’ leases are allowable only up to the and marketing any products or services of the compensation, and termination provisions). amount (as explained in section 37.b of this governmental unit are unallowable (unless c. In addition to the factors in appendix) that would be allowed had title to allowed under section 1. of this appendix as subparagraph b, retainer fees to be allowable the property vested in the governmental unit. allowable public relations costs or under must be supported by available or rendered For this purpose, a less-than-arm’s-length section 33. of this appendix as allowable evidence of bona fide services available or lease is one under which one party to the proposal costs. rendered. lease agreement is able to control or 40. Taxes. 33. Proposal costs. Costs of preparing substantially influence the actions of the a. Taxes that a governmental unit is legally proposals for potential Federal awards are other. Such leases include, but are not required to pay are allowable, except for self- Federal Register / Vol. 70, No. 168 /Wednesday, August 31, 2005 /Rules and Regulations 51921 assessed taxes that disproportionately affect the terminated portion of the Federal award trip, and results in charges consistent with Federal programs or changes in tax policies bears to the entire terminated Federal award those normally allowed in like circumstances that disproportionately affect Federal and other Federal awards for which the in the governmental unit’s non-federally- programs. This provision is applicable to special tooling, machinery, or equipment was sponsored activities. Notwithstanding the taxes paid during the governmental unit’s acquired. provisions of section 19 of this appendix, first fiscal year that begins on or after January d. Rental costs under unexpired leases are General government expenses, travel costs of 1, 1998, and applies thereafter. generally allowable where clearly shown to officials covered by that section are allowable b. Gasoline taxes, motor vehicle fees, and have been reasonably necessary for the with the prior approval of an awarding other taxes that are in effect user fees for performance of the terminated Federal award agency when they are specifically related to benefits provided to the Federal Government less the residual value of such leases, if: Federal awards. are allowable. (1) The amount of such rental claimed does b. Lodging and subsistence. Costs incurred c. This provision does not restrict the not exceed the reasonable use value of the by employees and officers for travel, authority of Federal agencies to identify taxes property leased for the period of the Federal including costs of lodging, other subsistence, where Federal participation is inappropriate. award and such further period as may be and incidental expenses, shall be considered Where the identification of the amount of reasonable, and reasonable and allowable only to the extent unallowable taxes would require an (2) The governmental unit makes all such costs do not exceed charges normally inordinate amount of effort, the cognizant reasonable efforts to terminate, assign, settle, allowed by the governmental unit in its agency may accept a reasonable or otherwise reduce the cost of such lease. regular operations as the result of the approximation thereof. There also may be included the cost of governmental unit’s written travel policy. In 41. Termination costs applicable to alterations of such leased property, provided the absence of an acceptable, written sponsored agreements. Termination of such alterations were necessary for the governmental unit policy regarding travel awards generally gives rise to the incurrence performance of the Federal award, and of costs, the rates and amounts established of costs, or the need for special treatment of reasonable restoration required by the under subchapter I of Chapter 57, Title 5, costs, which would not have arisen had the provisions of the lease. United States Code (‘‘Travel and Subsistence Federal award not been terminated. Cost e. Settlement expenses including the Expenses; Mileage Allowances’’), or by the principles covering these items are set forth following are generally allowable: Administrator of General Services, or by the below. They are to be used in conjunction (1) Accounting, legal, clerical, and similar President (or his or her designee) pursuant to with the other provisions of this appendix in costs reasonably necessary for: any provisions of such subchapter shall termination situations. (a) The preparation and presentation to the apply to travel under Federal awards (48 CFR a. The cost of items reasonably usable on awarding agency of settlement claims and 31.205–46(a)). the governmental unit’s other work shall not supporting data with respect to the c. Commercial air travel. be allowable unless the governmental unit terminated portion of the Federal award, (1) Airfare costs in excess of the customary submits evidence that it would not retain unless the termination is for default (see standard commercial airfare (coach or such items at cost without sustaining a loss. Subpart l.44 of the Grants Management equivalent), Federal Government contract In deciding whether such items are Common Rule (see § 215.5) implementing airfare (where authorized and available), or reasonably usable on other work of the OMB Circular A–102); and the lowest commercial discount airfare are governmental unit, the awarding agency (b) The termination and settlement of unallowable except when such should consider the governmental unit’s subawards. accommodations would: plans and orders for current and scheduled (2) Reasonable costs for the storage, (a) Require circuitous routing; activity. Contemporaneous purchases of transportation, protection, and disposition of (b) Require travel during unreasonable common items by the governmental unit property provided by the Federal hours; shall be regarded as evidence that such items Government or acquired or produced for the (c) Excessively prolong travel; are reasonably usable on the governmental Federal award, except when grantees or (d) Result in additional costs that would unit’s other work. Any acceptance of contractors are reimbursed for disposals at a offset the transportation savings; or common items as allocable to the terminated predetermined amount in accordance with (e) Offer accommodations not reasonably portion of the Federal award shall be limited Subparts l.31 and l.32 of the Grants adequate for the traveler’s medical needs. to the extent that the quantities of such items Management Common Rule (see § 215.5) The governmental unit must justify and on hand, in transit, and on order are in implementing OMB Circular A–102. document these conditions on a case-by-case excess of the reasonable quantitative f. Claims under subawards, including the basis in order for the use of first-class airfare requirements of other work. allocable portion of claims which are to be allowable in such cases. b. If in a particular case, despite all common to the Federal award, and to other (2) Unless a pattern of avoidance is reasonable efforts by the governmental unit, work of the governmental unit are generally detected, the Federal Government will certain costs cannot be discontinued allowable. An appropriate share of the generally not question a governmental unit’s immediately after the effective date of governmental unit’s indirect expense may be determinations that customary standard termination, such costs are generally allocated to the amount of settlements with airfare or other discount airfare is unavailable allowable within the limitations set forth in subcontractors and/or subgrantees, provided for specific trips if the governmental unit can this and other appendices of 2 CFR part 225, that the amount allocated is otherwise demonstrate either of the following: except that any such costs continuing after consistent with the basic guidelines (aa) That such airfare was not available in termination due to the negligent or willful contained in Appendix A to this part. The the specific case; or failure of the governmental unit to indirect expense so allocated shall exclude (b) That it is the governmental unit’s discontinue such costs shall be unallowable. the same and similar costs claimed directly overall practice to make routine use of such c. Loss of useful value of special tooling, or indirectly as settlement expenses. airfare. machinery, and equipment is generally 42. Training costs. The cost of training d. Air travel by other than commercial allowable if: provided for employee development is carrier. Costs of travel by governmental unit- (1) Such special tooling, special allowable. owned, -leased, or -chartered aircraft include machinery, or equipment is not reasonably 43. Travel costs. the cost of lease, charter, operation capable of use in the other work of the a. General. Travel costs are the expenses (including personnel costs), maintenance, governmental unit, for transportation, lodging, subsistence, and depreciation, insurance, and other related (2) The interest of the Federal Government related items incurred by employees who are costs. The portion of such costs that exceeds is protected by transfer of title or by other in travel status on official business of the the cost of allowable commercial air travel, means deemed appropriate by the awarding governmental unit. Such costs may be as provided for in subsection 43.c. of this agency, and charged on an actual cost basis, on a per appendix, is unallowable. (3) The loss of useful value for any one diem or mileage basis in lieu of actual costs e. Foreign travel. Direct charges for foreign terminated Federal award is limited to that incurred, or on a combination of the two, travel costs are allowable only when the portion of the acquisition cost which bears provided the method used is applied to an travel has received prior approval of the the same ratio to the total acquisition cost as entire trip and not to selected days of the awarding agency. Each separate foreign trip 51922 Federal Register / Vol. 70, No. 168 /Wednesday, August 31, 2005 /Rules and Regulations must receive such approval. For purposes of 1. ‘‘Billed central services’’ means central for those central services which have little or this provision, ‘‘foreign travel’’ includes any services that are billed to benefitted agencies no impact on Federal awards. Conversely, if travel outside Canada, Mexico, the United and/or programs on an individual fee-for- a review of a plan indicates that certain States, and any United States territories and service or similar basis. Typical examples of additional information is needed, and will possessions. However, the term ‘‘foreign billed central services include computer likely be needed in future years, it may be travel’’ for a governmental unit located in a services, transportation services, insurance, routinely requested in future plan foreign country means travel outside that and fringe benefits. submissions. Items marked with an asterisk country. 2. ‘‘Allocated central services’’ means (*) should be submitted only once; central services that benefit operating subsequent plans should merely indicate any Appendix C to Part 225—State/Local- agencies but are not billed to the agencies on changes since the last plan. Wide Central Service Cost Allocation a fee-for-service or similar basis. These costs 1. General. All proposed plans must be Plans are allocated to benefitted agencies on some accompanied by the following: An reasonable basis. Examples of such services organization chart sufficiently detailed to Table of Contents might include general accounting, personnel show operations including the central service A. General administration, purchasing, etc. activities of the State/local government B. Definitions 3. ‘‘Agency or operating agency’’ means an whether or not they are shown as benefiting 1. Billed central services organizational unit or sub-division within a from central service functions; a copy of the 2. Allocated central services governmental unit that is responsible for the Comprehensive Annual Financial Report (or 3. Agency or operating agency performance or administration of awards or a copy of the Executive Budget if budgeted C. Scope of the Central Service Cost activities of the governmental unit. costs are being proposed) to support the Allocation Plans C. Scope of the Central Service Cost allowable costs of each central service D. Submission Requirements Allocation Plans. The central service cost activity included in the plan; and, a E. Documentation Requirements for allocation plan will include all central certification (see subsection 4.) that the plan Submitted Plans service costs that will be claimed (either as was prepared in accordance with this and 1. General a billed or an allocated cost) under Federal other appendices to this part, contains only 2. Allocated central services awards and will be documented as described allowable costs, and was prepared in a 3. Billed services in section E. Costs of central services omitted manner that treated similar costs consistently a. General from the plan will not be reimbursed. among the various Federal awards and b. Internal service funds D. Submission Requirements. between Federal and non-Federal awards/ c. Self-insurance funds 1. Each State will submit a plan to the activities. d. Fringe benefits Department of Health and Human Services 2. Allocated central services. For each 4. Required certification for each year in which it claims central allocated central service, the plan must also F. Negotiation and Approval of Central service costs under Federal awards. The plan include the following: A brief description of Service Plans should include a projection of the next year’s the service*, an identification of the unit G. Other Policies allocated central service cost (based either on rendering the service and the operating 1. Billed central service activities actual costs for the most recently completed agencies receiving the service, the items of 2. Working capital reserves year or the budget projection for the coming expense included in the cost of the service, 3. Carry-forward adjustments of allocated year), and a reconciliation of actual allocated the method used to distribute the cost of the central service costs central service costs to the estimated costs service to benefitted agencies, and a 4. Adjustments of billed central services used for either the most recently completed summary schedule showing the allocation of 5. Records retention year or the year immediately preceding the each service to the specific benefitted 6. Appeals most recently completed year. agencies. If any self-insurance funds or fringe 7. OMB assistance State/Local-Wide 2. Each local government that has been benefits costs are treated as allocated (rather Central Service Cost Allocation Plans designated as a ‘‘major local government’’ by than billed) central services, documentation A. General. the Office of Management and Budget (OMB) discussed in subsections 3.b. and c. shall also 1. Most governmental units provide certain is also required to submit a plan to its be included. services, such as motor pools, computer cognizant agency annually. OMB periodically 3. Billed services. centers, purchasing, accounting, etc., to lists major local governments in the Federal a. General. The information described operating agencies on a centralized basis. Register. below shall be provided for all billed central Since federally-supported awards are 3. All other local governments claiming services, including internal service funds, performed within the individual operating central service costs must develop a plan in self-insurance funds, and fringe benefit agencies, there needs to be a process whereby accordance with the requirements described funds. these central service costs can be identified in this appendix and maintain the plan and b. Internal service funds. and assigned to benefitted activities on a related supporting documentation for audit. (1) For each internal service fund or similar reasonable and consistent basis. The central These local governments are not required to activity with an operating budget of $5 service cost allocation plan provides that submit their plans for Federal approval million or more, the plan shall include: A process. All costs and other data used to unless they are specifically requested to do brief description of each service; a balance distribute the costs included in the plan so by the cognizant agency. Where a local sheet for each fund based on individual should be supported by formal accounting government only receives funds as a sub- accounts contained in the governmental and other records that will support the recipient, the primary recipient will be unit’s accounting system; a revenue/expenses propriety of the costs assigned to Federal responsible for negotiating indirect cost rates statement, with revenues broken out by awards. and/or monitoring the sub-recipient’s plan. source, e.g., regular billings, interest earned, 2. Guidelines and illustrations of central 4. All central service cost allocation plans etc.; a listing of all non-operating transfers (as service cost allocation plans are provided in will be prepared and, when required, defined by Generally Accepted Accounting a brochure published by the Department of submitted within six months prior to the Principles (GAAP)) into and out of the fund; Health and Human Services entitled ‘‘A beginning of each of the governmental unit’s a description of the procedures Guide for State and Local Government fiscal years in which it proposes to claim (methodology) used to charge the costs of Agencies: Cost Principles and Procedures for central service costs. Extensions may be each service to users, including how billing Establishing Cost Allocation Plans and granted by the cognizant agency on a case- rates are determined; a schedule of current Indirect Cost Rates for Grants and Contracts by-case basis. rates; and, a schedule comparing total with the Federal Government.’’ A copy of E. Documentation Requirements for revenues (including imputed revenues) this brochure may be obtained from the Submitted Plans. The documentation generated by the service to the allowable Superintendent of Documents, U.S. requirements described in this section may costs of the service, as determined under this Government Printing Office, Washington, DC be modified, expanded, or reduced by the and other appendices of this part, with an 20401. cognizant agency on a case-by-case basis. For explanation of how variances will be B. Definitions. example, the requirements may be reduced handled. Federal Register / Vol. 70, No. 168 /Wednesday, August 31, 2005 /Rules and Regulations 51923

(2) Revenues shall consist of all revenues accordance with applicable requirements. recovery of costs, are allowable. A working generated by the service, including unbilled Further, the same costs that have been treated capital reserve as part of retained earnings of and uncollected revenues. If some users were as indirect costs have not been claimed as up to 60 days cash expenses for normal not billed for the services (or were not billed direct costs. Similar types of costs have been operating purposes is considered reasonable. at the full rate for that class of users), a accounted for consistently. A working capital reserve exceeding 60 days schedule showing the full imputed revenues I declare that the foregoing is true and may be approved by the cognizant Federal associated with these users shall be provided. correct. agency in exceptional cases. Expenses shall be broken out by object cost lllllllllll Governmental Unit: 3. Carry-forward adjustments of allocated categories (e.g., salaries, supplies, etc.). Signature: llllllllllllllll central service costs. Allocated central c. Self-insurance funds. For each self- llllllllllll insurance fund, the plan shall include: The Name of Official: service costs are usually negotiated and fund balance sheet; a statement of revenue Title: llllllllllllllllll approved for a future fiscal year on a ‘‘fixed and expenses including a summary of Date of Execution: llllllllllll with carry-forward’’ basis. Under this procedure, the fixed amounts for the future billings and claims paid by agency; a listing F. Negotiation and Approval of Central year covered by agreement are not subject to of all non-operating transfers into and out of Service Plans. the fund; the type(s) of risk(s) covered by the 1. All proposed central service cost adjustment for that year. However, when the fund (e.g., automobile liability, workers’ allocation plans that are required to be actual costs of the year involved become compensation, etc.); an explanation of how submitted will be reviewed, negotiated, and known, the differences between the fixed the level of fund contributions are approved by the Federal cognizant agency on amounts previously approved and the actual determined, including a copy of the current a timely basis. The cognizant agency will costs will be carried forward and used as an actuarial report (with the actuarial review the proposal within six months of adjustment to the fixed amounts established assumptions used) if the contributions are receipt of the proposal and either negotiate/ for a later year. This ‘‘carry-forward’’ determined on an actuarial basis; and, a approve the proposal or advise the procedure applies to all central services description of the procedures used to charge governmental unit of the additional whose costs were fixed in the approved plan. or allocate fund contributions to benefitted documentation needed to support/evaluate However, a carry-forward adjustment is not activities. Reserve levels in excess of claims the proposed plan or the changes required to permitted, for a central service activity that submitted and adjudicated but not paid, make the proposal acceptable. Once an was not included in the approved plan, or for submitted but not adjudicated, and incurred agreement with the governmental unit has unallowable costs that must be reimbursed but not submitted must be identified and been reached, the agreement will be accepted immediately. explained. and used by all Federal agencies, unless 4. Adjustments of billed central services. d. Fringe benefits. For fringe benefit costs, prohibited or limited by statute. Where a the plan shall include: A listing of fringe Federal funding agency has reason to believe Billing rates used to charge Federal awards benefits provided to covered employees, and that special operating factors affecting its shall be based on the estimated costs of the overall annual cost of each type of awards necessitate special consideration, the providing the services, including an estimate benefit; current fringe benefit policies*; and funding agency will, prior to the time the of the allocable central service costs. A procedures used to charge or allocate the plans are negotiated, notify the cognizant comparison of the revenue generated by each costs of the benefits to benefitted activities. agency. billed service (including total revenues In addition, for pension and post-retirement 2. The results of each negotiation shall be whether or not billed or collected) to the health insurance plans, the following formalized in a written agreement between actual allowable costs of the service will be information shall be provided: the the cognizant agency and the governmental made at least annually, and an adjustment governmental unit’s funding policies, e.g., unit. This agreement will be subject to re- will be made for the difference between the legislative bills, trust agreements, or State- opening if the agreement is subsequently revenue and the allowable costs. These mandated contribution rules, if different from found to violate a statute or the information adjustments will be made through one of the actuarially determined rates; the pension upon which the plan was negotiated is later following adjustment methods: A cash refund plan’s costs accrued for the year; the amount found to be materially incomplete or to the Federal Government for the Federal funded, and date(s) of funding; a copy of the inaccurate. The results of the negotiation share of the adjustment, credits to the current actuarial report (including the shall be made available to all Federal actuarial assumptions); the plan trustee’s agencies for their use. amounts charged to the individual programs, report; and, a schedule from the activity 3. Negotiated cost allocation plans based adjustments to future billing rates, or showing the value of the interest cost on a proposal later found to have included adjustments to allocated central service costs. associated with late funding. costs that: Are unallowable as specified by Adjustments to allocated central services will 4. Required certification. Each central law or regulation, as identified in Appendix not be permitted where the total amount of service cost allocation plan will be B of this part, or by the terms and conditions the adjustment for a particular service accompanied by a certification in the of Federal awards, or are unallowable (Federal share and non-Federal) share following form: because they are clearly not allocable to exceeds $500,000. Federal awards, shall be adjusted, or a refund 5. Records retention. All central service Certificate of Cost Allocation Plan shall be made at the option of the Federal cost allocation plans and related This is to certify that I have reviewed the cognizant agency. These adjustments or documentation used as a basis for claiming cost allocation plan submitted herewith and refunds are designed to correct the plans and costs under Federal awards must be retained to the best of my knowledge and belief: do not constitute a reopening of the for audit in accordance with the records (1) All costs included in this proposal negotiation. retention requirements contained in the [identify date] to establish cost allocations or G. Other Policies. Common Rule. billings for [identify period covered by plan] 1. Billed central service activities. Each 6. Appeals. If a dispute arises in the are allowable in accordance with the billed central service activity must separately negotiation of a plan between the cognizant requirements of 2 CFR Part 225, Cost account for all revenues (including imputed Principles for State, Local, and Indian Tribal revenues) generated by the service, expenses agency and the governmental unit, the Governments (OMB Circular A–87), and the incurred to furnish the service, and profit/ dispute shall be resolved in accordance with Federal award(s) to which they apply. loss. the appeals procedures of the cognizant Unallowable costs have been adjusted for in 2. Working capital reserves. Internal agency. allocating costs as indicated in the cost service funds are dependent upon a 7. OMB assistance. To the extent that allocation plan. reasonable level of working capital reserve to problems are encountered among the Federal (2) All costs included in this proposal are operate from one billing cycle to the next. agencies and/or governmental units in properly allocable to Federal awards on the Charges by an internal service activity to connection with the negotiation and approval basis of a beneficial or causal relationship provide for the establishment and process, OMB will lend assistance, as between the expenses incurred and the maintenance of a reasonable level of working required, to resolve such problems in a awards to which they are allocated in capital reserve, in addition to the full timely manner. 51924 Federal Register / Vol. 70, No. 168 /Wednesday, August 31, 2005 /Rules and Regulations

Appendix D to Part 225—Public 2. Under the coordination process outlined C. Allocation of Indirect Costs and Assistance Cost Allocation Plans in subsection E, affected Federal agencies Determination of Indirect Cost Rates will review all new plans and plan 1. General Table of Contents amendments and provide comments, as 2. Simplified method A. General appropriate, to HHS. The effective date of the 3. Multiple allocation base method B. Definitions plan or plan amendment will be the first day 4. Special indirect cost rates 1. State public assistance agency of the quarter following the submission of the D. Submission and Documentation of 2. State public assistance agency costs plan or amendment, unless another date is Proposals C. Policy specifically approved by HHS. HHS, as the 1. Submission of indirect cost rate D. Submission, Documentation, and cognizant agency acting on behalf of all proposals Approval of Public Assistance Cost affected Federal agencies, will, as necessary, 2. Documentation of proposals Allocation Plans conduct negotiations with the State public 3. Required certification E. Review of Implementation of Approved assistance agency and will inform the State E. Negotiation and Approval of Rates Plans agency of the action taken on the plan or plan F. Other Policies F. Unallowable Costs amendment. 1. Fringe benefit rates A. General. Federally-financed programs E. Review of Implementation of Approved 2. Billed services provided by the grantee administered by State public assistance Plans. agency agencies are funded predominately by the 1. Since public assistance cost allocation 3. Indirect cost allocations not using rates Department of Health and Human Services plans are of a narrative nature, the review 4. Appeals (HHS). In support of its stewardship during the plan approval process consists of 5. Collections of unallowable costs and requirements, HHS has published evaluating the appropriateness of the erroneous payments requirements for the development, proposed groupings of costs (cost centers) 6. OMB assistance documentation, submission, negotiation, and and the related allocation bases. As such, the A. General. approval of public assistance cost allocation Federal Government needs some assurance 1. Indirect costs are those that have been plans in Subpart E of 45 CFR part 95. All that the cost allocation plan has been incurred for common or joint purposes. administrative costs (direct and indirect) are implemented as approved. This is These costs benefit more than one cost normally charged to Federal awards by accomplished by reviews by the funding objective and cannot be readily identified implementing the public assistance cost with a particular final cost objective without allocation plan. This appendix extends these agencies, single audits, or audits conducted by the cognizant audit agency. effort disproportionate to the results requirements to all Federal agencies whose achieved. After direct costs have been programs are administered by a State public 2. Where inappropriate charges affecting more than one funding agency are identified, determined and assigned directly to Federal assistance agency. Major federally-financed awards and other activities as appropriate, programs typically administered by State the cognizant HHS cost negotiation office will be advised and will take the lead in indirect costs are those remaining to be public assistance agencies include: allocated to benefitted cost objectives. A cost Temporary Assistance to Needy Families resolving the issue(s) as provided for in Subpart E of 45 CFR part 95. may not be allocated to a Federal award as (TANF), Medicaid, Food Stamps, Child an indirect cost if any other cost incurred for Support Enforcement, Adoption Assistance 3. If a dispute arises in the negotiation of a plan or from a disallowance involving two the same purpose, in like circumstances, has and Foster Care, and Social Services Block been assigned to a Federal award as a direct Grant. or more funding agencies, the dispute shall cost. B. Definitions. be resolved in accordance with the appeals 2. Indirect costs include the indirect costs 1. ‘‘State public assistance agency’’ means procedures set out in 45 CFR part 75. originating in each department or agency of a State agency administering or supervising Disputes involving only one funding agency the governmental unit carrying out Federal the administration of one or more public will be resolved in accordance with the assistance programs operated by the State as funding agency’s appeal process. awards and the costs of central governmental identified in Subpart E of 45 CFR part 95. For 4. To the extent that problems are services distributed through the central the purpose of this appendix, these programs encountered among the Federal agencies service cost allocation plan (as described in include all programs administered by the and/or governmental units in connection Appendix C to this part) and not otherwise State public assistance agency. with the negotiation and approval process, treated as direct costs. 2. ‘‘State public assistance agency costs’’ the Office of Management and Budget will 3. Indirect costs are normally charged to means all costs incurred by, or allocable to, lend assistance, as required, to resolve such Federal awards by the use of an indirect cost the State public assistance agency, except problems in a timely manner. rate. A separate indirect cost rate(s) is usually expenditures for financial assistance, medical F. Unallowable Costs. Claims developed necessary for each department or agency of vendor payments, food stamps, and under approved cost allocation plans will be the governmental unit claiming indirect costs payments for services and goods provided based on allowable costs as identified in 2 under Federal awards. Guidelines and directly to program recipients. CFR part 225. Where unallowable costs have illustrations of indirect cost proposals are C. Policy. State public assistance agencies been claimed and reimbursed, they will be provided in a brochure published by the will develop, document and implement, and refunded to the program that reimbursed the Department of Health and Human Services the Federal Government will review, unallowable cost using one of the following entitled ‘‘A Guide for State and Local negotiate, and approve, public assistance cost methods: a cash refund, offset to a Government Agencies: Cost Principles and allocation plans in accordance with Subpart subsequent claim, or credits to the amounts Procedures for Establishing Cost Allocation E of 45 CFR part 95. The plan will include charged to individual awards. Plans and Indirect Cost Rates for Grants and all programs administered by the State public Contracts with the Federal Government.’’ A assistance agency. Where a letter of approval Appendix E to Part 225—State and copy of this brochure may be obtained from or disapproval is transmitted to a State public Local Indirect Cost Rate Proposals the Superintendent of Documents, U.S. assistance agency in accordance with Subpart Government Printing Office, Washington, DC Table of Contents E, the letter will apply to all Federal agencies 20401. and programs. The remaining sections of this A. General 4. Because of the diverse characteristics appendix (except for the requirement for B. Definitions and accounting practices of governmental certification) summarize the provisions of 1. Indirect cost rate proposal units, the types of costs which may be Subpart E of 45 CFR part 95. 2. Indirect cost rate classified as indirect costs cannot be D. Submission, Documentation, and 3. Indirect cost pool specified in all situations. However, typical Approval of Public Assistance Cost 4. Base examples of indirect costs may include Allocation Plans. 5. Predetermined rate certain State/local-wide central service costs, 1. State public assistance agencies are 6. Fixed rate general administration of the grantee required to promptly submit amendments to 7. Provisional rate department or agency, accounting and the cost allocation plan to HHS for review 8. Final rate personnel services performed within the and approval. 9. Base period grantee department or agency, depreciation Federal Register / Vol. 70, No. 168 /Wednesday, August 31, 2005 /Rules and Regulations 51925 or use allowances on buildings and costs are incurred and accumulated for cost groupings. Each grouping shall then be equipment, the costs of operating and allocation to activities performed in that allocated individually to benefitted functions maintaining facilities, etc. period. The base period normally should by means of a base which best measures the 5. This appendix does not apply to State coincide with the governmental unit’s fiscal relative benefits. public assistance agencies. These agencies year, but in any event, shall be so selected b. The cost groupings should be should refer instead to Appendix D to this as to avoid inequities in the allocation of established so as to permit the allocation of part. costs. each grouping on the basis of benefits B. Definitions. C. Allocation of Indirect Costs and provided to the major functions. Each 1. ‘‘Indirect cost rate proposal’’ means the Determination of Indirect Cost Rates. grouping should constitute a pool of documentation prepared by a governmental 1. General. expenses that are of like character in terms unit or subdivision thereof to substantiate its a. Where a governmental unit’s department of the functions they benefit and in terms of request for the establishment of an indirect or agency has only one major function, or the allocation base which best measures the cost rate. where all its major functions benefit from the relative benefits provided to each function. 2. ‘‘Indirect cost rate’’ is a device for indirect costs to approximately the same The number of separate groupings should be determining in a reasonable manner the degree, the allocation of indirect costs and held within practical limits, taking into proportion of indirect costs each program the computation of an indirect cost rate may consideration the materiality of the amounts should bear. It is the ratio (expressed as a be accomplished through simplified involved and the degree of precision needed. percentage) of the indirect costs to a direct allocation procedures as described in c. Actual conditions must be taken into cost base. subsection 2 of this appendix. account in selecting the base to be used in 3. ‘‘Indirect cost pool’’ is the accumulated b. Where a governmental unit’s department allocating the expenses in each grouping to costs that jointly benefit two or more or agency has several major functions which benefitted functions. When an allocation can programs or other cost objectives. benefit from its indirect costs in varying be made by assignment of a cost grouping 4. ‘‘Base’’ means the accumulated direct degrees, the allocation of indirect costs may directly to the function benefitted, the costs (normally either total direct salaries and require the accumulation of such costs into allocation shall be made in that manner. wages or total direct costs exclusive of any separate cost groupings which then are When the expenses in a grouping are more extraordinary or distorting expenditures) allocated individually to benefitted functions general in nature, the allocation should be used to distribute indirect costs to individual by means of a base which best measures the made through the use of a selected base Federal awards. The direct cost base selected relative degree of benefit. The indirect costs which produces results that are equitable to should result in each award bearing a fair allocated to each function are then both the Federal Government and the share of the indirect costs in reasonable distributed to individual awards and other governmental unit. In general, any cost relation to the benefits received from the activities included in that function by means element or related factor associated with the costs. of an indirect cost rate(s). governmental unit’s activities is potentially 5. ‘‘Predetermined rate’’ means an indirect c. Specific methods for allocating indirect adaptable for use as an allocation base cost rate, applicable to a specified current or costs and computing indirect cost rates along provided that: it can readily be expressed in future period, usually the governmental with the conditions under which each terms of dollars or other quantitative unit’s fiscal year. This rate is based on an method should be used are described in measures (total direct costs, direct salaries estimate of the costs to be incurred during subsections 2, 3 and 4 of this appendix. and wages, staff hours applied, square feet the period. Except under very unusual 2. Simplified method. used, hours of usage, number of documents circumstances, a predetermined rate is not a. Where a grantee agency’s major processed, population served, and the like), subject to adjustment. (Because of legal functions benefit from its indirect costs to and it is common to the benefitted functions constraints, predetermined rates are not approximately the same degree, the during the base period. permitted for Federal contracts; they may, allocation of indirect costs may be d. Except where a special indirect cost however, be used for grants or cooperative accomplished by classifying the grantee rate(s) is required in accordance with agreements.) Predetermined rates may not be agency’s total costs for the base period as subsection 4, the separate groupings of used by governmental units that have not either direct or indirect, and dividing the indirect costs allocated to each major submitted and negotiated the rate with the total allowable indirect costs (net of function shall be aggregated and treated as a cognizant agency. In view of the potential applicable credits) by an equitable common pool for that function. The costs in advantages offered by this procedure, distribution base. The result of this process the common pool shall then be distributed to negotiation of predetermined rates for is an indirect cost rate which is used to individual Federal awards included in that indirect costs for a period of two to four years distribute indirect costs to individual Federal function by use of a single indirect cost rate. should be the norm in those situations where awards. The rate should be expressed as the e. The distribution base used in computing the cost experience and other pertinent facts percentage which the total amount of the indirect cost rate for each function may available are deemed sufficient to enable the allowable indirect costs bears to the base be total direct costs (excluding capital parties involved to reach an informed selected. This method should also be used expenditures and other distorting items such judgment as to the probable level of indirect where a governmental unit’s department or as pass-through funds, major subcontracts, costs during the ensuing accounting periods. agency has only one major function etc.), direct salaries and wages, or another 6. ‘‘Fixed rate’’ means an indirect cost rate encompassing a number of individual base which results in an equitable which has the same characteristics as a projects or activities, and may be used where distribution. An indirect cost rate should be predetermined rate, except that the difference the level of Federal awards to that developed for each separate indirect cost between the estimated costs and the actual, department or agency is relatively small. pool developed. The rate in each case should allowable costs of the period covered by the b. Both the direct costs and the indirect be stated as the percentage relationship rate is carried forward as an adjustment to costs shall exclude capital expenditures and between the particular indirect cost pool and the rate computation of a subsequent period. unallowable costs. However, unallowable the distribution base identified with that 7. ‘‘Provisional rate’’ means a temporary costs must be included in the direct costs if pool. indirect cost rate applicable to a specified they represent activities to which indirect 4. Special indirect cost rates. period which is used for funding, interim costs are properly allocable. a. In some instances, a single indirect cost reimbursement, and reporting indirect costs c. The distribution base may be total direct rate for all activities of a grantee department on Federal awards pending the establishment costs (excluding capital expenditures and or agency or for each major function of the of a ‘‘final’’ rate for that period. other distorting items, such as pass-through agency may not be appropriate. It may not 8. ‘‘Final rate’’ means an indirect cost rate funds, major subcontracts, etc.), direct take into account those different factors applicable to a specified past period which salaries and wages, or another base which which may substantially affect the indirect is based on the actual allowable costs of the results in an equitable distribution. costs applicable to a particular program or period. A final audited rate is not subject to 3. Multiple allocation base method. group of programs. The factors may include adjustment. a. Where a grantee agency’s indirect costs the physical location of the work, the level 9. ‘‘Base period’’ for the allocation of benefit its major functions in varying degrees, of administrative support required, the indirect costs is the period in which such such costs shall be accumulated into separate nature of the facilities or other resources 51926 Federal Register / Vol. 70, No. 168 /Wednesday, August 31, 2005 /Rules and Regulations employed, the organizational arrangements service cost allocation plan for the same Government will be notified of any used, or any combination thereof. When a period has not been approved by that time, accounting changes that would affect the particular award is carried out in an the indirect cost proposal may be prepared predetermined rate. environment which appears to generate a including an amount for central services that I declare that the foregoing is true and significantly different level of indirect costs, is based on the latest federally-approved correct. provisions should be made for a separate central service cost allocation plan. The Governmental Unit: lllllllllll indirect cost pool applicable to that award. difference between these central service Signature: llllllllllllllll The separate indirect cost pool should be amounts and the amounts ultimately llllllllllll developed during the course of the regular approved will be compensated for by an Name of Official: allocation process, and the separate indirect adjustment in a subsequent period. Title: llllllllllllllllll cost rate resulting therefrom should be used, 2. Documentation of proposals. The Date of Execution: llllllllllll provided that: the rate differs significantly following shall be included with each E. Negotiation and Approval of Rates. from the rate which would have been indirect cost proposal: 1. Indirect cost rates will be reviewed, developed under subsections 2. and 3. of this a. The rates proposed, including subsidiary negotiated, and approved by the cognizant appendix, and the award to which the rate work sheets and other relevant data, cross Federal agency on a timely basis. Once a rate would apply is material in amount. referenced and reconciled to the financial has been agreed upon, it will be accepted and b. Although 2 CFR part 225 adopts the data noted in subsection b of this appendix. used by all Federal agencies unless concept of the full allocation of indirect Allocated central service costs will be prohibited or limited by statute. Where a costs, there are some Federal statutes which supported by the summary table included in Federal funding agency has reason to believe restrict the reimbursement of certain indirect the approved central service cost allocation that special operating factors affecting its costs. Where such restrictions exist, it may be plan. This summary table is not required to awards necessitate special indirect cost rates, necessary to develop a special rate for the be submitted with the indirect cost proposal the funding agency will, prior to the time the affected award. Where a ‘‘restricted rate’’ is if the central service cost allocation plan for rates are negotiated, notify the cognizant required, the procedure for developing a non- the same fiscal year has been approved by the Federal agency. restricted rate will be used except for the cognizant agency and is available to the 2. The use of predetermined rates, if additional step of the elimination from the funding agency. allowed, is encouraged where the cognizant indirect cost pool those costs for which the b. A copy of the financial data (financial agency has reasonable assurance based on law prohibits reimbursement. statements, comprehensive annual financial past experience and reliable projection of the D. Submission and Documentation of report, executive budgets, accounting reports, grantee agency’s costs, that the rate is not Proposals. etc.) upon which the rate is based. likely to exceed a rate based on actual costs. 1. Submission of indirect cost rate Adjustments resulting from the use of Long-term agreements utilizing proposals. unaudited data will be recognized, where predetermined rates extending over two or a. All departments or agencies of the appropriate, by the Federal cognizant agency more years are encouraged, where governmental unit desiring to claim indirect in a subsequent proposal. appropriate. costs under Federal awards must prepare an c. The approximate amount of direct base 3. The results of each negotiation shall be indirect cost rate proposal and related costs incurred under Federal awards. These formalized in a written agreement between documentation to support those costs. The costs should be broken out between salaries the cognizant agency and the governmental proposal and related documentation must be and wages and other direct costs. unit. This agreement will be subject to re- retained for audit in accordance with the d. A chart showing the organizational opening if the agreement is subsequently records retention requirements contained in structure of the agency during the period for found to violate a statute, or the information the Common Rule. which the proposal applies, along with a upon which the plan was negotiated is later b. A governmental unit for which a functional statement(s) noting the duties and/ found to be materially incomplete or cognizant agency assignment has been or responsibilities of all units that comprise inaccurate. The agreed upon rates shall be specifically designated must submit its the agency. (Once this is submitted, only made available to all Federal agencies for indirect cost rate proposal to its cognizant revisions need be submitted with subsequent their use. agency. The Office of Management and proposals.) 4. Refunds shall be made if proposals are Budget (OMB) will periodically publish lists 3. Required certification. Each indirect cost later found to have included costs that are of governmental units identifying the rate proposal shall be accompanied by a unallowable as specified by law or appropriate Federal cognizant agencies. The certification in the following form: regulation, as identified in Appendix B to cognizant agency for all governmental units this part, or by the terms and conditions of or agencies not identified by OMB will be Certificate of Indirect Costs Federal awards, or are unallowable because determined based on the Federal agency This is to certify that I have reviewed the they are clearly not allocable to Federal providing the largest amount of Federal indirect cost rate proposal submitted awards. These adjustments or refunds will be funds. In these cases, a governmental unit herewith and to the best of my knowledge made regardless of the type of rate negotiated must develop an indirect cost proposal in and belief: (predetermined, final, fixed, or provisional). accordance with the requirements of 2 CFR (1) All costs included in this proposal F. Other Policies. 225 and maintain the proposal and related [identify date] to establish billing or final 1. Fringe benefit rates. If overall fringe supporting documentation for audit. These indirect costs rates for [identify period benefit rates are not approved for the governmental units are not required to covered by rate] are allowable in accordance governmental unit as part of the central submit their proposals unless they are with the requirements of the Federal award(s) service cost allocation plan, these rates will specifically requested to do so by the to which they apply and 2 CFR part 225, Cost be reviewed, negotiated and approved for cognizant agency. Where a local government Principles for State, Local, and Indian Tribal individual grantee agencies during the only receives funds as a sub-recipient, the Governments (OMB Circular A–87). indirect cost negotiation process. In these primary recipient will be responsible for Unallowable costs have been adjusted for in cases, a proposed fringe benefit rate negotiating and/or monitoring the sub- allocating costs as indicated in the cost computation should accompany the indirect recipient’s plan. allocation plan. cost proposal. If fringe benefit rates are not c. Each Indian tribal government desiring (2) All costs included in this proposal are used at the grantee agency level (i.e., the reimbursement of indirect costs must submit properly allocable to Federal awards on the agency specifically identifies fringe benefit its indirect cost proposal to the Department basis of a beneficial or causal relationship costs to individual employees), the of the Interior (its cognizant Federal agency). between the expenses incurred and the governmental unit should so advise the d. Indirect cost proposals must be agreements to which they are allocated in cognizant agency. developed (and, when required, submitted) accordance with applicable requirements. 2. Billed services provided by the grantee within six months after the close of the Further, the same costs that have been treated agency. In some cases, governmental units governmental unit’s fiscal year, unless an as indirect costs have not been claimed as provide and bill for services similar to those exception is approved by the cognizant direct costs. Similar types of costs have been covered by central service cost allocation Federal agency. If the proposed central accounted for consistently and the Federal plans (e.g., computer centers). Where this Federal Register / Vol. 70, No. 168 /Wednesday, August 31, 2005 /Rules and Regulations 51927 occurs, the governmental unit should be agency efforts to implement the Federal 230.45 Relationship to previous issuance. guided by the requirements in Appendix C to Financial Assistance Management 230.50 Information Contact. this part relating to the development of Improvement Act of 1999 (Pub. L. 106– Appendix A to Part 230—General Principles billing rates and documentation 107). Appendix B to Part 230—Selected Items of requirements, and should advise the Cost cognizant agency of any billed services. DATES: Part 230 is effective August 31, Reviews of these types of services (including 2005. This document republishes the Appendix C to Part 230—Non-Profit reviews of costing/billing methodology, existing OMB Circular A–122, which Organizations Not Subject to This Part profits or losses, etc.) will be made on a case- already is in effect. Authority: 31 U.S.C. 503; 31 U.S.C. 1111; by-case basis as warranted by the FOR FURTHER INFORMATION CONTACT: Gil 41 U.S.C. 405; Reorganization Plan No. 2 of circumstances involved. 1970; E.O. 11541, 35 FR 10737, 3 CFR, 1966– 3. Indirect cost allocations not using rates. Tran, Office of Federal Financial 1970, p. 939 In certain situations, a governmental unit, Management, Office of Management and Budget, telephone 202–395–3052 because of the nature of its awards, may be § 230.5 Purpose. required to develop a cost allocation plan (direct) or 202–395–3993 (main office) that distributes indirect (and, in some cases, and e-mail: [email protected]. This part establishes principles for direct) costs to the specific funding sources. SUPPLEMENTARY INFORMATION: On May determining costs of grants, contracts In these cases, a narrative cost allocation 10, 2004 [69 FR 25970], we revised the and other agreements with non-profit methodology should be developed, documented, maintained for audit, or three OMB circulars containing Federal organizations. cost principles. The purpose of those submitted, as appropriate, to the cognizant § 230.10 Scope. agency for review, negotiation, and approval. revisions was to simplify the cost 4. Appeals. If a dispute arises in a principles by making the descriptions of (a) This part does not apply to negotiation of an indirect cost rate (or other similar cost items consistent across the colleges and universities which are rate) between the cognizant agency and the circulars where possible, thereby covered by 2 CFR part 220 Cost governmental unit, the dispute shall be reducing the possibility of resolved in accordance with the appeals Principles for Educational Institutions procedures of the cognizant agency. misinterpretation. Those revisions, a (OMB Circular A–21); State, local, and 5. Collection of unallowable costs and result of OMB and Federal agency federally-recognized Indian tribal erroneous payments. Costs specifically efforts to implement Public Law 106– governments which are covered by 2 identified as unallowable and charged to 107, were effective on June 9, 2004. CFR part 225 Cost Principles for State, Federal awards either directly or indirectly In this document, we relocate OMB Local, and Indian Tribal Governments will be refunded (including interest Circular A–122 to the CFR, in Title 2 (OMB Circular A–87); or hospitals. chargeable in accordance with applicable which was established on May 11, 2004 Federal agency regulations). (b) The principles deal with the 6. OMB assistance. To the extent that [69 FR 26276] as a central location for subject of cost determination, and make problems are encountered among the Federal OMB and Federal agency policies on no attempt to identify the circumstances agencies and/or governmental units in grants and agreements. or dictate the extent of agency and non- Our relocation of OMB Circular A– connection with the negotiation and approval profit organization participation in the process, OMB will lend assistance, as 122 does not change the substance of financing of a particular project. required, to resolve such problems in a the circular. Other than adjustments Provision for profit or other increment timely manner. needed to conform to the formatting above cost is outside the scope of this requirements of the CFR, this document [FR Doc. 05–16649 Filed 8–30–05; 8:45 am] part. BILLING CODE 3110–01–P relocates in 2 CFR the version of OMB Circular A–122 as revised by the May § 230.15 Policy. 10, 2004 notice. The principles are designed to OFFICE OF MANAGEMENT AND List of Subjects in 2 CFR Part 230 BUDGET provide that the Federal Government Accounting, Grant programs, Grants bear its fair share of costs except where 2 CFR Part 230 administration, Non-profit restricted or prohibited by law. The organizations, Reporting and principles do not attempt to prescribe Cost Principles for Non-Profit recordkeeping requirements. the extent of cost sharing or matching Organizations (OMB Circular A–122) on grants, contracts, or other Dated: August 8, 2005. agreements. However, such cost sharing AGENCY: Office of Management and Joshua B. Bolten, or matching shall not be accomplished Budget. Director. through arbitrary limitations on ACTION: Relocation of policy guidance to Authority and Issuance individual cost elements by Federal 2 CFR chapter II. agencies. ■ For the reasons set forth above, the SUMMARY: The Office of Management Office of Management and Budget § 230.20 Applicability. and Budget (OMB) is relocating Circular amends 2 CFR Subtitle A, chapter II, by A–122, ‘‘Cost Principles for Non-Profit (a) These principles shall be used by adding a part 230 as set forth below. Organizations,’’ to Title 2 in the Code of all Federal agencies in determining the Federal Regulations (CFR), subtitle A, PART 230—COST PRINCIPLES FOR costs of work performed by non-profit chapter II, part 230. This relocation is NON-PROFIT ORGANIZATIONS (OMB organizations under grants, cooperative part of our broader initiative to create 2 CIRCULAR A–122) agreements, cost reimbursement CFR as a single location where the contracts, and other contracts in which public can find both OMB guidance for Sec. costs are used in pricing, grants and agreements and the 230.5 Purpose. administration, or settlement. All of associated Federal agency implementing 230.10 Scope. these instruments are hereafter referred regulations. The broader initiative 230.15 Policy. to as awards. The principles do not 230.20 Applicability. provides a good foundation for 230.25 Definitions apply to awards under which an streamlining and simplifying the policy 230.30 OMB responsibilities. organization is not required to account framework for grants and agreements, 230.35 Federal agency responsibilities. to the Federal Government for actual one objective of OMB and Federal 230.40 Effective date of changes. costs incurred.