[Title 2 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2007 Edition]
[From the U.S. Government Printing Office]



[[Page i]]

          

          2

                         Revised as of January 1, 2007


          Grants and Agreements
          



________________________

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2007
          With Ancillaries
                    Published by
                    Office of the Federal Register
                    National Archives and Records
                    Administration
                    A Special Edition of the Federal Register

[[Page ii]]

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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 2:
    Subtitle A--Office of Management and Budget Guidance for 
      Grants and Agreements                                          3
          Chapter I--Office of Management and Budget 
          Governmentwide Guidance for Grants and Agreements          9
          Chapter II--Office of Management and Budget 
          Circulars and Guidance                                    37
    Subtitle B--Federal Agency Regulations for Grants and 
      Agreements                                                   173
          Chapter IX--Department of Energy                         175
          Chapter XIII--Department of Commerce                     179
          Chapter XXXVII--Peace Corps                              185
  Finding Aids:
      Table of CFR Titles and Chapters........................     191
      Alphabetical List of Agencies Appearing in the CFR......     209
      List of CFR Sections Affected...........................     219

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                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 2 CFR 1.100 refers 
                       to title 2, part 1, 
                       section 100.

                     ----------------------------

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
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parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
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LEGAL STATUS

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HOW TO USE THE CODE OF FEDERAL REGULATIONS

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[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
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[[Page vii]]

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                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

January 1, 2007.

[[Page ix]]



                               THIS TITLE

    Title 2--Grants and Agreements is composed of one volume. This 
volume is comprised of Subtitle A--Office of Management and Budget 
Guidance for Grants and Agreements and Subtitle B--Federal Agency 
Regulations for Grants and Agreements. The contents of this volume 
represents all current regulations codified under this title of the CFR 
as of January 1, 2007.

    For this volume, Moja N. Mwaniki and Bonnie Fritts were Chief 
Editors. The Code of Federal Regulations publication program is under 
the direction of Frances D. McDonald, assisted by Ann Worley.


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                     TITLE 2--GRANTS AND AGREEMENTS




  --------------------------------------------------------------------
                                                                    Part

  SUBTITLE A--Office of Management and Budget Guidance for Grants and 
                                Agreements

chapter i--Office of Management and Budget Governmentwide 
  Guidance for Grants and Agreements........................         180

chapter ii--Office of Management and Budget Circulars and 
  Guidance..................................................         215

    SUBTITLE B--Federal Agency Regulations for Grants and Agreements 

chapter ix--Department of Energy............................         901

chapter xiii--Department of Commerce........................        1326

chapter xxxvii--Peace Corps.................................        3700

[[Page 3]]

  Subtitle A--Office of Management and Budget Guidance for Grants and 
                               Agreements

  --------------------------------------------------------------------


1               About Title 2 of the Code of Federal 
                    Regulations and Subtitle A..............           5

[[Page 5]]



PART 1_ABOUT TITLE 2 OF THE CODE OF FEDERAL REGULATIONS AND SUBTITLE A--Table of Contents




              Subpart A_Introduction to Title 2 of the CFR

Sec.
1.100 Content of this title.
1.105 Organization and subtitle content.
1.110 Issuing authorities.

                  Subpart B_Introduction to Subtitle A

1.200 Purpose of chapters I and II.
1.205 Applicability to grants and other funding instruments.
1.210 Applicability to Federal agencies and others.
1.215 Relationship to previous issuances.
1.220 Federal agency implementation of this subtitle.
1.230 Maintenance of this subtitle.

         Subpart C_Responsibilities of OMB and Federal Agencies

1.300 OMB responsibilities.
1.305 Federal agency responsibilities.

    Authority: 31 U.S.C. 503; 31 U.S.C. 1111; 41 U.S.C. 405; 
Reorganization Plan No. 2 of 1970; E.O. 11541, 35 FR 10737, 3 CFR, 1966-
1970, p. 939.

    Source: 69 FR 26280, May 11, 2004, unless otherwise noted.



              Subpart A_Introduction to Title 2 of the CFR



Sec. 1.100  Content of this title.

    This title contains--
    (a) Office of Management and Budget (OMB) guidance to Federal 
agencies on government-wide policies and procedures for the award and 
administration of grants and agreements; and
    (b) Federal agency regulations implementing that OMB guidance.



Sec. 1.105  Organization and subtitle content.

    (a) This title is organized into two subtitles.
    (b) The OMB guidance described in Sec. 1.100(a) is published in 
subtitle A. Publication of the OMB guidance in the CFR does not change 
its nature--it is guidance and not regulation.
    (c) Each Federal agency that publishes regulations implementing the 
OMB guidance has a chapter in subtitle B in which it issues those 
regulations. The Federal agency regulations in subtitle B differ in 
nature from the OMB guidance in subtitle A because the OMB guidance is 
not regulatory (Federal agency regulations in subtitle B may give 
regulatory effect to the OMB guidance, to the extent that the agency 
regulations require compliance with all or portions of the guidance).



Sec. 1.110  Issuing authorities.

    OMB issues this subtitle. Each Federal agency that has a chapter in 
subtitle B of this title issues that chapter.



                  Subpart B_Introduction to Subtitle A



Sec. 1.200  Purpose of chapters I and II.

    (a) Chapters I and II of subtitle A provide OMB guidance to Federal 
agencies that helps ensure consistent and uniform government-wide 
policies and procedures for management of the agencies' grants and 
agreements.
    (b) There are two chapters for publication of the guidance because 
portions of it may be revised as a result of ongoing efforts to 
streamline and simplify requirements for the award and administration of 
grants and other financial assistance (and thereby implement the Federal 
Financial Assistance Management Improvement Act of 1999, Pub. L. 106-
107).
    (c) The OMB guidance in its initial form--before completion of 
revisions described in paragraph (b) of this section--is published in 
chapter II of this subtitle. When revisions to a part of the guidance 
are finalized, that part is published in chapter I and removed from 
chapter II.



Sec. 1.205  Applicability to grants and other funding instruments.

    The types of instruments that are subject to the guidance in this 
subtitle vary from one portion of the guidance to another (note that 
each part identifies the types of instruments to which it applies). All 
portions of the guidance apply to grants and cooperative agreements, 
some portions also apply to other types of financial assistance or 
nonprocurement instruments, and some portions also apply to procurement 
contracts. For example, the:

[[Page 6]]

    (a) Guidance on debarment and suspension in part 180 of this 
subtitle applies broadly to all financial assistance and other 
nonprocurement transactions, and not just to grants and cooperative 
agreements.
    (b) Cost principles in parts 220, 225 and 230 of this subtitle apply 
to procurement contracts, as well as to financial assistance, although 
those principles are implemented for procurement contracts through the 
Federal Acquisition Regulation in Title 48 of the CFR, rather than 
through Federal agency regulations on grants and agreements in this 
title.

[70 FR 51863, Aug. 31, 2005]



Sec. 1.210  Applicability to Federal agencies and others.

    (a) This subtitle contains guidance that directly applies only to 
Federal agencies.
    (b) The guidance in this subtitle may affect others through each 
Federal agency's implementation of the guidance, portions of which may 
apply to--
    (1) The agency's awarding or administering officials;
    (2) Non-Federal entities that receive or apply for the agency's 
grants or agreements or receive subawards under those grants or 
agreements; or
    (3) Any other entities involved in agency transactions subject to 
the guidance in this chapter.



Sec. 1.215  Relationship to previous issuances.

    Although some of the guidance was organized differently within OMB 
circulars or other documents, much of the guidance in this subtitle 
existed prior to the establishment of title 2 of the CFR. Specifically:

------------------------------------------------------------------------
                                                     Previously was in .
      Guidance in . . .             On . . .                 . .
------------------------------------------------------------------------
(a) Chapter I, part 180.....  Nonprocurement        OMB guidance that
                               debarment and         conforms with the
                               suspension.           government-wide
                                                     common rule (see 60
                                                     FR 33036, June 26,
                                                     1995).
(b) Chapter II, part 215....  Administrative        OMB Circular A-110.
                               requirements for
                               grants and
                               agreements.
(c) Chapter II, part 220....  Cost principles for   OMB Circular A-21.
                               educational
                               institutions.
(d) Chapter II, part 225....  Cost principles for   OMB Circular A-87.
                               State, local, and
                               Indian tribal
                               governments.
(e) Chapter II, part 230....  Cost principles for   OMB Circular A-122.
                               non-profit
                               organizations.
(f) [Reserved]                                      ....................
------------------------------------------------------------------------


[70 FR 51863, Aug. 31, 2005]



Sec. 1.220  Federal agency implementation of this subtitle.

    A Federal agency that awards grants and agreements subject to the 
guidance in this subtitle implements the guidance in agency regulations 
in subtitle B of this title and/or in policy and procedural issuances, 
such as internal instructions to the agency's awarding and administering 
officials. An applicant or recipient would see the effect of that 
implementation in the organization and content of the agency's 
announcements of funding opportunities and in its award terms and 
conditions.



Sec. 1.230  Maintenance of this subtitle.

    OMB issues guidance in this subtitle after publication in the 
Federal Register. Any portion of the guidance that has a potential 
impact on the public is published with an opportunity for public 
comment.



         Subpart C_Responsibilities of OMB and Federal Agencies



Sec. 1.300  OMB responsibilities.

    OMB is responsible for:
    (a) Issuing and maintaining the guidance in this subtitle, as 
described in Sec. 1.230.
    (b) Interpreting the policy requirements in this subtitle.
    (c) Reviewing Federal agency regulations implementing the 
requirements of this subtitle, as required by Executive Order 12866.
    (d) Conducting broad oversight of government-wide compliance with 
the guidance in this subtitle.
    (e) Performing other OMB functions specified in this subtitle.

[[Page 7]]



Sec. 1.305  Federal agency responsibilities.

    The head of each Federal agency that awards and administers grants 
and agreements subject to the guidance in this subtitle is responsible 
for:
    (a) Implementing the guidance in this subtitle.
    (b) Ensuring that the agency's components and subcomponents comply 
with the agency's implementation of the guidance.
    (c) Performing other functions specified in this subtitle.

[[Page 9]]



 CHAPTER I--OFFICE OF MANAGEMENT AND BUDGET GOVERNMENTWIDE GUIDANCE FOR 
                          GRANTS AND AGREEMENTS




  --------------------------------------------------------------------
Part                                                                Page
100-179         [Reserved]

180             OMB guidelines to agencies on governmentwide 
                    debarment and suspension 
                    (nonprocurement)........................          11
181-199         [Reserved]

[[Page 11]]





                        PARTS 100-179 [RESERVED]



PART 180_OMB GUIDELINES TO AGENCIES ON GOVERNMENTWIDE DEBARMENT AND SUSPENSION 

(NONPROCUREMENT)--Table of Contents




Sec.
180.5 What does this part do?
180.10 How is this part organized?
180.15 To whom do these guidelines apply?
180.20 What must a Federal agency do to implement these guidelines?
180.25 What must a Federal agency address in its implementation of these 
          guidelines?
180.30 Where does a Federal agency implement these guidelines?
180.35 By when must a Federal agency implement these guidelines?
180.40 How are these guidelines maintained?
180.45 Do these guidelines cover persons who are disqualified, as well 
          as those who are excluded from nonprocurement transactions?

                            Subpart A_General

180.100 How are subparts A through I organized?
180.105 How is this part written?
180.110 Do terms in this part have special meanings?
180.115 What do subparts A through I of this part do?
180.120 Do subparts A through I of this part apply to me?
180.125 What is the purpose of the nonprocurement debarment and 
          suspension system?
180.130 How does an exclusion restrict a person's involvement in covered 
          transactions?
180.135 May a Federal agency grant an exception to let an excluded 
          person participate in a covered transaction?
180.140 Does an exclusion under the nonprocurement system affect a 
          person's eligibility for Federal procurement contracts?
180.145 Does an exclusion under the Federal procurement system affect a 
          person's eligibility to participate in nonprocurement 
          transactions?
180.150 Against whom may a Federal agency take an exclusion action?
180.155 How do I know if a person is excluded?

                     Subpart B_Covered Transactions

180.200 What is a covered transaction?
180.205 Why is it important to know if a particular transaction is a 
          covered transaction?
180.210 Which nonprocurement transactions are covered transactions?
180.215 Which nonprocurement transactions are not covered transactions?
180.220 Are any procurement contracts included as covered transactions?
180.225 How do I know if a transaction in which I may participate is a 
          covered transaction?

Subpart C_Responsibilities of Participants Regarding Transactions Doing 
                       Business With Other Persons

180.300 What must I do before I enter into a covered transaction with 
          another person at the next lower tier?
180.305 May I enter into a covered transaction with an excluded or 
          disqualified person?
180.310 What must I do if a Federal agency excludes a person with whom I 
          am already doing business in a covered transaction?
180.315 May I use the services of an excluded person as a principal 
          under a covered transaction?
180.320 Must I verify that principals of my covered transactions are 
          eligible to participate?
180.325 What happens if I do business with an excluded person in a 
          covered transaction?
180.330 What requirements must I pass down to persons at lower tiers 
          with whom I intend to do business?

            Disclosing Information--Primary Tier Participants

180.335 What information must I provide before entering into a covered 
          transaction with a Federal agency?
180.340 If I disclose unfavorable information required under Sec. 
          180.335 will I be prevented from participating in the 
          transaction?
180.345 What happens if I fail to disclose information required under 
          Sec. 180.335?
180.350 What must I do if I learn of information required under Sec. 
          180.335 after entering into a covered transaction with a 
          Federal agency?

             Disclosing Information--Lower Tier Participants

180.355 What information must I provide to a higher tier participant 
          before entering into a covered transaction with that 
          participant?

[[Page 12]]

180.360 What happens if I fail to disclose information required under 
          Sec. 180.355?
180.365 What must I do if I learn of information required under Sec. 
          180.355 after entering into a covered transaction with a 
          higher tier participant?

    Subpart D_Responsibilities of Federal Agency Officials Regarding 
                              Transactions

180.400 May I enter into a transaction with an excluded or disqualified 
          person?
180.405 May I enter into a covered transaction with a participant if a 
          principal of the transaction is excluded?
180.410 May I approve a participant's use of the services of an excluded 
          person?
180.415 What must I do if a Federal agency excludes the participant or a 
          principal after I enter into a covered transaction?
180.420 May I approve a transaction with an excluded or disqualified 
          person at a lower tier?
180.425 When do I check to see if a person is excluded or disqualified?
180.430 How do I check to see if a person is excluded or disqualified?
180.435 What must I require of a primary tier participant?
180.440 What action may I take if a primary tier participant knowingly 
          does business with an excluded or disqualified person?
180.445 What action may I take if a primary tier participant fails to 
          disclose the information required under Sec. 180.335?
180.450 What may I do if a lower tier participant fails to disclose the 
          information required under Sec. 180.355 to the next higher 
          tier?

                 Subpart E_Excluded Parties List System

180.500 What is the purpose of the Excluded Parties List System (EPLS)?
180.505 Who uses the EPLS?
180.510 Who maintains the EPLS?
180.515 What specific information is in the EPLS?
180.520 Who places the information into the EPLS?
180.525 Whom do I ask if I have questions about a person in the EPLS?
180.530 Where can I find the EPLS?

   Subpart F_General Principles Relating to Suspension and Debarment 
                                 Actions

180.600 How do suspension and debarment actions start?
180.605 How does suspension differ from debarment?
180.610 What procedures does a Federal agency use in suspension and 
          debarment actions?
180.615 How does a Federal agency notify a person of a suspension or 
          debarment action?
180.620 Do Federal agencies coordinate suspension and debarment actions?
180.625 What is the scope of a suspension or debarment?
180.630 May a Federal agency impute the conduct of one person to 
          another?
180.635 May a Federal agency settle a debarment or suspension action?
180.640 May a settlement include a voluntary exclusion?
180.645 Do other Federal agencies know if an agency agrees to a 
          voluntary exclusion?

                          Subpart G_Suspension

180.700 When may the suspending official issue a suspension?
180.705 What does the suspending official consider in issuing a 
          suspension?
180.710 When does a suspension take effect?
180.715 What notice does the suspending official give me if I am 
          suspended?
180.720 How may I contest a suspension?
180.725 How much time do I have to contest a suspension?
180.730 What information must I provide to the suspending official if I 
          contest the suspension?
180.735 Under what conditions do I get an additional opportunity to 
          challenge the facts on which the suspension is based?
180.740 Are suspension proceedings formal?
180.745 How is fact-finding conducted?
180.750 What does the suspending official consider in deciding whether 
          to continue or terminate my suspension?
180.755 When will I know whether the suspension is continued or 
          terminated?
180.760 How long may my suspension last?

                           Subpart H_Debarment

180.800 What are the causes for debarment?
180.805 What notice does the debarring official give me if I am proposed 
          for debarment?
180.810 When does a debarment take effect?
180.815 How may I contest a proposed debarment?
180.820 How much time do I have to contest a proposed debarment?
180.825 What information must I provide to the debarring official if I 
          contest the proposed debarment?
180.830 Under what conditions do I get an additional opportunity to 
          challenge the facts on which the proposed debarment is based?
180.835 Are debarment proceedings formal?
180.840 How is fact-finding conducted?
180.845 What does the debarring official consider in deciding whether to 
          debar me?
180.850 What is the standard of proof in a debarment action?
180.855 Who has the burden of proof in a debarment action?

[[Page 13]]

180.860 What factors may influence the debarring official's decision?
180.865 How long may my debarment last?
180.870 When do I know if the debarring official debars me?
180.875 May I ask the debarring official to reconsider a decision to 
          debar me?
180.880 What factors may influence the debarring official during 
          reconsideration?
180.885 May the debarring official extend a debarment?

                          Subpart I_Definitions

180.900 Adequate evidence.
180.905 Affiliate.
180.910 Agent or representative.
180.915 Civil judgment.
180.920 Conviction.
180.925 Debarment.
180.930 Debarring official.
180.935 Disqualified.
180.940 Excluded or exclusion.
180.945 Excluded Parties List System (EPLS).
180.950 Federal agency.
180.955 Indictment.
180.960 Ineligible or ineligibility.
180.965 Legal proceedings.
180.970 Nonprocurement transaction.
180.975 Notice.
180.980 Participant.
180.985 Person.
180.990 Preponderance of the evidence.
180.995 Principal.
180.1000 Respondent.
180.1005 State.
180.1010 Suspending official.
180.1015 Suspension.
180.1020 Voluntary exclusion or voluntarily excluded.

Appendix to Part 180--Covered Transactions

    Authority: Sec. 2455, Pub. L. 103-355, 108 Stat. 3327; E.O. 12549, 3 
CFR, 1986 Comp., p.189; E.O. 12689, 3 CFR, 1989 Comp., p. 235.

    Source: 70 FR 51865, Aug. 31, 2005, unless otherwise noted.



Sec. 180.5  What does this part do?

    This part provides Office of Management and Budget (OMB) guidance 
for Federal agencies on the governmentwide debarment and suspension 
system for nonprocurement programs and activities.



Sec. 180.10  How is this part organized?

    This part is organized in two segments.
    (a) Sections 180.5 through 180.45 contain general policy direction 
for Federal agencies' use of the standards in subparts A through I of 
this part.
    (b) Subparts A through I of this part contain uniform governmentwide 
standards that Federal agencies are to use to specify--
    (1) The types of transactions that are covered by the nonprocurement 
debarment and suspension system;
    (2) The effects of an exclusion under that nonprocurement system, 
including reciprocal effects with the governmentwide debarment and 
suspension system for procurement;
    (3) The criteria and minimum due process to be used in 
nonprocurement debarment and suspension actions; and
    (4) Related policies and procedures to ensure the effectiveness of 
those actions.



Sec. 180.15  To whom does the guidance apply?

    The guidance provides OMB guidance only to Federal agencies. 
Publication of the guidance in the CFR does not change its nature--it is 
guidance and not regulation. Federal agencies' implementation of the 
guidance governs the rights and responsibilities of other persons 
affected by the nonprocurement debarment and suspension system.



Sec. 180.20  What must a Federal agency do to implement these guidelines?

    As required by Section 3 of E.O. 12549, each Federal agency with 
nonprocurement programs and activities covered by subparts A through I 
of the guidance must issue regulations consistent with those subparts.



Sec. 180.25  What must a Federal agency address in its implementation of the 

guidance?

    Each Federal agency implementing regulation:
    (a) Must establish policies and procedures for that agency's 
nonprocurement debarment and suspension programs and activities that are 
consistent with the guidance. When adopted by a Federal agency, the 
provisions of the guidance has regulatory effect for that agency's 
programs and activities.
    (b) Must address some matters for which these guidelines give each 
Federal agency some discretion. Specifically, the regulation must--

[[Page 14]]

    (1) Identify either the Federal agency head or the title of the 
designated official who is authorized to grant exceptions under Sec. 
180.135 to let an excluded person participate in a covered transaction.
    (2) State whether the agency includes as covered transactions an 
additional tier of contracts awarded under covered nonprocurement 
transactions, as permitted under Sec. 180.220(c).
    (3) Identify the method(s) an agency official may use, when entering 
into a covered transaction with a primary tier participant, to 
communicate to the participant the requirements described in Sec. 
180.435. Examples of methods are an award term that requires compliance 
as a condition of the award; an assurance of compliance obtained at time 
of application; or a certification.
    (4) State whether the Federal agency specifies a particular method 
that participants must use to communicate compliance requirements to 
lower-tier participants, as described in Sec. 180.330(a). If there is a 
specified method, the regulation needs to require agency officials, when 
entering into covered transactions with primary tier participants, to 
communicate that requirement.
    (c) May also, at the agency's option:
    (1) Identify any specific types of transactions that the Federal 
agency includes as ``nonprocurement transactions'' in addition to the 
examples provided in Sec. 180.970.
    (2) Identify any types of nonprocurement transactions that the 
Federal agency exempts from coverage under these guidelines, as 
authorized under Sec. 180.215(g)(2).
    (3) Identify specific examples of types of individuals who would be 
``principals'' under the Federal agency's nonprocurement programs and 
transactions, in addition to the types of individuals described at Sec. 
180.995.
    (4) Specify the Federal agency's procedures, if any, by which a 
respondent may appeal a suspension or debarment decision.
    (5) Identify by title the officials designated by the Federal agency 
head as debarring officials under Sec. 180.930 or suspending officials 
under Sec. 180.1010.
    (6) Include a subpart covering disqualifications, as authorized in 
Sec. 180.45.
    (7) Include any provisions authorized by OMB.

[70 FR 51865, Aug. 31, 2005, as amended at 71 FR 66432, Nov. 15, 2006]



Sec. 180.30  Where does a Federal agency implement these guidelines?

    Each Federal agency that participates in the governmentwide 
nonprocurement debarment and suspension system must issue a regulation 
implementing these guidelines within its chapter in subtitle B of this 
title of the Code of Federal Regulations.



Sec. 180.35  By when must a Federal agency implement these guidelines?

    Federal agencies must submit proposed regulations to the OMB for 
review within nine months of the issuance of these guidelines and issue 
final regulations within eighteen months of these guidelines.



Sec. 180.40  How are these guidelines maintained?

    The Interagency Committee on Debarment and Suspension established by 
section 4 of E.O. 12549 recommends to the OMB any needed revisions to 
the guidelines in this part. The OMB publishes proposed changes to the 
guidelines in the Federal Register for public comment, considers 
comments with the help of the Interagency Committee on Debarment and 
Suspension, and issues the final guidelines.



Sec. 180.45  Do these guidelines cover persons who are disqualified, as well 

as those who are excluded from nonprocurement transactions?

    A Federal agency may add a subpart covering disqualifications to its 
regulation implementing these guidelines, but the guidelines in subparts 
A through I of this part--
    (a) Address disqualified persons only to--
    (1) Provide for their inclusion in the EPLS; and
    (2) State responsibilities of Federal agencies and participants to 
check for disqualified persons before entering into covered 
transactions.
    (b) Do not specify the--
    (1) Transactions for which a disqualified person is ineligible. 
Those transactions vary on a case-by-case basis,

[[Page 15]]

because they depend on the language of the specific statute, Executive 
order or regulation that caused the disqualification;
    (2) Entities to which a disqualification applies; or
    (3) Process that a Federal agency uses to disqualify a person. 
Unlike exclusion under subparts A through I of this part, 
disqualification is frequently not a discretionary action that a Federal 
agency takes, and may include special procedures.



                            Subpart A_General



Sec. 180.100  How are subparts A through I organized?

    (a) Each subpart contains information related to a broad topic or 
specific audience with special responsibilities, as shown in the 
following table:

----------------------------------------------------------------------------------------------------------------
              In subpart . . .                             You will find provisions related to . . .
----------------------------------------------------------------------------------------------------------------
A...........................................  general information about Subparts A through I of this part.
B...........................................  the types of transactions that are covered by the Governmentwide
                                               nonprocurement suspension and debarment system.
C...........................................  the responsibilities of persons who participate in covered
                                               transactions.
D...........................................  the responsibilities of Federal agency officials who are
                                               authorized to enter into covered transactions.
E...........................................  the responsibilities of Federal agencies for entering information
                                               into the EPLS
F...........................................  the general principles governing suspension, debarment, voluntary
                                               exclusion and settlement.
G...........................................  suspension actions.
H...........................................  debarment actions.
I...........................................  definitions of terms used in this part.
----------------------------------------------------------------------------------------------------------------

    (b) The following table shows which subparts may be of special 
interest to you, depending on who you are:

------------------------------------------------------------------------
          If you are . . .                   See Subpart(s) . . .
------------------------------------------------------------------------
(1) a participant or principal in a  A, B, C and I.
 nonprocurement transaction.
(2) a respondent in a suspension     A, B, F, G and I.
 action.
(3) a respondent in a debarment      A, B, F, H and I.
 action.
(4) a suspending official..........  A, B, E, F, G and I.
(5) a debarring official...........  A, B, D, F, H and I.
(6) an Federal agency official       A, B, D, E and I.
 authorized to enter into a covered
 transaction.
------------------------------------------------------------------------



Sec. 180.105  How is this part written?

    (a) This part uses a ``plain language'' format to make it easier for 
the general public and business community to use. The section headings 
and text, often in the form of questions and answers, must be read 
together.
    (b) Pronouns used within this part, such as ``I'' and ``you,'' 
change from subpart to subpart depending on the audience being 
addressed.
    (c) The ``Covered Transactions'' diagram in the appendix to this 
part shows the levels or ``tiers'' at which a Federal agency may enforce 
an exclusion.



Sec. 180.110  Do terms in this part have special meanings?

    This part uses terms throughout the text that have special meaning. 
Those terms are defined in subpart I of this part. For example, three 
important terms are--
    (a) Exclusion or excluded, which refers only to discretionary 
actions taken by a suspending or debarring official under Executive 
Order 12549 and Executive Order 12689 or under the Federal Acquisition 
Regulation (48 CFR part 9, subpart 9.4);
    (b) Disqualification or disqualified, which refers to prohibitions 
under specific statutes, executive orders (other than Executive Order 
12549 and Executive Order 12689), or other authorities. 
Disqualifications frequently are not subject to the discretion of a 
Federal agency official, may have a different scope than exclusions, or 
have special conditions that apply to the disqualification; and
    (c) Ineligibility or ineligible, which generally refers to a person 
who is either excluded or disqualified.

[[Page 16]]



Sec. 180.115  What do Subparts A through I of this part do?

    Subparts A through I of this part provide for reciprocal exclusion 
of persons who have been excluded under the Federal Acquisition 
Regulation, and provide for the consolidated listing of all persons who 
are excluded, or disqualified by statute, executive order or other legal 
authority.



Sec. 180.120  Do subparts A through I of this part apply to me?

    Portions of subparts A through I of this part (see table at Sec. 
180.100(b)) apply to you if you are a--
    (a) Person who has been, is, or may reasonably be expected to be, a 
participant or principal in a covered transaction;
    (b) Respondent (a person against whom a Federal agency has initiated 
a debarment or suspension action);
    (c) Federal agency debarring or suspending official; or
    (d) Federal agency official who is authorized to enter into covered 
transactions with non-Federal parties.



Sec. 180.125  What is the purpose of the nonprocurement debarment and 

suspension system?

    (a) To protect the public interest, the Federal Government ensures 
the integrity of Federal programs by conducting business only with 
responsible persons.
    (b) A Federal agency uses the nonprocurement debarment and 
suspension system to exclude from Federal programs persons who are not 
presently responsible.
    (c) An exclusion is a serious action that a Federal agency may take 
only to protect the public interest. A Federal agency may not exclude a 
person or commodity for the purposes of punishment.



Sec. 180.130  How does an exclusion restrict a person's involvement in 

covered transactions?

    With the exceptions stated in Sec. Sec. 180.135, 315, and 420, a 
person who is excluded by any Federal agency may not:
    (a) Be a participant in a Federal agency transaction that is a 
covered transaction; or
    (b) Act as a principal of a person participating in one of those 
covered transactions.



Sec. 180.135  May a Federal agency grant an exception to let an excluded 

person participate in a covered transaction?

    (a) A Federal agency head or designee may grant an exception 
permitting an excluded person to participate in a particular covered 
transaction. If the agency head or designee grants an exception, the 
exception must be in writing and state the reason(s) for deviating from 
the governmentwide policy in Executive Order 12549.
    (b) An exception granted by one Federal agency for an excluded 
person does not extend to the covered transactions of another Federal 
agency.



Sec. 180.140  Does an exclusion under the nonprocurement system affect a 

person's eligibility for Federal procurement contracts?

    If any Federal agency excludes a person under Executive Order 12549 
or Executive Order 12689, on or after August 25, 1995, the excluded 
person is also ineligible for Federal procurement transactions under the 
FAR. Therefore, an exclusion under this part has reciprocal effect in 
Federal procurement transactions.



Sec. 180.145  Does an exclusion under the Federal procurement system affect a 

person's eligibility to participate in nonprocurement transactions?

    If any Federal agency excludes a person under the FAR on or after 
August 25, 1995, the excluded person is also ineligible to participate 
in Federal agencies' nonprocurement covered transactions. Therefore, an 
exclusion under the FAR has reciprocal effect in Federal nonprocurement 
transactions.



Sec. 180.150  Against whom may a Federal agency take an exclusion action?

    Given a cause that justifies an exclusion under this part, a Federal 
agency may exclude any person who has been, is, or may reasonably be 
expected to be a participant or principal in a covered transaction.

[[Page 17]]



Sec. 180.155  How do I know if a person is excluded?

    Check the Governmentwide Excluded Parties List System (EPLS) to 
determine whether a person is excluded. The General Services 
Administration (GSA) maintains the EPLS and makes it available, as 
detailed in Subpart E of this part. When a Federal agency takes an 
action to exclude a person under the nonprocurement or procurement 
debarment and suspension system, the agency enters the information about 
the excluded person into the EPLS.



                     Subpart B_Covered Transactions



Sec. 180.200  What is a covered transaction?

    A covered transaction is a nonprocurement or procurement transaction 
that is subject to the prohibitions of this part. It may be a 
transaction at--
    (a) The primary tier, between a Federal agency and a person (see 
appendix to this part); or
    (b) A lower tier, between a participant in a covered transaction and 
another person.



Sec. 180.205  Why is it important if a particular transaction is a covered transaction?

    The importance of whether a transaction is a covered transaction 
depends upon who you are.
    (a) As a participant in the transaction, you have the 
responsibilities laid out in subpart C of this part. Those include 
responsibilities to the person or Federal agency at the next higher tier 
from whom you received the transaction, if any. They also include 
responsibilities if you subsequently enter into other covered 
transactions with persons at the next lower tier.
    (b) As a Federal official who enters into a primary tier 
transaction, you have the responsibilities laid out in subpart D of this 
part.
    (c) As an excluded person, you may not be a participant or principal 
in the transaction unless--
    (1) The person who entered into the transaction with you allows you 
to continue your involvement in a transaction that predates your 
exclusion, as permitted under Sec. 180.310 or Sec. 180.415; or
    (2) A Federal agency official obtains an exception from the agency 
head or designee to allow you to be involved in the transaction, as 
permitted under Sec. 180.135.



Sec. 180.210  Which nonprocurement transactions are covered transactions?

    All nonprocurement transactions, as defined in Sec. 180.970, are 
covered transactions unless listed in the exemptions under Sec. 
180.215.



Sec. 180.215  Which nonprocurement transactions are not covered transactions?

    The following types of nonprocurement transactions are not covered 
transactions:
    (a) A direct award to--
    (1) A foreign government or foreign governmental entity;
    (2) A public international organization;
    (3) An entity owned (in whole or in part) or controlled by a foreign 
government; or
    (4) Any other entity consisting wholly or partially of one or more 
foreign governments or foreign governmental entities.
    (b) A benefit to an individual as a personal entitlement without 
regard to the individual's present responsibility (but benefits received 
in an individual's business capacity are not excepted). For example, if 
a person receives social security benefits under the Supplemental 
Security Income provisions of the Social Security Act, 42 U.S.C. 1301 et 
seq., those benefits are not covered transactions and, therefore, are 
not affected if the person is excluded.
    (c) Federal employment.
    (d) A transaction that a Federal agency needs to respond to a 
national or agency-recognized emergency or disaster.
    (e) A permit, license, certificate or similar instrument issued as a 
means to regulate public health, safety or the environment, unless a 
Federal agency specifically designates it to be a covered transaction.
    (f) An incidental benefit that results from ordinary governmental 
operations.
    (g) Any other transaction if--

[[Page 18]]

    (1) The application of an exclusion to the transaction is prohibited 
by law; or
    (2) A Federal agency's regulation exempts it from coverage under 
this part.



Sec. 180.220  Are any procurement contracts included as covered transactions?

    (a) Covered transactions under this part--
    (1) Do not include any procurement contracts awarded directly by a 
Federal agency; but
    (2) Do include some procurement contracts awarded by non-Federal 
participants in nonprocurement covered transactions.
    (b) Specifically, a contract for goods or services is a covered 
transaction if any of the following applies:
    (1) The contract is awarded by a participant in a nonprocurement 
transaction that is covered under Sec. 180.210, and the amount of the 
contract is expected to equal or exceed $25,000.
    (2) The contract requires the consent of an official of a Federal 
agency. In that case, the contract, regardless of the amount, always is 
a covered transaction, and it does not matter who awarded it. For 
example, it could be a subcontract awarded by a contractor at a tier 
below a nonprocurement transaction, as shown in the appendix to this 
part.
    (3) The contract is for Federally-required audit services.
    (c) A subcontract also is a covered transaction if,--
    (1) It is awarded by a participant in a procurement transaction 
under a nonprocurement transaction of a Federal agency that extends the 
coverage of paragraph (b)(1) of this section to additional tiers of 
contracts (see the diagram in the appendix to this part showing that 
optional lower tier coverage); and
    (2) The value of the subcontract is expected to equal or exceed 
$25,000.

[70 FR 51865, Aug. 31, 2005, as amended at 71 FR 66432, Nov. 15, 2006]



Sec. 180.225  How do I know if a transaction in which I may participate is a 

covered transaction?

    As a participant in a transaction, you will know that it is a 
covered transaction because the Federal agency regulations governing the 
transaction, the appropriate Federal agency official or participant at 
the next higher tier who enters into the transaction with you, will tell 
you that you must comply with applicable portions of this part.



Subpart C_Responsibilities of Participants Regarding Transactions Doing 
                       Business With Other Persons



Sec. 180.300  What must I do before I enter into a covered transaction with 

another person at the next lower tier?

    When you enter into a covered transaction with another person at the 
next lower tier, you must verify that the person with whom you intend to 
do business is not excluded or disqualified. You do this by:
    (a) Checking the EPLS; or
    (b) Collecting a certification from that person; or
    (c) Adding a clause or condition to the covered transaction with 
that person.

[70 FR 51865, Aug. 31, 2005, as amended at 71 FR 66432, Nov. 15, 2006]



Sec. 180.305  May I enter into a covered transaction with an excluded or 

disqualified person?

    (a) You as a participant may not enter into a covered transaction 
with an excluded person, unless the Federal agency responsible for the 
transaction grants an exception under Sec. 180.135.
    (b) You may not enter into any transaction with a person who is 
disqualified from that transaction, unless you have obtained an 
exception under the disqualifying statute, Executive order, or 
regulation.



Sec. 180.310  What must I do if a Federal agency excludes a person with whom 

I am already doing business in a covered transaction?

    (a) You as a participant may continue covered transactions with an 
excluded person if the transactions were in existence when the agency 
excluded the person. However, you are not required to continue the 
transactions, and you may consider termination. You should make a 
decision about whether to terminate and the type of

[[Page 19]]

termination action, if any, only after a thorough review to ensure that 
the action is proper and appropriate.
    (b) You may not renew or extend covered transactions (other than no-
cost time extensions) with any excluded person, unless the Federal 
agency responsible for the transaction grants an exception under Sec. 
180.135.



Sec. 180.315  May I use the services of an excluded person as a principal 

under a covered transaction?

    (a) You as a participant may continue to use the services of an 
excluded person as a principal under a covered transaction if you were 
using the services of that person in the transaction before the person 
was excluded. However, you are not required to continue using that 
person's services as a principal. You should make a decision about 
whether to discontinue that person's services only after a thorough 
review to ensure that the action is proper and appropriate.
    (b) You may not begin to use the services of an excluded person as a 
principal under a covered transaction unless the Federal agency 
responsible for the transaction grants an exception under Sec. 180.135.



Sec. 180.320  Must I verify that principals of my covered transactions are 

eligible to participate?

    Yes, you as a participant are responsible for determining whether 
any of your principals of your covered transactions is excluded or 
disqualified from participating in the transaction.
    You may decide the method and frequency by which you do so. You may, 
but you are not required to, check the EPLS.



Sec. 180.325  What happens if I do business with an excluded person in a 

covered transaction?

    If as a participant you knowingly do business with an excluded 
person, the Federal agency responsible for your transaction may disallow 
costs, annul or terminate the transaction, issue a stop work order, 
debar or suspend you, or take other remedies as appropriate.



Sec. 180.330  What requirements must I pass down to persons at lower tiers 

with whom I intend to do business?

    Before entering into a covered transaction with a participant at the 
next lower tier, you must require that participant to--
    (a) Comply with this subpart as a condition of participation in the 
transaction. You may do so using any method(s), unless the regulation of 
the Federal agency responsible for the transaction requires you to use 
specific methods.
    (b) Pass the requirement to comply with this subpart to each person 
with whom the participant enters into a covered transaction at the next 
lower tier.

            Disclosing Information--Primary Tier Participants



Sec. 180.335  What information must I provide before entering into a covered 

transaction with a Federal agency?

    Before you enter into a covered transaction at the primary tier, you 
as the participant must notify the Federal agency office that is 
entering into the transaction with you, if you know that you or any of 
the principals for that covered transaction:
    (a) Are presently excluded or disqualified;
    (b) Have been convicted within the preceding three years of any of 
the offenses listed in Sec. 180.800(a) or had a civil judgment rendered 
against you for one of those offenses within that time period;
    (c) Are presently indicted for or otherwise criminally or civilly 
charged by a governmental entity (Federal, State or local) with 
commission of any of the offenses listed in Sec. 180.800(a); or
    (d) Have had one or more public transactions (Federal, State, or 
local) terminated within the preceding three years for cause or default.



Sec. 180.340  If I disclose unfavorable information required under Sec. 

180.335, will I be prevented from participating in the transaction?

    As a primary tier participant, your disclosure of unfavorable 
information about yourself or a principal under Sec. 180.335 will not 
necessarily cause a

[[Page 20]]

Federal agency to deny your participation in the covered transaction. 
The agency will consider the information when it determines whether to 
enter into the covered transaction. The agency will also consider any 
additional information or explanation that you elect to submit with the 
disclosed information.



Sec. 180.345  What happens if I fail to disclose information required under 

Sec. 180.335?

    If a Federal agency later determines that you failed to disclose 
information under Sec. 180.335 that you knew at the time you entered 
into the covered transaction, the agency may--
    (a) Terminate the transaction for material failure to comply with 
the terms and conditions of the transaction; or
    (b) Pursue any other available remedies, including suspension and 
debarment.



Sec. 180.350  What must I do if I learn of information required under Sec. 

180.335 after entering into a covered transaction with a Federal agency?

    At any time after you enter into a covered transaction, you must 
give immediate written notice to the Federal agency office with which 
you entered into the transaction if you learn either that--
    (a) You failed to disclose information earlier, as required by Sec. 
180.335; or
    (b) Due to changed circumstances, you or any of the principals for 
the transaction now meet any of the criteria in Sec. 180.335.

             Disclosing Information--Lower Tier Participants



Sec. 180.355  What information must I provide to a higher tier participant 

before entering into a covered transaction with that participant?

    Before you enter into a covered transaction with a person at the 
next higher tier, you as a lower tier participant must notify that 
person if you know that you or any of the principals are presently 
excluded or disqualified.



Sec. 180.360  What happens if I fail to disclose information required under 

Sec. 180.355?

    If a Federal agency later determines that you failed to tell the 
person at the higher tier that you were excluded or disqualified at the 
time you entered into the covered transaction with that person, the 
agency may pursue any available remedies, including suspension and 
debarment.



Sec. 180.365  What must I do if I learn of information required under Sec. 

180.355 after entering into a covered transaction with a higher tier 

participant?

    At any time after you enter into a lower tier covered transaction 
with a person at a higher tier, you must provide immediate written 
notice to that person if you learn either that--
    (a) You failed to disclose information earlier, as required by Sec. 
180.355; or
    (b) Due to changed circumstances, you or any of the principals for 
the transaction now meet any of the criteria in Sec. 180.355.



    Subpart D_Responsibilities of Federal Agency Officials Regarding 
                              Transactions



Sec. 180.400  May I enter into a transaction with an excluded or disqualified 

person?

    (a) You as a Federal agency official may not enter into a covered 
transaction with an excluded person unless you obtain an exception under 
Sec. 180.135.
    (b) You may not enter into any transaction with a person who is 
disqualified from that transaction, unless you obtain a waiver or 
exception under the statute, Executive order, or regulation that is the 
basis for the person's disqualification.



Sec. 180.405  May I enter into a covered transaction with a participant if a 

principal of the transaction is excluded?

    As a Federal agency official, you may not enter into a covered 
transaction with a participant if you know that a principal of the 
transaction is excluded, unless you obtain an exception under Sec. 
180.135.

[[Page 21]]



Sec. 180.410  May I approve a participant's use of the services of an 

excluded person?

    After entering into a covered transaction with a participant, you as 
a Federal agency official may not approve a participant's use of an 
excluded person as a principal under that transaction, unless you obtain 
an exception under Sec. 180.135.



Sec. 180.415  What must I do if a Federal agency excludes the participant or 

a principal after I enter into a covered transaction?

    (a) You as a Federal agency official may continue covered 
transactions with an excluded person, or under which an excluded person 
is a principal, if the transactions were in existence when the person 
was excluded. You are not required to continue the transactions, 
however, and you may consider termination. You should make a decision 
about whether to terminate and the type of termination action, if any, 
only after a thorough review to ensure that the action is proper.
    (b) You may not renew or extend covered transactions (other than no-
cost time extensions) with any excluded person, or under which an 
excluded person is a principal, unless you obtain an exception under 
Sec. 180.135.



Sec. 180.420  May I approve a transaction with an excluded or disqualified 

person at a lower tier?

    If a transaction at a lower tier is subject to your approval, you as 
a Federal agency official may not approve--
    (a) A covered transaction with a person who is currently excluded, 
unless you obtain an exception under Sec. 180.135; or
    (b) A transaction with a person who is disqualified from that 
transaction, unless you obtain a waiver or exception under the statute, 
Executive order, or regulation that is the basis for the person's 
disqualification.



Sec. 180.425  When do I check to see if a person is excluded or disqualified?

    As a Federal agency official, you must check to see if a person is 
excluded or disqualified before you--
    (a) Enter into a primary tier covered transaction;
    (b) Approve a principal in a primary tier covered transaction;
    (c) Approve a lower tier participant if your agency's approval of 
the lower tier participant is required; or
    (d) Approve a principal in connection with a lower tier transaction 
if your agency's approval of the principal is required.



Sec. 180.430  How do I check to see if a person is excluded or disqualified?

    You check to see if a person is excluded or disqualified in two 
ways:
    (a) You as a Federal agency official must check the EPLS when you 
take any action listed in Sec. 180.425.
    (b) You must review information that a participant gives you, as 
required by Sec. 180.335, about its status or the status of the 
principals of a transaction.



Sec. 180.435  What must I require of a primary tier participant?

    You as a Federal agency official must require each participant in a 
primary tier covered transaction to--
    (a) Comply with subpart C of this part as a condition of 
participation in the transaction; and
    (b) Communicate the requirement to comply with Subpart C of this 
part to persons at the next lower tier with whom the primary tier 
participant enters into covered transactions.



Sec. 180.440  What action may I take if a primary tier participant knowingly 

does business with an excluded or disqualified person?

    If a participant knowingly does business with an excluded or 
disqualified person, you as a Federal agency official may refer the 
matter for suspension and debarment consideration. You may also disallow 
costs, annul or terminate the transaction, issue a stop work order, or 
take any other appropriate remedy.



Sec. 180.445  What action may I take if a primary tier participant fails to 

disclose the information required under Sec. 180.335?

    If you as a Federal agency official determine that a participant 
failed to disclose information, as required by Sec. 180.335, at the 
time it entered into a covered transaction with you, you may--

[[Page 22]]

    (a) Terminate the transaction for material failure to comply with 
the terms and conditions of the transaction; or
    (b) Pursue any other available remedies, including suspension and 
debarment.



Sec. 180.450  What action may I take if a lower tier participant fails to 

disclose the information required under Sec. 180.355 to the next higher tier?

    If you as a Federal agency official determine that a lower tier 
participant failed to disclose information, as required by Sec. 
180.355, at the time it entered into a covered transaction with a 
participant at the next higher tier, you may pursue any remedies 
available to you, including the initiation of a suspension or debarment 
action.



                 Subpart E_Excluded Parties List System



Sec. 180.500  What is the purpose of the Excluded Parties List System (EPLS)?

    The EPLS is a widely available source of the most current 
information about persons who are excluded or disqualified from covered 
transactions.



Sec. 180.505  Who uses the EPLS?

    (a) Federal agency officials use the EPLS to determine whether to 
enter into a transaction with a person, as required under Sec. 180.430.
    (b) Participants also may, but are not required to, use the EPLS to 
determine if--
    (1) Principals of their transactions are excluded or disqualified, 
as required under Sec. 180.320; or
    (2) Persons with whom they are entering into covered transactions at 
the next lower tier are excluded or disqualified.
    (c) The EPLS is available to the general public.



Sec. 180.510  Who maintains the EPLS?

    The General Services Administration (GSA) maintains the EPLS. When a 
Federal agency takes an action to exclude a person under the 
nonprocurement or procurement debarment and suspension system, the 
agency enters the information about the excluded person into the EPLS.



Sec. 180.515  What specific information is in the EPLS?

    (a) At a minimum, the EPLS indicates--
    (1) The full name (where available) and address of each excluded and 
disqualified person, in alphabetical order, with cross references if 
more than one name is involved in a single action;
    (2) The type of action;
    (3) The cause for the action;
    (4) The scope of the action;
    (5) Any termination date for the action;
    (6) The Federal agency and name and telephone number of the agency 
point of contact for the action; and
    (7) The Dun and Bradstreet Number (DUNS), or other similar code 
approved by the GSA, of the excluded or disqualified person, if 
available.
    (b)(1) The database for the EPLS includes a field for the Taxpayer 
Identification Number (TIN) (the social security number (SSN) for an 
individual) of an excluded or disqualified person.
    (2) Agencies disclose the SSN of an individual to verify the 
identity of an individual, only if permitted under the Privacy Act of 
1974 and, if appropriate, the Computer Matching and Privacy Protection 
Act of 1988, as codified in 5 U.S.C. 552(a).



Sec. 180.520  Who places the information into the EPLS?

    Federal agency officials who take actions to exclude persons under 
this part or officials who are responsible for identifying disqualified 
persons must enter the following information about those persons into 
the EPLS:
    (a) Information required by Sec. 180.515(a);
    (b) The Taxpayer Identification Number (TIN) of the excluded or 
disqualified person, including the social security number (SSN) for an 
individual, if the number is available and may be disclosed under law;
    (c) Information about an excluded or disqualified person, generally 
within five working days, after--
    (1) Taking an exclusion action;
    (2) Modifying or rescinding an exclusion action;

[[Page 23]]

    (3) Finding that a person is disqualified; or
    (4) Finding that there has been a change in the status of a person 
who is listed as disqualified.



Sec. 180.525  Whom do I ask if I have questions about a person in the EPLS?

    If you have questions about a listed person in the EPLS, ask the 
point of contact for the Federal agency that placed the person's name 
into the EPLS. You may find the agency point of contact from the EPLS.



Sec. 180.530  Where can I find the EPLS?

    You may access the EPLS through the Internet, currently at http://
epls.arnet.gov or http://www.epls.gov.



   Subpart F_General Principles Relating to Suspension and Debarment 
                                 Actions



Sec. 180.600  How do suspension and debarment actions start?

    When Federal agency officials receive information from any source 
concerning a cause for suspension or debarment, they will promptly 
report it and the agency will investigate. The officials refer the 
question of whether to suspend or debar you to their suspending or 
debarring official for consideration, if appropriate.



Sec. 180.605  How does suspension differ from debarment?

    Suspension differs from debarment in that--

------------------------------------------------------------------------
      A suspending official . . .           A debarring official . . .
------------------------------------------------------------------------
(a) Imposes suspension as a temporary    Imposes debarment for a
 status of in eligibility for             specified period as a final
 procurement and nonprocurement           determination that a person is
 transactions, pending completion of an   not presently responsible.
 investigation or legal proceedings.
(b) Must--
    (1) Have adequate evidence that
     there may be a cause for debarment
     of a person; and
    (2) Conclude that immediate action   Must conclude, based on a
     is necessary to protect the          preponderance of the evidence,
     Federal interest                     that the person has engaged in
                                          conduct that warrants
                                          debarment.
(c) Usually imposes the suspension       Imposes debarment after giving
 first, and then promptly notifies the    the respondent notice of the
 suspended person, giving the person an   action and an opportunity to
 opportunity to contest the suspension    contest the proposed
 and have it lifted.                      debarment.
------------------------------------------------------------------------



Sec. 180.610  What procedures does a Federal agency use in suspension and 

debarment actions?

    In deciding whether to suspend or debar you, a Federal agency 
handles the actions as informally as practicable, consistent with 
principles of fundamental fairness.
    (a) For suspension actions, a Federal agency uses the procedures in 
this subpart and Subpart G of this part.
    (b) For debarment actions, a Federal agency uses the procedures in 
this subpart and Subpart H of this part.



Sec. 180.615  How does a Federal agency notify a person of a suspension or 

debarment action?

    (a) The suspending or debarring official sends a written notice to 
the last known street address, facsimile number, or e-mail address of--
    (1) You or your identified counsel; or
    (2) Your agent for service of process, or any of your partners, 
officers, directors, owners, or joint venturers.
    (b) The notice is effective if sent to any of these persons.



Sec. 180.620  Do Federal agencies coordinate suspension and debarment 

actions?

    Yes, when more than one Federal agency has an interest in a 
suspension or debarment, the agencies may consider designating one 
agency as the lead agency for making the decision. Agencies are 
encouraged to establish methods and procedures for coordinating their 
suspension and debarment actions.



Sec. 180.625  What is the scope of a suspension or debarment?

    If you are suspended or debarred, the suspension or debarment is 
effective as follows:

[[Page 24]]

    (a) Your suspension or debarment constitutes suspension or debarment 
of all of your divisions and other organizational elements from all 
covered transactions, unless the suspension or debarment decision is 
limited--
    (1) By its terms to one or more specifically identified individuals, 
divisions, or other organizational elements; or
    (2) To specific types of transactions.
    (b) Any affiliate of a participant may be included in a suspension 
or debarment action if the suspending or debarring official--
    (1) Officially names the affiliate in the notice; and
    (2) Gives the affiliate an opportunity to contest the action.



Sec. 180.630  May a Federal agency impute the conduct of one person to 

another?

    For purposes of actions taken under this part, a Federal agency may 
impute conduct as follows:
    (a) Conduct imputed from an individual to an organization. A Federal 
agency may impute the fraudulent, criminal, or other improper conduct of 
any officer, director, shareholder, partner, employee, or other 
individual associated with an organization, to that organization when 
the improper conduct occurred in connection with the individual's 
performance of duties for or on behalf of that organization, or with the 
organization's knowledge, approval or acquiescence. The organization's 
acceptance of the benefits derived from the conduct is evidence of 
knowledge, approval or acquiescence.
    (b) Conduct imputed from an organization to an individual, or 
between individuals. A Federal agency may impute the fraudulent, 
criminal, or other improper conduct of any organization to an 
individual, or from one individual to another individual, if the 
individual to whom the improper conduct is imputed either participated 
in, had knowledge of, or reason to know of the improper conduct.
    (c) Conduct imputed from one organization to another organization. A 
Federal agency may impute the fraudulent, criminal, or other improper 
conduct of one organization to another organization when the improper 
conduct occurred in connection with a partnership, joint venture, joint 
application, association or similar arrangement, or when the 
organization to whom the improper conduct is imputed has the power to 
direct, manage, control or influence the activities of the organization 
responsible for the improper conduct. Acceptance of the benefits derived 
from the conduct is evidence of knowledge, approval or acquiescence.



Sec. 180.635  May a Federal agency settle a debarment or suspension action?

    Yes, a Federal agency may settle a debarment or suspension action at 
any time if it is in the best interest of the Federal Government.



Sec. 180.640  May a settlement include a voluntary exclusion?

    Yes, if a Federal agency enters into a settlement with you in which 
you agree to be excluded, it is called a voluntary exclusion and has 
governmentwide effect.



Sec. 180.645  Do other Federal agencies know if an agency agrees to a 

voluntary exclusion?

    (a) Yes, the Federal agency agreeing to the voluntary exclusion 
enters information about it into the EPLS.
    (b) Also, any agency or person may contact the Federal agency that 
agreed to the voluntary exclusion to find out the details of the 
voluntary exclusion.



                          Subpart G_Suspension



Sec. 180.700  When may the suspending official issue a suspension?

    Suspension is a serious action. Using the procedures of this subpart 
and Subpart F of this part, the suspending official may impose 
suspension only when that official determines that--
    (a) There exists an indictment for, or other adequate evidence to 
suspect, an offense listed under Sec. 180.800(a), or
    (b) There exists adequate evidence to suspect any other cause for 
debarment listed under Sec. 180.800(b) through (d); and
    (c) Immediate action is necessary to protect the public interest.

[[Page 25]]



Sec. 180.705  What does the suspending official consider in issuing a 

suspension?

    (a) In determining the adequacy of the evidence to support the 
suspension, the suspending official considers how much information is 
available, how credible it is given the circumstances, whether or not 
important allegations are corroborated, and what inferences can 
reasonably be drawn as a result. During this assessment, the suspending 
official may examine the basic documents, including grants, cooperative 
agreements, loan authorizations, contracts, and other relevant 
documents.
    (b) An indictment, conviction, civil judgment, or other official 
findings by Federal, State, or local bodies that determine factual and/
or legal matters, constitutes adequate evidence for purposes of 
suspension actions.
    (c) In deciding whether immediate action is needed to protect the 
public interest, the suspending official has wide discretion. For 
example, the suspending official may infer the necessity for immediate 
action to protect the public interest either from the nature of the 
circumstances giving rise to a cause for suspension or from potential 
business relationships or involvement with a program of the Federal 
Government.



Sec. 180.710  When does a suspension take effect?

    A suspension is effective when the suspending official signs the 
decision to suspend.



Sec. 180.715  What notice does the suspending official give me if I am 

suspended?

    After deciding to suspend you, the suspending official promptly 
sends you a Notice of Suspension advising you--
    (a) That you have been suspended;
    (b) That your suspension is based on--
    (1) An indictment;
    (2) A conviction;
    (3) Other adequate evidence that you have committed irregularities 
which seriously reflect on the propriety of further Federal Government 
dealings with you; or
    (4) Conduct of another person that has been imputed to you, or your 
affiliation with a suspended or debarred person;
    (c) Of any other irregularities in terms sufficient to put you on 
notice without disclosing the Federal Government's evidence;
    (d) Of the cause(s) upon which the suspending official relied under 
Sec. 180.700 for imposing suspension;
    (e) That your suspension is for a temporary period pending the 
completion of an investigation or resulting legal or debarment 
proceedings;
    (f) Of the applicable provisions of this subpart, Subpart F of this 
part, and any other agency procedures governing suspension 
decisionmaking; and
    (g) Of the governmentwide effect of your suspension from procurement 
and nonprocurement programs and activities.



Sec. 180.720  How may I contest a suspension?

    If you as a respondent wish to contest a suspension, you or your 
representative must provide the suspending official with information in 
opposition to the suspension. You may do this orally or in writing, but 
any information provided orally that you consider important must also be 
submitted in writing for the official record.



Sec. 180.725  How much time do I have to contest a suspension?

    (a) As a respondent you or your representative must either send, or 
make arrangements to appear and present, the information and argument to 
the suspending official within 30 days after you receive the Notice of 
Suspension.
    (b) The Federal agency taking the action considers the notice to be 
received by you--
    (1) When delivered, if the agency mails the notice to the last known 
street address, or five days after the agency sends it if the letter is 
undeliverable;
    (2) When sent, if the agency sends the notice by facsimile or five 
days after the agency sends it if the facsimile is undeliverable; or
    (3) When delivered, if the agency sends the notice by e-mail or five 
days after the agency sends it if the e-mail is undeliverable.

[[Page 26]]



Sec. 180.730  What information must I provide to the suspending official if I 

contest the suspension?

    (a) In addition to any information and argument in opposition, as a 
respondent your submission to the suspending official must identify--
    (1) Specific facts that contradict the statements contained in the 
Notice of Suspension. A general denial is insufficient to raise a 
genuine dispute over facts material to the suspension;
    (2) All existing, proposed, or prior exclusions under regulations 
implementing Executive Order 12549 and all similar actions taken by 
Federal, State, or local agencies, including administrative agreements 
that affect only those agencies;
    (3) All criminal and civil proceedings not included in the Notice of 
Suspension that grew out of facts relevant to the cause(s) stated in the 
notice; and
    (4) All of your affiliates.
    (b) If you fail to disclose this information, or provide false 
information, the Federal agency taking the action may seek further 
criminal, civil or administrative action against you, as appropriate.



Sec. 180.735  Under what conditions do I get an additional opportunity to 

challenge the facts on which the suspension is based?

    (a) You as a respondent will not have an additional opportunity to 
challenge the facts if the suspending official determines that--
    (1) Your suspension is based upon an indictment, conviction, civil 
judgment, or other finding by a Federal, State, or local body for which 
an opportunity to contest the facts was provided;
    (2) Your presentation in opposition contains only general denials to 
information contained in the Notice of Suspension;
    (3) The issues raised in your presentation in opposition to the 
suspension are not factual in nature, or are not material to the 
suspending official's initial decision to suspend, or the official's 
decision whether to continue the suspension; or
    (4) On the basis of advice from the Department of Justice, an office 
of the United States Attorney, a State attorney general's office, or a 
State or local prosecutor's office, that substantial interests of the 
government in pending or contemplated legal proceedings based on the 
same facts as the suspension would be prejudiced by conducting fact-
finding.
    (b) You will have an opportunity to challenge the facts if the 
suspending official determines that--
    (1) The conditions in paragraph (a) of this section do not exist; 
and
    (2) Your presentation in opposition raises a genuine dispute over 
facts material to the suspension.
    (c) If you have an opportunity to challenge disputed material facts 
under this section, the suspending official or designee must conduct 
additional proceedings to resolve those facts.



Sec. 180.740  Are suspension proceedings formal?

    (a) Suspension proceedings are conducted in a fair and informal 
manner. The suspending official may use flexible procedures to allow you 
to present matters in opposition. In so doing, the suspending official 
is not required to follow formal rules of evidence or procedure in 
creating an official record upon which the official will base a final 
suspension decision.
    (b) You as a respondent or your representative must submit any 
documentary evidence you want the suspending official to consider.



Sec. 180.745  How is fact-finding conducted?

    (a) If fact-finding is conducted--
    (1) You may present witnesses and other evidence, and confront any 
witness presented; and
    (2) The fact-finder must prepare written findings of fact for the 
record.
    (b) A transcribed record of fact-finding proceedings must be made, 
unless you as a respondent and the Federal agency agree to waive it in 
advance. If you want a copy of the transcribed record, you may purchase 
it.



Sec. 180.750  What does the suspending official consider in deciding whether 

to continue or terminate my suspension?

    (a) The suspending official bases the decision on all information 
contained

[[Page 27]]

in the official record. The record includes--
    (1) All information in support of the suspending official's initial 
decision to suspend you;
    (2) Any further information and argument presented in support of, or 
opposition to, the suspension; and
    (3) Any transcribed record of fact-finding proceedings.
    (b) The suspending official may refer disputed material facts to 
another official for findings of fact. The suspending official may 
reject any resulting findings, in whole or in part, only after 
specifically determining them to be arbitrary, capricious, or clearly 
erroneous.



Sec. 180.755  When will I know whether the suspension is continued or 

terminated?

    The suspending official must make a written decision whether to 
continue, modify, or terminate your suspension within 45 days of closing 
the official record. The official record closes upon the suspending 
official's receipt of final submissions, information and findings of 
fact, if any. The suspending official may extend that period for good 
cause.



Sec. 180.760  How long may my suspension last?

    (a) If legal or debarment proceedings are initiated at the time of, 
or during your suspension, the suspension may continue until the 
conclusion of those proceedings. However, if proceedings are not 
initiated, a suspension may not exceed 12 months.
    (b) The suspending official may extend the 12 month limit under 
paragraph (a) of this section for an additional 6 months if an office of 
a U.S. Assistant Attorney General, U.S. Attorney, or other responsible 
prosecuting official requests an extension in writing. In no event may a 
suspension exceed 18 months without initiating proceedings under 
paragraph (a) of this section.
    (c) The suspending official must notify the appropriate officials 
under paragraph (b) of this section of an impending termination of a 
suspension at least 30 days before the 12 month period expires to allow 
the officials an opportunity to request an extension.



                           Subpart H_Debarment



Sec. 180.800  What are the causes for debarment?

    A Federal agency may debar a person for--
    (a) Conviction of or civil judgment for--
    (1) Commission of fraud or a criminal offense in connection with 
obtaining, attempting to obtain, or performing a public or private 
agreement or transaction;
    (2) Violation of Federal or State antitrust statutes, including 
those proscribing price fixing between competitors, allocation of 
customers between competitors, and bid rigging;
    (3) Commission of embezzlement, theft, forgery, bribery, 
falsification or destruction of records, making false statements, tax 
evasion, receiving stolen property, making false claims, or obstruction 
of justice; or
    (4) Commission of any other offense indicating a lack of business 
integrity or business honesty that seriously and directly affects your 
present responsibility;
    (b) Violation of the terms of a public agreement or transaction so 
serious as to affect the integrity of an agency program, such as--
    (1) A willful failure to perform in accordance with the terms of one 
or more public agreements or transactions;
    (2) A history of failure to perform or of unsatisfactory performance 
of one or more public agreements or transactions; or
    (3) A willful violation of a statutory or regulatory provision or 
requirement applicable to a public agreement or transaction;
    (c) Any of the following causes:
    (1) A nonprocurement debarment by any Federal agency taken before 
October 1, 1988, or a procurement debarment by any Federal agency taken 
pursuant to 48 CFR part 9, subpart 9.4, before August 25, 1995;
    (2) Knowingly doing business with an ineligible person, except as 
permitted under Sec. 180.135;
    (3) Failure to pay a single substantial debt, or a number of 
outstanding debts (including disallowed costs and overpayments, but not 
including sums owed

[[Page 28]]

the Federal Government under the Internal Revenue Code) owed to any 
Federal agency or instrumentality, provided the debt is uncontested by 
the debtor or, if contested, provided that the debtor's legal and 
administrative remedies have been exhausted;
    (4) Violation of a material provision of a voluntary exclusion 
agreement entered into under Sec. 180.640 or of any settlement of a 
debarment or suspension action; or
    (5) Violation of the provisions of the Drug-Free Workplace Act of 
1988 (41 U.S.C. 701); or
    (d) Any other cause of so serious or compelling a nature that it 
affects your present responsibility.



Sec. 180.805  What notice does the debarring official give me if I am 

proposed for debarment?

    After consideration of the causes in Sec. 180.800, if the debarring 
official proposes to debar you, the official sends you a Notice of 
Proposed Debarment, pursuant to Sec. 180.615, advising you--
    (a) That the debarring official is considering debarring you;
    (b) Of the reasons for proposing to debar you in terms sufficient to 
put you on notice of the conduct or transactions upon which the proposed 
debarment is based;
    (c) Of the cause(s) under Sec. 180.800 upon which the debarring 
official relied for proposing your debarment;
    (d) Of the applicable provisions of this subpart, Subpart F of this 
part, and any other agency procedures governing debarment; and
    (e) Of the governmentwide effect of a debarment from procurement and 
nonprocurement programs and activities.



Sec. 180.810  When does a debarment take effect?

    Unlike suspension, a debarment is not effective until the debarring 
official issues a decision. The debarring official does not issue a 
decision until the respondent has had an opportunity to contest the 
proposed debarment.



Sec. 180.815  How may I contest a proposed debarment?

    If you as a respondent wish to contest a proposed debarment, you or 
your representative must provide the debarring official with information 
in opposition to the proposed debarment. You may do this orally or in 
writing, but any information provided orally that you consider important 
must also be submitted in writing for the official record.



Sec. 180.820  How much time do I have to contest a proposed debarment?

    (a) As a respondent you or your representative must either send, or 
make arrangements to appear and present, the information and argument to 
the debarring official within 30 days after you receive the Notice of 
Proposed Debarment.
    (b) The Federal agency taking the action considers the Notice of 
Proposed Debarment to be received by you--
    (1) When delivered, if the agency mails the notice to the last known 
street address, or five days after the agency sends it if the letter is 
undeliverable;
    (2) When sent, if the agency sends the notice by facsimile or five 
days after the agency sends it if the facsimile is undeliverable; or
    (3) When delivered, if the agency sends the notice by e-mail or five 
days after the agency sends it if the e-mail is undeliverable.



Sec. 180.825  What information must I provide to the debarring official if I 

contest the proposed debarment?

    (a) In addition to any information and argument in opposition, as a 
respondent your submission to the debarring official must identify--
    (1) Specific facts that contradict the statements contained in the 
Notice of Proposed Debarment. Include any information about any of the 
factors listed in Sec. 180.860. A general denial is insufficient to 
raise a genuine dispute over facts material to the debarment;
    (2) All existing, proposed, or prior exclusions under regulations 
implementing Executive Order 12549 and all similar actions taken by 
Federal, State, or local agencies, including administrative agreements 
that affect only those agencies;
    (3) All criminal and civil proceedings not included in the Notice of 
Proposed

[[Page 29]]

Debarment that grew out of facts relevant to the cause(s) stated in the 
notice; and
    (4) All of your affiliates.
    (b) If you fail to disclose this information, or provide false 
information, the Federal agency taking the action may seek further 
criminal, civil or administrative action against you, as appropriate.



Sec. 180.830  Under what conditions do I get an additional opportunity to 

challenge the facts on which the proposed debarment is based?

    (a) You as a respondent will not have an additional opportunity to 
challenge the facts if the debarring official determines that--
    (1) Your debarment is based upon a conviction or civil judgment;
    (2) Your presentation in opposition contains only general denials to 
information contained in the Notice of Proposed Debarment; or
    (3) The issues raised in your presentation in opposition to the 
proposed debarment are not factual in nature, or are not material to the 
debarring official's decision whether to debar.
    (b) You will have an additional opportunity to challenge the facts 
if the debarring official determines that--
    (1) The conditions in paragraph (a) of this section do not exist; 
and
    (2) Your presentation in opposition raises a genuine dispute over 
facts material to the proposed debarment.
    (c) If you have an opportunity to challenge disputed material facts 
under this section, the debarring official or designee must conduct 
additional proceedings to resolve those facts.



Sec. 180.835  Are debarment proceedings formal?

    (a) Debarment proceedings are conducted in a fair and informal 
manner. The debarring official may use flexible procedures to allow you 
as a respondent to present matters in opposition. In so doing, the 
debarring official is not required to follow formal rules of evidence or 
procedure in creating an official record upon which the official will 
base the decision whether to debar.
    (b) You or your representative must submit any documentary evidence 
you want the debarring official to consider.



Sec. 180.840  How is fact-finding conducted?

    (a) If fact-finding is conducted--
    (1) You may present witnesses and other evidence, and confront any 
witness presented; and
    (2) The fact-finder must prepare written findings of fact for the 
record.
    (b) A transcribed record of fact-finding proceedings must be made, 
unless you as a respondent and the Federal agency agree to waive it in 
advance. If you want a copy of the transcribed record, you may purchase 
it.



Sec. 180.845  What does the debarring official consider in deciding whether 

to debar me?

    (a) The debarring official may debar you for any of the causes in 
Sec. 180.800. However, the official need not debar you even if a cause 
for debarment exists. The official may consider the seriousness of your 
acts or omissions and the mitigating or aggravating factors set forth at 
Sec. 180.860.
    (b) The debarring official bases the decision on all information 
contained in the official record. The record includes--
    (1) All information in support of the debarring official's proposed 
debarment;
    (2) Any further information and argument presented in support of, or 
in opposition to, the proposed debarment; and
    (3) Any transcribed record of fact-finding proceedings.
    (c) The debarring official may refer disputed material facts to 
another official for findings of fact. The debarring official may reject 
any resultant findings, in whole or in part, only after specifically 
determining them to be arbitrary, capricious, or clearly erroneous.



Sec. 180.850  What is the standard of proof in a debarment action?

    (a) In any debarment action, the Federal agency must establish the 
cause for debarment by a preponderance of the evidence.
    (b) If the proposed debarment is based upon a conviction or civil 
judgment, the standard of proof is met.

[[Page 30]]



Sec. 180.855  Who has the burden of proof in a debarment action?

    (a) The Federal agency has the burden to prove that a cause for 
debarment exists.
    (b) Once a cause for debarment is established, you as a respondent 
have the burden of demonstrating to the satisfaction of the debarring 
official that you are presently responsible and that debarment is not 
necessary.



Sec. 180.860  What factors may influence the debarring official's decision?

    This section lists the mitigating and aggravating factors that the 
debarring official may consider in determining whether to debar you and 
the length of your debarment period. The debarring official may consider 
other factors if appropriate in light of the circumstances of a 
particular case. The existence or nonexistence of any factor, such as 
one of those set forth in this section, is not necessarily determinative 
of your present responsibility. In making a debarment decision, the 
debarring official may consider the following factors:
    (a) The actual or potential harm or impact that results or may 
result from the wrongdoing.
    (b) The frequency of incidents and/or duration of the wrongdoing.
    (c) Whether there is a pattern or prior history of wrongdoing. For 
example, if you have been found by another Federal agency or a State 
agency to have engaged in wrongdoing similar to that found in the 
debarment action, the existence of this fact may be used by the 
debarring official in determining that you have a pattern or prior 
history of wrongdoing.
    (d) Whether you are or have been excluded or disqualified by an 
agency of the Federal Government or have not been allowed to participate 
in State or local contracts or assistance agreements on a basis of 
conduct similar to one or more of the causes for debarment specified in 
this part.
    (e) Whether you have entered into an administrative agreement with a 
Federal agency or a State or local government that is not governmentwide 
but is based on conduct similar to one or more of the causes for 
debarment specified in this part.
    (f) Whether and to what extent you planned, initiated, or carried 
out the wrongdoing.
    (g) Whether you have accepted responsibility for the wrongdoing and 
recognize the seriousness of the misconduct that led to the cause for 
debarment.
    (h) Whether you have paid or agreed to pay all criminal, civil and 
administrative liabilities for the improper activity, including any 
investigative or administrative costs incurred by the government, and 
have made or agreed to make full restitution.
    (i) Whether you have cooperated fully with the government agencies 
during the investigation and any court or administrative action. In 
determining the extent of cooperation, the debarring official may 
consider when the cooperation began and whether you disclosed all 
pertinent information known to you.
    (j) Whether the wrongdoing was pervasive within your organization.
    (k) The kind of positions held by the individuals involved in the 
wrongdoing.
    (l) Whether your organization took appropriate corrective action or 
remedial measures, such as establishing ethics training and implementing 
programs to prevent recurrence.
    (m) Whether your principals tolerated the offense.
    (n) Whether you brought the activity cited as a basis for the 
debarment to the attention of the appropriate government agency in a 
timely manner.
    (o) Whether you have fully investigated the circumstances 
surrounding the cause for debarment and, if so, made the result of the 
investigation available to the debarring official.
    (p) Whether you had effective standards of conduct and internal 
control systems in place at the time the questioned conduct occurred.
    (q) Whether you have taken appropriate disciplinary action against 
the individuals responsible for the activity which constitutes the cause 
for debarment.
    (r) Whether you have had adequate time to eliminate the 
circumstances within your organization that led to the cause for the 
debarment.

[[Page 31]]

    (s) Other factors that are appropriate to the circumstances of a 
particular case.



Sec. 180.865  How long may my debarment last?

    (a) If the debarring official decides to debar you, your period of 
debarment will be based on the seriousness of the cause(s) upon which 
your debarment is based. Generally, debarment should not exceed three 
years. However, if circumstances warrant, the debarring official may 
impose a longer period of debarment.
    (b) In determining the period of debarment, the debarring official 
may consider the factors in Sec. 180.860. If a suspension has preceded 
your debarment, the debarring official must consider the time you were 
suspended.
    (c) If the debarment is for a violation of the provisions of the 
Drug-Free Workplace Act of 1988, your period of debarment may not exceed 
five years.



Sec. 180.870  When do I know if the debarring official debars me?

    (a) The debarring official must make a written decision whether to 
debar within 45 days of closing the official record. The official record 
closes upon the debarring official's receipt of final submissions, 
information and findings of fact, if any. The debarring official may 
extend that period for good cause.
    (b) The debarring official sends you written notice, pursuant to 
Sec. 180.615 that the official decided, either--
    (1) Not to debar you; or
    (2) To debar you. In this event, the notice:
    (i) Refers to the Notice of Proposed Debarment;
    (ii) Specifies the reasons for your debarment;
    (iii) States the period of your debarment, including the effective 
dates; and
    (iv) Advises you that your debarment is effective for covered 
transactions and contracts that are subject to the Federal Acquisition 
Regulation (48 CFR chapter 1), throughout the executive branch of the 
Federal Government unless an agency head or an authorized designee 
grants an exception.



Sec. 180.875  May I ask the debarring official to reconsider a decision to 

debar me?

    Yes, as a debarred person you may ask the debarring official to 
reconsider the debarment decision or to reduce the time period or scope 
of the debarment. However, you must put your request in writing and 
support it with documentation.



Sec. 180.880  What factors may influence the debarring official during 

reconsideration?

    The debarring official may reduce or terminate your debarment based 
on--
    (a) Newly discovered material evidence;
    (b) A reversal of the conviction or civil judgment upon which your 
debarment was based;
    (c) A bona fide change in ownership or management;
    (d) Elimination of other causes for which the debarment was imposed; 
or
    (e) Other reasons the debarring official finds appropriate.



Sec. 180.885  May the debarring official extend a debarment?

    (a) Yes, the debarring official may extend a debarment for an 
additional period, if that official determines that an extension is 
necessary to protect the public interest.
    (b) However, the debarring official may not extend a debarment 
solely on the basis of the facts and circumstances upon which the 
initial debarment action was based.
    (c) If the debarring official decides that a debarment for an 
additional period is necessary, the debarring official must follow the 
applicable procedures in this subpart, and Subpart F of this part, to 
extend the debarment.



                          Subpart I_Definitions



Sec. 180.900  Adequate evidence.

    Adequate evidence means information sufficient to support the 
reasonable belief that a particular act or omission has occurred.



Sec. 180.905  Affiliate.

    Persons are affiliates of each other if, directly or indirectly, 
either one controls or has the power to control the

[[Page 32]]

other or a third person controls or has the power to control both. The 
ways a Federal agency may determine control include, but are not limited 
to--
    (a) Interlocking management or ownership;
    (b) Identity of interests among family members;
    (c) Shared facilities and equipment;
    (d) Common use of employees; or
    (e) A business entity which has been organized following the 
exclusion of a person which has the same or similar management, 
ownership, or principal employees as the excluded person.



Sec. 180.910  Agent or representative.

    Agent or representative means any person who acts on behalf of, or 
who is authorized to commit a participant in a covered transaction.



Sec. 180.915  Civil judgment.

    Civil judgment means the disposition of a civil action by any court 
of competent jurisdiction, whether by verdict, decision, settlement, 
stipulation, other disposition which creates a civil liability for the 
complained of wrongful acts, or a final determination of liability under 
the Program Fraud Civil Remedies Act of 1988 (31 U.S.C. 3801-3812).



Sec. 180.920  Conviction.

Conviction means--
    (a) A judgment or any other determination of guilt of a criminal 
offense by any court of competent jurisdiction, whether entered upon a 
verdict or plea, including a plea of nolo contendere; or
    (b) Any other resolution that is the functional equivalent of a 
judgment, including probation before judgment and deferred prosecution. 
A disposition without the participation of the court is the functional 
equivalent of a judgment only if it includes an admission of guilt.



Sec. 180.925  Debarment.

    Debarment means an action taken by a debarring official under 
Subpart H of this part to exclude a person from participating in covered 
transactions and transactions covered under the Federal Acquisition 
Regulation (48 CFR chapter 1). A person so excluded is debarred.



Sec. 180.930  Debarring official.

    Debarring official means an agency official who is authorized to 
impose debarment. A debarring official is either--
    (a) The agency head; or
    (b) An official designated by the agency head.



Sec. 180.935  Disqualified.

    Disqualified means that a person is prohibited from participating in 
specified Federal procurement or nonprocurement transactions as required 
under a statute, Executive order (other than Executive Orders 12549 and 
12689) or other authority. Examples of disqualifications include persons 
prohibited under--
    (a) The Davis-Bacon Act (40 U.S.C. 276(a));
    (b) The equal employment opportunity acts and Executive orders; or
    (c) The Clean Air Act (42 U.S.C. 7606), Clean Water Act (33 U.S.C. 
1368) and Executive Order 11738 (3 CFR, 1973 Comp., p. 799).



Sec. 180.940  Excluded or exclusion.

    Excluded or exclusion means--
    (a) That a person or commodity is prohibited from being a 
participant in covered transactions, whether the person has been 
suspended; debarred; proposed for debarment under 48 CFR part 9, subpart 
9.4; voluntarily excluded; or
    (b) The act of excluding a person.



Sec. 180.945  Excluded Parties List System (EPLS).

    Excluded Parties List System (EPLS) means the list maintained and 
disseminated by the General Services Administration (GSA) containing the 
names and other information about persons who are ineligible.



Sec. 180.950  Federal agency.

    Federal agency means any United States executive department, 
military department, defense agency or any other agency of the executive 
branch. Other agencies of the Federal government are not considered 
``agencies'' for the purposes of this part unless they issue regulations 
adopting the governmentwide Debarment and Suspension system under 
Executive Orders 12549 and 12689.

[[Page 33]]



Sec. 180.955  Indictment.

    Indictment means an indictment for a criminal offense. A 
presentment, information, or other filing by a competent authority 
charging a criminal offense shall be given the same effect as an 
indictment.



Sec. 180.960  Ineligible or ineligibility.

    Ineligible or ineligibility means that a person or commodity is 
prohibited from covered transactions because of an exclusion or 
disqualification.



Sec. 180.965  Legal proceedings.

    Legal proceedings means any criminal proceeding or any civil 
judicial proceeding, including a proceeding under the Program Fraud 
Civil Remedies Act (31 U.S.C. 3801-3812), to which the Federal 
Government or a State or local government or quasi-governmental 
authority is a party. The term also includes appeals from those 
proceedings.



Sec. 180.970  Nonprocurement transaction.

    (a) Nonprocurement transaction means any transaction, regardless of 
type (except procurement contracts), including, but not limited to the 
following:
    (1) Grants.
    (2) Cooperative agreements.
    (3) Scholarships.
    (4) Fellowships.
    (5) Contracts of assistance.
    (6) Loans.
    (7) Loan guarantees.
    (8) Subsidies.
    (9) Insurances.
    (10) Payments for specified uses.
    (11) Donation agreements.
    (b) A nonprocurement transaction at any tier does not require the 
transfer of Federal funds.



Sec. 180.975  Notice.

    Notice means a written communication served in person, sent by 
certified mail or its equivalent, or sent electronically by e-mail or 
facsimile. (See Sec. 180. 615.)



Sec. 180.980  Participant.

    Participant means any person who submits a proposal for or who 
enters into a covered transaction, including an agent or representative 
of a participant.



Sec. 180.985  Person.

    Person means any individual, corporation, partnership, association, 
unit of government, or legal entity, however organized.



Sec. 180.990  Preponderance of the evidence.

    Preponderance of the evidence means proof by information that, 
compared with information opposing it, leads to the conclusion that the 
fact at issue is more probably true than not.



Sec. 180.995  Principal.

    Principal means--
    (a) An officer, director, owner, partner, principal investigator, or 
other person within a participant with management or supervisory 
responsibilities related to a covered transaction; or
    (b) A consultant or other person, whether or not employed by the 
participant or paid with Federal funds, who--
    (1) Is in a position to handle Federal funds;
    (2) Is in a position to influence or control the use of those funds; 
or,
    (3) Occupies a technical or professional position capable of 
substantially influencing the development or outcome of an activity 
required to perform the covered transaction.



Sec. 180.1000  Respondent.

    Respondent means a person against whom an agency has initiated a 
debarment or suspension action.



Sec. 180.1005  State.

    (a) State means--
    (1) Any of the states of the United States;
    (2) The District of Columbia;
    (3) The Commonwealth of Puerto Rico;
    (4) Any territory or possession of the United States; or
    (5) Any agency or instrumentality of a state.
    (b) For purposes of this part, State does not include institutions 
of higher education, hospitals, or units of local government.



Sec. 180.1010  Suspending official.

    (a) Suspending official means an agency official who is authorized 
to impose

[[Page 34]]

suspension. The suspending official is either:
    (1) The agency head; or
    (2) An official designated by the agency head.



Sec. 180.1015  Suspension.

    Suspension is an action taken by a suspending official under subpart 
G of this part that immediately prohibits a person from participating in 
covered transactions and transactions covered under the Federal 
Acquisition Regulation (48 CFR chapter 1) for a temporary period, 
pending completion of an agency investigation and any judicial or 
administrative proceedings that may ensue. A person so excluded is 
suspended.



Sec. 180.1020  Voluntary exclusion or voluntarily excluded.

    (a) Voluntary exclusion means a person's agreement to be excluded 
under the terms of a settlement between the person and one or more 
agencies. Voluntary exclusion must have governmentwide effect.
    (b) Voluntarily excluded means the status of a person who has agreed 
to a voluntary exclusion.

               Appendix to Part 180--Covered Transactions

[[Page 35]]

[GRAPHIC] [TIFF OMITTED] TR31AU05.000

                        PARTS 181-199 [RESERVED]

[[Page 37]]



   CHAPTER II--OFFICE OF MANAGEMENT AND BUDGET CIRCULARS AND GUIDANCE




  --------------------------------------------------------------------
Part                                                                Page
200-214         [Reserved]

215             Uniform administrative requirements for 
                    grants and agreements with institutions 
                    of higher education, hospitals, and 
                    other non-profit organizations (OMB 
                    Circular A-110).........................          39
216-219         [Reserved]

220             Cost principles for educational institutions 
                    (OMB Circular A-21).....................          68
221-224         [Reserved]

225             Cost principles for state, local, and Indian 
                    tribal governments (OMB Circular A-87)..         115
226-229         [Reserved]

230             Cost principles for non-profit organizations 
                    (OMB Circular A-122)....................         144
231-299         [Reserved]

[[Page 39]]





                        PARTS 200-214 [RESERVED]



PART 215_UNIFORM ADMINISTRATIVE REQUIREMENTS FOR GRANTS AND AGREEMENTS WITH 

INSTITUTIONS OF HIGHER EDUCATION, HOSPITALS, AND OTHER NON-PROFIT 

ORGANIZATIONS (OMB CIRCULAR A-110)--Table of Contents




Sec.
215.0 About this part.

                            Subpart A_General

215.1 Purpose.
215.2 Definitions.
215.3 Effect on other issuances.
215.4 Deviations.
215.5 Subawards.

                    Subpart B_Pre-Award Requirements

215.10 Purpose.
215.11 Pre-award policies.
215.12 Forms for applying for Federal assistance.
215.13 Debarment and suspension.
215.14 Special award conditions.
215.15 Metric system of measurement.
215.16 Resource Conservation and Recovery Act.
215.17 Certifications and representations.

                    Subpart C_Post-Award Requirements

                    Financial and Program Management

215.20 Purpose of financial and program management.
215.21 Standards for financial management systems.
215.22 Payment.
215.23 Cost sharing or matching.
215.24 Program income.
215.25 Revision of budget and program plans.
215.26 Non-Federal audits.
215.27 Allowable costs.
215.28 Period of availability of funds.
215.29 Conditional exemptions.

                           Property Standards

215.30 Purpose of property standards.
215.31 Insurance coverage.
215.32 Real property.
215.33 Federally-owned and exempt property.
215.34 Equipment.
215.35 Supplies and other expendable property.
215.36 Intangible property.
215.37 Property trust relationship.

                          Procurement Standards

215.40 Purpose of procurement standards.
215.41 Recipient responsibilities.
215.42 Codes of conduct.
215.43 Competition.
215.44 Procurement procedures.
215.45 Cost and price analysis.
215.46 Procurement records.
215.47 Contract administration.
215.48 Contract provisions.

                           Reports and Records

215.50 Purpose of reports and records.
215.51 Monitoring and reporting program performance.
215.52 Financial reporting.
215.53 Retention and access requirements for records.

                       Termination and Enforcement

215.60 Purpose of termination and enforcement.
215.61 Termination.
215.62 Enforcement.

                 Subpart D_After-the-Award Requirements

215.70 Purpose.
215.71 Closeout procedures.
215.72 Subsequent adjustments and continuing responsibilities.
215.73 Collection of amounts due.

Appendix A to Part 215--Contract Provisions

    Authority: 31 U.S.C. 503; 31 U.S.C. 1111; 41 U.S.C. 405; 
Reorganization Plan No. 2 of 1970; E.O. 11541, 35 FR 10737, 3 CFR, 1966-
1970, p. 939.

    Source: 69 FR 26281, May 11, 2004, unless otherwise noted.



Sec. 215.0  About this part.

    (a) Purpose. This part contains OMB guidance to Federal agencies on 
the administration of grants to and agreements with institutions of 
higher education, hospitals, and other non-profit organizations. The 
guidance sets forth standards for obtaining consistency and uniformity 
in the agencies' administration of those grants and agreements.
    (b) Applicability. (1) Except as provided herein, the standards set 
forth in this part are applicable to all Federal agencies. If any 
statute specifically

[[Page 40]]

prescribes policies or specific requirements that differ from the 
standards provided in this part, the provisions of the statute shall 
govern.
    (2) The provisions of subparts A through D of this part shall be 
applied by Federal agencies to recipients. Recipients shall apply the 
provisions of those subparts to subrecipients performing substantive 
work under grants and agreements that are passed through or awarded by 
the primary recipient, if such subrecipients are organizations described 
in paragraph (a) of this section.
    (3) This part does not apply to grants, contracts, or other 
agreements between the Federal Government and units of State or local 
governments covered by OMB Circular A-102, ``Grants and Cooperative 
Agreements with State and Local Governments'' \1\ and the Federal 
agencies' grants management common rule (see Sec. 215.5) which 
standardize the administrative requirements Federal agencies impose on 
State and local grantees. In addition, subawards and contracts to State 
or local governments are not covered by this part. However, this part 
applies to subawards made by State and local governments to 
organizations covered by this part.
---------------------------------------------------------------------------

    \1\ See 5 CFR 1310.9 for availability of OMB circulars.
---------------------------------------------------------------------------

    (4) Federal agencies may apply the provisions of subparts A through 
D of this part to commercial organizations, foreign governments, 
organizations under the jurisdiction of foreign governments, and 
international organizations.
    (c) OMB responsibilities. OMB is responsible for:
    (1) Issuing and maintaining the guidance in this part.
    (2) Interpreting the policy requirements in this part and providing 
assistance to ensure effective and efficient implementation.
    (3) Reviewing Federal agency regulations implementing the guidance 
in this part, as required by Executive Order 12866.
    (4) Granting any deviations to Federal agencies from the guidance in 
this part, as provided in Sec. 215.4. Exceptions will only be made in 
particular cases where adequate justification is presented.
    (5) Conducting broad oversight of government-wide compliance with 
the guidance in this part.
    (d) Federal agency responsibilities. The head of each Federal agency 
that awards and administers grants and agreements subject to the 
guidance in this part is responsible for:
    (1) Implementing the guidance in subparts A through D of this part 
by adopting the language in those subparts unless different provisions 
are required by Federal statute or are approved by OMB.
    (2) Ensuring that the agency's components and subcomponents comply 
with the agency's implementation of the guidance in subparts A through D 
of this part.
    (3) Requesting approval from OMB for deviations from the guidance in 
subparts A through D of this part in situations where the guidance 
requires that approval.
    (4) Performing other functions specified in this part.
    (e) Relationship to previous issuance. The guidance in this part 
previously was issued as OMB Circular A-110. Subparts A through D of 
this part contain the guidance that was in the attachment to the OMB 
circular. Appendix A to this part contains the guidance that was in the 
appendix to the attachment.
    (f) Information Contact. Further information concerning this part 
may be obtained by contacting the Office of Federal Financial 
Management, Office of Management and Budget, Washington, DC 20503, 
telephone (202) 395-3993.
    (g) Termination Review Date. This part will have a policy review 
three years from the date of issuance.



                            Subpart A_General



Sec. 215.1  Purpose.

    This part establishes uniform administrative requirements for 
Federal grants and agreements awarded to institutions of higher 
education, hospitals, and other non-profit organizations. Federal 
awarding agencies shall not impose additional or inconsistent 
requirements, except as provided in Sec. 215.4, and Sec. 215.14 or 
unless specifically

[[Page 41]]

required by Federal statute or executive order. Non-profit organizations 
that implement Federal programs for the States are also subject to State 
requirements.



Sec. 215.2  Definitions.

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

[[Page 42]]

without further obligation to the Federal Government. An example of 
exempt property authority is contained in the Federal Grant and 
Cooperative Agreement Act (31 U.S.C. 6306), for property acquired under 
an award to conduct basic or applied research by a non-profit 
institution of higher education or non-profit organization whose 
principal purpose is conducting scientific research.
    (o) Federal awarding agency means the Federal agency that provides 
an award to the recipient.
    (p) Federal funds authorized means the total amount of Federal funds 
obligated by the Federal Government for use by the recipient. This 
amount may include any authorized carryover of unobligated funds from 
prior funding periods when permitted by agency regulations or agency 
implementing instructions.
    (q) Federal share of real property, equipment, or supplies means 
that percentage of the property's acquisition costs and any improvement 
expenditures paid with Federal funds.
    (r) Funding period means the period of time when Federal funding is 
available for obligation by the recipient.
    (s) Intangible property and debt instruments means, but is not 
limited to, trademarks, copyrights, patents and patent applications and 
such property as loans, notes and other debt instruments, lease 
agreements, stock and other instruments of property ownership, whether 
considered tangible or intangible.
    (t) Obligations means the amounts of orders placed, contracts and 
grants awarded, services received and similar transactions during a 
given period that require payment by the recipient during the same or a 
future period.
    (u) Outlays or expenditures means charges made to the project or 
program. They may be reported on a cash or accrual basis. For reports 
prepared on a cash basis, outlays are the sum of cash disbursements for 
direct charges for goods and services, the amount of indirect expense 
charged, the value of third party in-kind contributions applied and the 
amount of cash advances and payments made to subrecipients. For reports 
prepared on an accrual basis, outlays are the sum of cash disbursements 
for direct charges for goods and services, the amount of indirect 
expense incurred, the value of in-kind contributions applied, and the 
net increase (or decrease) in the amounts owed by the recipient for 
goods and other property received, for services performed by employees, 
contractors, subrecipients and other payees and other amounts becoming 
owed under programs for which no current services or performance are 
required.
    (v) Personal property means property of any kind except real 
property. It may be tangible, having physical existence, or intangible, 
having no physical existence, such as copyrights, patents, or 
securities.
    (w) Prior approval means written approval by an authorized official 
evidencing prior consent.
    (x) Program income means gross income earned by the recipient that 
is directly generated by a supported activity or earned as a result of 
the award (see exclusions in Sec. 215.24(e) and (h)). Program income 
includes, but is not limited to, income from fees for services 
performed, the use or rental of real or personal property acquired under 
federally-funded projects, the sale of commodities or items fabricated 
under an award, license fees and royalties on patents and copyrights, 
and interest on loans made with award funds. Interest earned on advances 
of Federal funds is not program income. Except as otherwise provided in 
Federal awarding agency regulations or the terms and conditions of the 
award, program income does not include the receipt of principal on 
loans, rebates, credits, discounts, etc., or interest earned on any of 
them.
    (y) Project costs means all allowable costs, as set forth in the 
applicable Federal cost principles, incurred by a recipient and the 
value of the contributions made by third parties in accomplishing the 
objectives of the award during the project period.
    (z) Project period means the period established in the award 
document during which Federal sponsorship begins and ends.
    (aa) Property means, unless otherwise stated, real property, 
equipment, intangible property and debt instruments.

[[Page 43]]

    (bb) Real property means land, including land improvements, 
structures and appurtenances thereto, but excludes movable machinery and 
equipment.
    (cc) Recipient means an organization receiving financial assistance 
directly from Federal awarding agencies to carry out a project or 
program. The term includes public and private institutions of higher 
education, public and private hospitals, and other quasi-public and 
private non-profit organizations such as, but not limited to, community 
action agencies, research institutes, educational associations, and 
health centers. The term may include commercial organizations, foreign 
or international organizations (such as agencies of the United Nations) 
which are recipients, subrecipients, or contractors or subcontractors of 
recipients or subrecipients at the discretion of the Federal awarding 
agency. The term does not include government-owned contractor-operated 
facilities or research centers providing continued support for mission-
oriented, large-scale programs that are government-owned or controlled, 
or are designated as federally-funded research and development centers.
    (dd) Research and development means all research activities, both 
basic and applied, and all development activities that are supported at 
universities, colleges, and other non-profit institutions. ``Research'' 
is defined as a systematic study directed toward fuller scientific 
knowledge or understanding of the subject studied. ``Development'' is 
the systematic use of knowledge and understanding gained from research 
directed toward the production of useful materials, devices, systems, or 
methods, including design and development of prototypes and processes. 
The term research also includes activities involving the training of 
individuals in research techniques where such activities utilize the 
same facilities as other research and development activities and where 
such activities are not included in the instruction function.
    (ee) Small awards means a grant or cooperative agreement not 
exceeding the small purchase threshold fixed at 41 U.S.C. 403(11) 
(currently $25,000).
    (ff) Subaward means an award of financial assistance in the form of 
money, or property in lieu of money, made under an award by a recipient 
to an eligible subrecipient or by a subrecipient to a lower tier 
subrecipient. The term includes financial assistance when provided by 
any legal agreement, even if the agreement is called a contract, but 
does not include procurement of goods and services nor does it include 
any form of assistance which is excluded from the definition of 
``award'' in Sec. 215.2(e).
    (gg) Subrecipient means the legal entity to which a subaward is made 
and which is accountable to the recipient for the use of the funds 
provided. The term may include foreign or international organizations 
(such as agencies of the United Nations) at the discretion of the 
Federal awarding agency.
    (hh) Supplies means all personal property excluding equipment, 
intangible property, and debt instruments as defined in this section, 
and inventions of a contractor conceived or first actually reduced to 
practice in the performance of work under a funding agreement (``subject 
inventions''), as defined in 37 CFR part 401, ``Rights to Inventions 
Made by Nonprofit Organizations and Small Business Firms Under 
Government Grants, Contracts, and Cooperative Agreements.''
    (ii) Suspension means an action by a Federal awarding agency that 
temporarily withdraws Federal sponsorship under an award, pending 
corrective action by the recipient or pending a decision to terminate 
the award by the Federal awarding agency. Suspension of an award is a 
separate action from suspension under Federal agency regulations 
implementing E.O. 12549 (51 FR 6370, 3 CFR, 1986 Comp., p. 189) and E.O. 
12689 (54 FR 34131, 3 CFR, 1989 Comp., p. 235), ``Debarment and 
Suspension.''
    (jj) Termination means the cancellation of Federal sponsorship, in 
whole or in part, under an agreement at any time prior to the date of 
completion.
    (kk) Third party in-kind contributions means the value of non-cash 
contributions provided by non-Federal third parties. Third party in-kind 
contributions may be in the form of real property, equipment, supplies 
and other expendable property, and the value of goods and services 
directly benefiting

[[Page 44]]

and specifically identifiable to the project or program.
    (ll) Unliquidated obligations, for financial reports prepared on a 
cash basis, means the amount of obligations incurred by the recipient 
that have not been paid. For reports prepared on an accrued expenditure 
basis, they represent the amount of obligations incurred by the 
recipient for which an outlay has not been recorded.
    (mm) Unobligated balance means the portion of the funds authorized 
by the Federal awarding agency that has not been obligated by the 
recipient and is determined by deducting the cumulative obligations from 
the cumulative funds authorized.
    (nn) Unrecovered indirect cost means the difference between the 
amount awarded and the amount which could have been awarded under the 
recipient's approved negotiated indirect cost rate.
    (oo) Working capital advance means a procedure whereby funds are 
advanced to the recipient to cover its estimated disbursement needs for 
a given initial period.



Sec. 215.3  Effect on other issuances.

    For awards subject to this part, all administrative requirements of 
codified program regulations, program manuals, handbooks and other 
nonregulatory materials which are inconsistent with the requirements of 
this part shall be superseded, except to the extent they are required by 
statute, or authorized in accordance with the deviations provision in 
Sec. 215.4.



Sec. 215.4  Deviations.

    The Office of Management and Budget (OMB) may grant exceptions for 
classes of grants or recipients subject to the requirements of this part 
when exceptions are not prohibited by statute. However, in the interest 
of maximum uniformity, exceptions from the requirements of this part 
shall be permitted only in unusual circumstances. Federal awarding 
agencies may apply more restrictive requirements to a class of 
recipients when approved by OMB. Federal awarding agencies may apply 
less restrictive requirements when awarding small awards, except for 
those requirements which are statutory. Exceptions on a case-by-case 
basis may also be made by Federal awarding agencies.



Sec. 215.5  Subawards.

    Unless sections of this part specifically exclude subrecipients from 
coverage, the provisions of this part shall be applied to subrecipients 
performing work under awards if such subrecipients are institutions of 
higher education, hospitals or other non-profit organizations. State and 
local government subrecipients are subject to the provisions of 
regulations implementing the grants management common rule, ``Uniform 
Administrative Requirements for Grants and Cooperative Agreements to 
State and Local Governments,'' published at 7 CFR parts 3015 and 3016, 
10 CFR part 600, 13 CFR part 143, 15 CFR part 24, 20 CFR part 437, 22 
CFR part 135, 24 CFR parts 44, 85, 111, 511, 570, 571, 575, 590, 850, 
882, 905, 941, 968, 970, and 990, 28 CFR part 66, 29 CFR parts 97 and 
1470, 32 CFR part 278, 34 CFR parts 74 and 80, 36 CFR part 1207, 38 CFR 
part 43, 40 CFR parts 30, 31, and 33, 43 CFR part 12, 44 CFR part 13, 45 
CFR parts 74, 92, 602, 1157, 1174, 1183, 1234, and 2015, and 49 CFR part 
18.

[69 FR 26281, May 11, 2004, as amended at 70 FR 51880, Aug. 31, 2005]



                    Subpart B_Pre-Award Requirements



Sec. 215.10  Purpose.

    Sections 215.11 through 215.17 prescribe forms and instructions and 
other pre-award matters to be used in applying for Federal awards.



Sec. 215.11  Pre-award policies.

    (a) Use of Grants and Cooperative Agreements, and Contracts. In each 
instance, the Federal awarding agency shall decide on the appropriate 
award instrument (i.e., grant, cooperative agreement, or contract). The 
Federal Grant and Cooperative Agreement Act (31 U.S.C. 6301-08) governs 
the use of grants, cooperative agreements and contracts. A grant or 
cooperative agreement shall be used only when the principal purpose of a 
transaction is to accomplish a public purpose of support or stimulation 
authorized by Federal

[[Page 45]]

statute. The statutory criterion for choosing between grants and 
cooperative agreements is that for the latter, ``substantial involvement 
is expected between the executive agency and the State, local 
government, or other recipient when carrying out the activity 
contemplated in the agreement.'' Contracts shall be used when the 
principal purpose is acquisition of property or services for the direct 
benefit or use of the Federal Government.
    (b) Public Notice and Priority Setting. Federal awarding agencies 
shall notify the public of its intended funding priorities for 
discretionary grant programs, unless funding priorities are established 
by Federal statute.



Sec. 215.12  Forms for applying for Federal assistance.

    (a) Federal awarding agencies shall comply with the applicable 
report clearance requirements of 5 CFR part 1320, ``Controlling 
Paperwork Burdens on the Public,'' with regard to all forms used by the 
Federal awarding agency in place of or as a supplement to the Standard 
Form 424 (SF-424) series.
    (b) Applicants shall use the SF-424 series or those forms and 
instructions prescribed by the Federal awarding agency.
    (c) For Federal programs covered by E.O. 12372, ``Intergovernmental 
Review of Federal Programs,'' (47 FR 30959, 3 CFR, 1982 Comp., p. 197) 
the applicant shall complete the appropriate sections of the SF-424 
(Application for Federal Assistance) indicating whether the application 
was subject to review by the State Single Point of Contact (SPOC). The 
name and address of the SPOC for a particular State can be obtained from 
the Federal awarding agency or the Catalog of Federal Domestic 
Assistance. The SPOC shall advise the applicant whether the program for 
which application is made has been selected by that State for review.
    (d) Federal awarding agencies that do not use the SF-424 form should 
indicate whether the application is subject to review by the State under 
E.O. 12372.



Sec. 215.13  Debarment and suspension.

    Federal awarding agencies and recipients shall comply with Federal 
agency regulations implementing E.O.s 12549 and 12689, ``Debarment and 
Suspension.'' Under those regulations, certain parties who are debarred, 
suspended or otherwise excluded may not be participants or principals in 
Federal assistance awards and subawards, and in certain contracts under 
those awards and subawards.

[70 FR 51879, Aug. 31, 2005]



Sec. 215.14  Special award conditions.

    If an applicant or recipient: has a history of poor performance, is 
not financially stable, has a management system that does not meet the 
standards prescribed in this part, has not conformed to the terms and 
conditions of a previous award, or is not otherwise responsible, Federal 
awarding agencies may impose additional requirements as needed, provided 
that such applicant or recipient is notified in writing as to: the 
nature of the additional requirements, the reason why the additional 
requirements are being imposed, the nature of the corrective action 
needed, the time allowed for completing the corrective actions, and the 
method for requesting reconsideration of the additional requirements 
imposed. Any special conditions shall be promptly removed once the 
conditions that prompted them have been corrected.



Sec. 215.15  Metric system of measurement.

    The Metric Conversion Act, as amended by the Omnibus Trade and 
Competitiveness Act (15 U.S.C. 205) declares that the metric system is 
the preferred measurement system for U.S. trade and commerce. The Act 
requires each Federal agency to establish a date or dates in 
consultation with the Secretary of Commerce, when the metric system of 
measurement will be used in the agency's procurements, grants, and other 
business-related activities. Metric implementation may take longer where 
the use of the system is initially impractical or likely to cause 
significant inefficiencies in the accomplishment of federally-funded 
activities. Federal awarding agencies shall follow the provisions of 
E.O. 12770, ``Metric Usage in Federal Government Programs'' (56 FR 
35801, 3 CFR, 1991 Comp., p. 343).

[[Page 46]]



Sec. 215.16  Resource Conservation and Recovery Act.

    Under the Act, any State agency or agency of a political subdivision 
of a State which is using appropriated Federal funds must comply with 
section 6002. Section 6002 requires that preference be given in 
procurement programs to the purchase of specific products containing 
recycled materials identified in guidelines developed by the 
Environmental Protection Agency (EPA) (40 CFR parts 247-254). 
Accordingly, State and local institutions of higher education, 
hospitals, and non-profit organizations that receive direct Federal 
awards or other Federal funds shall give preference in their procurement 
programs funded with Federal funds to the purchase of recycled products 
pursuant to the EPA guidelines.



Sec. 215.17  Certifications and representations.

    Unless prohibited by statute or codified regulation, each Federal 
awarding agency is authorized and encouraged to allow recipients to 
submit certifications and representations required by statute, executive 
order, or regulation on an annual basis, if the recipients have ongoing 
and continuing relationships with the agency. Annual certifications and 
representations shall be signed by responsible officials with the 
authority to ensure recipients' compliance with the pertinent 
requirements.



                    Subpart C_Post Award Requirements

                    Financial and Program Management



Sec. 215.20  Purpose of financial and program management.

    Sections 215.21 through 215.28 prescribe standards for financial 
management systems, methods for making payments and rules for: 
satisfying cost sharing and matching requirements, accounting for 
program income, budget revision approvals, making audits, determining 
allowability of cost, and establishing fund availability.



Sec. 215.21  Standards for financial management systems.

    (a) Federal awarding agencies shall require recipients to relate 
financial data to performance data and develop unit cost information 
whenever practical.
    (b) Recipients' financial management systems shall provide for the 
following.
    (1) Accurate, current and complete disclosure of the financial 
results of each federally-sponsored project or program in accordance 
with the reporting requirements set forth in Sec. 215.52. If a Federal 
awarding agency requires reporting on an accrual basis from a recipient 
that maintains its records on other than an accrual basis, the recipient 
shall not be required to establish an accrual accounting system. These 
recipients may develop such accrual data for its reports on the basis of 
an analysis of the documentation on hand.
    (2) Records that identify adequately the source and application of 
funds for federally-sponsored activities. These records shall contain 
information pertaining to Federal awards, authorizations, obligations, 
unobligated balances, assets, outlays, income and interest.
    (3) Effective control over and accountability for all funds, 
property and other assets. Recipients shall adequately safeguard all 
such assets and assure they are used solely for authorized purposes.
    (4) Comparison of outlays with budget amounts for each award. 
Whenever appropriate, financial information should be related to 
performance and unit cost data.
    (5) Written procedures to minimize the time elapsing between the 
transfer of funds to the recipient from the U.S. Treasury and the 
issuance or redemption of checks, warrants or payments by other means 
for program purposes by the recipient. To the extent that the provisions 
of the Cash Management Improvement Act (CMIA) (Pub. L. 101-453) govern, 
payment methods of State agencies, instrumentalities, and fiscal agents 
shall be consistent with CMIA Treasury-State Agreements or the CMIA 
default procedures codified at 31 CFR part 205, ``Withdrawal of Cash 
from the Treasury for Advances under Federal Grant and Other Programs.''
    (6) Written procedures for determining the reasonableness, 
allocability and allowability of costs in accordance with the provisions 
of the applicable

[[Page 47]]

Federal cost principles and the terms and conditions of the award.
    (7) Accounting records including cost accounting records that are 
supported by source documentation.
    (c) Where the Federal Government guarantees or insures the repayment 
of money borrowed by the recipient, the Federal awarding agency, at its 
discretion, may require adequate bonding and insurance if the bonding 
and insurance requirements of the recipient are not deemed adequate to 
protect the interest of the Federal Government.
    (d) The Federal awarding agency may require adequate fidelity bond 
coverage where the recipient lacks sufficient coverage to protect the 
Federal Government's interest.
    (e) Where bonds are required in the situations described above, the 
bonds shall be obtained from companies holding certificates of authority 
as acceptable sureties, as prescribed in 31 CFR part 223, ``Surety 
Companies Doing Business with the United States.''



Sec. 215.22  Payment.

    (a) Payment methods shall minimize the time elapsing between the 
transfer of funds from the United States Treasury and the issuance or 
redemption of checks, warrants, or payment by other means by the 
recipients. Payment methods of State agencies or instrumentalities shall 
be consistent with Treasury-State CMIA agreements or default procedures 
codified at 31 CFR part 205.
    (b) Recipients are to be paid in advance, provided they maintain or 
demonstrate the willingness to maintain:
    (1) Written procedures that minimize the time elapsing between the 
transfer of funds and disbursement by the recipient, and
    (2) Financial management systems that meet the standards for fund 
control and accountability as established in Sec. 215.21. Cash advances 
to a recipient organization shall be limited to the minimum amounts 
needed and be timed to be in accordance with the actual, immediate cash 
requirements of the recipient organization in carrying out the purpose 
of the approved program or project. The timing and amount of cash 
advances shall be as close as is administratively feasible to the actual 
disbursements by the recipient organization for direct program or 
project costs and the proportionate share of any allowable indirect 
costs.
    (c) Whenever possible, advances shall be consolidated to cover 
anticipated cash needs for all awards made by the Federal awarding 
agency to the recipient.
    (1) Advance payment mechanisms include, but are not limited to, 
Treasury check and electronic funds transfer.
    (2) Advance payment mechanisms are subject to 31 CFR part 205.
    (3) Recipients shall be authorized to submit requests for advances 
and reimbursements at least monthly when electronic fund transfers are 
not used.
    (d) Requests for Treasury check advance payment shall be submitted 
on SF-270, ``Request for Advance or Reimbursement,'' or other forms as 
may be authorized by OMB. This form is not to be used when Treasury 
check advance payments are made to the recipient automatically through 
the use of a predetermined payment schedule or if precluded by special 
Federal awarding agency instructions for electronic funds transfer.
    (e) Reimbursement is the preferred method when the requirements in 
Sec. 215.12(b) cannot be met. Federal awarding agencies may also use 
this method on any construction agreement, or if the major portion of 
the construction project is accomplished through private market 
financing or Federal loans, and the Federal assistance constitutes a 
minor portion of the project.
    (1) When the reimbursement method is used, the Federal awarding 
agency shall make payment within 30 days after receipt of the billing, 
unless the billing is improper.
    (2) Recipients shall be authorized to submit request for 
reimbursement at least monthly when electronic funds transfers are not 
used.
    (f) If a recipient cannot meet the criteria for advance payments and 
the Federal awarding agency has determined that reimbursement is not 
feasible because the recipient lacks sufficient working capital, the 
Federal awarding agency may provide cash on a working capital advance 
basis. Under this procedure, the Federal awarding

[[Page 48]]

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

[[Page 49]]

are not used. Federal awarding agencies, however, have the option of 
using this form for construction programs in lieu of the SF-271, 
``Outlay Report and Request for Reimbursement for Construction 
Programs.''
    (2) SF-271, Outlay Report and Request for Reimbursement for 
Construction Programs. Each Federal awarding agency shall adopt the SF-
271 as the standard form to be used for requesting reimbursement for 
construction programs. However, a Federal awarding agency may substitute 
the SF-270 when the Federal awarding agency determines that it provides 
adequate information to meet Federal needs.



Sec. 215.23  Cost sharing or matching.

    (a) All contributions, including cash and third party in-kind, shall 
be accepted as part of the recipient's cost sharing or matching when 
such contributions meet all of the following criteria.
    (1) Are verifiable from the recipient's records.
    (2) Are not included as contributions for any other federally-
assisted project or program.
    (3) Are necessary and reasonable for proper and efficient 
accomplishment of project or program objectives.
    (4) Are allowable under the applicable cost principles.
    (5) Are not paid by the Federal Government under another award, 
except where authorized by Federal statute to be used for cost sharing 
or matching.
    (6) Are provided for in the approved budget when required by the 
Federal awarding agency.
    (7) Conform to other provisions of this part, as applicable.
    (b) Unrecovered indirect costs may be included as part of cost 
sharing or matching only with the prior approval of the Federal awarding 
agency.
    (c) Values for recipient contributions of services and property 
shall be established in accordance with the applicable cost principles. 
If a Federal awarding agency authorizes recipients to donate buildings 
or land for construction/facilities acquisition projects or long-term 
use, the value of the donated property for cost sharing or matching 
shall be the lesser of paragraphs (c)(1) or (2) of this section.
    (1) The certified value of the remaining life of the property 
recorded in the recipient's accounting records at the time of donation.
    (2) The current fair market value. However, when there is sufficient 
justification, the Federal awarding agency may approve the use of the 
current fair market value of the donated property, even if it exceeds 
the certified value at the time of donation to the project.
    (d) Volunteer services furnished by professional and technical 
personnel, consultants, and other skilled and unskilled labor may be 
counted as cost sharing or matching if the service is an integral and 
necessary part of an approved project or program. Rates for volunteer 
services shall be consistent with those paid for similar work in the 
recipient's organization. In those instances in which the required 
skills are not found in the recipient organization, rates shall be 
consistent with those paid for similar work in the labor market in which 
the recipient competes for the kind of services involved. In either 
case, paid fringe benefits that are reasonable, allowable, and allocable 
may be included in the valuation.
    (e) When an employer other than the recipient furnishes the services 
of an employee, these services shall be valued at the employee's regular 
rate of pay (plus an amount of fringe benefits that are reasonable, 
allowable, and allocable, but exclusive of overhead costs), provided 
these services are in the same skill for which the employee is normally 
paid.
    (f) Donated supplies may include such items as expendable equipment, 
office supplies, laboratory supplies or workshop and classroom supplies. 
Value assessed to donated supplies included in the cost sharing or 
matching share shall be reasonable and shall not exceed the fair market 
value of the property at the time of the donation.
    (g) The method used for determining cost sharing or matching for 
donated equipment, buildings and land for which title passes to the 
recipient may differ according to the purpose of the award, if 
paragraphs (g)(1) or (2) of this section apply.
    (1) If the purpose of the award is to assist the recipient in the 
acquisition

[[Page 50]]

of equipment, buildings or land, the total value of the donated property 
may be claimed as cost sharing or matching.
    (2) If the purpose of the award is to support activities that 
require the use of equipment, buildings or land, normally only 
depreciation or use charges for equipment and buildings may be made. 
However, the full value of equipment or other capital assets and fair 
rental charges for land may be allowed, provided that the Federal 
awarding agency has approved the charges.
    (h) The value of donated property shall be determined in accordance 
with the usual accounting policies of the recipient, with the following 
qualifications.
    (1) The value of donated land and buildings shall not exceed its 
fair market value at the time of donation to the recipient as 
established by an independent appraiser (e.g., certified real property 
appraiser or General Services Administration representative) and 
certified by a responsible official of the recipient.
    (2) The value of donated equipment shall not exceed the fair market 
value of equipment of the same age and condition at the time of 
donation.
    (3) The value of donated space shall not exceed the fair rental 
value of comparable space as established by an independent appraisal of 
comparable space and facilities in a privately-owned building in the 
same locality.
    (4) The value of loaned equipment shall not exceed its fair rental 
value.
    (5) The following requirements pertain to the recipient's supporting 
records for in-kind contributions from third parties.
    (i) Volunteer services shall be documented and, to the extent 
feasible, supported by the same methods used by the recipient for its 
own employees.
    (ii) The basis for determining the valuation for personal service, 
material, equipment, buildings and land shall be documented.



Sec. 215.24  Program income.

    (a) Federal awarding agencies shall apply the standards set forth in 
this section in requiring recipient organizations to account for program 
income related to projects financed in whole or in part with Federal 
funds.
    (b) Except as provided in paragraph (h) of this section, program 
income earned during the project period shall be retained by the 
recipient and, in accordance with Federal awarding agency regulations or 
the terms and conditions of the award, shall be used in one or more of 
the ways listed in the following.
    (1) Added to funds committed to the project by the Federal awarding 
agency and recipient and used to further eligible project or program 
objectives.
    (2) Used to finance the non-Federal share of the project or program.
    (3) Deducted from the total project or program allowable cost in 
determining the net allowable costs on which the Federal share of costs 
is based.
    (c) When an agency authorizes the disposition of program income as 
described in paragraphs (b)(1) or (b)(2) of this section, program income 
in excess of any limits stipulated shall be used in accordance with 
paragraph (b)(3) of this section.
    (d) In the event that the Federal awarding agency does not specify 
in its regulations or the terms and conditions of the award how program 
income is to be used, paragraph (b)(3) of this section shall apply 
automatically to all projects or programs except research. For awards 
that support research, paragraph (b)(1) of this section shall apply 
automatically unless the awarding agency indicates in the terms and 
conditions another alternative on the award or the recipient is subject 
to special award conditions, as indicated in Sec. 215.14.
    (e) Unless Federal awarding agency regulations or the terms and 
conditions of the award provide otherwise, recipients shall have no 
obligation to the Federal Government regarding program income earned 
after the end of the project period.
    (f) If authorized by Federal awarding agency regulations or the 
terms and conditions of the award, costs incident to the generation of 
program income may be deducted from gross income to determine program 
income, provided these costs have not been charged to the award.

[[Page 51]]

    (g) Proceeds from the sale of property shall be handled in 
accordance with the requirements of the Property Standards (see Sec. 
215.30 through Sec. 215.37).
    (h) Unless Federal awarding agency regulations or the terms and 
condition of the award provide otherwise, recipients shall have no 
obligation to the Federal Government with respect to program income 
earned from license fees and royalties for copyrighted material, 
patents, patent applications, trademarks, and inventions produced under 
an award. However, Patent and Trademark Amendments (35 U.S.C. 18) apply 
to inventions made under an experimental, developmental, or research 
award.



Sec. 215.25  Revision of budget and program plans.

    (a) The budget plan is the financial expression of the project or 
program as approved during the award process. It may include either the 
Federal and non-Federal share, or only the Federal share, depending upon 
Federal awarding agency requirements. It shall be related to performance 
for program evaluation purposes whenever appropriate.
    (b) Recipients are required to report deviations from budget and 
program plans, and request prior approvals for budget and program plan 
revisions, in accordance with this section.
    (c) For nonconstruction awards, recipients shall request prior 
approvals from Federal awarding agencies for one or more of the 
following program or budget related reasons.
    (1) Change in the scope or the objective of the project or program 
(even if there is no associated budget revision requiring prior written 
approval).
    (2) Change in a key person specified in the application or award 
document.
    (3) The absence for more than three months, or a 25 percent 
reduction in time devoted to the project, by the approved project 
director or principal investigator.
    (4) The need for additional Federal funding.
    (5) The transfer of amounts budgeted for indirect costs to absorb 
increases in direct costs, or vice versa, if approval is required by the 
Federal awarding agency.
    (6) The inclusion, unless waived by the Federal awarding agency, of 
costs that require prior approval in accordance with any of the 
following, as applicable:
    (i) 2 CFR part 220, ``Cost Principles for Educational Institutions 
(OMB Circular A-21);''
    (ii) 2 CFR part 230, ``Cost Principles for Non-Profit Organizations 
(OMB Circular A-122);''
    (iii) 45 CFR part 74, Appendix E, ``Principles for Determining Costs 
Applicable to Research and Development under Grants and Contracts with 
Hospitals;'' and
    (iv) 48 CFR part 31, ``Contract Cost Principles and Procedures.''
    (7) The transfer of funds allotted for training allowances (direct 
payment to trainees) to other categories of expense.
    (8) Unless described in the application and funded in the approved 
awards, the subaward, transfer or contracting out of any work under an 
award. This provision does not apply to the purchase of supplies, 
material, equipment or general support services.
    (d) No other prior approval requirements for specific items may be 
imposed unless a deviation has been approved by OMB.
    (e) Except for requirements listed in paragraphs (c)(1) and (c)(4) 
of this section, Federal awarding agencies are authorized, at their 
option, to waive cost-related and administrative prior written approvals 
required by 2 CFR parts 220 and 230 (OMB Circulars A-21 and A-122). Such 
waivers may include authorizing recipients to do any one or more of the 
following.
    (1) Incur pre-award costs 90 calendar days prior to award or more 
than 90 calendar days with the prior approval of the Federal awarding 
agency. All pre-award costs are incurred at the recipient's risk (i.e., 
the Federal awarding agency is under no obligation to reimburse such 
costs if for any reason the recipient does not receive an award or if 
the award is less than anticipated and inadequate to cover such costs).
    (2) Initiate a one-time extension of the expiration date of the 
award of up to 12 months unless one or more of the following conditions 
apply. For one-

[[Page 52]]

time extensions, the recipient must notify the Federal awarding agency 
in writing with the supporting reasons and revised expiration date at 
least 10 days before the expiration date specified in the award. This 
one-time extension may not be exercised merely for the purpose of using 
unobligated balances.
    (i) The terms and conditions of award prohibit the extension.
    (ii) The extension requires additional Federal funds.
    (iii) The extension involves any change in the approved objectives 
or scope of the project.
    (3) Carry forward unobligated balances to subsequent funding 
periods.
    (4) For awards that support research, unless the Federal awarding 
agency provides otherwise in the award or in the agency's regulations, 
the prior approval requirements described in this paragraph (e) are 
automatically waived (i.e., recipients need not obtain such prior 
approvals) unless one of the conditions included in paragraph (e)(2) 
applies.
    (f) The Federal awarding agency may, at its option, restrict the 
transfer of funds among direct cost categories or programs, functions 
and activities for awards in which the Federal share of the project 
exceeds $100,000 and the cumulative amount of such transfers exceeds or 
is expected to exceed 10 percent of the total budget as last approved by 
the Federal awarding agency. No Federal awarding agency shall permit a 
transfer that would cause any Federal appropriation or part thereof to 
be used for purposes other than those consistent with the original 
intent of the appropriation.
    (g) All other changes to nonconstruction budgets, except for the 
changes described in paragraph (j) of this section, do not require prior 
approval.
    (h) For construction awards, recipients shall request prior written 
approval promptly from Federal awarding agencies for budget revisions 
whenever paragraphs (h)(1), (2) or (3) of this section apply.
    (1) The revision results from changes in the scope or the objective 
of the project or program.
    (2) The need arises for additional Federal funds to complete the 
project.
    (3) A revision is desired which involves specific costs for which 
prior written approval requirements may be imposed consistent with 
applicable OMB cost principles listed in Sec. 215.27.
    (i) No other prior approval requirements for specific items may be 
imposed unless a deviation has been approved by OMB.
    (j) When a Federal awarding agency makes an award that provides 
support for both construction and nonconstruction work, the Federal 
awarding agency may require the recipient to request prior approval from 
the Federal awarding agency before making any fund or budget transfers 
between the two types of work supported.
    (k) For both construction and nonconstruction awards, Federal 
awarding agencies shall require recipients to notify the Federal 
awarding agency in writing promptly whenever the amount of Federal 
authorized funds is expected to exceed the needs of the recipient for 
the project period by more than $5000 or five percent of the Federal 
award, whichever is greater. This notification shall not be required if 
an application for additional funding is submitted for a continuation 
award.
    (l) When requesting approval for budget revisions, recipients shall 
use the budget forms that were used in the application unless the 
Federal awarding agency indicates a letter of request suffices.
    (m) Within 30 calendar days from the date of receipt of the request 
for budget revisions, Federal awarding agencies shall review the request 
and notify the recipient whether the budget revisions have been 
approved. If the revision is still under consideration at the end of 30 
calendar days, the Federal awarding agency shall inform the recipient in 
writing of the date when the recipient may expect the decision.

[69 FR 26281, May 11, 2004, as amended at 70 FR 51880, Aug. 31, 2005]



Sec. 215.26  Non-Federal audits.

    (a) Recipients and subrecipients that are institutions of higher 
education or other non-profit organizations (including hospitals) shall 
be subject to the audit requirements contained in the Single Audit Act 
Amendments of 1996 (31 U.S.C. 7501-7507) and revised OMB

[[Page 53]]

Circular A-133, ``Audits of States, Local Governments, and Non-Profit 
Organizations.''
    (b) State and local governments shall be subject to the audit 
requirements contained in the Single Audit Act Amendments of 1996 (31 
U.S.C. 7501-7507) and revised OMB Circular A-133, ``Audits of States, 
Local Governments, and Non-Profit Organizations.''
    (c) For-profit hospitals not covered by the audit provisions of 
revised OMB Circular A-133 shall be subject to the audit requirements of 
the Federal awarding agencies.
    (d) Commercial organizations shall be subject to the audit 
requirements of the Federal awarding agency or the prime recipient as 
incorporated into the award document.



Sec. 215.27  Allowable costs.

    For each kind of recipient, there is a set of Federal principles for 
determining allowable costs. Allowability of costs shall be determined 
in accordance with the cost principles applicable to the entity 
incurring the costs. Thus, allowability of costs incurred by State, 
local or federally-recognized Indian tribal governments is determined in 
accordance with the provisions of 2 CFR part 225, ``Cost Principles for 
State, Local, and Indian Tribal Governments (OMB Circular A-87.'' The 
allowability of costs incurred by non-profit organizations is determined 
in accordance with the provisions of 2 CFR part 230, ``Cost Principles 
for Non-Profit Organizations (OMB Circular A-122).'' The allowability of 
costs incurred by institutions of higher education is determined in 
accordance with the provisions of 2 CFR part 220, ``Cost Principles for 
Educational Institutions (OMB Circular A-21).'' The allowability of 
costs incurred by hospitals is determined in accordance with the 
provisions of Appendix E of 45 CFR part 74, ``Principles for Determining 
Costs Applicable to Research and Development Under Grants and Contracts 
with Hospitals.'' The allowability of costs incurred by commercial 
organizations and those non-profit organizations listed in Attachment C 
to Circular A-122 is determined in accordance with the provisions of the 
Federal Acquisition Regulation (FAR) at 48 CFR part 31.

[70 FR 51880, Aug. 31, 2005]



Sec. 215.28  Period of availability of funds.

    Where a funding period is specified, a recipient may charge to the 
grant only allowable costs resulting from obligations incurred during 
the funding period and any pre-award costs authorized by the Federal 
awarding agency.



Sec. 215.29  Conditional exemptions.

    (a) OMB authorizes conditional exemption from OMB administrative 
requirements and cost principles circulars for certain Federal programs 
with statutorily-authorized consolidated planning and consolidated 
administrative funding, that are identified by a Federal agency and 
approved by the head of the Executive department or establishment. A 
Federal agency shall consult with OMB during its consideration of 
whether to grant such an exemption.
    (b) To promote efficiency in State and local program administration, 
when Federal non-entitlement programs with common purposes have specific 
statutorily-authorized consolidated planning and consolidated 
administrative funding and where most of the State agency's resources 
come from non-Federal sources, Federal agencies may exempt these covered 
State-administered, non-entitlement grant programs from certain OMB 
grants management requirements. The exemptions would be from:
    (1) The requirements in 2 CFR part 225, ``Cost Principles for State, 
Local, and Indian Tribal Governments (OMB Circular A-87)'' other than 
the allocability of costs provisions that are contained in subsection 
C.3 of Appendix A to that part;
    (2) The requirements in 2 CFR part 220, ``Cost Principles for 
Educational Institutions (OMB Circular A-21)'' other than the 
allocability of costs provisions that are contained in paragraph C.4 in 
section C of the Appendix to that part;
    (3) The requirements in 2 CFR part 230, ``Cost Principles for Non-
Profit Organizations (OMB Circular A-122)''

[[Page 54]]

other than the allocability of costs provisions that are in paragraph 
A.4 in section A of Appendix A to that part;
    (4) The administrative requirements provisions of part 215 (OMB 
Circular A-110, ``Uniform Administrative Requirements for Grants and 
Agreements with Institutions of Higher Education, Hospitals, and Other 
Non-Profit Organizations,''); and
    (5) The agencies' grants management common rule (see Sec. 215.5).
    (c) When a Federal agency provides this flexibility, as a 
prerequisite to a State's exercising this option, a State must adopt its 
own written fiscal and administrative requirements for expending and 
accounting for all funds, which are consistent with the provisions of 2 
CFR part 225, ``Cost Principles for State, Local, and Indian Tribal 
Governments (OMB Circular A-87)'' and extend such policies to all 
subrecipients. These fiscal and administrative requirements must be 
sufficiently specific to ensure that: funds are used in compliance with 
all applicable Federal statutory and regulatory provisions, costs are 
reasonable and necessary for operating these programs, and funds are not 
be used for general expenses required to carry out other 
responsibilities of a State or its subrecipients.

[69 FR 26281, May 11, 2004, as amended at 70 FR 51881, Aug. 31, 2005]

                           Property Standards



Sec. 215.30  Purpose of property standards.

    Sections 215.31 through 215.37 set forth uniform standards governing 
management and disposition of property furnished by the Federal 
Government whose cost was charged to a project supported by a Federal 
award. Federal awarding agencies shall require recipients to observe 
these standards under awards and shall not impose additional 
requirements, unless specifically required by Federal statute. The 
recipient may use its own property management standards and procedures 
provided it observes the provisions of Sec. 215.31 through Sec. 
215.37.



Sec. 215.31  Insurance coverage.

    Recipients shall, at a minimum, provide the equivalent insurance 
coverage for real property and equipment acquired with Federal funds as 
provided to property owned by the recipient. Federally-owned property 
need not be insured unless required by the terms and conditions of the 
award.



Sec. 215.32  Real property.

    Each Federal awarding agency shall prescribe requirements for 
recipients concerning the use and disposition of real property acquired 
in whole or in part under awards. Unless otherwise provided by statute, 
such requirements, at a minimum, shall contain the following.
    (a) Title to real property shall vest in the recipient subject to 
the condition that the recipient shall use the real property for the 
authorized purpose of the project as long as it is needed and shall not 
encumber the property without approval of the Federal awarding agency.
    (b) The recipient shall obtain written approval by the Federal 
awarding agency for the use of real property in other federally-
sponsored projects when the recipient determines that the property is no 
longer needed for the purpose of the original project. Use in other 
projects shall be limited to those under federally-sponsored projects 
(i.e., awards) or programs that have purposes consistent with those 
authorized for support by the Federal awarding agency.
    (c) When the real property is no longer needed as provided in 
paragraphs (a) and (b) of this section, the recipient shall request 
disposition instructions from the Federal awarding agency or its 
successor Federal awarding agency. The Federal awarding agency shall 
observe one or more of the following disposition instructions.
    (1) The recipient may be permitted to retain title without further 
obligation to the Federal Government after it compensates the Federal 
Government for that percentage of the current fair market value of the 
property attributable to the Federal participation in the project.

[[Page 55]]

    (2) The recipient may be directed to sell the property under 
guidelines provided by the Federal awarding agency and pay the Federal 
Government for that percentage of the current fair market value of the 
property attributable to the Federal participation in the project (after 
deducting actual and reasonable selling and fix-up expenses, if any, 
from the sales proceeds). When the recipient is authorized or required 
to sell the property, proper sales procedures shall be established that 
provide for competition to the extent practicable and result in the 
highest possible return.
    (3) The recipient may be directed to transfer title to the property 
to the Federal Government or to an eligible third party provided that, 
in such cases, the recipient shall be entitled to compensation for its 
attributable percentage of the current fair market value of the 
property.



Sec. 215.33  Federally-owned and exempt property.

    (a) Federally-owned property. (1) Title to federally-owned property 
remains vested in the Federal Government. Recipients shall submit 
annually an inventory listing of federally-owned property in their 
custody to the Federal awarding agency. Upon completion of the award or 
when the property is no longer needed, the recipient shall report the 
property to the Federal awarding agency for further Federal agency 
utilization.
    (2) If the Federal awarding agency has no further need for the 
property, it shall be declared excess and reported to the General 
Services Administration, unless the Federal awarding agency has 
statutory authority to dispose of the property by alternative methods 
(e.g., the authority provided by the Federal Technology Transfer Act (15 
U.S.C. 3710 (I)) to donate research equipment to educational and non-
profit organizations in accordance with E.O. 12821, ``Improving 
Mathematics and Science Education in Support of the National Education 
Goals'' (57 FR 54285, 3 CFR, 1992 Comp., p. 323)). Appropriate 
instructions shall be issued to the recipient by the Federal awarding 
agency.
    (b) Exempt property. When statutory authority exists, the Federal 
awarding agency has the option to vest title to property acquired with 
Federal funds in the recipient without further obligation to the Federal 
Government and under conditions the Federal awarding agency considers 
appropriate. Such property is ``exempt property.'' Should a Federal 
awarding agency not establish conditions, title to exempt property upon 
acquisition shall vest in the recipient without further obligation to 
the Federal Government.



Sec. 215.34  Equipment.

    (a) Title to equipment acquired by a recipient with Federal funds 
shall vest in the recipient, subject to conditions of this section.
    (b) The recipient shall not use equipment acquired with Federal 
funds to provide services to non-Federal outside organizations for a fee 
that is less than private companies charge for equivalent services, 
unless specifically authorized by Federal statute, for as long as the 
Federal Government retains an interest in the equipment.
    (c) The recipient shall use the equipment in the project or program 
for which it was acquired as long as needed, whether or not the project 
or program continues to be supported by Federal funds and shall not 
encumber the property without approval of the Federal awarding agency. 
When no longer needed for the original project or program, the recipient 
shall use the equipment in connection with its other federally-sponsored 
activities, in the following order of priority:
    (1) Activities sponsored by the Federal awarding agency which funded 
the original project, then
    (2) Activities sponsored by other Federal awarding agencies.
    (d) During the time that equipment is used on the project or program 
for which it was acquired, the recipient shall make it available for use 
on other projects or programs if such other use will not interfere with 
the work on the project or program for which the equipment was 
originally acquired. First preference for such other use shall be given 
to other projects or programs sponsored by the Federal awarding agency 
that financed the equipment;

[[Page 56]]

second preference shall be given to projects or programs sponsored by 
other Federal awarding agencies. If the equipment is owned by the 
Federal Government, use on other activities not sponsored by the Federal 
Government shall be permissible if authorized by the Federal awarding 
agency. User charges shall be treated as program income.
    (e) When acquiring replacement equipment, the recipient may use the 
equipment to be replaced as trade-in or sell the equipment and use the 
proceeds to offset the costs of the replacement equipment subject to the 
approval of the Federal awarding agency.
    (f) The recipient's property management standards for equipment 
acquired with Federal funds and federally-owned equipment shall include 
all of the following:
    (1) Equipment records shall be maintained accurately and shall 
include the following information.
    (i) A description of the equipment.
    (ii) Manufacturer's serial number, model number, Federal stock 
number, national stock number, or other identification number.
    (iii) Source of the equipment, including the award number.
    (iv) Whether title vests in the recipient or the Federal Government.
    (v) Acquisition date (or date received, if the equipment was 
furnished by the Federal Government) and cost.
    (vi) Information from which one can calculate the percentage of 
Federal participation in the cost of the equipment (not applicable to 
equipment furnished by the Federal Government).
    (vii) Location and condition of the equipment and the date the 
information was reported.
    (viii) Unit acquisition cost.
    (ix) Ultimate disposition data, including date of disposal and sales 
price or the method used to determine current fair market value where a 
recipient compensates the Federal awarding agency for its share.
    (2) Equipment owned by the Federal Government shall be identified to 
indicate Federal ownership.
    (3) A physical inventory of equipment shall be taken and the results 
reconciled with the equipment records at least once every two years. Any 
differences between quantities determined by the physical inspection and 
those shown in the accounting records shall be investigated to determine 
the causes of the difference. The recipient shall, in connection with 
the inventory, verify the existence, current utilization, and continued 
need for the equipment.
    (4) A control system shall be in effect to insure adequate 
safeguards to prevent loss, damage, or theft of the equipment. Any loss, 
damage, or theft of equipment shall be investigated and fully 
documented; if the equipment was owned by the Federal Government, the 
recipient shall promptly notify the Federal awarding agency.
    (5) Adequate maintenance procedures shall be implemented to keep the 
equipment in good condition.
    (6) Where the recipient is authorized or required to sell the 
equipment, proper sales procedures shall be established which provide 
for competition to the extent practicable and result in the highest 
possible return.
    (g) When the recipient no longer needs the equipment, the equipment 
may be used for other activities in accordance with the following 
standards. For equipment with a current per unit fair market value of 
$5000 or more, the recipient may retain the equipment for other uses 
provided that compensation is made to the original Federal awarding 
agency or its successor. The amount of compensation shall be computed by 
applying the percentage of Federal participation in the cost of the 
original project or program to the current fair market value of the 
equipment. If the recipient has no need for the equipment, the recipient 
shall request disposition instructions from the Federal awarding agency. 
The Federal awarding agency shall determine whether the equipment can be 
used to meet the agency's requirements. If no requirement exists within 
that agency, the availability of the equipment shall be reported to the 
General Services Administration by the Federal awarding agency to 
determine whether a requirement for the equipment exists in other 
Federal agencies. The Federal awarding agency shall issue instructions 
to the recipient no later than 120 calendar

[[Page 57]]

days after the recipient's request and the following procedures shall 
govern.
    (1) If so instructed or if disposition instructions are not issued 
within 120 calendar days after the recipient's request, the recipient 
shall sell the equipment and reimburse the Federal awarding agency an 
amount computed by applying to the sales proceeds the percentage of 
Federal participation in the cost of the original project or program. 
However, the recipient shall be permitted to deduct and retain from the 
Federal share $500 or ten percent of the proceeds, whichever is less, 
for the recipient's selling and handling expenses.
    (2) If the recipient is instructed to ship the equipment elsewhere, 
the recipient shall be reimbursed by the Federal Government by an amount 
which is computed by applying the percentage of the recipient's 
participation in the cost of the original project or program to the 
current fair market value of the equipment, plus any reasonable shipping 
or interim storage costs incurred.
    (3) If the recipient is instructed to otherwise dispose of the 
equipment, the recipient shall be reimbursed by the Federal awarding 
agency for such costs incurred in its disposition.
    (4) The Federal awarding agency may reserve the right to transfer 
the title to the Federal Government or to a third party named by the 
Federal Government when such third party is otherwise eligible under 
existing statutes. Such transfer shall be subject to the following 
standards.
    (i) The equipment shall be appropriately identified in the award or 
otherwise made known to the recipient in writing.
    (ii) The Federal awarding agency shall issue disposition 
instructions within 120 calendar days after receipt of a final 
inventory. The final inventory shall list all equipment acquired with 
grant funds and federally-owned equipment. If the Federal awarding 
agency fails to issue disposition instructions within the 120 calendar 
day period, the recipient shall apply the standards of this section, as 
appropriate.
    (iii) When the Federal awarding agency exercises its right to take 
title, the equipment shall be subject to the provisions for federally-
owned equipment.



Sec. 215.35  Supplies and other expendable property.

    (a) Title to supplies and other expendable property shall vest in 
the recipient upon acquisition. If there is a residual inventory of 
unused supplies exceeding $5000 in total aggregate value upon 
termination or completion of the project or program and the supplies are 
not needed for any other federally-sponsored project or program, the 
recipient shall retain the supplies for use on non-Federal sponsored 
activities or sell them, but shall, in either case, compensate the 
Federal Government for its share. The amount of compensation shall be 
computed in the same manner as for equipment.
    (b) The recipient shall not use supplies acquired with Federal funds 
to provide services to non-Federal outside organizations for a fee that 
is less than private companies charge for equivalent services, unless 
specifically authorized by Federal statute as long as the Federal 
Government retains an interest in the supplies.



Sec. 215.36  Intangible property.

    (a) The recipient may copyright any work that is subject to 
copyright and was developed, or for which ownership was purchased, under 
an award. The Federal awarding agency(ies) reserve a royalty-free, 
nonexclusive and irrevocable right to reproduce, publish, or otherwise 
use the work for Federal purposes, and to authorize others to do so.
    (b) Recipients are subject to applicable regulations governing 
patents and inventions, including government-wide regulations issued by 
the Department of Commerce at 37 CFR part 401, ``Rights to Inventions 
Made by Nonprofit Organizations and Small Business Firms Under 
Government Grants, Contracts and Cooperative Agreements.''
    (c) The Federal Government has the right to:
    (1) Obtain, reproduce, publish or otherwise use the data first 
produced under an award.

[[Page 58]]

    (2) Authorize others to receive, reproduce, publish, or otherwise 
use such data for Federal purposes.
    (d) (1) In addition, in response to a Freedom of Information Act 
(FOIA) request for research data relating to published research findings 
produced under an award that was used by the Federal Government in 
developing an agency action that has the force and effect of law, the 
Federal awarding agency shall request, and the recipient shall provide, 
within a reasonable time, the research data so that they can be made 
available to the public through the procedures established under the 
FOIA. If the Federal awarding agency obtains the research data solely in 
response to a FOIA request, the agency may charge the requester a 
reasonable fee equaling the full incremental cost of obtaining the 
research data. This fee should reflect costs incurred by the agency, the 
recipient, and the applicable subrecipients. This fee is in addition to 
any fees the agency may assess under the FOIA (5 U.S.C. 552(a)(4)(A)).
    (2) The following definitions apply for purposes of paragraph (d) of 
this section:
    (i) Research data is defined as the recorded factual material 
commonly accepted in the scientific community as necessary to validate 
research findings, but not any of the following: Preliminary analyses, 
drafts of scientific papers, plans for future research, peer reviews, or 
communications with colleagues. This ``recorded'' material excludes 
physical objects (e.g., laboratory samples). Research data also do not 
include:
    (A) Trade secrets, commercial information, materials necessary to be 
held confidential by a researcher until they are published, or similar 
information which is protected under law; and
    (B) Personnel and medical information and similar information the 
disclosure of which would constitute a clearly unwarranted invasion of 
personal privacy, such as information that could be used to identify a 
particular person in a research study.
    (ii) Published is defined as either when:
    (A) Research findings are published in a peer-reviewed scientific or 
technical journal; or
    (B) A Federal agency publicly and officially cites the research 
findings in support of an agency action that has the force and effect of 
law.
    (iii) Used by the Federal Government in developing an agency action 
that has the force and effect of law is defined as when an agency 
publicly and officially cites the research findings in support of an 
agency action that has the force and effect of law.
    (e) Title to intangible property and debt instruments acquired under 
an award or subaward vests upon acquisition in the recipient. The 
recipient shall use that property for the originally-authorized purpose, 
and the recipient shall not encumber the property without approval of 
the Federal awarding agency. When no longer needed for the originally 
authorized purpose, disposition of the intangible property shall occur 
in accordance with the provisions of Sec. 215.34(g).

[69 FR 26281, May 11, 2004, as amended at 70 FR 51881, Aug. 31, 2005]



Sec. 215.37  Property trust relationship.

    Real property, equipment, intangible property and debt instruments 
that are acquired or improved with Federal funds shall be held in trust 
by the recipient as trustee for the beneficiaries of the project or 
program under which the property was acquired or improved. Agencies may 
require recipients to record liens or other appropriate notices of 
record to indicate that personal or real property has been acquired or 
improved with Federal funds and that use and disposition conditions 
apply to the property.

                          Procurement Standards



Sec. 215.40  Purpose of procurement standards.

    Sections 215.41 through 215.48 set forth standards for use by 
recipients in establishing procedures for the procurement of supplies 
and other expendable property, equipment, real property and other 
services with Federal funds. These standards are furnished to ensure 
that such materials and services are obtained in an effective manner and 
in compliance with the provisions

[[Page 59]]

of applicable Federal statutes and executive orders. No additional 
procurement standards or requirements shall be imposed by the Federal 
awarding agencies upon recipients, unless specifically required by 
Federal statute or executive order or approved by OMB.



Sec. 215.41  Recipient responsibilities.

    The standards contained in this section do not relieve the recipient 
of the contractual responsibilities arising under its contract(s). The 
recipient is the responsible authority, without recourse to the Federal 
awarding agency, regarding the settlement and satisfaction of all 
contractual and administrative issues arising out of procurements 
entered into in support of an award or other agreement. This includes 
disputes, claims, protests of award, source evaluation or other matters 
of a contractual nature. Matters concerning violation of statute are to 
be referred to such Federal, State or local authority as may have proper 
jurisdiction.



Sec. 215.42  Codes of conduct.

    The recipient shall maintain written standards of conduct governing 
the performance of its employees engaged in the award and administration 
of contracts. No employee, officer, or agent shall participate in the 
selection, award, or administration of a contract supported by Federal 
funds if a real or apparent conflict of interest would be involved. Such 
a conflict would arise when the employee, officer, or agent, any member 
of his or her immediate family, his or her partner, or an organization 
which employs or is about to employ any of the parties indicated herein, 
has a financial or other interest in the firm selected for an award. The 
officers, employees, and agents of the recipient shall neither solicit 
nor accept gratuities, favors, or anything of monetary value from 
contractors, or parties to subagreements. However, recipients may set 
standards for situations in which the financial interest is not 
substantial or the gift is an unsolicited item of nominal value. The 
standards of conduct shall provide for disciplinary actions to be 
applied for violations of such standards by officers, employees, or 
agents of the recipient.



Sec. 215.43  Competition.

    All procurement transactions shall be conducted in a manner to 
provide, to the maximum extent practical, open and free competition. The 
recipient shall be alert to organizational conflicts of interest as well 
as noncompetitive practices among contractors that may restrict or 
eliminate competition or otherwise restrain trade. In order to ensure 
objective contractor performance and eliminate unfair competitive 
advantage, contractors that develop or draft specifications, 
requirements, statements of work, invitations for bids and/or requests 
for proposals shall be excluded from competing for such procurements. 
Awards shall be made to the bidder or offeror whose bid or offer is 
responsive to the solicitation and is most advantageous to the 
recipient, price, quality and other factors considered. Solicitations 
shall clearly set forth all requirements that the bidder or offeror 
shall fulfill in order for the bid or offer to be evaluated by the 
recipient. Any and all bids or offers may be rejected when it is in the 
recipient's interest to do so.



Sec. 215.44  Procurement procedures.

    (a) All recipients shall establish written procurement procedures. 
These procedures shall provide for, at a minimum, that paragraphs 
(a)(1), (2) and (3) of this section apply.
    (1) Recipients avoid purchasing unnecessary items.
    (2) Where appropriate, an analysis is made of lease and purchase 
alternatives to determine which would be the most economical and 
practical procurement for the Federal Government.
    (3) Solicitations for goods and services provide for all of the 
following.
    (i) A clear and accurate description of the technical requirements 
for the material, product or service to be procured. In competitive 
procurements, such a description shall not contain features which unduly 
restrict competition.
    (ii) Requirements which the bidder/offeror must fulfill and all 
other factors to be used in evaluating bids or proposals.
    (iii) A description, whenever practicable, of technical requirements 
in terms of functions to be performed or

[[Page 60]]

performance required, including the range of acceptable characteristics 
or minimum acceptable standards.
    (iv) The specific features of ``brand name or equal'' descriptions 
that bidders are required to meet when such items are included in the 
solicitation.
    (v) The acceptance, to the extent practicable and economically 
feasible, of products and services dimensioned in the metric system of 
measurement.
    (vi) Preference, to the extent practicable and economically 
feasible, for products and services that conserve natural resources and 
protect the environment and are energy efficient.
    (b) Positive efforts shall be made by recipients to utilize small 
businesses, minority-owned firms, and women's business enterprises, 
whenever possible. Recipients of Federal awards shall take all of the 
following steps to further this goal.
    (1) Ensure that small businesses, minority-owned firms, and women's 
business enterprises are used to the fullest extent practicable.
    (2) Make information on forthcoming opportunities available and 
arrange time frames for purchases and contracts to encourage and 
facilitate participation by small businesses, minority-owned firms, and 
women's business enterprises.
    (3) Consider in the contract process whether firms competing for 
larger contracts intend to subcontract with small businesses, minority-
owned firms, and women's business enterprises.
    (4) Encourage contracting with consortiums of small businesses, 
minority-owned firms and women's business enterprises when a contract is 
too large for one of these firms to handle individually.
    (5) Use the services and assistance, as appropriate, of such 
organizations as the Small Business Administration and the Department of 
Commerce's Minority Business Development Agency in the solicitation and 
utilization of small businesses, minority-owned firms and women's 
business enterprises.
    (c) The type of procuring instruments used (e.g., fixed price 
contracts, cost reimbursable contracts, purchase orders, and incentive 
contracts) shall be determined by the recipient but shall be appropriate 
for the particular procurement and for promoting the best interest of 
the program or project involved. The ``cost-plus-a-percentage-of-cost'' 
or ``percentage of construction cost'' methods of contracting shall not 
be used.
    (d) Contracts shall be made only with responsible contractors who 
possess the potential ability to perform successfully under the terms 
and conditions of the proposed procurement. Consideration shall be given 
to such matters as contractor integrity, record of past performance, 
financial and technical resources or accessibility to other necessary 
resources. In certain circumstances, contracts with certain parties are 
restricted by agencies' implementation of E.O.s 12549 and 12689, 
``Debarment and Suspension.''
    (e) Recipients shall, on request, make available for the Federal 
awarding agency, pre-award review and procurement documents, such as 
request for proposals or invitations for bids, independent cost 
estimates, etc., when any of the following conditions apply.
    (1) A recipient's procurement procedures or operation fails to 
comply with the procurement standards in the Federal awarding agency's 
implementation of this part.
    (2) The procurement is expected to exceed the small purchase 
threshold fixed at 41 U.S.C. 403 (11) (currently $25,000) and is to be 
awarded without competition or only one bid or offer is received in 
response to a solicitation.
    (3) The procurement, which is expected to exceed the small purchase 
threshold, specifies a ``brand name'' product.
    (4) The proposed award over the small purchase threshold is to be 
awarded to other than the apparent low bidder under a sealed bid 
procurement.
    (5) A proposed contract modification changes the scope of a contract 
or increases the contract amount by more than the amount of the small 
purchase threshold.



Sec. 215.45  Cost and price analysis.

    Some form of cost or price analysis shall be made and documented in 
the procurement files in connection with

[[Page 61]]

every procurement action. Price analysis may be accomplished in various 
ways, including the comparison of price quotations submitted, market 
prices and similar indicia, together with discounts. Cost analysis is 
the review and evaluation of each element of cost to determine 
reasonableness, allocability and allowability.



Sec. 215.46  Procurement records.

    Procurement records and files for purchases in excess of the small 
purchase threshold shall include the following at a minimum:
    (a) Basis for contractor selection;
    (b) Justification for lack of competition when competitive bids or 
offers are not obtained; and
    (c) Basis for award cost or price.



Sec. 215.47  Contract administration.

    A system for contract administration shall be maintained to ensure 
contractor conformance with the terms, conditions and specifications of 
the contract and to ensure adequate and timely follow up of all 
purchases. Recipients shall evaluate contractor performance and 
document, as appropriate, whether contractors have met the terms, 
conditions and specifications of the contract.



Sec. 215.48  Contract provisions.

    The recipient shall include, in addition to provisions to define a 
sound and complete agreement, the following provisions in all contracts. 
The following provisions shall also be applied to subcontracts.
    (a) Contracts in excess of the small purchase threshold shall 
contain contractual provisions or conditions that allow for 
administrative, contractual, or legal remedies in instances in which a 
contractor violates or breaches the contract terms, and provide for such 
remedial actions as may be appropriate.
    (b) All contracts in excess of the small purchase threshold shall 
contain suitable provisions for termination by the recipient, including 
the manner by which termination shall be effected and the basis for 
settlement. In addition, such contracts shall describe conditions under 
which the contract may be terminated for default as well as conditions 
where the contract may be terminated because of circumstances beyond the 
control of the contractor.
    (c) Except as otherwise required by statute, an award that requires 
the contracting (or subcontracting) for construction or facility 
improvements shall provide for the recipient to follow its own 
requirements relating to bid guarantees, performance bonds, and payment 
bonds unless the construction contract or subcontract exceeds $100,000. 
For those contracts or subcontracts exceeding $100,000, the Federal 
awarding agency may accept the bonding policy and requirements of the 
recipient, provided the Federal awarding agency has made a determination 
that the Federal Government's interest is adequately protected. If such 
a determination has not been made, the minimum requirements shall be as 
follows.
    (1) A bid guarantee from each bidder equivalent to five percent of 
the bid price. The ``bid guarantee'' shall consist of a firm commitment 
such as a bid bond, certified check, or other negotiable instrument 
accompanying a bid as assurance that the bidder shall, upon acceptance 
of his bid, execute such contractual documents as may be required within 
the time specified.
    (2) A performance bond on the part of the contractor for 100 percent 
of the contract price. A ``performance bond'' is one executed in 
connection with a contract to secure fulfillment of all the contractor's 
obligations under such contract.
    (3) A payment bond on the part of the contractor for 100 percent of 
the contract price. A ``payment bond'' is one executed in connection 
with a contract to assure payment as required by statute of all persons 
supplying labor and material in the execution of the work provided for 
in the contract.
    (4) Where bonds are required in the situations described herein, the 
bonds shall be obtained from companies holding certificates of authority 
as acceptable sureties pursuant to 31 CFR part 223, ``Surety Companies 
Doing Business with the United States.''
    (d) All negotiated contracts (except those for less than the small 
purchase threshold) awarded by recipients shall include a provision to 
the effect that

[[Page 62]]

the recipient, the Federal awarding agency, the Comptroller General of 
the United States, or any of their duly authorized representatives, 
shall have access to any books, documents, papers and records of the 
contractor which are directly pertinent to a specific program for the 
purpose of making audits, examinations, excerpts and transcriptions.
    (e) All contracts, including small purchases, awarded by recipients 
and their contractors shall contain the procurement provisions of 
appendix A to this part, as applicable.

                           Reports and Records



Sec. 215.50  Purpose of reports and records.

    Sections 215.51 through 215.53 set forth the procedures for 
monitoring and reporting on the recipient's financial and program 
performance and the necessary standard reporting forms. They also set 
forth record retention requirements.



Sec. 215.51  Monitoring and reporting program performance.

    (a) Recipients are responsible for managing and monitoring each 
project, program, subaward, function or activity supported by the award. 
Recipients shall monitor subawards to ensure subrecipients have met the 
audit requirements as delineated in Sec. 215.26.
    (b) The Federal awarding agency shall prescribe the frequency with 
which the performance reports shall be submitted. Except as provided in 
Sec. 215.51(f), performance reports shall not be required more 
frequently than quarterly or, less frequently than annually. Annual 
reports shall be due 90 calendar days after the grant year; quarterly or 
semi-annual reports shall be due 30 days after the reporting period. The 
Federal awarding agency may require annual reports before the 
anniversary dates of multiple year awards in lieu of these requirements. 
The final performance reports are due 90 calendar days after the 
expiration or termination of the award.
    (c) If inappropriate, a final technical or performance report shall 
not be required after completion of the project.
    (d) When required, performance reports shall generally contain, for 
each award, brief information on each of the following.
    (1) A comparison of actual accomplishments with the goals and 
objectives established for the period, the findings of the investigator, 
or both. Whenever appropriate and the output of programs or projects can 
be readily quantified, such quantitative data should be related to cost 
data for computation of unit costs.
    (2) Reasons why established goals were not met, if appropriate.
    (3) Other pertinent information including, when appropriate, 
analysis and explanation of cost overruns or high unit costs.
    (e) Recipients shall not be required to submit more than the 
original and two copies of performance reports.
    (f) Recipients shall immediately notify the Federal awarding agency 
of developments that have a significant impact on the award-supported 
activities. Also, notification shall be given in the case of problems, 
delays, or adverse conditions which materially impair the ability to 
meet the objectives of the award. This notification shall include a 
statement of the action taken or contemplated, and any assistance needed 
to resolve the situation.
    (g) Federal awarding agencies may make site visits, as needed.
    (h) Federal awarding agencies shall comply with clearance 
requirements of 5 CFR part 1320 when requesting performance data from 
recipients.



Sec. 215.52  Financial reporting.

    (a) The following forms or such other forms as may be approved by 
OMB are authorized for obtaining financial information from recipients.
    (1) SF-269 or SF-269A, Financial Status Report.
    (i) Each Federal awarding agency shall require recipients to use the 
SF-269 or SF-269A to report the status of funds for all nonconstruction 
projects or programs. A Federal awarding agency may, however, have the 
option of not requiring the SF-269 or SF-269A when the SF-270, Request 
for Advance or Reimbursement, or SF-272, Report of Federal Cash 
Transactions, is determined to provide adequate information

[[Page 63]]

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

[[Page 64]]

    (5) Federal awarding agencies may provide computer or electronic 
outputs to recipients when such expedites or contributes to the accuracy 
of reporting.



Sec. 215.53  Retention and access requirements for records.

    (a) This section sets forth requirements for record retention and 
access to records for awards to recipients. Federal awarding agencies 
shall not impose any other record retention or access requirements upon 
recipients.
    (b) Financial records, supporting documents, statistical records, 
and all other records pertinent to an award shall be retained for a 
period of three years from the date of submission of the final 
expenditure report or, for awards that are renewed quarterly or 
annually, from the date of the submission of the quarterly or annual 
financial report, as authorized by the Federal awarding agency. The only 
exceptions are the following.
    (1) If any litigation, claim, or audit is started before the 
expiration of the 3-year period, the records shall be retained until all 
litigation, claims or audit findings involving the records have been 
resolved and final action taken.
    (2) Records for real property and equipment acquired with Federal 
funds shall be retained for 3 years after final disposition.
    (3) When records are transferred to or maintained by the Federal 
awarding agency, the 3-year retention requirement is not applicable to 
the recipient.
    (4) Indirect cost rate proposals, cost allocations plans, etc. as 
specified in Sec. 215.53(g).
    (c) Copies of original records may be substituted for the original 
records if authorized by the Federal awarding agency.
    (d) The Federal awarding agency shall request transfer of certain 
records to its custody from recipients when it determines that the 
records possess long term retention value. However, in order to avoid 
duplicate recordkeeping, a Federal awarding agency may make arrangements 
for recipients to retain any records that are continuously needed for 
joint use.
    (e) The Federal awarding agency, the Inspector General, Comptroller 
General of the United States, or any of their duly authorized 
representatives, have the right of timely and unrestricted access to any 
books, documents, papers, or other records of recipients that are 
pertinent to the awards, in order to make audits, examinations, 
excerpts, transcripts and copies of such documents. This right also 
includes timely and reasonable access to a recipient's personnel for the 
purpose of interview and discussion related to such documents. The 
rights of access in this paragraph are not limited to the required 
retention period, but shall last as long as records are retained.
    (f) Unless required by statute, no Federal awarding agency shall 
place restrictions on recipients that limit public access to the records 
of recipients that are pertinent to an award, except when the Federal 
awarding agency can demonstrate that such records shall be kept 
confidential and would have been exempted from disclosure pursuant to 
the Freedom of Information Act (5 U.S.C. 552) if the records had 
belonged to the Federal awarding agency.
    (g) Indirect cost rate proposals, cost allocations plans, etc. 
Paragraphs (g)(1) and (g)(2) of this section apply to the following 
types of documents, and their supporting records: indirect cost rate 
computations or proposals, cost allocation plans, and any similar 
accounting computations of the rate at which a particular group of costs 
is chargeable (such as computer usage chargeback rates or composite 
fringe benefit rates).
    (1) If submitted for negotiation. If the recipient submits to the 
Federal awarding agency or the subrecipient submits to the recipient the 
proposal, plan, or other computation to form the basis for negotiation 
of the rate, then the 3-year retention period for its supporting records 
starts on the date of such submission.
    (2) If not submitted for negotiation. If the recipient is not 
required to submit to the Federal awarding agency or the subrecipient is 
not required to submit to the recipient the proposal, plan, or

[[Page 65]]

other computation for negotiation purposes, then the 3-year retention 
period for the proposal, plan, or other computation and its supporting 
records starts at the end of the fiscal year (or other accounting 
period) covered by the proposal, plan, or other computation.

                       Termination and Enforcement



Sec. 215.60  Purpose of termination and enforcement.

    Sections 215.61 and 215.62 set forth uniform suspension, termination 
and enforcement procedures.



Sec. 215.61  Termination.

    (a) Awards may be terminated in whole or in part only if paragraphs 
(a)(1), (2) or (3) of this section apply.
    (1) By the Federal awarding agency, if a recipient materially fails 
to comply with the terms and conditions of an award.
    (2) By the Federal awarding agency with the consent of the 
recipient, in which case the two parties shall agree upon the 
termination conditions, including the effective date and, in the case of 
partial termination, the portion to be terminated.
    (3) By the recipient upon sending to the Federal awarding agency 
written notification setting forth the reasons for such termination, the 
effective date, and, in the case of partial termination, the portion to 
be terminated. However, if the Federal awarding agency determines in the 
case of partial termination that the reduced or modified portion of the 
grant will not accomplish the purposes for which the grant was made, it 
may terminate the grant in its entirety under either paragraphs (a)(1) 
or (2) of this section.
    (b) If costs are allowed under an award, the responsibilities of the 
recipient referred to in Sec. 215.71(a), including those for property 
management as applicable, shall be considered in the termination of the 
award, and provision shall be made for continuing responsibilities of 
the recipient after termination, as appropriate.



Sec. 215.62  Enforcement.

    (a) Remedies for noncompliance. If a recipient materially fails to 
comply with the terms and conditions of an award, whether stated in a 
Federal statute, regulation, assurance, application, or notice of award, 
the Federal awarding agency may, in addition to imposing any of the 
special conditions outlined in Sec. 215.14, take one or more of the 
following actions, as appropriate in the circumstances.
    (1) Temporarily withhold cash payments pending correction of the 
deficiency by the recipient or more severe enforcement action by the 
Federal awarding agency.
    (2) Disallow (that is, deny both use of funds and any applicable 
matching credit for) all or part of the cost of the activity or action 
not in compliance.
    (3) Wholly or partly suspend or terminate the current award.
    (4) Withhold further awards for the project or program.
    (5) Take other remedies that may be legally available.
    (b) Hearings and appeals. In taking an enforcement action, the 
awarding agency shall provide the recipient an opportunity for hearing, 
appeal, or other administrative proceeding to which the recipient is 
entitled under any statute or regulation applicable to the action 
involved.
    (c) Effects of suspension and termination. Costs of a recipient 
resulting from obligations incurred by the recipient during a suspension 
or after termination of an award are not allowable unless the awarding 
agency expressly authorizes them in the notice of suspension or 
termination or subsequently. Other recipient costs during suspension or 
after termination which are necessary and not reasonably avoidable are 
allowable if paragraphs (c)(1) and (2) of this section apply.
    (1) The costs result from obligations which were properly incurred 
by the recipient before the effective date of suspension or termination, 
are not in anticipation of it, and in the case of a termination, are 
noncancellable.
    (2) The costs would be allowable if the award were not suspended or 
expired normally at the end of the funding period in which the 
termination takes effect.
    (d) Relationship to debarment and suspension. The enforcement 
remedies identified in this section, including

[[Page 66]]

suspension and termination, do not preclude a recipient from being 
subject to debarment and suspension under E.O.s 12549 and 12689 and the 
Federal awarding agency implementing regulations (see Sec. 215.13).



                 Subpart D_After-the-Award Requirements



Sec. 215.70  Purpose.

    Sections 215.71 through 215.73 contain closeout procedures and other 
procedures for subsequent disallowances and adjustments.



Sec. 215.71  Closeout procedures.

    (a) Recipients shall submit, within 90 calendar days after the date 
of completion of the award, all financial, performance, and other 
reports as required by the terms and conditions of the award. The 
Federal awarding agency may approve extensions when requested by the 
recipient.
    (b) Unless the Federal awarding agency authorizes an extension, a 
recipient shall liquidate all obligations incurred under the award not 
later than 90 calendar days after the funding period or the date of 
completion as specified in the terms and conditions of the award or in 
agency implementing instructions.
    (c) The Federal awarding agency shall make prompt payments to a 
recipient for allowable reimbursable costs under the award being closed 
out.
    (d) The recipient shall promptly refund any balances of unobligated 
cash that the Federal awarding agency has advanced or paid and that is 
not authorized to be retained by the recipient for use in other 
projects. OMB Circular A-129 governs unreturned amounts that become 
delinquent debts.
    (e) When authorized by the terms and conditions of the award, the 
Federal awarding agency shall make a settlement for any upward or 
downward adjustments to the Federal share of costs after closeout 
reports are received.
    (f) The recipient shall account for any real and personal property 
acquired with Federal funds or received from the Federal Government in 
accordance with Sec. 215.31 through Sec. 215.37.
    (g) In the event a final audit has not been performed prior to the 
closeout of an award, the Federal awarding agency shall retain the right 
to recover an appropriate amount after fully considering the 
recommendations on disallowed costs resulting from the final audit.



Sec. 215.72  Subsequent adjustments and continuing responsibilities.

    (a) The closeout of an award does not affect any of the following:
    (1) The right of the Federal awarding agency to disallow costs and 
recover funds on the basis of a later audit or other review.
    (2) The obligation of the recipient to return any funds due as a 
result of later refunds, corrections, or other transactions.
    (3) Audit requirements in Sec. 215.26.
    (4) Property management requirements in Sec. 215.31 through Sec. 
215.37.
    (5) Records retention as required in Sec. 215.53.
    (b) After closeout of an award, a relationship created under an 
award may be modified or ended in whole or in part with the consent of 
the Federal awarding agency and the recipient, provided the 
responsibilities of the recipient referred to in paragraph (a) of this 
section, including those for property management as applicable, are 
considered and provisions made for continuing responsibilities of the 
recipient, as appropriate.

[69 FR 26281, May 11, 2004, as amended at 70 FR 51881, Aug. 31, 2005]



Sec. 215.73  Collection of amounts due.

    (a) Any funds paid to a recipient in excess of the amount to which 
the recipient is finally determined to be entitled under the terms and 
conditions of the award constitute a debt to the Federal Government. If 
not paid within a reasonable period after the demand for payment, the 
Federal awarding agency may reduce the debt by paragraphs (a)(1), (2) or 
(3) of this section.
    (1) Making an administrative offset against other requests for 
reimbursements.
    (2) Withholding advance payments otherwise due to the recipient.
    (3) Taking other action permitted by statute.
    (b) Except as otherwise provided by law, the Federal awarding agency 
shall

[[Page 67]]

charge interest on an overdue debt in accordance with 4 CFR Chapter II, 
``Federal Claims Collection Standards.''

               Appendix A to Part 215--Contract Provisions

    All contracts, awarded by a recipient including small purchases, 
shall contain the following provisions as applicable:
    1. Equal Employment Opportunity--All contracts shall contain a 
provision requiring compliance with E.O. 11246, ``Equal Employment 
Opportunity'' (30 FR 12319, 12935, 3 CFR, 1964-1965 Comp., p. 339), as 
amended by E.O. 11375, ``Amending Executive Order 11246 Relating to 
Equal Employment Opportunity,'' and as supplemented by regulations at 41 
CFR part 60, ``Office of Federal Contract Compliance Programs, Equal 
Employment Opportunity, Department of Labor.''
    2. Copeland ``Anti-Kickback'' Act (18 U.S.C. 874 and 40 U.S.C. 
276c)--All contracts and subgrants in excess of $2000 for construction 
or repair awarded by recipients and subrecipients shall include a 
provision for compliance with the Copeland ``Anti-Kickback'' Act (18 
U.S.C. 874), as supplemented by Department of Labor regulations (29 CFR 
part 3, ``Contractors and Subcontractors on Public Building or Public 
Work Financed in Whole or in Part by Loans or Grants from the United 
States''). The Act provides that each contractor or subrecipient shall 
be prohibited from inducing, by any means, any person employed in the 
construction, completion, or repair of public work, to give up any part 
of the compensation to which he is otherwise entitled. The recipient 
shall report all suspected or reported violations to the Federal 
awarding agency.
    3. Davis-Bacon Act, as amended (40 U.S.C. 276a to a-7)--When 
required by Federal program legislation, all construction contracts 
awarded by the recipients and subrecipients of more than $2000 shall 
include a provision for compliance with the Davis-Bacon Act (40 U.S.C. 
276a to a-7) and as supplemented by Department of Labor regulations (29 
CFR part 5, ``Labor Standards Provisions Applicable to Contracts 
Governing Federally Financed and Assisted Construction''). Under this 
Act, contractors shall be required to pay wages to laborers and 
mechanics at a rate not less than the minimum wages specified in a wage 
determination made by the Secretary of Labor. In addition, contractors 
shall be required to pay wages not less than once a week. The recipient 
shall place a copy of the current prevailing wage determination issued 
by the Department of Labor in each solicitation and the award of a 
contract shall be conditioned upon the acceptance of the wage 
determination. The recipient shall report all suspected or reported 
violations to the Federal awarding agency.
    4. Contract Work Hours and Safety Standards Act (40 U.S.C. 327-
333)--Where applicable, all contracts awarded by recipients in excess of 
$2000 for construction contracts and in excess of $2500 for other 
contracts that involve the employment of mechanics or laborers shall 
include a provision for compliance with sections 102 and 107 of the 
Contract Work Hours and Safety Standards Act (40 U.S.C. 327-333), as 
supplemented by Department of Labor regulations (29 CFR part 5). Under 
section 102 of the Act, each contractor shall be required to compute the 
wages of every mechanic and laborer on the basis of a standard work week 
of 40 hours. Work in excess of the standard work week is permissible 
provided that the worker is compensated at a rate of not less than 1\1/
2\ times the basic rate of pay for all hours worked in excess of 40 
hours in the work week. Section 107 of the Act is applicable to 
construction work and provides that no laborer or mechanic shall be 
required to work in surroundings or under working conditions which are 
unsanitary, hazardous or dangerous. These requirements do not apply to 
the purchases of supplies or materials or articles ordinarily available 
on the open market, or contracts for transportation or transmission of 
intelligence.
    5. Rights to Inventions Made Under a Contract or Agreement--
Contracts or agreements for the performance of experimental, 
developmental, or research work shall provide for the rights of the 
Federal Government and the recipient in any resulting invention in 
accordance with 37 CFR part 401, ``Rights to Inventions Made by 
Nonprofit Organizations and Small Business Firms Under Government 
Grants, Contracts and Cooperative Agreements,'' and any implementing 
regulations issued by the awarding agency.
    6. Clean Air Act (42 U.S.C. 7401 et seq.) and the Federal Water 
Pollution Control Act (33 U.S.C. 1251 et seq.), as amended--Contracts 
and subgrants of amounts in excess of $100,000 shall contain a provision 
that requires the recipient to agree to comply with all applicable 
standards, orders or regulations issued pursuant to the Clean Air Act 
(42 U.S.C. 7401 et seq.) and the Federal Water Pollution Control Act as 
amended (33 U.S.C. 1251 et seq.). Violations shall be reported to the 
Federal awarding agency and the Regional Office of the Environmental 
Protection Agency (EPA).
    7. Byrd Anti-Lobbying Amendment (31 U.S.C. 1352)--Contractors who 
apply or bid for an award of $100,000 or more shall file the required 
certification. Each tier certifies to the tier above that it will not 
and has not used Federal appropriated funds to pay any person or 
organization for influencing or attempting to influence an officer or 
employee of any agency, a member of Congress, officer or employee of 
Congress, or an employee of a

[[Page 68]]

member of Congress in connection with obtaining any Federal contract, 
grant or any other award covered by 31 U.S.C. 1352. Each tier shall also 
disclose any lobbying with non-Federal funds that takes place in 
connection with obtaining any Federal award. Such disclosures are 
forwarded from tier to tier up to the recipient.
    8. Debarment and Suspension (E.O.s 12549 and 12689)--A contract 
award with an amount expected to equal or exceed $25,000 and certain 
other contract awards (see 2 CFR 180.220) shall not be made to parties 
listed on the government-wide Excluded Parties List System, in 
accordance with the OMB guidelines at 2 CFR part 180 that implement 
E.O.s 12549 (3 CFR, 1986 Comp., p. 189) and 12689 (3 CFR, 1989 Comp., p. 
235), ``Debarment and Suspension.'' The Excluded Parties List System 
contains the names of parties debarred, suspended, or otherwise excluded 
by agencies, as well as parties declared ineligible under statutory or 
regulatory authority other than E.O. 12549.

[69 FR 26281, May 11, 2004, as amended at 70 FR 51879, Aug. 31, 2005]

                        PARTS 216-219 [RESERVED]



PART 220_COST PRINCIPLES FOR EDUCATIONAL INSTITUTIONS (OMB CIRCULAR 

A-21)--Table of Contents




Sec.
220.5 Purpose.
220.10 Scope.
220.15 Policy.
220.20 Applicability.
220.25 OMB responsibilities.
220.30 Federal agency responsibilities.
220.35 Effective date of changes.
220.40 Relationship to previous issuance.
220.45 Information contact.

Appendix A to Part 220--Principles for Determining Costs Applicable to 
          Grants, Contracts, and Other Agreements with Educational 
          Institutions

    Authority: 31 U.S.C. 503; 31 U.S.C. 1111; 41 U.S.C. 405; 
Reorganization Plan No. 2 of 1970; E.O. 11541, 35 FR 10737, 3 CFR, 1966-
1970, p. 939.

    Source: 70 FR 51881, Aug. 31, 2005, unless otherwise noted.



Sec. 220.5  Purpose.

    This part establishes principles for determining costs applicable to 
grants, contracts, and other agreements with educational institutions.



Sec. 220.10  Scope.

    The principles in this part deal with the subject of cost 
determination, and make no attempt to identify the circumstances or 
dictate the extent of agency and institutional participation in the 
financing of a particular project. Provision for profit or other 
increment above cost is outside the scope of this part.



Sec. 220.15  Policy.

    The principles in this part are designed to provide that the Federal 
Government bear its fair share of total costs, determined in accordance 
with generally accepted accounting principles, except where restricted 
or prohibited by law. Agencies are not expected to place additional 
restrictions on individual items of cost. The successful application of 
cost accounting principles requires development of mutual understanding 
between representatives of educational institutions and of the Federal 
Government as to their scope, implementation, and interpretation.



Sec. 220.20  Applicability.

    (a) All Federal agencies that sponsor research and development, 
training, and other work at educational institutions shall apply the 
provisions of Appendix A to this part in determining the costs incurred 
for such work. The principles shall also be used as a guide in the 
pricing of fixed price or lump sum agreements.
    (b) Each federal agency that awards defense-related contracts to a 
Federally Funded Research and Development Center (FFRDC) associated with 
an educational institution shall require the FFRDC to comply with the 
Cost Accounting Standards and with the rules and regulations issued by 
the Cost Accounting Standards Board and set forth in 47 CFR part 99.



Sec. 220.25  OMB responsibilities.

    OMB is responsible for:
    (a) Issuing and maintaining the guidance in this part.
    (b) Interpreting the policy requirements in this part and providing 
assistance to ensure effective and efficient implementation.

[[Page 69]]

    (c) Granting any deviations to Federal agencies from the guidance in 
this part, as provided in Appendix A to this part. Exceptions will only 
be made in particular cases where adequate justification is presented.
    (d) Conducting broad oversight of government-wide compliance with 
the guidance in this part.



Sec. 220.30  Federal Agency responsibilities.

    The head of each Federal agency that awards and administers grants 
and agreements subject to this part is responsible for requesting 
approval from and/or consulting with OMB (as applicable) for deviations 
from the guidance in Appendix A to this part and performing the 
applicable functions specified in Appendix A to this part.



Sec. 220.35  Effective date for changes.

    Institutions as of the start of their first fiscal year beginning 
after that date shall implement the provisions. Earlier implementation, 
or a delay in implementation of individual provisions, is permitted by 
mutual agreement between an institution and the cognizant Federal 
agency.



Sec. 220.40  Relationship to previous issuance.

    (a) The guidance in this part previously was issued as OMB Circular 
A-21. Designations of the attachment to the Circular and the appendices 
to that attachment have changed, as shown in the following table:

------------------------------------------------------------------------
 The portion of OMB Circular A-21 that   Is designated in this part as .
        was designated as . . .                        . .
------------------------------------------------------------------------
(1) The Attachment to the circular,      Appendix A to Part 220--
 entitled ``Principles For Determining    Principles For Determining
 Costs Applicable to Grants, Contracts,   Costs Applicable to Grants,
 and Other Agreements with Educational    Contracts, and Other
 Institutions,''.                         Agreements with Educational
                                          Institutions.
(2) Exhibit A in the attachment to the   Exhibit A, List of Colleges and
 circular, entitled ``List of Colleges    Universities Subject to
 and Universities Subject to Section      Section J.12.h of Circular A-
 J.12.h of Circular A-21,''.              21, to Appendix A.
(3) Exhibit B in the attachment to the   Exhibit B, Listing of
 circular, entitled ``Listing of          Institutions that are eligible
 Institutions that are eligible for the   for the utility cost
 utility cost adjustment,''.              adjustment, to Appendix A.
(4) Exhibit C in the attachment to the   Exhibit C, Examples of ``major
 circular, entitled ``Examples of         project'' where direct
 `major project' where direct charging    charging of administrative or
 of administrative or clerical staff      clerical staff salaries may be
 salaries may be appropriate,''.          appropriate, to Appendix A.
(5) Appendix A to the attachment to the  Attachment A, CASB's Cost
 circular, entitled ``CASB's Cost         Accounting Standards (CAS), to
 Accounting Standards (CAS),''.           Appendix A.
(6) Appendix B to the attachment to the  Attachment B, CASB's Disclosure
 circular, entitled ``CASB's Disclosure   Statement (DS-2), to Appendix
 Statement (DS-2),''.                     A.
(7) Appendix C to the attachment to the  Attachment C, Documentation
 circular, entitled ``Documentation       Requirements for Facilities
 Requirements for Facilities and          and Administrative (F&A) Rate
 Administrative (F&A) Rate Proposals,''.  Proposals, to Appendix A.
------------------------------------------------------------------------

    (b) Historically, OMB Circular A-21 superseded Federal Management 
Circular 73-8, dated December 19, 1973. FMC 73-8 was revised and 
reissued under its original designation of OMB Circular No. A-21. The 
provisions of A-21 were effective October 1, 1979, except for subsequent 
amendments incorporated herein for which the effective dates were 
specified in these revisions (47 FR 33658, 51 FR 20908, 51 FR 43487, 56 
FR 50224, 58 FR 39996, 61 FR 20880, 63 FR 29786, 63 FR 57332, 65 FR 
48566 and 69 FR 25970).



Sec. 220.45  Information contact.

    Further information concerning this part may be obtained by 
contacting the Office of Federal Financial Management, Office of 
Management and Budget, Washington, DC 20503, telephone (202) 395-3993.

 Appendix A to Part 220--Principles for Determining Costs Applicable to 
  Grants, Contracts, and Other Agreements With Educational Institutions

                            Table of Contents

A. Purpose and Scope
1. Objectives
2. Policy guides
3. Application
4. Inquiries
B. Definition of Terms
1. Major functions of an institution
2. Sponsored agreement
3. Allocation

[[Page 70]]

4. Facilities and administrative (F&A) costs
C. Basic Considerations
1. Composition of total costs
2. Factors affecting allowability of costs
3. Reasonable costs
4. Allocable costs
5. Applicable credits
6. Costs incurred by State and local governments
7. Limitations on allowance of costs
8. Collection of unallowable costs
9. Adjustment of previously negotiated F&A cost rates containing 
unallowable costs
10. Consistency in estimating, accumulating and reporting costs
11. Consistency in allocating costs incurred for the same purpose
12. Accounting for unallowable costs
13. Cost accounting period
14. Disclosure statement
D. Direct Costs
1. General
2. Application to sponsored agreements
E. F&A Costs
1. General
2. Criteria for distribution
F. Identification and Assignment of F&A Costs
1. Definition of Facilities and Administration.
2. Depreciation and use allowances
3. Interest
4. Operation and maintenance expenses
5. General administration and general expenses
6. Departmental administration expenses
7. Sponsored projects administration
8. Library expenses
9. Student administration and services
10. Offset for F&A expenses otherwise provided for by the Federal 
Government
G. Determination and Application of F&A Cost Rate or Rates
1. F&A cost pools
2. The distribution basis
3. Negotiated lump sum for F&A costs
4. Predetermined rates for F&A costs
5. Negotiated fixed rates and carry-forward provisions
6. Provisional and final rates for F&A costs
7. Fixed rates for the life of the sponsored agreement
8. Limitation on reimbursement of administrative costs
9. Alternative method for administrative costs
10. Individual rate components
11. Negotiation and approval of F&A rate
12. Standard format for submission
H. Simplified Method for Small Institutions
1. General
2. Simplified procedure
I. Reserved
J. General Provisions for Selected Items of Cost
1. Advertising and public relations costs
2. Advisory councils
3. Alcoholic beverages
4. Alumni/ae activities
5. Audit and related services
6. Bad debts
7. Bonding costs
8. Commencement and convocation costs
9. Communication costs
10. Compensation for personal services
11. Contingency provisions
12. Deans of faculty and graduate schools
13. Defense and prosecution of criminal and civil proceedings, claims, 
appeals and patent infringement
14. Depreciation and use allowances
15. Donations and contributions
16. Employee morale, health, and welfare costs
17. Entertainment costs
18. Equipment and other capital expenditures
19. Fines and penalties
20. Fund raising and investment costs
21. Gains and losses on depreciable assets
22. Goods or services for personal use
23. Housing and personal living expenses
24. Idle facilities and idle capacity
25. Insurance and indemnification
26. Interest
27. Labor relations costs
28. Lobbying
29. Losses on other sponsored agreements or contracts
30. Maintenance and repair costs
31. Material and supplies costs
32. Meetings and conferences
33. Memberships, subscriptions and professional activity costs
34. Patent costs
35. Plant and homeland security costs
36. Pre-agreement costs
37. Professional service costs
38. Proposal costs
39. Publication and printing costs
40. Rearrangement and alteration costs
41. Reconversion costs
42. Recruiting costs
43. Rental costs of buildings and equipment
44. Royalties and other costs for use of patents
45. Scholarships and student aid costs
46. Selling and marketing
47. Specialized service facilities
48. Student activity costs
49. Taxes
50. Termination costs applicable to sponsored agreements
51. Training costs
52. Transportation costs
53. Travel costs
54. Trustees
K. Certification of Charges
Exhibit A to Appendix A--List of Colleges and Universities Subject to 
          Section J.12.h of Appendix A

[[Page 71]]

Exhibit B to Appendix A--Listing of Institutions That are Eligible for 
          the Utility Cost Adjustment
Exhibit C to Appendix A--Examples of ``major project'' Where Direct 
          Charging of Administrative or Clerical Staff Salaries May Be 
          Appropriate
Attachment A to Appendix A--Cost Accounting Standards (CAS) for 
          Educational Institutions
Attachment B to Appendix A--CASB's Disclosure Statement (DS-2)
Attachment C to Appendix A--Documentation Requirements for Facilities 
          and Administrative (F&A) Rate Proposals

                          A. Purpose and Scope

    1. Objectives. This Appendix provides principles for determining the 
costs applicable to research and development, training, and other 
sponsored work performed by colleges and universities under grants, 
contracts, and other agreements with the Federal Government. These 
agreements are referred to as sponsored agreements.
    2. Policy guides. The successful application of these cost 
accounting principles requires development of mutual understanding 
between representatives of universities and of the Federal Government as 
to their scope, implementation, and interpretation. It is recognized 
that--
    a. The arrangements for Federal agency and institutional 
participation in the financing of a research, training, or other project 
are properly subject to negotiation between the agency and the 
institution concerned, in accordance with such governmentwide criteria 
or legal requirements as may be applicable.
    b. Each institution, possessing its own unique combination of staff, 
facilities, and experience, should be encouraged to conduct research and 
educational activities in a manner consonant with its own academic 
philosophies and institutional objectives.
    c. The dual role of students engaged in research and the resulting 
benefits to sponsored agreements are fundamental to the research effort 
and shall be recognized in the application of these principles.
    d. Each institution, in the fulfillment of its obligations, should 
employ sound management practices.
    e. The application of these cost accounting principles should 
require no significant changes in the generally accepted accounting 
practices of colleges and universities. However, the accounting 
practices of individual colleges and universities must support the 
accumulation of costs as required by the principles, and must provide 
for adequate documentation to support costs charged to sponsored 
agreements.
    f. Cognizant Federal agencies involved in negotiating facilities and 
administrative (F&A) cost rates and auditing should assure that 
institutions are generally applying these cost accounting principles on 
a consistent basis. Where wide variations exist in the treatment of a 
given cost item among institutions, the reasonableness and equitableness 
of such treatments should be fully considered during the rate 
negotiations and audit.
    3. Application. These principles shall be used in determining the 
allowable costs of work performed by colleges and universities under 
sponsored agreements. The principles shall also be used in determining 
the costs of work performed by such institutions under subgrants, cost-
reimbursement subcontracts, and other awards made to them under 
sponsored agreements. They also shall be used as a guide in the pricing 
of fixed-price contracts and subcontracts where costs are used in 
determining the appropriate price. The principles do not apply to:
    a. Arrangements under which Federal financing is in the form of 
loans, scholarships, fellowships, traineeships, or other fixed amounts 
based on such items as education allowance or published tuition rates 
and fees of an institution.
    b. Capitation awards.
    c. Other awards under which the institution is not required to 
account to the Federal Government for actual costs incurred.
    d. Conditional exemptions.
    (1) OMB authorizes conditional exemption from OMB administrative 
requirements and cost principles for certain Federal programs with 
statutorily-authorized consolidated planning and consolidated 
administrative funding, that are identified by a Federal agency and 
approved by the head of the Executive department or establishment. A 
Federal agency shall consult with OMB during its consideration of 
whether to grant such an exemption.
    (2) To promote efficiency in State and local program administration, 
when Federal non-entitlement programs with common purposes have specific 
statutorily-authorized consolidated planning and consolidated 
administrative funding and where most of the State agency's resources 
come from non-Federal sources, Federal agencies may exempt these covered 
State-administered, non-entitlement grant programs from certain OMB 
grants management requirements. The exemptions would be from all but the 
allocability of costs provisions of subsection C.3 of Appendix A to 2 
CFR part 225 Cost Principles for State, Local, and Indian Tribal 
Governments (OMB Circular A-87), Section C, subpart 4 to 2 CFR part 220 
Cost Principles for Educational Institutions (OMB Circular A-21), and 
subsection A.4 of Appendix A to 2 CFR part 230 Cost Principles for Non-
Profit Organizations,'' (OMB Circular A-122), and from all of the 
administrative requirements provisions of 2 CFR part 215, Uniform 
Administrative Requirements for Grants and

[[Page 72]]

Agreements with Institutions of Higher Education, Hospitals, and Other 
Non-Profit Organizations (OMB Circular A-110), and the agencies' grants 
management common rule (see Sec. 215.5 of this subtitle).
    (3) When a Federal agency provides this flexibility, as a 
prerequisite to a State's exercising this option, a State must adopt its 
own written fiscal and administrative requirements for expending and 
accounting for all funds, which are consistent with the provisions of 2 
CFR part 225 (OMB Circular A-87), and extend such policies to all 
subrecipients. These fiscal and administrative requirements must be 
sufficiently specific to ensure that: Funds are used in compliance with 
all applicable Federal statutory and regulatory provisions, costs are 
reasonable and necessary for operating these programs, and funds are not 
to be used for general expenses required to carry out other 
responsibilities of a State or its subrecipients.
    4. Inquiries.
    All inquiries from Federal agencies concerning the cost principles 
contained in this Appendix to 2 CFR part 220, including the 
administration and implementation of the Cost Accounting Standards (CAS) 
(described in Sections C.10 through C.13) and disclosure statement (DS-
2) requirements, shall be addressed by the Office of Management and 
Budget (OMB), Office of Federal Financial Management, in coordination 
with the Cost Accounting Standard Board (CASB) with respect to inquiries 
concerning CAS. Educational institutions' inquiries should be addressed 
to the cognizant agency.

                         B. Definition of Terms

    1. Major functions of an institution refers to instruction, 
organized research, other sponsored activities and other institutional 
activities as defined below:
    a. Instruction means the teaching and training activities of an 
institution. Except for research training as provided in subsection b, 
this term includes all teaching and training activities, whether they 
are offered for credits toward a degree or certificate or on a non-
credit basis, and whether they are offered through regular academic 
departments or separate divisions, such as a summer school division or 
an extension division. Also considered part of this major function are 
departmental research, and, where agreed to, university research.
    (1) Sponsored instruction and training means specific instructional 
or training activity established by grant, contract, or cooperative 
agreement. For purposes of the cost principles, this activity may be 
considered a major function even though an institution's accounting 
treatment may include it in the instruction function.
    (2) Departmental research means research, development and scholarly 
activities that are not organized research and, consequently, are not 
separately budgeted and accounted for. Departmental research, for 
purposes of this document, is not considered as a major function, but as 
a part of the instruction function of the institution.
    b. Organized research means all research and development activities 
of an institution that are separately budgeted and accounted for. It 
includes:
    (1) Sponsored research means all research and development activities 
that are sponsored by Federal and non-Federal agencies and 
organizations. This term includes activities involving the training of 
individuals in research techniques (commonly called research training) 
where such activities utilize the same facilities as other research and 
development activities and where such activities are not included in the 
instruction function.
    (2) University research means all research and development 
activities that are separately budgeted and accounted for by the 
institution under an internal application of institutional funds. 
University research, for purposes of this document, shall be combined 
with sponsored research under the function of organized research.
    c. Other sponsored activities means programs and projects financed 
by Federal and non-Federal agencies and organizations which involve the 
performance of work other than instruction and organized research. 
Examples of such programs and projects are health service projects, and 
community service programs. However, when any of these activities are 
undertaken by the institution without outside support, they may be 
classified as other institutional activities.
    d. Other institutional activities means all activities of an 
institution except:
    (1) Instruction, departmental research, organized research, and 
other sponsored activities, as defined above;
    (2) F&A cost activities identified in Section F of this Appendix; 
and
    (3) Specialized service facilities described in Section J.47 of this 
Appendix. Other institutional activities include operation of residence 
halls, dining halls, hospitals and clinics, student unions, 
intercollegiate athletics, bookstores, faculty housing, student 
apartments, guest houses, chapels, theaters, public museums, and other 
similar auxiliary enterprises. This definition also includes any other 
categories of activities, costs of which are ``unallowable'' to 
sponsored agreements, unless otherwise indicated in the agreements.
    2. Sponsored agreement, for purposes of this Appendix, means any 
grant, contract, or other agreement between the institution and the 
Federal Government.
    3. Allocation means the process of assigning a cost, or a group of 
costs, to one or more cost objective, in reasonable and realistic 
proportion to the benefit provided or other

[[Page 73]]

equitable relationship. A cost objective may be a major function of the 
institution, a particular service or project, a sponsored agreement, or 
an F&A cost activity, as described in Section F of this Appendix. The 
process may entail assigning a cost(s) directly to a final cost 
objective or through one or more intermediate cost objectives.
    4. Facilities and administrative (F&A) costs, for the purpose of 
this Appendix, means costs that are incurred for common or joint 
objectives and, therefore, cannot be identified readily and specifically 
with a particular sponsored project, an instructional activity, or any 
other institutional activity. F&A costs are synonymous with ``indirect'' 
costs, as previously used in this Appendix and as currently used in 
attachments A and B to this Appendix. The F&A cost categories are 
described in Section F.1 of this Appendix.

                         C. Basic Considerations

    1. Composition of total costs. The cost of a sponsored agreement is 
comprised of the allowable direct costs incident to its performance, 
plus the allocable portion of the allowable F&A costs of the 
institution, less applicable credits as described in subsection C.5 of 
this Appendix.
    2. Factors affecting allowability of costs. The tests of 
allowability of costs under these principles are: they must be 
reasonable; they must be allocable to sponsored agreements under the 
principles and methods provided herein; they must be given consistent 
treatment through application of those generally accepted accounting 
principles appropriate to the circumstances; and they must conform to 
any limitations or exclusions set forth in these principles or in the 
sponsored agreement as to types or amounts of cost items.
    3. Reasonable costs. A cost may be considered reasonable if the 
nature of the goods or services acquired or applied, and the amount 
involved therefore, reflect the action that a prudent person would have 
taken under the circumstances prevailing at the time the decision to 
incur the cost was made. Major considerations involved in the 
determination of the reasonableness of a cost are: whether or not the 
cost is of a type generally recognized as necessary for the operation of 
the institution or the performance of the sponsored agreement; the 
restraints or requirements imposed by such factors as arm's-length 
bargaining, Federal and State laws and regulations, and sponsored 
agreement terms and conditions; whether or not the individuals concerned 
acted with due prudence in the circumstances, considering their 
responsibilities to the institution, its employees, its students, the 
Federal Government, and the public at large; and, the extent to which 
the actions taken with respect to the incurrence of the cost are 
consistent with established institutional policies and practices 
applicable to the work of the institution generally, including sponsored 
agreements.
    4. Allocable costs.
    a. A cost is allocable to a particular cost objective (i.e., a 
specific function, project, sponsored agreement, department, or the 
like) if the goods or services involved are chargeable or assignable to 
such cost objective in accordance with relative benefits received or 
other equitable relationship. Subject to the foregoing, a cost is 
allocable to a sponsored agreement if it is incurred solely to advance 
the work under the sponsored agreement; it benefits both the sponsored 
agreement and other work of the institution, in proportions that can be 
approximated through use of reasonable methods, or it is necessary to 
the overall operation of the institution and, in light of the principles 
provided in this Appendix, is deemed to be assignable in part to 
sponsored projects. Where the purchase of equipment or other capital 
items is specifically authorized under a sponsored agreement, the 
amounts thus authorized for such purchases are assignable to the 
sponsored agreement regardless of the use that may subsequently be made 
of the equipment or other capital items involved.
    b. Any costs allocable to a particular sponsored agreement under the 
standards provided in this Appendix may not be shifted to other 
sponsored agreements in order to meet deficiencies caused by overruns or 
other fund considerations, to avoid restrictions imposed by law or by 
terms of the sponsored agreement, or for other reasons of convenience.
    c. Any costs allocable to activities sponsored by industry, foreign 
governments or other sponsors may not be shifted to federally-sponsored 
agreements.
    d. Allocation and documentation standard.
    (1) Cost principles. The recipient institution is responsible for 
ensuring that costs charged to a sponsored agreement are allowable, 
allocable, and reasonable under these cost principles.
    (2) Internal controls. The institution's financial management system 
shall ensure that no one person has complete control over all aspects of 
a financial transaction.
    (3) Direct cost allocation principles. If a cost benefits two or 
more projects or activities in proportions that can be determined 
without undue effort or cost, the cost should be allocated to the 
projects based on the proportional benefit. If a cost benefits two or 
more projects or activities in proportions that cannot be determined 
because of the interrelationship of the work involved, then, 
notwithstanding subsection b, the costs may be allocated or transferred 
to benefited projects on any reasonable basis, consistent with 
subsections C.4.d. (1) and (2) of this Appendix.

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    (4) Documentation. Federal requirements for documentation are 
specified in this Appendix, 2 CFR Part 215, ``Uniform Administrative 
Requirements for Grants and Agreements with Institutions of Higher 
Education, Hospitals, and Other Non-Profit Organizations,'' and specific 
agency policies on cost transfers. If the institution authorizes the 
principal investigator or other individual to have primary 
responsibility, given the requirements of subsection C.4.d. (2) of this 
Appendix, for the management of sponsored agreement funds, then the 
institution's documentation requirements for the actions of those 
individuals (e.g., signature or initials of the principal investigator 
or designee or use of a password) will normally be considered 
sufficient.
    5. Applicable credits.
    a. The term ``applicable credits'' refers to those receipts or 
negative expenditures that operate to offset or reduce direct or F&A 
cost items. Typical examples of such transactions are: purchase 
discounts, rebates, or allowances; recoveries or indemnities on losses; 
and adjustments of overpayments or erroneous charges. This term also 
includes ``educational discounts'' on products or services provided 
specifically to educational institutions, such as discounts on computer 
equipment, except where the arrangement is clearly and explicitly 
identified as a gift by the vendor.
    b. In some instances, the amounts received from the Federal 
Government to finance institutional activities or service operations 
should be treated as applicable credits. Specifically, the concept of 
netting such credit items against related expenditures should be applied 
by the institution in determining the rates or amounts to be charged to 
sponsored agreements for services rendered whenever the facilities or 
other resources used in providing such services have been financed 
directly, in whole or in part, by Federal funds. (See Sections F.10, 
J.14, and J.47 of this Appendix for areas of potential application in 
the matter of direct Federal financing.)
    6. Costs incurred by State and local governments. Costs incurred or 
paid by State or local governments on behalf of their colleges and 
universities for fringe benefit programs, such as pension costs and FICA 
and any other costs specifically incurred on behalf of, and in direct 
benefit to, the institutions, are allowable costs of such institutions 
whether or not these costs are recorded in the accounting records of the 
institutions, subject to the following:
    a. The costs meet the requirements of subsections C.1 through 5 of 
this Appendix.
    b. The costs are properly supported by cost allocation plans in 
accordance with applicable Federal cost accounting principles.
    c. The costs are not otherwise borne directly or indirectly by the 
Federal Government.
    7. Limitations on allowance of costs. Sponsored agreements may be 
subject to statutory requirements that limit the allowance of costs. 
When the maximum amount allowable under a limitation is less than the 
total amount determined in accordance with the principles in this 
Appendix, the amount not recoverable under a sponsored agreement may not 
be charged to other sponsored agreements.
    8. Collection of unallowable costs, excess costs due to 
noncompliance with cost policies, increased costs due to failure to 
follow a disclosed accounting practice and increased costs resulting 
from a change in cost accounting practice. The following costs shall be 
refunded (including interest) in accordance with applicable Federal 
agency regulations:
    a. Costs specifically identified as unallowable in Section J of this 
Appendix, either directly or indirectly, and charged to the Federal 
Government.
    b. Excess costs due to failure by the educational institution to 
comply with the cost policies in this Appendix.
    c. Increased costs due to a noncompliant cost accounting practice 
used to estimate, accumulate, or report costs.
    d. Increased costs resulting from a change in accounting practice.
    9. Adjustment of previously negotiated F&A cost rates containing 
unallowable costs. Negotiated F&A cost rates based on a proposal later 
found to have included costs that are unallowable as specified by law or 
regulation, Section J of this Appendix, terms and conditions of 
sponsored agreements, or, are unallowable because they are clearly not 
allocable to sponsored agreements, shall be adjusted, or a refund shall 
be made, in accordance with the requirements of this section. These 
adjustments or refunds are designed to correct the proposals used to 
establish the rates and do not constitute a reopening of the rate 
negotiation. The adjustments or refunds will be made regardless of the 
type of rate negotiated (predetermined, final, fixed, or provisional).
    a. For rates covering a future fiscal year of the institution, the 
unallowable costs will be removed from the F&A cost pools and the rates 
appropriately adjusted.
    b. For rates covering a past period, the Federal share of the 
unallowable costs will be computed for each year involved and a cash 
refund (including interest chargeable in accordance with applicable 
regulations) will be made to the Federal Government. If cash refunds are 
made for past periods covered by provisional or fixed rates, appropriate 
adjustments will be made when the rates are finalized to avoid duplicate 
recovery of the unallowable costs by the Federal Government.

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    c. For rates covering the current period, either a rate adjustment 
or a refund, as described in subsections a and b, shall be required by 
the cognizant agency. The choice of method shall be at the discretion of 
the cognizant agency, based on its judgment as to which method would be 
most practical.
    d. The amount or proportion of unallowable costs included in each 
year's rate will be assumed to be the same as the amount or proportion 
of unallowable costs included in the base year proposal used to 
establish the rate.
    10. Consistency in estimating, accumulating and reporting costs.
    a. An educational institution's practices used in estimating costs 
in pricing a proposal shall be consistent with the educational 
institution's cost accounting practices used in accumulating and 
reporting costs.
    b. An educational institution's cost accounting practices used in 
accumulating and reporting actual costs for a sponsored agreement shall 
be consistent with the educational institution's practices used in 
estimating costs in pricing the related proposal or application.
    c. The grouping of homogeneous costs in estimates prepared for 
proposal purposes shall not per se be deemed an inconsistent application 
of cost accounting practices under subsection a when such costs are 
accumulated and reported in greater detail on an actual cost basis 
during performance of the sponsored agreement.
    d. Attachment A to this Appendix also reflects this requirement, 
along with the purpose, definitions, and techniques for application, all 
of which are authoritative.
    11. Consistency in allocating costs incurred for the same purpose.
    a. All costs incurred for the same purpose, in like circumstances, 
are either direct costs only or F&A costs only with respect to final 
cost objectives. No final cost objective shall have allocated to it as a 
cost any cost, if other costs incurred for the same purpose, in like 
circumstances, have been included as a direct cost of that or any other 
final cost objective. Further, no final cost objective shall have 
allocated to it as a direct cost any cost, if other costs incurred for 
the same purpose, in like circumstances, have been included in any F&A 
cost pool to be allocated to that or any other final cost objective.
    b. Attachment A to this Appendix reflects this requirement along 
with its purpose, definitions, and techniques for application, 
illustrations and interpretations, all of which are authoritative.
    12. Accounting for unallowable costs.
    a. Costs expressly unallowable or mutually agreed to be unallowable, 
including costs mutually agreed to be unallowable directly associated 
costs, shall be identified and excluded from any billing, claim, 
application, or proposal applicable to a sponsored agreement.
    b. Costs which specifically become designated as unallowable as a 
result of a written decision furnished by a Federal official pursuant to 
sponsored agreement disputes procedures shall be identified if included 
in or used in the computation of any billing, claim, or proposal 
applicable to a sponsored agreement. This identification requirement 
applies also to any costs incurred for the same purpose under like 
circumstances as the costs specifically identified as unallowable under 
either this subsection or subsection a.
    c. Costs which, in a Federal official's written decision furnished 
pursuant to sponsored agreement disputes procedures, are designated as 
unallowable directly associated costs of unallowable costs covered by 
either subsection a or b shall be accorded the identification required 
by subsection b.
    d. The costs of any work project not contractually authorized by a 
sponsored agreement, whether or not related to performance of a proposed 
or existing sponsored agreement, shall be accounted for, to the extent 
appropriate, in a manner which permits ready separation from the costs 
of authorized work projects.
    e. All unallowable costs covered by subsections a through d shall be 
subject to the same cost accounting principles governing cost 
allocability as allowable costs. In circumstances where these 
unallowable costs normally would be part of a regular F&A cost 
allocation base or bases, they shall remain in such base or bases. Where 
a directly associated cost is part of a category of costs normally 
included in a F&A cost pool that shall be allocated over a base 
containing the unallowable cost with which it is associated, such a 
directly associated cost shall be retained in the F&A cost pool and be 
allocated through the regular allocation process.
    f. Where the total of the allocable and otherwise allowable costs 
exceeds a limitation-of-cost or ceiling-price provision in a sponsored 
agreement, full direct and F&A cost allocation shall be made to the 
sponsored agreement cost objective, in accordance with established cost 
accounting practices and standards which regularly govern a given 
entity's allocations to sponsored agreement cost objectives. In any 
determination of a cost overrun, the amount thereof shall be identified 
in terms of the excess of allowable costs over the ceiling amount, 
rather than through specific identification of particular cost items or 
cost elements.
    g. Attachment A reflects this requirement, along with its purpose, 
definitions, techniques for application, and illustrations of this 
standard, all of which are authoritative.
    13. Cost accounting period.

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    a. Educational institutions shall use their fiscal year as their 
cost accounting period, except that:
    (1) Costs of a F&A function which exists for only a part of a cost 
accounting period may be allocated to cost objectives of that same part 
of the period on the basis of data for that part of the cost accounting 
period if the cost is material in amount, accumulated in a separate F&A 
cost pool or expense pool, and allocated on the basis of an appropriate 
direct measure of the activity or output of the function during that 
part of the period.
    (2) An annual period other than the fiscal year may, upon mutual 
agreement with the Federal Government, be used as the cost accounting 
period if the use of such period is an established practice of the 
educational institution and is consistently used for managing and 
controlling revenues and disbursements, and appropriate accruals, 
deferrals or other adjustments are made with respect to such annual 
periods.
    (3) A transitional cost accounting period other than a year shall be 
used whenever a change of fiscal year occurs.
    b. An educational institution shall follow consistent practices in 
the selection of the cost accounting period or periods in which any 
types of expense and any types of adjustment to expense (including 
prior-period adjustments) are accumulated and allocated.
    c. The same cost accounting period shall be used for accumulating 
costs in a F&A cost pool as for establishing its allocation base, except 
that the Federal Government and educational institution may agree to use 
a different period for establishing an allocation base, provided:
    (1) The practice is necessary to obtain significant administrative 
convenience,
    (2) The practice is consistently followed by the educational 
institution,
    (3) The annual period used is representative of the activity of the 
cost accounting period for which the F&A costs to be allocated are 
accumulated, and
    (4) The practice can reasonably be estimated to provide a 
distribution to cost objectives of the cost accounting period not 
materially different from that which otherwise would be obtained.
    d. Attachment A reflects this requirement, along with its purpose, 
definitions, techniques for application and illustrations, all of which 
are authoritative.
    14. Disclosure Statement.
    a. Educational institutions that received aggregate sponsored 
agreements totaling $25 million or more subject to this Appendix during 
their most recently completed fiscal year shall disclose their cost 
accounting practices by filing a Disclosure Statement (DS-2), which is 
reproduced in Attachment B to this Appendix. With the approval of the 
cognizant agency, an educational institution may meet the DS-2 
submission by submitting the DS-2 for each business unit that received 
$25 million or more in sponsored agreements.
    b. The DS-2 shall be submitted to the cognizant agency with a copy 
to the educational institution's audit cognizant office.
    c. Educational institutions receiving $25 million or more in 
sponsored agreements that are not required to file a DS-2 pursuant to 48 
CFR 9903.202-1 shall file a DS-2 covering the first fiscal year 
beginning after the publication date of this revision, within six months 
after the end of that fiscal year. Extensions beyond the above due date 
may be granted by the cognizant agency on a case-by-case basis.
    d. Educational institutions are responsible for maintaining an 
accurate DS-2 and complying with disclosed cost accounting practices. 
Educational institutions must file amendments to the DS-2 when disclosed 
practices are changed to comply with a new or modified standard, or when 
practices are changed for other reasons. Amendments of a DS-2 may be 
submitted at any time. If the change is expected to have a material 
impact on the educational institution's negotiated F&A cost rates, the 
revision shall be approved by the cognizant agency before it is 
implemented. Resubmission of a complete, updated DS-2 is discouraged 
except when there are extensive changes to disclosed practices.
    e. Cost and funding adjustments. Cost adjustments shall be made by 
the cognizant agency if an educational institution fails to comply with 
the cost policies in this Appendix or fails to consistently follow its 
established or disclosed cost accounting practices when estimating, 
accumulating or reporting the costs of sponsored agreements, if 
aggregate cost impact on sponsored agreements is material. The cost 
adjustment shall normally be made on an aggregate basis for all affected 
sponsored agreements through an adjustment of the educational 
institution's future F&A costs rates or other means considered 
appropriate by the cognizant agency. Under the terms of CAS-covered 
contracts, adjustments in the amount of funding provided may also be 
required when the estimated proposal costs were not determined in 
accordance with established cost accounting practices.
    f. Overpayments. Excess amounts paid in the aggregate by the Federal 
Government under sponsored agreements due to a noncompliant cost 
accounting practice used to estimate, accumulate, or report costs shall 
be credited or refunded, as deemed appropriate by the cognizant agency. 
Interest applicable to the excess amounts paid in the aggregate during 
the period of noncompliance shall also be determined and collected in 
accordance with applicable Federal agency regulations.

[[Page 77]]

    g. Compliant cost accounting practice changes. Changes from one 
compliant cost accounting practice to another compliant practice that 
are approved by the cognizant agency may require cost adjustments if the 
change has a material effect on sponsored agreements and the changes are 
deemed appropriate by the cognizant agency.
    h. Responsibilities. The cognizant agency shall:
    (1) Determine cost adjustments for all sponsored agreements in the 
aggregate on behalf of the Federal Government. Actions of the cognizant 
agency official in making cost adjustment determinations shall be 
coordinated with all affected Federal agencies to the extent necessary.
    (2) Prescribe guidelines and establish internal procedures to 
promptly determine on behalf of the Federal Government that a DS-2 
adequately discloses the educational institution's cost accounting 
practices and that the disclosed practices are compliant with applicable 
CAS and the requirements of Attachment A to this Appendix.
    (3) Distribute to all affected agencies any DS-2 determination of 
adequacy and/or noncompliance.

                             D. Direct Costs

    1. General. Direct costs are those costs that can be identified 
specifically with a particular sponsored project, an instructional 
activity, or any other institutional activity, or that can be directly 
assigned to such activities relatively easily with a high degree of 
accuracy. Costs incurred for the same purpose in like circumstances must 
be treated consistently as either direct or F&A costs. Where an 
institution treats a particular type of cost as a direct cost of 
sponsored agreements, all costs incurred for the same purpose in like 
circumstances shall be treated as direct costs of all activities of the 
institution.
    2. Application to sponsored agreements. Identification with the 
sponsored work rather than the nature of the goods and services involved 
is the determining factor in distinguishing direct from F&A costs of 
sponsored agreements. Typical costs charged directly to a sponsored 
agreement are the compensation of employees for performance of work 
under the sponsored agreement, including related fringe benefit costs to 
the extent they are consistently treated, in like circumstances, by the 
institution as direct rather than F&A costs; the costs of materials 
consumed or expended in the performance of the work; and other items of 
expense incurred for the sponsored agreement, including extraordinary 
utility consumption. The cost of materials supplied from stock or 
services rendered by specialized facilities or other institutional 
service operations may be included as direct costs of sponsored 
agreements, provided such items are consistently treated, in like 
circumstances, by the institution as direct rather than F&A costs, and 
are charged under a recognized method of computing actual costs, and 
conform to generally accepted cost accounting practices consistently 
followed by the institution.

                              E. F&A Costs

    1. General. F&A costs are those that are incurred for common or 
joint objectives and therefore cannot be identified readily and 
specifically with a particular sponsored project, an instructional 
activity, or any other institutional activity. See Section F.1 of this 
Appendix for a discussion of the components of F&A costs.
    2. Criteria for distribution.
    a. Base period. A base period for distribution of F&A costs is the 
period during which the costs are incurred. The base period normally 
should coincide with the fiscal year established by the institution, but 
in any event the base period should be so selected as to avoid 
inequities in the distribution of costs.
    b. Need for cost groupings. The overall objective of the F&A cost 
allocation process is to distribute the F&A costs described in Section F 
of this Appendix to the major functions of the institution in 
proportions reasonably consistent with the nature and extent of their 
use of the institution's resources. In order to achieve this objective, 
it may be necessary to provide for selective distribution by 
establishing separate groupings of cost within one or more of the F&A 
cost categories referred to in subsection E.1 of this Appendix. In 
general, the cost groupings established within a category should 
constitute, in each case, a pool of those items of expense that are 
considered to be of like nature in terms of their relative contribution 
to (or degree of remoteness from) the particular cost objectives to 
which distribution is appropriate. Cost groupings should be established 
considering the general guides provided in subsection E.2.c. of this 
Appendix. Each such pool or cost grouping should then be distributed 
individually to the related cost objectives, using the distribution base 
or method most appropriate in the light of the guides set forth in 
subsection E.2.d. of this Appendix.
    c. General considerations on cost groupings. The extent to which 
separate cost groupings and selective distribution would be appropriate 
at an institution is a matter of judgment to be determined on a case-by-
case basis. Typical situations which may warrant the establishment of 
two or more separate cost groupings (based on account classification or 
analysis) within an F&A cost category include but are not limited to the 
following:
    (1) Where certain items or categories of expense relate solely to 
one of the major functions of the institution or to less than all

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functions, such expenses should be set aside as a separate cost grouping 
for direct assignment or selective allocation in accordance with the 
guides provided in subsections b and d.
    (2) Where any types of expense ordinarily treated as general 
administration or departmental administration are charged to sponsored 
agreements as direct costs, expenses applicable to other activities of 
the institution when incurred for the same purposes in like 
circumstances must, through separate cost groupings, be excluded from 
the F&A costs allocable to those sponsored agreements and included in 
the direct cost of other activities for cost allocation purposes.
    (3) Where it is determined that certain expenses are for the support 
of a service unit or facility whose output is susceptible of measurement 
on a workload or other quantitative basis, such expenses should be set 
aside as a separate cost grouping for distribution on such basis to 
organized research, instructional, and other activities at the 
institution or within the department.
    (4) Where activities provide their own purchasing, personnel 
administration, building maintenance or similar service, the 
distribution of general administration and general expenses, or 
operation and maintenance expenses to such activities should be 
accomplished through cost groupings which include only that portion of 
central F&A costs (such as for overall management) which are properly 
allocable to such activities.
    (5) Where the institution elects to treat fringe benefits as F&A 
charges, such costs should be set aside as a separate cost grouping for 
selective distribution to related cost objectives.
    (6) The number of separate cost groupings within a category should 
be held within practical limits, after taking into consideration the 
materiality of the amounts involved and the degree of precision 
attainable through less selective methods of distribution.
    d. Selection of distribution method.
    (1) Actual conditions must be taken into account in selecting the 
method or base to be used in distributing individual cost groupings. The 
essential consideration in selecting a base is that it be the one best 
suited for assigning the pool of costs to cost objectives in accordance 
with benefits derived; a traceable cause and effect relationship; or 
logic and reason, where neither benefit nor cause and effect 
relationship is determinable.
    (2) Where a cost grouping can be identified directly with the cost 
objective benefited, it should be assigned to that cost objective.
    (3) Where the expenses in a cost grouping are more general in 
nature, the distribution may be based on a cost analysis study which 
results in an equitable distribution of the costs. Such cost analysis 
studies may take into consideration weighting factors, population, or 
space occupied if appropriate. Cost analysis studies, however, must be 
appropriately documented in sufficient detail for subsequent review by 
the cognizant Federal agency, distribute the costs to the related cost 
objectives in accordance with the relative benefits derived, be 
statistically sound, be performed specifically at the institution at 
which the results are to be used, and be reviewed periodically, but not 
less frequently than every two years, updated if necessary, and used 
consistently. Any assumptions made in the study must be stated and 
explained. The use of cost analysis studies and periodic changes in the 
method of cost distribution must be fully justified.
    (4) If a cost analysis study is not performed, or if the study does 
not result in an equitable distribution of the costs, the distribution 
shall be made in accordance with the appropriate base cited in Section 
F, unless one of the following conditions is met: it can be demonstrated 
that the use of a different base would result in a more equitable 
allocation of the costs, or that a more readily available base would not 
increase the costs charged to sponsored agreements, or the institution 
qualifies for, and elects to use, the simplified method for computing 
F&A cost rates described in Section H of this Appendix.
    (5) Notwithstanding subsection E.2.d.(3) of this Appendix, effective 
July 1, 1998, a cost analysis or base other than that in Section F of 
this Appendix shall not be used to distribute utility or student 
services costs. Instead, subsections F.4.c and F.4.d may be used in the 
recovery of utility costs.
    e. Order of distribution.
    (1) F&A costs are the broad categories of costs discussed in Section 
F.1 of this Appendix.
    (2) Depreciation and use allowances, operation and maintenance 
expenses, and general administrative and general expenses should be 
allocated in that order to the remaining F&A cost categories as well as 
to the major functions and specialized service facilities of the 
institution. Other cost categories may be allocated in the order 
determined to be most appropriate by the institutions. When cross 
allocation of costs is made as provided in subsection (3), this order of 
allocation does not apply.
    (3) Normally an F&A cost category will be considered closed once it 
has been allocated to other cost objectives, and costs may not be 
subsequently allocated to it. However, a cross allocation of costs 
between two or more F&A cost categories may be used if such allocation 
will result in a more equitable allocation of costs. If a cross 
allocation is used, an appropriate modification to the composition of 
the F&A cost categories described in Section F of this Appendix is 
required.

[[Page 79]]

              F. Identification and Assignment of F&A Costs

    1. Definition of Facilities and Administration. F&A costs are broad 
categories of costs. ``Facilities'' is defined as depreciation and use 
allowances, interest on debt associated with certain buildings, 
equipment and capital improvements, operation and maintenance expenses, 
and library expenses. ``Administration'' is defined as general 
administration and general expenses, departmental administration, 
sponsored projects administration, student administration and services, 
and all other types of expenditures not listed specifically under one of 
the subcategories of Facilities (including cross allocations from other 
pools).
    2. Depreciation and use allowances.
    a. The expenses under this heading are the portion of the costs of 
the institution's buildings, capital improvements to land and buildings, 
and equipment which are computed in accordance with Section J.14 of this 
Appendix.
    b. In the absence of the alternatives provided for in Section E.2.d 
of this Appendix, the expenses included in this category shall be 
allocated in the following manner:
    (1) Depreciation or use allowances on buildings used exclusively in 
the conduct of a single function, and on capital improvements and 
equipment used in such buildings, shall be assigned to that function.
    (2) Depreciation or use allowances on buildings used for more than 
one function, and on capital improvements and equipment used in such 
buildings, shall be allocated to the individual functions performed in 
each building on the basis of usable square feet of space, excluding 
common areas such as hallways, stairwells, and rest rooms.
    (3) Depreciation or use allowances on buildings, capital 
improvements and equipment related to space (e.g., individual rooms, 
laboratories) used jointly by more than one function (as determined by 
the users of the space) shall be treated as follows. The cost of each 
jointly used unit of space shall be allocated to benefiting functions on 
the basis of:
    (a) The employee full-time equivalents (FTEs) or salaries and wages 
of those individual functions benefiting from the use of that space; or
    (b) Institution-wide employee FTEs or salaries and wages applicable 
to the benefiting major functions (see Section B.1 of this Appendix) of 
the institution.
    (4) Depreciation or use allowances on certain capital improvements 
to land, such as paved parking areas, fences, sidewalks, and the like, 
not included in the cost of buildings, shall be allocated to user 
categories of students and employees on a full-time equivalent basis. 
The amount allocated to the student category shall be assigned to the 
instruction function of the institution. The amount allocated to the 
employee category shall be further allocated to the major functions of 
the institution in proportion to the salaries and wages of all employees 
applicable to those functions.
    c. Large research facilities. The following provisions apply to 
large research facilities that are included in F&A rate proposals 
negotiated after January 1, 2000, and on which the design and 
construction begin after July 1, 1998. Large facilities, for this 
provision, are defined as buildings with construction costs of more than 
$10 million. The determination of the Federal participation (use) 
percentage in a building is based on institution's estimates of building 
use over its life, and is made during the planning phase for the 
building.
    (1) When an institution has large research facilities, of which 40 
percent or more of total assignable space is expected for Federal use, 
the institution must maintain an adequate review and approval process to 
ensure that construction costs are reasonable.
    (a)The review process shall address and document relevant factors 
affecting construction costs, such as:

i. Life cycle costs
ii. Unique research needs
iii. Special building needs
iv. Building site preparation
v. Environmental consideration
vi. Federal construction code requirements
vii. Competitive procurement practices

    (b) The approval process shall include review and approval of the 
projects by the institution's Board of Trustees (which can also be 
called Board of Directors, Governors or Regents) or other independent 
entities.
    (2) For research facilities costing more than $25 million, of which 
50 percent or more of total assignable space is expected for Federal 
use, the institution must document the review steps performed to assure 
that construction costs are reasonable. The review should include an 
analysis of construction costs and a comparison of these costs with 
relevant construction data, including the National Science Foundation 
data for research facilities based on its biennial survey, ``Science and 
Engineering Facilities at Colleges and Universities.'' The documentation 
must be made available for review by Federal negotiators, when 
requested.
    3. Interest. Interest on debt associated with certain buildings, 
equipment and capital improvements, as defined in Section J.25 of this 
Appendix, shall be classified as an expenditure under the category 
Facilities. These costs shall be allocated in the same manner as the 
depreciation or use allowances on the buildings, equipment and capital 
improvements to which the interest relates.
    4. Operation and maintenance expenses.

[[Page 80]]

    a. The expenses under this heading are those that have been incurred 
for the administration, supervision, operation, maintenance, 
preservation, and protection of the institution's physical plant. They 
include expenses normally incurred for such items as janitorial and 
utility services; repairs and ordinary or normal alterations of 
buildings, furniture and equipment; care of grounds; maintenance and 
operation of buildings and other plant facilities; security; earthquake 
and disaster preparedness; environmental safety; hazardous waste 
disposal; property, liability and all other insurance relating to 
property; space and capital leasing; facility planning and management; 
and, central receiving. The operation and maintenance expense category 
should also include its allocable share of fringe benefit costs, 
depreciation and use allowances, and interest costs.
    b. In the absence of the alternatives provided for in Section E.2.d 
of this Appendix, the expenses included in this category shall be 
allocated in the same manner as described in subsection E.2.b for 
depreciation and use allowances.
    c. For F&A rates negotiated on or after July 1, 1998, an institution 
that previously employed a utility special cost study in its most 
recently negotiated F&A rate proposal in accordance with Section E.2.d 
of this Appendix, may add a utility cost adjustment (UCA) of 1.3 
percentage points to its negotiated overall F&A rate for organized 
research. Exhibit B to this Appendix displays the list of eligible 
institutions. The allocation of utility costs to the benefiting 
functions shall otherwise be made in the same manner as described in 
subsection F.4.b of this Appendix. Beginning on July 1, 2002, Federal 
agencies shall reassess periodically the eligibility of institutions to 
receive the UCA.
    d. Beginning on July 1, 2002, Federal agencies may receive 
applications for utilization of the UCA from institutions not subject to 
the provisions of subsection F.4.c of this Appendix.
    5. General administration and general expenses.
    a. The expenses under this heading are those that have been incurred 
for the general executive and administrative offices of educational 
institutions and other expense of a general character which do not 
relate solely to any major function of the institution; i.e., solely to 
instruction, organized research, other sponsored activities, or other 
institutional activities. The general administration and general expense 
category should also include its allocable share of fringe benefit 
costs, operation and maintenance expense, depreciation and use 
allowances, and interest costs. Examples of general administration and 
general expenses include: those expenses incurred by administrative 
offices that serve the entire university system of which the institution 
is a part; central offices of the institution such as the President's or 
Chancellor's office, the offices for institution-wide financial 
management, business services, budget and planning, personnel 
management, and safety and risk management; the office of the General 
Counsel; and, the operations of the central administrative management 
information systems. General administration and general expenses shall 
not include expenses incurred within non-university-wide deans' offices, 
academic departments, organized research units, or similar 
organizational units. (See subsection F.6. of this Appendix, 
Departmental administration expenses.)
    b. In the absence of the alternatives provided for in Section E.2.d 
of this Appendix, the expenses included in this category shall be 
grouped first according to common major functions of the institution to 
which they render services or provide benefits. The aggregate expenses 
of each group shall then be allocated to serviced or benefited functions 
on the modified total cost basis. Modified total costs consist of the 
same elements as those in Section G.2 of this Appendix. When an activity 
included in this F&A cost category provides a service or product to 
another institution or organization, an appropriate adjustment must be 
made to either the expenses or the basis of allocation or both, to 
assure a proper allocation of costs.
    6. Departmental administration expenses.
    a. The expenses under this heading are those that have been incurred 
for administrative and supporting services that benefit common or joint 
departmental activities or objectives in academic deans' offices, 
academic departments and divisions, and organized research units. 
Organized research units include such units as institutes, study 
centers, and research centers. Departmental administration expenses are 
subject to the following limitations.
    (1) Academic deans' offices. Salaries and operating expenses are 
limited to those attributable to administrative functions.
    (2) Academic departments:
    (a) Salaries and fringe benefits attributable to the administrative 
work (including bid and proposal preparation) of faculty (including 
department heads), and other professional personnel conducting research 
and/or instruction, shall be allowed at a rate of 3.6 percent of 
modified total direct costs. This category does not include professional 
business or professional administrative officers. This allowance shall 
be added to the computation of the F&A cost rate for major functions in 
Section G of this Appendix; the expenses covered by the allowance shall 
be excluded from the departmental administration cost pool. No 
documentation is required to support this allowance.

[[Page 81]]

    (b) Other administrative and supporting expenses incurred within 
academic departments are allowable provided they are treated 
consistently in like circumstances. This would include expenses such as 
the salaries of secretarial and clerical staffs, the salaries of 
administrative officers and assistants, travel, office supplies, 
stockrooms, and the like.
    (3) Other fringe benefit costs applicable to the salaries and wages 
included in subsections F.6.a.(1) and (2) of this Appendix are 
allowable, as well as an appropriate share of general administration and 
general expenses, operation and maintenance expenses, and depreciation 
and/or use allowances.
    (4) Federal agencies may authorize reimbursement of additional costs 
for department heads and faculty only in exceptional cases where an 
institution can demonstrate undue hardship or detriment to project 
performance.
    b. The following guidelines apply to the determination of 
departmental administrative costs as direct or F&A costs.
    (1) In developing the departmental administration cost pool, special 
care should be exercised to ensure that costs incurred for the same 
purpose in like circumstances are treated consistently as either direct 
or F&A costs. For example, salaries of technical staff, laboratory 
supplies (e.g., chemicals), telephone toll charges, animals, animal care 
costs, computer costs, travel costs, and specialized shop costs shall be 
treated as direct cost wherever identifiable to a particular cost 
objective. Direct charging of these costs may be accomplished through 
specific identification of individual costs to benefiting cost 
objectives, or through recharge centers or specialized service 
facilities, as appropriate under the circumstances.
    (2) The salaries of administrative and clerical staff should 
normally be treated as F&A costs. Direct charging of these costs may be 
appropriate where a major project or activity explicitly budgets for 
administrative or clerical services and individuals involved can be 
specifically identified with the project or activity. ``Major project'' 
is defined as a project that requires an extensive amount of 
administrative or clerical support, which is significantly greater than 
the routine level of such services provided by academic departments. 
Some examples of major projects are described in Exhibit C to this 
Appendix.
    (3) Items such as office supplies, postage, local telephone costs, 
and memberships shall normally be treated as F&A costs.
    c. In the absence of the alternatives provided for in Section E.2.d 
of this Appendix, the expenses included in this category shall be 
allocated as follows:
    (1) The administrative expenses of the dean's office of each college 
and school shall be allocated to the academic departments within that 
college or school on the modified total cost basis.
    (2) The administrative expenses of each academic department, and the 
department's share of the expenses allocated in subsection F.6.b.(1) of 
this Appendix shall be allocated to the appropriate functions of the 
department on the modified total cost basis.
    7. Sponsored projects administration.
    a. The expenses under this heading are limited to those incurred by 
a separate organization(s) established primarily to administer sponsored 
projects, including such functions as grant and contract administration 
(Federal and non-Federal), special security, purchasing, personnel, 
administration, and editing and publishing of research and other 
reports. They include the salaries and expenses of the head of such 
organization, assistants, and immediate staff, together with the 
salaries and expenses of personnel engaged in supporting activities 
maintained by the organization, such as stock rooms, stenographic pools 
and the like. This category also includes an allocable share of fringe 
benefit costs, general administration and general expenses, operation 
and maintenance expenses, depreciation/use allowances. Appropriate 
adjustments will be made for services provided to other functions or 
organizations.
    b. In the absence of the alternatives provided for in Section E.2.d 
of this Appendix, the expenses included in this category shall be 
allocated to the major functions of the institution under which the 
sponsored projects are conducted on the basis of the modified total cost 
of sponsored projects.
    c. An appropriate adjustment shall be made to eliminate any 
duplicate charges to sponsored agreements when this category includes 
similar or identical activities as those included in the general 
administration and general expense category or other F&A cost items, 
such as accounting, procurement, or personnel administration.
    8. Library expenses.
    a. The expenses under this heading are those that have been incurred 
for the operation of the library, including the cost of books and 
library materials purchased for the library, less any items of library 
income that qualify as applicable credits under Section C.5 of this 
Appendix. The library expense category should also include the fringe 
benefits applicable to the salaries and wages included therein, an 
appropriate share of general administration and general expense, 
operation and maintenance expense, and depreciation and use allowances. 
Costs incurred in the purchases of rare books (museum-type books) with 
no value to sponsored agreements should not be allocated to them.
    b. In the absence of the alternatives provided for in Section E.2.d 
of this Appendix, the expenses included in this category shall

[[Page 82]]

be allocated first on the basis of primary categories of users, 
including students, professional employees, and other users.
    (1) The student category shall consist of full-time equivalent 
students enrolled at the institution, regardless of whether they earn 
credits toward a degree or certificate.
    (2) The professional employee category shall consist of all faculty 
members and other professional employees of the institution, on a full-
time equivalent basis.
    (3) The other users category shall consist of all other users of 
library facilities.
    c. Amount allocated in subsection E.8.b of this Appendix shall be 
assigned further as follows:
    (1) The amount in the student category shall be assigned to the 
instruction function of the institution.
    (2) The amount in the professional employee category shall be 
assigned to the major functions of the institution in proportion to the 
salaries and wages of all faculty members and other professional 
employees applicable to those functions.
    (3) The amount in the other users category shall be assigned to the 
other institutional activities function of the institution.
    9. Student administration and services.
    a. The expenses under this heading are those that have been incurred 
for the administration of student affairs and for services to students, 
including expenses of such activities as deans of students, admissions, 
registrar, counseling and placement services, student advisers, student 
health and infirmary services, catalogs, and commencements and 
convocations. The salaries of members of the academic staff whose 
responsibilities to the institution require administrative work that 
benefits sponsored projects may also be included to the extent that the 
portion charged to student administration is determined in accordance 
with Section J.10 of this Appendix. This expense category also includes 
the fringe benefit costs applicable to the salaries and wages included 
therein, an appropriate share of general administration and general 
expenses, operation and maintenance, and use allowances and/or 
depreciation.
    b. In the absence of the alternatives provided for in Section E.2.d 
of this Appendix, the expenses in this category shall be allocated to 
the instruction function, and subsequently to sponsored agreements in 
that function.
    10. Offset for F&A expenses otherwise provided for by the Federal 
Government.
    a. The items to be accumulated under this heading are the 
reimbursements and other payments from the Federal Government that are 
made to the institution to support solely, specifically, and directly, 
in whole or in part, any of the administrative or service activities 
described in subsections F.2 through 9 of this Appendix.
    b. The items in this group shall be treated as a credit to the 
affected individual F&A cost category before that category is allocated 
to benefiting functions.

       G. Determination and Application of F&A Cost Rate or Rates

    1. F&A cost pools.
    a. (1) Subject to subsection b, the separate categories of F&A costs 
allocated to each major function of the institution as prescribed in 
Section F shall be aggregated and treated as a common pool for that 
function. The amount in each pool shall be divided by the distribution 
base described in subsection G.2 of this Appendix to arrive at a single 
F&A cost rate for each function.
    (2) The rate for each function is used to distribute F&A costs to 
individual sponsored agreements of that function. Since a common pool is 
established for each major function of the institution, a separate F&A 
cost rate would be established for each of the major functions described 
in Section B.1 of this Appendix under which sponsored agreements are 
carried out.
    (3) Each institution's F&A cost rate process must be appropriately 
designed to ensure that Federal sponsors do not in any way subsidize the 
F&A costs of other sponsors, specifically activities sponsored by 
industry and foreign governments. Accordingly, each allocation method 
used to identify and allocate the F&A cost pools, as described in 
Sections E.2 and F.2 through F.9 of this Appendix, must contain the full 
amount of the institution's modified total costs or other appropriate 
units of measurement used to make the computations. In addition, the 
final rate distribution base (as defined in subsection G.2 of this 
Appendix) for each major function (organized research, instruction, 
etc., as described in Section B.1 of this Appendix) shall contain all 
the programs or activities that utilize the F&A costs allocated to that 
major function. At the time a F&A cost proposal is submitted to a 
cognizant Federal agency, each institution must describe the process it 
uses to ensure that Federal funds are not used to subsidize industry and 
foreign government funded programs.
    b. In some instances a single rate basis for use across the board on 
all work within a major function at an institution may not be 
appropriate. A single rate for research, for example, might not take 
into account those different environmental factors and other conditions 
which may affect substantially the F&A costs applicable to a particular 
segment of research at the institution. A particular segment of research 
may be that performed under a single sponsored agreement or it may 
consist of research under a group of sponsored agreements performed in a 
common environment. The environmental factors are not limited to the 
physical location of the work. Other important factors are the

[[Page 83]]

level of the administrative support required, the nature of the 
facilities or other resources employed, the scientific disciplines or 
technical skills involved, the organizational arrangements used, or any 
combination thereof. Where a particular segment of a sponsored agreement 
is performed within an environment which appears to generate a 
significantly different level of F&A costs, provisions should be made 
for a separate F&A cost pool applicable to such work. The separate F&A 
cost pool should be developed during the regular course of the rate 
determination process and the separate F&A cost rate resulting therefrom 
should be utilized; provided it is determined that such F&A cost rate 
differs significantly from that which would have been obtained under 
subsection G.1.a of this Appendix, and the volume of work to which such 
rate would apply is material in relation to other sponsored agreements 
at the institution.
    2. The distribution basis. F&A costs shall be distributed to 
applicable sponsored agreements and other benefiting activities within 
each major function (see Section B.1) on the basis of modified total 
direct costs, consisting of all salaries and wages, fringe benefits, 
materials and supplies, services, travel, and subgrants and subcontracts 
up to the first $25,000 of each subgrant or subcontract (regardless of 
the period covered by the subgrant or subcontract). Equipment, capital 
expenditures, charges for patient care and tuition remission, rental 
costs, scholarships, and fellowships as well as the portion of each 
subgrant and subcontract in excess of $25,000 shall be excluded from 
modified total direct costs. Other items may only be excluded where 
necessary to avoid a serious inequity in the distribution of F&A costs. 
For this purpose, a F&A cost rate should be determined for each of the 
separate F&A cost pools developed pursuant to subsection G.1 of this 
Appendix. The rate in each case should be stated as the percentage that 
the amount of the particular F&A cost pool is of the modified total 
direct costs identified with such pool.
    3. Negotiated lump sum for F&A costs. A negotiated fixed amount in 
lieu of F&A costs may be appropriate for self-contained, off-campus, or 
primarily subcontracted activities where the benefits derived from an 
institution's F&A services cannot be readily determined. Such negotiated 
F&A costs will be treated as an offset before allocation to instruction, 
organized research, other sponsored activities, and other institutional 
activities. The base on which such remaining expenses are allocated 
should be appropriately adjusted.
    4. Predetermined rates for F&A costs. Public Law 87-638 (76 Stat. 
437) authorizes the use of predetermined rates in determining the 
``indirect costs'' (F&A costs in this Appendix) applicable under 
research agreements with educational institutions. The stated objectives 
of the law are to simplify the administration of cost-type research and 
development contracts (including grants) with educational institutions, 
to facilitate the preparation of their budgets, and to permit more 
expeditious closeout of such contracts when the work is completed. In 
view of the potential advantages offered by this procedure, negotiation 
of predetermined rates for F&A costs for a period of two to four years 
should be the norm in those situations where the cost experience and 
other pertinent facts available are deemed sufficient to enable the 
parties involved to reach an informed judgment as to the probable level 
of F&A costs during the ensuing accounting periods.
    5. Negotiated fixed rates and carry-forward provisions. When a fixed 
rate is negotiated in advance for a fiscal year (or other time period), 
the over- or under-recovery for that year may be included as an 
adjustment to the F&A cost for the next rate negotiation. When the rate 
is negotiated before the carry-forward adjustment is determined, the 
carry-forward amount may be applied to the next subsequent rate 
negotiation. When such adjustments are to be made, each fixed rate 
negotiated in advance for a given period will be computed by applying 
the expected F&A costs allocable to sponsored agreements for the 
forecast period plus or minus the carry-forward adjustment (over- or 
under-recovery) from the prior period, to the forecast distribution 
base. Unrecovered amounts under lump-sum agreements or cost-sharing 
provisions of prior years shall not be carried forward for consideration 
in the new rate negotiation. There must, however, be an advance 
understanding in each case between the institution and the cognizant 
Federal agency as to whether these differences will be considered in the 
rate negotiation rather than making the determination after the 
differences are known. Further, institutions electing to use this carry-
forward provision may not subsequently change without prior approval of 
the cognizant Federal agency. In the event that an institution returns 
to a postdetermined rate, any over- or under-recovery during the period 
in which negotiated fixed rates and carry-forward provisions were 
followed will be included in the subsequent postdetermined rates. Where 
multiple rates are used, the same procedure will be applicable for 
determining each rate.
    6. Provisional and final rates for F&A costs. Where the cognizant 
agency determines that cost experience and other pertinent facts do not 
justify the use of predetermined rates, or a fixed rate with a carry-
forward, or if the parties cannot agree on an equitable rate, a 
provisional rate shall be established. To prevent substantial 
overpayment or underpayment, the provisional rate may be adjusted by the 
cognizant agency

[[Page 84]]

during the institution's fiscal year. Predetermined or fixed rates may 
replace provisional rates at any time prior to the close of the 
institution's fiscal year. If a provisional rate is not replaced by a 
predetermined or fixed rate prior to the end of the institution's fiscal 
year, a final rate will be established and upward or downward 
adjustments will be made based on the actual allowable costs incurred 
for the period involved.
    7. Fixed rates for the life of the sponsored agreement.
    a. Federal agencies shall use the negotiated rates for F&A costs in 
effect at the time of the initial award throughout the life of the 
sponsored agreement. ``Life'' for the purpose of this subsection means 
each competitive segment of a project. A competitive segment is a period 
of years approved by the Federal funding agency at the time of the 
award. If negotiated rate agreements do not extend through the life of 
the sponsored agreement at the time of the initial award, then the 
negotiated rate for the last year of the sponsored agreement shall be 
extended through the end of the life of the sponsored agreement. Award 
levels for sponsored agreements may not be adjusted in future years as a 
result of changes in negotiated rates.
    b. When an educational institution does not have a negotiated rate 
with the Federal Government at the time of the award (because the 
educational institution is a new grantee or the parties cannot reach 
agreement on a rate), the provisional rate used at the time of the award 
shall be adjusted once a rate is negotiated and approved by the 
cognizant agency.
    8. Limitation on reimbursement of administrative costs.
    a. Notwithstanding the provisions of subsection G.1.a of this 
Appendix, the administrative costs charged to sponsored agreements 
awarded or amended (including continuation and renewal awards) with 
effective dates beginning on or after the start of the institution's 
first fiscal year which begins on or after October 1, 1991, shall be 
limited to 26% of modified total direct costs (as defined in subsection 
G.2 of this Appendix) for the total of General Administration and 
General Expenses, Departmental Administration, Sponsored Projects 
Administration, and Student Administration and Services (including their 
allocable share of depreciation and/or use allowances, interest costs, 
operation and maintenance expenses, and fringe benefits costs, as 
provided by Sections F.5, F.6, F.7 and F.9 of this Appendix) and all 
other types of expenditures not listed specifically under one of the 
subcategories of facilities in Section F of this Appendix.
    b. Existing F&A cost rates that affect institutions' fiscal years 
which begin on or after October 1, 1991, shall be unilaterally amended 
by the cognizant Federal agency to reflect the cost limitation in 
subsection G.8.a of this Appendix.
    c. Permanent rates established prior to this revision that have been 
amended in accordance with subsection G.8.b of this Appendix may be 
renegotiated. However, no such renegotiated rate may exceed the rate 
which would have been in effect if the agreement had remained in effect; 
nor may the administrative portion of any renegotiated rate exceed the 
limitation in subsection a.
    d. Institutions should not change their accounting or cost 
allocation methods which were in effect on May 1, 1991, if the effect is 
to change the charging of a particular type of cost from F&A to direct, 
or reclassify costs, or increase allocations, from the administrative 
pools identified in subsection to the other F&A cost pools or fringe 
benefits. Cognizant Federal agencies are authorized to permit changes 
where an institution's charging practices are at variance with 
acceptable practices followed by a substantial majority of other 
institutions.
    9. Alternative method for administrative costs.
    a. Notwithstanding the provisions of subsection 1.a, an institution 
may elect to claim fixed allowance for the ``Administration'' portion of 
F&A costs. The allowance could be either 24% of modified total direct 
costs or a percentage equal to 95% of the most recently negotiated fixed 
or predetermined rate for the cost pools included under 
``Administration'' as defined in Section F.1 of this Appendix, whichever 
is less, provided that no accounting or cost allocation changes with the 
effects described in subsection G.8.d of this Appendix have occurred. 
Under this alternative, no cost proposal need be prepared for the 
``Administration'' portion of the F&A cost rate nor is further 
identification or documentation of these costs required (see subsection 
G.9.c of this Appendix). Where a negotiated F&A cost agreement includes 
this alternative, an institution shall make no further charges for the 
expenditure categories described in Sections F.5, F.6, F.7 and F.9 of 
this Appendix.
    b. In negotiations of rates for subsequent periods, an institution 
that has elected the option of subsection a may continue to exercise it 
at the same rate without further identification or documentation of 
costs, provided that no accounting or cost allocation changes with the 
effects described in subsection G.8.d of this Appendix have occurred.
    c. If an institution elects to accept a threshold rate, it is not 
required to perform a detailed analysis of its administrative costs. 
However, in order to compute the facilities components of its F&A cost 
rate, the institution must reconcile its F&A cost proposal to its 
financial statements and make appropriate adjustments and 
reclassifications to identify the costs of each major

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function as defined in Section B.1 of this Appendix, as well as to 
identify and allocate the facilities components. Administrative costs 
that are not identified as such by the institution's accounting system 
(such as those incurred in academic departments) will be classified as 
instructional costs for purposes of reconciling F&A cost proposals to 
financial statements and allocating facilities costs.
    10. Individual rate components.
    In order to satisfy the requirements of Section J.14 of this 
Appendix and to provide mutually agreed upon information for management 
purposes, each F&A cost rate negotiation or determination shall include 
development of a rate for each F&A cost pool as well as the overall F&A 
cost rate.
    11. Negotiation and approval of F&A rate.
    a. Cognizant agency assignments. ``A cognizant agency'' means the 
Federal agency responsible for negotiating and approving F&A rates for 
an educational institution on behalf of all Federal agencies.
    (1) Cost negotiation cognizance is assigned to the Department of 
Health and Human Services (HHS) or the Department of Defense's Office of 
Naval Research (DOD), normally depending on which of the two agencies 
(HHS or DOD) provides more funds to the educational institution for the 
most recent three years. Information on funding shall be derived from 
relevant data gathered by the National Science Foundation. In cases 
where neither HHS nor DOD provides Federal funding to an educational 
institution, the cognizant agency assignment shall default to HHS. 
Notwithstanding the method for cognizance determination described above, 
other arrangements for cognizance of a particular educational 
institution may also be based in part on the types of research performed 
at the educational institution and shall be decided based on mutual 
agreement between HHS and DOD.
    (2) Cognizant assignments as of December 31, 1995, shall continue in 
effect through educational institutions' fiscal years ending during 
1997, or the period covered by negotiated agreements in effect on 
December 31, 1995, whichever is later, except for those educational 
institutions with cognizant agencies other than HHS or DOD. Cognizance 
for these educational institutions shall transfer to HHS or DOD at the 
end of the period covered by the current negotiated rate agreement. 
After cognizance is established, it shall continue for a five-year 
period.
    b. Acceptance of rates. The negotiated rates shall be accepted by 
all Federal agencies. Only under special circumstances, when required by 
law or regulation, may an agency use a rate different from the 
negotiated rate for a class of sponsored agreements or a single 
sponsored agreement.
    c. Correcting deficiencies. The cognizant agency shall negotiate 
changes needed to correct systems deficiencies relating to 
accountability for sponsored agreements. Cognizant agencies shall 
address the concerns of other affected agencies, as appropriate.
    d. Resolving questioned costs. The cognizant agency shall conduct 
any necessary negotiations with an educational institution regarding 
amounts questioned by audit that are due the Federal Government related 
to costs covered by a negotiated agreement.
    e. Reimbursement. Reimbursement to cognizant agencies for work 
performed under Part 220 may be made by reimbursement billing under the 
Economy Act, 31 U.S.C. 1535.
    f. Procedure for establishing facilities and administrative rates. 
The cognizant agency shall arrange with the educational institution to 
provide copies of rate proposals to all interested agencies. Agencies 
wanting such copies should notify the cognizant agency. Rates shall be 
established by one of the following methods:
    (1) Formal negotiation. The cognizant agency is responsible for 
negotiating and approving rates for an educational institution on behalf 
of all Federal agencies. Non-cognizant Federal agencies, which award 
sponsored agreements to an educational institution, shall notify the 
cognizant agency of specific concerns (i.e., a need to establish special 
cost rates) that could affect the negotiation process. The cognizant 
agency shall address the concerns of all interested agencies, as 
appropriate. A pre-negotiation conference may be scheduled among all 
interested agencies, if necessary. The cognizant agency shall then 
arrange a negotiation conference with the educational institution.
    (2) Other than formal negotiation. The cognizant agency and 
educational institution may reach an agreement on rates without a formal 
negotiation conference; for example, through correspondence or use of 
the simplified method described in this Appendix.
    g. Formalizing determinations and agreements. The cognizant agency 
shall formalize all determinations or agreements reached with an 
educational institution and provide copies to other agencies having an 
interest.
    h. Disputes and disagreements. Where the cognizant agency is unable 
to reach agreement with an educational institution with regard to rates 
or audit resolution, the appeal system of the cognizant agency shall be 
followed for resolution of the disagreement.
    12. Standard Format for Submission. For facilities and 
administrative (F&A) rate proposals submitted on or after July 1, 2001, 
educational institutions shall use the standard format, shown in 
Attachment C to this Appendix, to submit their F&A rate proposal to the 
cognizant agency. The cognizant agency may, on an institution-by-
institution basis, grant exceptions from all or portions of Part II of 
the standard format requirement. This requirement does not apply to 
educational institutions that use the simplified method

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for calculating F&A rates, as described in Section H of this Appendix.

               H. Simplified Method for Small Institutions

    1. General.
    a. Where the total direct cost of work covered by Part 220 at an 
institution does not exceed $10 million in a fiscal year, the use of the 
simplified procedure described in subsections H.2 or 3 of this Appendix, 
may be used in determining allowable F&A costs. Under this simplified 
procedure, the institution's most recent annual financial report and 
immediately available supporting information shall be utilized as basis 
for determining the F&A cost rate applicable to all sponsored 
agreements. The institution may use either the salaries and wages (see 
subsection H.2 of this Appendix) or modified total direct costs (see 
subsection H.3 of this Appendix) as distribution basis.
    b. The simplified procedure should not be used where it produces 
results that appear inequitable to the Federal Government or the 
institution. In any such case, F&A costs should be determined through 
use of the regular procedure.
    2. Simplified procedure--Salaries and wages base.
    a. Establish the total amount of salaries and wages paid to all 
employees of the institution.
    b. Establish an F&A cost pool consisting of the expenditures 
(exclusive of capital items and other costs specifically identified as 
unallowable) that customarily are classified under the following titles 
or their equivalents:
    (1) General administration and general expenses (exclusive of costs 
of student administration and services, student activities, student aid, 
and scholarships). In those cases where expenditures have previously 
been allocated to other institutional activities, they may be included 
in the F&A cost pool. The total amount of salaries and wages included in 
the F&A cost pool must be separately identified.
    (2) Operation and maintenance of physical plant; and depreciation 
and use allowances; after appropriate adjustment for costs applicable to 
other institutional activities.
    (3) Library.
    (4) Department administration expenses, which will be computed as 20 
percent of the salaries and expenses of deans and heads of departments.
    c. Establish a salary and wage distribution base, determined by 
deducting from the total of salaries and wages as established in 
subsection a the amount of salaries and wages included under subsection 
H.2.b of this Appendix.
    d. Establish the F&A cost rate, determined by dividing the amount in 
the F&A cost pool, subsection H.2.b of this Appendix, by the amount of 
the distribution base, subsection H.2.c of this Appendix.
    e. Apply the F&A cost rate to direct salaries and wages for 
individual agreements to determine the amount of F&A costs allocable to 
such agreements.
    3. Simplified procedure--Modified total direct cost base.
    a. Establish the total costs incurred by the institution for the 
base period.
    b. Establish a F&A cost pool consisting of the expenditures 
(exclusive of capital items and other costs specifically identified as 
unallowable) that customarily are classified under the following titles 
or their equivalents:
    (1) General administration and general expenses (exclusive of costs 
of student administration and services, student activities, student aid, 
and scholarships). In those cases where expenditures have previously 
been allocated to other institutional activities, they may be included 
in the F&A cost pool. The modified total direct costs amount included in 
the F&A cost pool must be separately identified.
    (2) Operation and maintenance of physical plant; and depreciation 
and use allowances; after appropriate adjustment for costs applicable to 
other institutional activities.
    (3) Library.
    (4) Department administration expenses, which will be computed as 20 
percent of the salaries and expenses of deans and heads of departments.
    c. Establish a modified total direct cost distribution base, as 
defined in Section G.2 of this Appendix, that consists of all 
institution's direct functions.
    d. Establish the F&A cost rate, determined by dividing the amount in 
the F&A cost pool, subsection b, by the amount of the distribution base, 
subsection c.
    e. Apply the F&A cost rate to the modified total direct costs for 
individual agreements to determine the amount of F&A costs allocable to 
such agreements.

                               I. Reserved

            J. General Provisions for Selected Items of Cost

    Sections J.1 through 54 of this Appendix provide principles to be 
applied in establishing the allowability of certain items involved in 
determining cost. These principles should apply irrespective of whether 
a particular item of cost is properly treated as direct cost or F&A 
cost. Failure to mention a particular item of cost is not intended to 
imply that it is either allowable or unallowable; rather, determination 
as to allowability in each case should be based on the treatment 
provided for similar or related items of cost. In case of a discrepancy 
between the provisions of a specific sponsored

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agreement and the provisions below, the agreement should govern.
    1. Advertising and public relations costs.
    a. The term advertising costs means the costs of advertising media 
and corollary administrative costs. Advertising media include magazines, 
newspapers, radio and television, direct mail, exhibits, electronic or 
computer transmittals, and the like.
    b. The term public relations includes community relations and means 
those activities dedicated to maintaining the image of the institution 
or maintaining or promoting understanding and favorable relations with 
the community or public at large or any segment of the public.
    c. The only allowable advertising costs are those that are solely 
for:
    (1) The recruitment of personnel required for the performance by the 
institution of obligations arising under a sponsored agreement (See also 
section J.42.b of this Appendix, Recruiting);
    (2) The procurement of goods and services for the performance of a 
sponsored agreement;
    (3) The disposal of scrap or surplus materials acquired in the 
performance of a sponsored agreement except when non-Federal entities 
are reimbursed for disposal costs at a predetermined amount; or
    (4) Other specific purposes necessary to meet the requirements of 
the sponsored agreement.
    d. The only allowable public relations costs are:
    (1) Costs specifically required by the sponsored agreement;
    (2) Costs of communicating with the public and press pertaining to 
specific activities or accomplishments which result from performance of 
sponsored agreements (these costs are considered necessary as part of 
the outreach effort for the sponsored agreement); or
    (3) Costs of conducting general liaison with news media and 
government public relations officers, to the extent that such activities 
are limited to communication and liaison necessary keep the public 
informed on matters of public concern, such as notices of Federal 
contract/grant awards, financial matters, etc.
    e. Costs identified in subsections c and d if incurred for more than 
one sponsored agreement or for both sponsored work and other work of the 
institution, are allowable to the extent that the principles in sections 
D. (``Direct Costs'') and E. (``F & A Costs'') of this Appendix are 
observed.
    f. Unallowable advertising and public relations costs include the 
following:
    (1) All advertising and public relations costs other than as 
specified in subsections J.1.c, 1.d and 1.e of this Appendix.
    (2) Costs of meetings, conventions, convocations, or other events 
related to other activities of the institution, including:
    (a) Costs of displays, demonstrations, and exhibits;
    (b) Costs of meeting rooms, hospitality suites, and other special 
facilities used in conjunction with shows and other special events; and
    (c) Salaries and wages of employees engaged in setting up and 
displaying exhibits, making demonstrations, and providing briefings;
    (3) Costs of promotional items and memorabilia, including models, 
gifts, and souvenirs;
    (4) Costs of advertising and public relations designed solely to 
promote the institution.
    2. Advisory councils.
    Costs incurred by advisory councils or committees are allowable as a 
direct cost where authorized by the Federal awarding agency or as an 
indirect cost where allocable to sponsored agreements.
    3. Alcoholic beverages.
    Costs of alcoholic beverages are unallowable.
    4. Alumni/ae activities.
    Costs incurred for, or in support of, alumni/ae activities and 
similar services are unallowable.
    5. Audit costs and related services.
    a. The costs of audits required by, and performed in accordance 
with, the Single Audit Act, as implemented by Circular A-133, ``Audits 
of States, Local Governments, and Non-Profit Organizations'' are 
allowable. Also see 31 U.S.C. 7505(b) and section ----.230 (``Audit 
Costs'') of Circular A-133.
    b. Other audit costs are allowable if included in an indirect cost 
rate proposal, or if specifically approved by the awarding agency as a 
direct cost to an award.
    c. The cost of agreed-upon procedures engagements to monitor 
subrecipients who are exempted from A-133 under section ----.200(d) are 
allowable, subject to the conditions listed in A-133, section ----.230 
(b)(2).
    6. Bad Debt.
    Bad debts, including losses (whether actual or estimated) arising 
from uncollectable accounts and other claims, related collection costs, 
and related legal costs, are unallowable.
    7. Bonding costs.
    a. Bonding costs arise when the Federal Government requires 
assurance against financial loss to itself or others by reason of the 
act or default of the institution. They arise also in instances where 
the institution requires similar assurance. Included are such bonds as 
bid, performance, payment, advance payment, infringement, and fidelity 
bonds.
    b. Costs of bonding required pursuant to the terms of the award are 
allowable.
    c. Costs of bonding required by the institution in the general 
conduct of its operations are allowable to the extent that such bonding 
is in accordance with sound business

[[Page 88]]

practice and the rates and premiums are reasonable under the 
circumstances.
    8. Commencement and convocation costs.
    Costs incurred for commencements and convocations are unallowable, 
except as provided for in Section F.9 of this Appendix.
    9. Communication costs.
    Costs incurred for telephone services, local and long distance 
telephone calls, telegrams, postage, messenger, electronic or computer 
transmittal services and the like are allowable.
    10. Compensation for personal services.
    a. General. Compensation for personal services covers all amounts 
paid currently or accrued by the institution for services of employees 
rendered during the period of performance under sponsored agreements. 
Such amounts include salaries, wages, and fringe benefits (see 
subsection J.10.f of this Appendix). These costs are allowable to the 
extent that the total compensation to individual employees conforms to 
the established policies of the institution, consistently applied, and 
provided that the charges for work performed directly on sponsored 
agreements and for other work allocable as F&A costs are determined and 
supported as provided below. Charges to sponsored agreements may include 
reasonable amounts for activities contributing and intimately related to 
work under the agreements, such as delivering special lectures about 
specific aspects of the ongoing activity, writing reports and articles, 
participating in appropriate seminars, consulting with colleagues and 
graduate students, and attending meetings and conferences. Incidental 
work (that in excess of normal for the individual), for which 
supplemental compensation is paid by an institution under institutional 
policy, need not be included in the payroll distribution systems 
described below, provided such work and compensation are separately 
identified and documented in the financial management system of the 
institution.
    b. Payroll distribution.
    (1) General Principles.
    (a) The distribution of salaries and wages, whether treated as 
direct or F&A costs, will be based on payrolls documented in accordance 
with the generally accepted practices of colleges and universities. 
Institutions may include in a residual category all activities that are 
not directly charged to sponsored agreements, and that need not be 
distributed to more than one activity for purposes of identifying F&A 
costs and the functions to which they are allocable. The components of 
the residual category are not required to be separately documented.
    (b) The apportionment of employees' salaries and wages which are 
chargeable to more than one sponsored agreement or other cost objective 
will be accomplished by methods which will--
    (1) Be in accordance with Sections A.2 and C of this Appendix;
    (2) Produce an equitable distribution of charges for employee's 
activities; and
    (3) Distinguish the employees' direct activities from their F&A 
activities.
    (c) In the use of any methods for apportioning salaries, it is 
recognized that, in an academic setting, teaching, research, service, 
and administration are often inextricably intermingled. A precise 
assessment of factors that contribute to costs is not always feasible, 
nor is it expected. Reliance, therefore, is placed on estimates in which 
a degree of tolerance is appropriate.
    (d) There is no single best method for documenting the distribution 
of charges for personal services. Methods for apportioning salaries and 
wages, however, must meet the criteria specified in subsection 
J.10.b.(2) of this Appendix. Examples of acceptable methods are 
contained in subsection c. Other methods that meet the criteria 
specified in subsection J.10.b.(2) of this Appendix also shall be deemed 
acceptable, if a mutually satisfactory alternative agreement is reached.
    (2) Criteria for Acceptable Methods.
    (a) The payroll distribution system will be incorporated into the 
official records of the institution; reasonably reflect the activity for 
which the employee is compensated by the institution; and encompass both 
sponsored and all other activities on an integrated basis, but may 
include the use of subsidiary records. (Compensation for incidental work 
described in subsection a need not be included.)
    (b) The method must recognize the principle of after-the-fact 
confirmation or determination so that costs distributed represent actual 
costs, unless a mutually satisfactory alternative agreement is reached. 
Direct cost activities and F&A cost activities may be confirmed by 
responsible persons with suitable means of verification that the work 
was performed. Confirmation by the employee is not a requirement for 
either direct or F&A cost activities if other responsible persons make 
appropriate confirmations.
    (c) The payroll distribution system will allow confirmation of 
activity allocable to each sponsored agreement and each of the 
categories of activity needed to identify F&A costs and the functions to 
which they are allocable. The activities chargeable to F&A cost 
categories or the major functions of the institution for employees whose 
salaries must be apportioned (see subsection J.10.b.(1)(b) of this 
Appendix), if not initially identified as separate categories, may be 
subsequently distributed by any reasonable method mutually agreed to, 
including, but not limited to, suitably conducted surveys, statistical 
sampling procedures, or the application of negotiated fixed rates.

[[Page 89]]

    (d) Practices vary among institutions and within institutions as to 
the activity constituting a full workload. Therefore, the payroll 
distribution system may reflect categories of activities expressed as a 
percentage distribution of total activities.
    (e) Direct and F&A charges may be made initially to sponsored 
agreements on the basis of estimates made before services are performed. 
When such estimates are used, significant changes in the corresponding 
work activity must be identified and entered into the payroll 
distribution system. Short-term (such as one or two months) fluctuation 
between workload categories need not be considered as long as the 
distribution of salaries and wages is reasonable over the longer term, 
such as an academic period.
    (f) The system will provide for independent internal evaluations to 
ensure the system's effectiveness and compliance with the above 
standards.
    (g) For systems which meet these standards, the institution will not 
be required to provide additional support or documentation for the 
effort actually performed.
    c. Examples of Acceptable Methods for Payroll Distribution:
    (1) Plan-Confirmation: Under this method, the distribution of 
salaries and wages of professorial and professional staff applicable to 
sponsored agreements is based on budgeted, planned, or assigned work 
activity, updated to reflect any significant changes in work 
distribution. A plan-confirmation system used for salaries and wages 
charged directly or indirectly to sponsored agreements will meet the 
following standards:
    (a) A system of budgeted, planned, or assigned work activity will be 
incorporated into the official records of the institution and encompass 
both sponsored and all other activities on an integrated basis. The 
system may include the use of subsidiary records.
    (b) The system will reasonably reflect only the activity for which 
the employee is compensated by the institution (compensation for 
incidental work described in subsection a need not be included). 
Practices vary among institutions and within institutions as to the 
activity constituting a full workload. Hence, the system will reflect 
categories of activities expressed as a percentage distribution of total 
activities. (See Section H of this Appendix for treatment of F&A costs 
under the simplified method for small institutions.)
    (c) The system will reflect activity applicable to each sponsored 
agreement and to each category needed to identify F&A costs and the 
functions to which they are allocable. The system may treat F&A cost 
activities initially within a residual category and subsequently 
determine them by alternate methods as discussed in subsection 
J.10.c.(2)(c) of this Appendix.
    (d) The system will provide for modification of an individual's 
salary or salary distribution commensurate with a significant change in 
the employee's work activity. Short-term (such as one or two months) 
fluctuation between workload categories need not be considered as long 
as the distribution of salaries and wages is reasonable over the longer 
term, such as an academic period. Whenever it is apparent that a 
significant change in work activity that is directly or indirectly 
charged to sponsored agreements will occur or has occurred, the change 
will be documented over the signature of a responsible official and 
entered into the system.
    (e) At least annually a statement will be signed by the employee, 
principal investigator, or responsible official(s) using suitable means 
of verification that the work was performed, stating that salaries and 
wages charged to sponsored agreements as direct charges, and to 
residual, F&A cost or other categories are reasonable in relation to 
work performed.
    (f) The system will provide for independent internal evaluation to 
ensure the system's integrity and compliance with the above standards.
    (g) In the use of this method, an institution shall not be required 
to provide additional support or documentation for the effort actually 
performed.
    (2) After-the-fact Activity Records: Under this system the 
distribution of salaries and wages by the institution will be supported 
by activity reports as prescribed below.
    (a) Activity reports will reflect the distribution of activity 
expended by employees covered by the system (compensation for incidental 
work as described in subsection a need not be included).
    (b) These reports will reflect an after-the-fact reporting of the 
percentage distribution of activity of employees. Charges may be made 
initially on the basis of estimates made before the services are 
performed, provided that such charges are promptly adjusted if 
significant differences are indicated by activity records.
    (c) Reports will reasonably reflect the activities for which 
employees are compensated by the institution. To confirm that the 
distribution of activity represents a reasonable estimate of the work 
performed by the employee during the period, the reports will be signed 
by the employee, principal investigator, or responsible official(s) 
using suitable means of verification that the work was performed.
    (d) The system will reflect activity applicable to each sponsored 
agreement and to each category needed to identify F&A costs and the 
functions to which they are allocable. The system may treat F&A cost 
activities initially within a residual category and subsequently 
determine them by alternate methods as discussed in subsection 
J.10.b.(2)(c) of this Appendix.

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    (e) For professorial and professional staff, the reports will be 
prepared each academic term, but no less frequently than every six 
months. For other employees, unless alternate arrangements are agreed 
to, the reports will be prepared no less frequently than monthly and 
will coincide with one or more pay periods.
    (f) Where the institution uses time cards or other forms of after-
the-fact payroll documents as original documentation for payroll and 
payroll charges, such documents shall qualify as records for this 
purpose, provided that they meet the requirements in subsections 
J.10.c.(2)(a) through (e) of this Appendix.
    (3) Multiple Confirmation Records: Under this system, the 
distribution of salaries and wages of professorial and professional 
staff will be supported by records which certify separately for direct 
and F&A cost activities as prescribed below.
    (a) For employees covered by the system, there will be direct cost 
records to reflect the distribution of that activity expended which is 
to be allocable as direct cost to each sponsored agreement. There will 
also be F&A cost records to reflect the distribution of that activity to 
F&A costs. These records may be kept jointly or separately (but are to 
be certified separately, see below).
    (b) Salary and wage charges may be made initially on the basis of 
estimates made before the services are performed, provided that such 
charges are promptly adjusted if significant differences occur.
    (c) Institutional records will reasonably reflect only the activity 
for which employees are compensated by the institution (compensation for 
incidental work as described in subsection a need not be included).
    (d) The system will reflect activity applicable to each sponsored 
agreement and to each category needed to identify F&A costs and the 
functions to which they are allocable.
    (e) To confirm that distribution of activity represents a reasonable 
estimate of the work performed by the employee during the period, the 
record for each employee will include:
    (1) The signature of the employee or of a person having direct 
knowledge of the work, confirming that the record of activities 
allocable as direct costs of each sponsored agreement is appropriate; 
and,
    (2) The record of F&A costs will include the signature of 
responsible person(s) who use suitable means of verification that the 
work was performed and is consistent with the overall distribution of 
the employee's compensated activities. These signatures may all be on 
the same document.
    (f) The reports will be prepared each academic term, but no less 
frequently than every six months.
    (g) Where the institution uses time cards or other forms of after-
the-fact payroll documents as original documentation for payroll and 
payroll charges, such documents shall qualify as records for this 
purpose, provided they meet the requirements in subsections 
J.10.c.(3)(a) through (f) of this Appendix.
    d. Salary rates for faculty members.
    (1) Salary rates for academic year. Charges for work performed on 
sponsored agreements by faculty members during the academic year will be 
based on the individual faculty member's regular compensation for the 
continuous period which, under the policy of the institution concerned, 
constitutes the basis of his salary. Charges for work performed on 
sponsored agreements during all or any portion of such period are 
allowable at the base salary rate. In no event will charges to sponsored 
agreements, irrespective of the basis of computation, exceed the 
proportionate share of the base salary for that period. This principle 
applies to all members of the faculty at an institution. Since intra-
university consulting is assumed to be undertaken as a university 
obligation requiring no compensation in addition to full-time base 
salary, the principle also applies to faculty members who function as 
consultants or otherwise contribute to a sponsored agreement conducted 
by another faculty member of the same institution. However, in unusual 
cases where consultation is across departmental lines or involves a 
separate or remote operation, and the work performed by the consultant 
is in addition to his regular departmental load, any charges for such 
work representing extra compensation above the base salary are allowable 
provided that such consulting arrangements are specifically provided for 
in the agreement or approved in writing by the sponsoring agency.
    (2) Periods outside the academic year.
    (a) Except as otherwise specified for teaching activity in 
subsection J.10.d.(2)(b) of this Appendix, charges for work performed by 
faculty members on sponsored agreements during the summer months or 
other period not included in the base salary period will be determined 
for each faculty member at a rate not in excess of the base salary 
divided by the period to which the base salary relates, and will be 
limited to charges made in accordance with other parts of this section. 
The base salary period used in computing charges for work performed 
during the summer months will be the number of months covered by the 
faculty member's official academic year appointment.
    (b) Charges for teaching activities performed by faculty members on 
sponsored agreements during the summer months or other periods not 
included in the base salary period will be based on the normal policy of 
the institution governing compensation to faculty members for teaching 
assignments during such periods.

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    (3) Part-time faculty. Charges for work performed on sponsored 
agreements by faculty members having only part-time appointments will be 
determined at a rate not in excess of that regularly paid for the part-
time assignments. For example, an institution pays $5000 to a faculty 
member for half-time teaching during the academic year. He devoted one-
half of his remaining time to a sponsored agreement. Thus, his 
additional compensation, chargeable by the institution to the agreement, 
would be one-half of $5000, or $2500.
    e. Noninstitutional professional activities. Unless an arrangement 
is specifically authorized by a Federal sponsoring agency, an 
institution must follow its institution-wide policies and practices 
concerning the permissible extent of professional services that can be 
provided outside the institution for noninstitutional compensation. 
Where such institution-wide policies do not exist or do not adequately 
define the permissible extent of consulting or other noninstitutional 
activities undertaken for extra outside pay, the Federal Government may 
require that the effort of professional staff working on sponsored 
agreements be allocated between institutional activities, and 
noninstitutional professional activities. If the sponsoring agency 
considers the extent of noninstitutional professional effort excessive, 
appropriate arrangements governing compensation will be negotiated on a 
case-by-case basis.
    f. Fringe benefits.
    (1) Fringe benefits in the form of regular compensation paid to 
employees during periods of authorized absences from the job, such as 
for annual leave, sick leave, military leave, and the like, are 
allowable, provided such costs are distributed to all institutional 
activities in proportion to the relative amount of time or effort 
actually devoted by the employees. See subsection J.11.f.(4) of this 
Appendix for treatment of sabbatical leave.
    (2) Fringe benefits in the form of employer contributions or 
expenses for social security, employee insurance, workmen's compensation 
insurance, tuition or remission of tuition for individual employees are 
allowable, provided such benefits are granted in accordance with 
established educational institutional policies, and are distributed to 
all institutional activities on an equitable basis. Tuition benefits for 
family members other than the employee are unallowable for fiscal years 
beginning after September 30, 1998. See Section J.45.b, Scholarships and 
student aid costs, of this Appendix for treatment of tuition remission 
provided to students.
    (3) Rules for pension plan costs are as follows:
    (a) Costs of the institution's pension plan which are incurred in 
accordance with the established policies of the institution are 
allowable, provided such policies meet the test of reasonableness, the 
methods of cost allocation are equitable for all activities, the amount 
of pension cost assigned to each fiscal year is determined in accordance 
with subsection (b), and the cost assigned to a given fiscal year is 
paid or funded for all plan participants within six months after the end 
of that year. However, increases to normal and past service pension 
costs caused by a delay in funding the actuarial liability beyond 30 
days after each quarter of the year to which such costs are assignable 
are unallowable.
    (b) The amount of pension cost assigned to each fiscal year shall be 
determined in accordance with generally accepted accounting principles. 
Institutions may elect to follow the ``Cost Accounting Standard for 
Composition and Measurement of Pension Cost'' (48 Part 9904-412).
    (c) Premiums paid for pension plan termination insurance pursuant to 
the Employee Retirement Income Security Act (ERISA) of 1974 (Pub. L. 93-
406) are allowable. Late payment charges on such premiums are 
unallowable. Excise taxes on accumulated funding deficiencies and 
prohibited transactions of pension plan fiduciaries imposed under ERISA 
are also unallowable.
    (4) Rules for sabbatical leave are as follows:
    (a) Costs of leave of absence by employees for performance of 
graduate work or sabbatical study, travel, or research are allowable 
provided the institution has a uniform policy on sabbatical leave for 
persons engaged in instruction and persons engaged in research. Such 
costs will be allocated on an equitable basis among all related 
activities of the institution.
    (b) Where sabbatical leave is included in fringe benefits for which 
a cost is determined for assessment as a direct charge, the aggregate 
amount of such assessments applicable to all work of the institution 
during the base period must be reasonable in relation to the 
institution's actual experience under its sabbatical leave policy.
    (5) Fringe benefits may be assigned to cost objectives by 
identifying specific benefits to specific individual employees or by 
allocating on the basis of institution-wide salaries and wages of the 
employees receiving the benefits. When the allocation method is used, 
separate allocations must be made to selective groupings of employees, 
unless the institution demonstrates that costs in relationship to 
salaries and wages do not differ significantly for different groups of 
employees. Fringe benefits shall be treated in the same manner as the 
salaries and wages of the employees receiving the benefits. The benefits 
related to salaries and wages treated as direct costs shall also be 
treated as direct costs; the benefits related to salaries and wages 
treated as F&A costs shall be treated as F&A costs.

[[Page 92]]

    g. Institution-furnished automobiles.
    That portion of the cost of institution-furnished automobiles that 
relates to personal use by employees (including transportation to and 
from work) is unallowable regardless of whether the cost is reported as 
taxable income to the employees.
    h. Severance pay.
    (1) Severance pay is compensation in addition to regular salary and 
wages which is paid by an institution to employees whose services are 
being terminated. Costs of severance pay are allowable only to the 
extent that such payments are required by law, by employer-employee 
agreement, by established policy that constitutes in effect an implied 
agreement on the institution's part, or by circumstances of the 
particular employment.
    (2) Severance payments that are due to normal recurring turnover and 
which otherwise meet the conditions of subsection J.10.h.(1) of this 
Appendix may be allowed provided the actual costs of such severance 
payments are regarded as expenses applicable to the current fiscal year 
and are equitably distributed among the institution's activities during 
that period.
    (3) Severance payments that are due to abnormal or mass terminations 
are of such conjectural nature that allowability must be determined on a 
case-by-case basis. However, the Federal Government recognizes its 
obligation to participate, to the extent of its fair share, in any 
specific payment.
    (4) Costs incurred in excess of the institution's normal severance 
pay policy applicable to all persons employed by the institution upon 
termination of employment are unallowable.
    11. Contingency provisions.
    Contributions to a contingency reserve or any similar provision made 
for events the occurrence of which cannot be foretold with certainty as 
to time, intensity, or with an assurance of their happening, are 
unallowable, except as noted in the cost principles in this Appendix 
regarding self-insurance, pensions, severance and post-retirement health 
costs.
    12. Deans of faculty and graduate schools.
    The salaries and expenses of deans of faculty and graduate schools, 
or their equivalents, and their staffs, are allowable.
    13. Defense and prosecution of criminal and civil proceedings, 
claims, appeals and patent infringement.
    a. Definitions.
    ``Conviction,'' as used herein, means a judgment or conviction of a 
criminal offense by any court of competent jurisdiction, whether entered 
upon verdict or a plea, including a conviction due to a plea of nolo 
contendere.
    ``Costs,'' include, but are not limited to, administrative and 
clerical expenses; the cost of legal services, whether performed by in-
house or private counsel; the costs of the services of accountants, 
consultants, or others retained by the institution to assist it; costs 
of employees, officers and trustees, and any similar costs incurred 
before, during, and after commencement of a judicial or administrative 
proceeding that bears a direct relationship to the proceedings.
    ``Fraud,'' as used herein, means--
    (1) Acts of fraud or corruption or attempts to defraud the Federal 
Government or to corrupt its agents;
    (2) Acts that constitute a cause for debarment or suspension (as 
specified in agency regulations), and
    (3) Acts which violate the False Claims Act, 31 U.S.C., sections 
3729-3731, or the Anti-kickback Act, 41 U.S.C., sections 51 and 54.
    ``Penalty,'' does not include restitution, reimbursement, or 
compensatory damages.
    ``Proceeding,'' includes an investigation.
    b. (1) Except as otherwise described herein, costs incurred in 
connection with any criminal, civil or administrative proceeding 
(including filing of a false certification) commenced by the Federal 
Government, or a State, local or foreign government, are not allowable 
if the proceeding
    (a) Relates to a violation of, or failure to comply with, a Federal, 
State, local or foreign statute or regulation, by the institution 
(including its agents and employees); and
    (b) Results in any of the following dispositions:
    (i) In a criminal proceeding, a conviction.
    (ii) In a civil or administrative proceeding involving an allegation 
of fraud or similar misconduct, a determination of institutional 
liability.
    (iii) In the case of any civil or administrative proceeding, the 
imposition of a monetary penalty.
    (iv) A final decision by an appropriate Federal official to debar or 
suspend the institution, to rescind or void an award, or to terminate an 
award for default by reason of a violation or failure to comply with a 
law or regulation.
    (v) A disposition by consent or compromise, if the action could have 
resulted in any of the dispositions described in subsections 
J.13.b.(1)(b)(i) through (iv) of this Appendix.
    (2) If more than one proceeding involves the same alleged 
misconduct, the costs of all such proceedings shall be unallowable if 
any one of them results in one of the dispositions shown in subsection 
b.
    c. If a proceeding referred to in subsection J.13.b. of this 
Appendix is commenced by the Federal Government and is resolved by 
consent or compromise pursuant to an agreement entered into by the 
institution and the Federal Government, then the costs incurred by the 
institution in connection with such proceedings that are otherwise not 
allowable under subsection b. may be allowed to the

[[Page 93]]

extent specifically provided in such agreement.
    d. If a proceeding referred to in subsection J.13.b. of this 
Appendix is commenced by a State, local or foreign government, the 
authorized Federal official may allow the costs incurred by the 
institution for such proceedings, if such authorized official determines 
that the costs were incurred as a result of--
    (1) A specific term or condition of a federally-sponsored agreement; 
or
    (2) Specific written direction of an authorized official of the 
sponsoring agency.
    e. Costs incurred in connection with proceedings described in 
subsection J.13.b of this Appendix, but which are not made unallowable 
by that subsection, may be allowed by the Federal Government, but only 
to the extent that:
    (1) The costs are reasonable in relation to the activities required 
to deal with the proceeding and the underlying cause of action;
    (2) Payment of the costs incurred, as allowable and allocable costs, 
is not prohibited by any other provision(s) of the sponsored agreement;
    (3) The costs are not otherwise recovered from the Federal 
Government or a third party, either directly as a result of the 
proceeding or otherwise; and,
    (4) The percentage of costs allowed does not exceed the percentage 
determined by an authorized Federal official to be appropriate 
considering the complexity of procurement litigation, generally accepted 
principles governing the award of legal fees in civil actions involving 
the United States as a party, and such other factors as may be 
appropriate. Such percentage shall not exceed 80 percent. However, if an 
agreement reached under subsection c has explicitly considered this 80 
percent limitation and permitted a higher percentage, then the full 
amount of costs resulting from that agreement shall be allowable.
    f. Costs incurred by the institution in connection with the defense 
of suits brought by its employees or ex-employees under section 2 of the 
Major Fraud Act of 1988 (Pub. L. 100-700), including the cost of all 
relief necessary to make such employee whole, where the institution was 
found liable or settled, are unallowable.
    g. Costs of legal, accounting, and consultant services, and related 
costs, incurred in connection with defense against Federal Government 
claims or appeals, or the prosecution of claims or appeals against the 
Federal Government, are unallowable.
    h. Costs of legal, accounting, and consultant services, and related 
costs, incurred in connection with patent infringement litigation, are 
unallowable unless otherwise provided for in the sponsored agreements.
    i. Costs, which may be unallowable under this section, including 
directly associated costs, shall be segregated and accounted for by the 
institution separately. During the pendency of any proceeding covered by 
subsections J.13.b and f of this Appendix, the Federal Government shall 
generally withhold payment of such costs. However, if in the best 
interests of the Federal Government, the Federal Government may provide 
for conditional payment upon provision of adequate security, or other 
adequate assurance, and agreement by the institution to repay all 
unallowable costs, plus interest, if the costs are subsequently 
determined to be unallowable.
    14. Depreciation and use allowances.
    a. Institutions may be compensated for the use of their buildings, 
capital improvements, and equipment, provided that they are used, needed 
in the institutions' activities, and properly allocable to sponsored 
agreements. Such compensation shall be made by computing either 
depreciation or use allowance. Use allowances are the means of providing 
such compensation when depreciation or other equivalent costs are not 
computed. The allocation for depreciation or use allowance shall be made 
in accordance with Section F.2 of this Appendix. Depreciation and use 
allowances are computed applying the following rules:
    b. The computation of depreciation or use allowances shall be based 
on the acquisition cost of the assets involved. The acquisition cost of 
an asset donated to the institution by a third party shall be its fair 
market value at the time of the donation.
    c. For this purpose, the acquisition cost will exclude:
    (1) The cost of land;
    (2) Any portion of the cost of buildings and equipment borne by or 
donated by the Federal Government, irrespective of where title was 
originally vested or where it is presently located; and
    (3) Any portion of the cost of buildings and equipment contributed 
by or for the institution where law or agreement prohibits recovery.
    d. In the use of the depreciation method, the following shall be 
observed:
    (1) The period of useful service (useful life) established in each 
case for usable capital assets must take into consideration such factors 
as type of construction, nature of the equipment, technological 
developments in the particular area, and the renewal and replacement 
policies followed for the individual items or classes of assets 
involved.
    (2) The depreciation method used to charge the cost of an asset (or 
group of assets) to accounting periods shall reflect the pattern of 
consumption of the asset during its useful life. In the absence of clear 
evidence indicating that the expected consumption of the asset will be 
significantly greater in the early portions than in the later portions 
of its useful life, the straight-line method shall

[[Page 94]]

be presumed to be the appropriate method. Depreciation methods once used 
shall not be changed unless approved in advance by the cognizant Federal 
agency. The depreciation methods used to calculate the depreciation 
amounts for F&A rate purposes shall be the same methods used by the 
institution for its financial statements. This requirement does not 
apply to those institutions (e.g., public institutions of higher 
education) which are not required to record depreciation by applicable 
generally accepted accounting principles (GAAP).
    (3) Where the depreciation method is introduced to replace the use 
allowance method, depreciation shall be computed as if the asset had 
been depreciated over its entire life (i.e., from the date the asset was 
acquired and ready for use to the date of disposal or withdrawal from 
service). The aggregate amount of use allowances and depreciation 
attributable to an asset (including imputed depreciation applicable to 
periods prior to the conversion to the use allowance method as well as 
depreciation after the conversion) may be less than, and in no case, 
greater than the total acquisition cost of the asset.
    (4) The entire building, including the shell and all components, may 
be treated as a single asset and depreciated over a single useful life. 
A building may also be divided into multiple components. Each component 
item may then be depreciated over its estimated useful life. The 
building components shall be grouped into three general components of a 
building: building shell (including construction and design costs), 
building services systems (e.g., elevators, HVAC, plumbing system and 
heating and air-conditioning system) and fixed equipment (e.g., 
sterilizers, casework, fume hoods, cold rooms and glassware/washers). In 
exceptional cases, a Federal cognizant agency may authorize an 
institution to use more than these three groupings. When an institution 
elects to depreciate its buildings by its components, the same 
depreciation methods must be used for F&A purposes and financial 
statement purposes, as described in subsection d.2.
    (5) Where the depreciation method is used for a particular class of 
assets, no depreciation may be allowed on any such assets that have 
outlived their depreciable lives. (See also subsection J.14.e.(3) of 
this Appendix)
    e. Under the use allowance method, the following shall be observed:
    (1) The use allowance for buildings and improvements (including 
improvements such as paved parking areas, fences, and sidewalks) shall 
be computed at an annual rate not exceeding two percent of acquisition 
cost. The use allowance for equipment shall be computed at an annual 
rate not exceeding six and two-thirds percent of acquisition cost. Use 
allowance recovery is limited to the acquisition cost of the assets. For 
donated assets, use allowance recovery is limited to the fair market 
value of the assets at the time of donation.
    (2) In contrast to the depreciation method, the entire building must 
be treated as a single asset without separating its ``shell'' from other 
building components under the use allowance method. The entire building 
must be treated as a single asset, and the two-percent use allowance 
limitation must be applied to all parts of the building. The two-percent 
limitation, however, need not be applied to equipment or other assets 
that are merely attached or fastened to the building but not permanently 
fixed and are used as furnishings, decorations or for specialized 
purposes (e.g., dentist chairs and dental treatment units, counters, 
laboratory benches bolted to the floor, dishwashers, modular furniture, 
and carpeting). Such equipment and assets will be considered as not 
being permanently fixed to the building if they can be removed without 
the need for costly or extensive alterations or repairs to the building 
to make the space usable for other purposes. Equipment and assets that 
meet these criteria will be subject to the 6\2/3\ percent equipment use 
allowance.
    (3) A reasonable use allowance may be negotiated for any assets that 
are considered to be fully depreciated, after taking into consideration 
the amount of depreciation previously charged to the Federal Government, 
the estimated useful life remaining at the time of negotiation, the 
effect of any increased maintenance charges, decreased efficiency due to 
age, and any other factors pertinent to the utilization of the asset for 
the purpose contemplated.
    (4) Notwithstanding subsection J.14.e.(3) of this Appendix, once an 
institution converts from one cost recovery methodology to another, 
acquisition costs not recovered may not be used in the calculation of 
the use allowance in subsection J.14.e.(3) of this Appendix.
    f. Except as otherwise provided in subsections J.14.b. through e. of 
this Appendix, a combination of the depreciation and use allowance 
methods may not be used, in like circumstances, for a single class of 
assets (e.g., buildings, office equipment, and computer equipment).
    g. Charges for use allowances or depreciation must be supported by 
adequate property records, and physical inventories must be taken at 
least once every two years to ensure that the assets exist and are 
usable, used, and needed. Statistical sampling techniques may be used in 
taking these inventories. In addition, when the depreciation method is 
used, adequate depreciation records showing the amount of depreciation 
taken each period must also be maintained.
    h. This section applies to the largest college and university 
recipients of Federal research and development funds as displayed in

[[Page 95]]

Exhibit A, List of Colleges and Universities Subject to Section J.14.h 
of this Appendix.
    (1) Institutions shall expend currently, or reserve for expenditure 
within the next five years, the portion of F&A cost payments made for 
depreciation or use allowances under sponsored research agreements, 
consistent with Section F.2 of this Appendix, to acquire or improve 
research facilities. This provision applies only to Federal agreements, 
which reimburse F&A costs at a full negotiated rate. These funds may 
only be used for liquidation of the principal of debts incurred to 
acquire assets that are used directly for organized research activities, 
or payments to acquire, repair, renovate, or improve buildings or 
equipment directly used for organized research. For buildings or 
equipment not exclusively used for organized research activity, only 
appropriately proportionate amounts will be considered to have been 
expended for research facilities.
    (2) An assurance that an amount equal to the Federal reimbursements 
has been appropriately expended or reserved to acquire or improve 
research facilities shall be submitted as part of each F&A cost proposal 
submitted to the cognizant Federal agency which is based on costs 
incurred on or after October 1, 1991. This assurance will cover the 
cumulative amounts of funds received and expended during the period 
beginning after the period covered by the previous assurance and ending 
with the fiscal year on which the proposal is based. The assurance shall 
also cover any amounts reserved from a prior period in which the funds 
received exceeded the amounts expended.
    15. Donations and contributions.
    a. Contributions or Donations rendered.
    Contributions or donations, including cash, property, and services, 
made by the institution, regardless of the recipient, are unallowable.
    b. Donated services received.
    Donated or volunteer services may be furnished to an institution by 
professional and technical personnel, consultants, and other skilled and 
unskilled labor. The value of these services is not reimbursable either 
as a direct or F&A cost. However, the value of donated services may be 
used to meet cost sharing or matching requirements in accordance with 2 
CFR Part 215.
    c. Donated property.
    The value of donated property is not reimbursable either as a direct 
or F&A cost, except that depreciation or use allowances on donated 
assets are permitted in accordance with Section J.14. The value of 
donated property may be used to meet cost sharing or matching 
requirements, in accordance with 2 CFR Part 215.
    16. Employee morale, health, and welfare costs and costs.
    a. The costs of employee information publications, health or first-
aid clinics and/or infirmaries, recreational activities, employee 
counseling services, and any other expenses incurred in accordance with 
the institution's established practice or custom for the improvement of 
working conditions, employer-employee relations, employee morale, and 
employee performance are allowable.
    b. Such costs will be equitably apportioned to all activities of the 
institution. Income generated from any of these activities will be 
credited to the cost thereof unless such income has been irrevocably set 
over to employee welfare organizations.
    c. Losses resulting from operating food services are allowable only 
if the institution's objective is to operate such services on a break-
even basis. Losses sustained because of operating objectives other than 
the above are allowable only where the institution can demonstrate 
unusual circumstances, and with the approval of the cognizant Federal 
agency.
    17. Entertainment costs.
    Costs of entertainment, including amusement, diversion, and social 
activities and any costs directly associated with such costs (such as 
tickets to shows or sports events, meals, lodging, rentals, 
transportation, and gratuities) are unallowable.
    18. Equipment and other capital expenditures.
    a. For purposes of this subsection, the following definitions apply:
    (1) ``Capital Expenditures'' means expenditures for the acquisition 
cost of capital assets (equipment, buildings, and land), or expenditures 
to make improvements to capital assets that materially increase their 
value or useful life. Acquisition cost means the cost of the asset 
including the cost to put it in place. Acquisition cost for equipment, 
for example, means the net invoice price of the equipment, including the 
cost of any modifications, attachments, accessories, or auxiliary 
apparatus necessary to make it usable for the purpose for which it is 
acquired. Ancillary charges, such as taxes, duty, protective in transit 
insurance, freight, and installation may be included in, or excluded 
from the acquisition cost in accordance with the institution's regular 
accounting practices.
    (2) ``Equipment'' means an article of nonexpendable, tangible 
personal property having a useful life of more than one year and an 
acquisition cost which equals or exceeds the lesser of the 
capitalization level established by the institution for financial 
statement purposes, or $5000.
    (3) ``Special purpose equipment'' means equipment which is used only 
for research, medical, scientific, or other technical activities. 
Examples of special purpose equipment include microscopes, x-ray 
machines, surgical instruments, and spectrometers.
    (4) ``General purpose equipment'' means equipment, which is not 
limited to research,

[[Page 96]]

medical, scientific or other technical activities. Examples include 
office equipment and furnishings, modular offices, telephone networks, 
information technology equipment and systems, air conditioning 
equipment, reproduction and printing equipment, and motor vehicles.
    b. The following rules of allowability shall apply to equipment and 
other capital expenditures:
    (1) Capital expenditures for general purpose equipment, buildings, 
and land are unallowable as direct charges, except where approved in 
advance by the awarding agency.
    (2) Capital expenditures for special purpose equipment are allowable 
as direct costs, provided that items with a unit cost of $5000 or more 
have the prior approval of the awarding agency.
    (3) Capital expenditures for improvements to land, buildings, or 
equipment which materially increase their value or useful life are 
unallowable as a direct cost except with the prior approval of the 
awarding agency.
    (4) When approved as a direct charge pursuant to subsections 
J.18.b(1) through (3) of this Appendix, capital expenditures will be 
charged in the period in which the expenditure is incurred, or as 
otherwise determined appropriate by and negotiated with the awarding 
agency.
    (5) Equipment and other capital expenditures are unallowable as 
indirect costs. However, see section J.14 of this Appendix, Depreciation 
and use allowances, for rules on the allowability of use allowances or 
depreciation on buildings, capital improvements, and equipment. Also, 
see section J.43 of this Appendix, Rental costs of buildings and 
equipment, for rules on the allowability of rental costs for land, 
buildings, and equipment.
    (6) The unamortized portion of any equipment written off as a result 
of a change in capitalization levels may be recovered by continuing to 
claim the otherwise allowable use allowances or depreciation on the 
equipment, or by amortizing the amount to be written off over a period 
of years negotiated with the cognizant agency.
    19. Fines and penalties.
    Costs resulting from violations of, or failure of the institution to 
comply with, Federal, State, and local or foreign laws and regulations 
are unallowable, except when incurred as a result of compliance with 
specific provisions of the sponsored agreement, or instructions in 
writing from the authorized official of the sponsoring agency 
authorizing in advance such payments.
    20. Fund raising and investment costs.
    a. Costs of organized fund raising, including financial campaigns, 
endowment drives, solicitation of gifts and bequests, and similar 
expenses incurred solely to raise capital or obtain contributions, are 
unallowable.
    b. Costs of investment counsel and staff and similar expenses 
incurred solely to enhance income from investments are unallowable.
    c. Costs related to the physical custody and control of monies and 
securities are allowable.
    21. Gain and losses on depreciable assets.
    a. (1) Gains and losses on the sale, retirement, or other 
disposition of depreciable property shall be included in the year in 
which they occur as credits or charges to the asset cost grouping(s) in 
which the property was included. The amount of the gain or loss to be 
included as a credit or charge to the appropriate asset cost grouping(s) 
shall be the difference between the amount realized on the property and 
the undepreciated basis of the property.
    (2) Gains and losses on the disposition of depreciable property 
shall not be recognized as a separate credit or charge under the 
following conditions:
    (a) The gain or loss is processed through a depreciation account and 
is reflected in the depreciation allowable under Section J.14 of this 
Appendix.
    (b) The property is given in exchange as part of the purchase price 
of a similar item and the gain or loss is taken into account in 
determining the depreciation cost basis of the new item.
    (c) A loss results from the failure to maintain permissible 
insurance, except as otherwise provided in Section J.25 of this 
Appendix.
    (d) Compensation for the use of the property was provided through 
use allowances in lieu of depreciation.
    b. Gains or losses of any nature arising from the sale or exchange 
of property other than the property covered in subsection a shall be 
excluded in computing sponsored agreement costs.
    c. When assets acquired with Federal funds, in part or wholly, are 
disposed of, the distribution of the proceeds shall be made in 
accordance with 2 CFR Part 215, Uniform Administrative Requirements for 
Grants and Agreements with Institutions of Higher Education, Hospitals, 
and Other Non-Profit Organizations (OMB Circular A-110).
    22. Goods or services for personal use.
    Costs of goods or services for personal use of the institution's 
employees are unallowable regardless of whether the cost is reported as 
taxable income to the employees.
    23. Housing and personal living expenses.
    a. Costs of housing (e.g., depreciation, maintenance, utilities, 
furnishings, rent, etc.), housing allowances and personal living 
expenses for/of the institution's officers are unallowable regardless of 
whether the cost is reported as taxable income to the employees.
    b. The term ``officers'' includes current and past officers.
    24. Idle facilities and idle capacity.

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    a. As used in this section the following terms have the meanings set 
forth below:
    (1) ``Facilities'' means land and buildings or any portion thereof, 
equipment individually or collectively, or any other tangible capital 
asset, wherever located, and whether owned or leased by the institution.
    (2) ``Idle facilities'' means completely unused facilities that are 
excess to the institution's current needs.
    (3) ``Idle capacity'' means the unused capacity of partially used 
facilities. It is the difference between:
    (a) That which a facility could achieve under 100 percent operating 
time on a one-shift basis less operating interruptions resulting from 
time lost for repairs, setups, unsatisfactory materials, and other 
normal delays; and
    (b) The extent to which the facility was actually used to meet 
demands during the accounting period. A multi-shift basis should be used 
if it can be shown that this amount of usage would normally be expected 
for the type of facility involved.
    (4) ``Cost of idle facilities or idle capacity'' means costs such as 
maintenance, repair, housing, rent, and other related costs, e.g., 
insurance, interest, property taxes and depreciation or use allowances.
    b. The costs of idle facilities are unallowable except to the extent 
that:
    (1) They are necessary to meet fluctuations in workload; or
    (2) Although not necessary to meet fluctuations in workload, they 
were necessary when acquired and are now idle because of changes in 
program requirements, efforts to achieve more economical operations, 
reorganization, termination, or other causes which could not have been 
reasonably foreseen. Under the exception stated in this subsection, 
costs of idle facilities are allowable for a reasonable period of time, 
ordinarily not to exceed one year, depending on the initiative taken to 
use, lease, or dispose of such facilities.
    c. The costs of idle capacity are normal costs of doing business and 
are a factor in the normal fluctuations of usage or indirect cost rates 
from period to period. Such costs are allowable, provided that the 
capacity is reasonably anticipated to be necessary or was originally 
reasonable and is not subject to reduction or elimination by use on 
other sponsored agreements, subletting, renting, or sale, in accordance 
with sound business, economic, or security practices. Widespread idle 
capacity throughout an entire facility or among a group of assets having 
substantially the same function may be considered idle facilities.
    25. Insurance and indemnification.
    a. Costs of insurance required or approved, and maintained, pursuant 
to the sponsored agreement, are allowable.
    b. Costs of other insurance maintained by the institution in 
connection with the general conduct of its activities, are allowable 
subject to the following limitations:
    (1) Types and extent and cost of coverage must be in accordance with 
sound institutional practice;
    (2) Costs of insurance or of any contributions to any reserve 
covering the risk of loss of or damage to federally-owned property are 
unallowable, except to the extent that the Federal Government has 
specifically required or approved such costs; and
    (3) Costs of insurance on the lives of officers or trustees are 
unallowable except where such insurance is part of an employee plan 
which is not unduly restricted.
    c. Contributions to a reserve for a self-insurance program are 
allowable, to the extent that the types of coverage, extent of coverage, 
and the rates and premiums would have been allowed had insurance been 
purchased to cover the risks.
    d. Actual losses which could have been covered by permissible 
insurance (whether through purchased insurance or self-insurance) are 
unallowable, unless expressly provided for in the sponsored agreement, 
except that costs incurred because of losses not covered under existing 
deductible clauses for insurance coverage provided in keeping with sound 
management practice as well as minor losses not covered by insurance, 
such as spoilage, breakage and disappearance of small hand tools, which 
occur in the ordinary course of operations, are allowable.
    e. Indemnification includes securing the institution against 
liabilities to third persons and other losses not compensated by 
insurance or otherwise. The Federal Government is obligated to indemnify 
the institution only to the extent expressly provided for in the 
sponsored agreement, except as provided in subsection J.25.d of this 
Appendix.
    f. Insurance against defects. Costs of insurance with respect to any 
costs incurred to correct defects in the institution's materials or 
workmanship are unallowable.
    g. Medical liability (malpractice) insurance is an allowable cost of 
research programs only to the extent that the research involves human 
subjects. Medical liability insurance costs shall be treated as a direct 
cost and shall be assigned to individual projects based on the manner in 
which the insurer allocates the risk to the population covered by the 
insurance.
    26. Interest.
    a. Costs incurred for interest on borrowed capital, temporary use of 
endowment funds, or the use of the institution's own funds, however 
represented, are unallowable. However, interest on debt incurred after 
July 1, 1982 to acquire buildings, major reconstruction and remodeling, 
or the acquisition or

[[Page 98]]

fabrication of capital equipment costing $10,000 or more, is allowable.
    b. Interest on debt incurred after May 8, 1996 to acquire or replace 
capital assets (including construction, renovations, alterations, 
equipment, land, and capital assets acquired through capital leases) 
acquired after that date and used in support of sponsored agreements is 
allowable, subject to the following conditions:
    (1) For facilities costing over $500,000, the institution shall 
prepare, prior to acquisition or replacement of the facility, a lease-
purchase analysis in accordance with the provisions of Sec. Sec. 215.30 
through 215.37 of 2 CFR part 215 (OMB Circular A-110), which shows that 
a financed purchase, including a capital lease is less costly to the 
institution than other operating lease alternatives, on a net present 
value basis. Discount rates used shall be equal to the institution's 
anticipated interest rates and shall be no higher than the fair market 
rate available to the institution from an unrelated (``arm's length'') 
third-party. The lease-purchase analysis shall include a comparison of 
the net present value of the projected total cost comparisons of both 
alternatives over the period the asset is expected to be used by the 
institution. The cost comparisons associated with purchasing the 
facility shall include the estimated purchase price, anticipated 
operating and maintenance costs (including property taxes, if 
applicable) not included in the debt financing, less any estimated asset 
salvage value at the end of the defined period. The cost comparison for 
a capital lease shall include the estimated total lease payments, any 
estimated bargain purchase option, operating and maintenance costs, and 
taxes not included in the capital leasing arrangement, less any 
estimated credits due under the lease at the end of the defined period. 
Projected operating lease costs shall be based on the anticipated cost 
of leasing comparable facilities at fair market rates under rental 
agreements that would be renewed or reestablished over the period 
defined above, and any expected maintenance costs and allowable property 
taxes to be borne by the institution directly or as part of the lease 
arrangement.
    (2) The actual interest cost claimed is predicated upon interest 
rates that are no higher than the fair market rate available to the 
institution from an unrelated (arm's length) third party.
    (3) Investment earnings, including interest income on bond or loan 
principal, pending payment of the construction or acquisition costs, are 
used to offset allowable interest cost. Arbitrage earnings reportable to 
the Internal Revenue Service are not required to be offset against 
allowable interest costs.
    (4) Reimbursements are limited to the least costly alternative based 
on the total cost analysis required under subsection J.26.b.(1) of this 
Appendix. For example, if an operating lease is determined to be less 
costly than purchasing through debt financing, then reimbursement is 
limited to the amount determined if leasing had been used. In all cases 
where a lease-purchase analysis is required to be performed, Federal 
reimbursement shall be based upon the least expensive alternative.
    (5) For debt arrangements over $1 million, unless the institution 
makes an initial equity contribution to the asset purchase of 25 percent 
or more, the institution shall reduce claims for interest expense by an 
amount equal to imputed interest earnings on excess cash flow, which is 
to be calculated as follows. Annually, non-Federal entities shall 
prepare a cumulative (from the inception of the project) report of 
monthly cash flows that includes inflows and outflows, regardless of the 
funding source. Inflows consist of depreciation expense, amortization of 
capitalized construction interest, and annual interest cost. For cash 
flow calculations, the annual inflow figures shall be divided by the 
number of months in the year (i.e., usually 12) that the building is in 
service for monthly amounts. Outflows consist of initial equity 
contributions, debt principal payments (less the pro rata share 
attributable to the unallowable costs of land) and interest payments. 
Where cumulative inflows exceed cumulative outflows, interest shall be 
calculated on the excess inflows for that period and be treated as a 
reduction to allowable interest cost. The rate of interest to be used to 
compute earnings on excess cash flows shall be the three-month Treasury 
bill closing rate as of the last business day of that month.
    (6) Substantial relocation of federally-sponsored activities from a 
facility financed by indebtedness, the cost of which was funded in whole 
or part through Federal reimbursements, to another facility prior to the 
expiration of a period of 20 years requires notice to the cognizant 
agency. The extent of the relocation, the amount of the Federal 
participation in the financing, and the depreciation and interest 
charged to date may require negotiation and/or downward adjustments of 
replacement space charged to Federal programs in the future.
    (7) The allowable costs to acquire facilities and equipment are 
limited to a fair market value available to the institution from an 
unrelated (arm's length) third party.
    c. Institutions are also subject to the following conditions:
    (1) Interest on debt incurred to finance or refinance assets re-
acquired after the applicable effective dates stipulated above is 
unallowable.
    (2) Interest attributable to fully depreciated assets is 
unallowable.
    d. The following definitions are to be used for purposes of this 
section:

[[Page 99]]

    (1) ``Re-acquired'' assets means assets held by the institution 
prior to the applicable effective dates stipulated above that have again 
come to be held by the institution, whether through repurchase or 
refinancing. It does not include assets acquired to replace older 
assets.
    (2) ``Initial equity contribution'' means the amount or value of 
contributions made by non-Federal entities for the acquisition of the 
asset prior to occupancy of facilities.
    (3) ``Asset costs'' means the capitalizable costs of an asset, 
including construction costs, acquisition costs, and other such costs 
capitalized in accordance with Generally Accepted Accounting Principles 
(GAAP).
    27. Labor relations costs.
    Costs incurred in maintaining satisfactory relations between the 
institution and its employees, including costs of labor management 
committees, employees' publications, and other related activities, are 
allowable.
    28. Lobbying.
    Reference is made to the common rule published at 7 CFR part 3018, 
10 CFR parts 600 and 601, 12 CFR part 411, 13 CFR part 146, 14 CFR part 
1271, 15 CFR part 28, 18 CFR part 1315, 22 CFR parts 138, 227, 311, 519 
and 712, 24 CFR part 87, 28 CFR part 69, 29 CFR part 93, 31 CFR part 21, 
32 CFR part 282, 34 CFR part 82, 38 CFR part 85, 40 CFR part 34, 41 CFR 
part 105-69, 43 CFR part 18, 44 CFR part 18, 45 CFR parts 93, 604, 1158, 
1168 and 1230, and 49 CFR part 20, and OMB's governmentwide guidance, 
amendments to OMB's governmentwide guidance, and OMB's clarification 
notices published at 54 FR 52306 (12/20/89), 61 FR 1412 (1/19/96), 55 FR 
24540 (6/15/90) and 57 FR 1772 (1/15/92), respectively. In addition, the 
following restrictions shall apply:
    a. Notwithstanding other provisions of this Appendix, costs 
associated with the following activities are unallowable:
    (1) Attempts to influence the outcomes of any Federal, State, or 
local election, referendum, initiative, or similar procedure, through in 
kind or cash contributions, endorsements, publicity, or similar 
activity;
    (2) Establishing, administering, contributing to, or paying the 
expenses of a political party, campaign, political action committee, or 
other organization established for the purpose of influencing the 
outcomes of elections;
    (3) Any attempt to influence The introduction of Federal or State 
legislation; The enactment or modification of any pending Federal or 
State legislation through communication with any member or employee of 
the Congress or State legislature, including efforts to influence State 
or local officials to engage in similar lobbying activity; or any 
government official or employee in connection with a decision to sign or 
veto enrolled legislation;
    (4) Any attempt to influence The introduction of Federal or State 
legislation; or The enactment or modification of any pending Federal or 
State legislation by preparing, distributing, or using publicity or 
propaganda, or by urging members of the general public, or any segment 
thereof, to contribute to or participate in any mass demonstration, 
march, rally, fund raising drive, lobbying campaign or letter writing or 
telephone campaign; or
    (5) Legislative liaison activities, including attendance at 
legislative sessions or committee hearings, gathering information 
regarding legislation, and analyzing the effect of legislation, when 
such activities are carried on in support of or in knowing preparation 
for an effort to engage in unallowable lobbying.
    b. The following activities are excepted from the coverage of 
subsection J.28.a of this Appendix:
    (1) Technical and factual presentations on topics directly related 
to the performance of a grant, contract, or other agreement (through 
hearing testimony, statements, or letters to the Congress or a State 
legislature, or subdivision, member, or cognizant staff member thereof), 
in response to a documented request (including a Congressional Record 
notice requesting testimony or statements for the record at a regularly 
scheduled hearing) made by the recipient member, legislative body or 
subdivision, or a cognizant staff member thereof, provided such 
information is readily obtainable and can be readily put in deliverable 
form, and further provided that costs under this section for travel, 
lodging or meals are unallowable unless incurred to offer testimony at a 
regularly scheduled Congressional hearing pursuant to a written request 
for such presentation made by the Chairman or Ranking Minority Member of 
the Committee or Subcommittee conducting such hearings;
    (2) Any lobbying made unallowable by subsection J.28.a.(3) of this 
Appendix to influence State legislation in order to directly reduce the 
cost, or to avoid material impairment of the institution's authority to 
perform the grant, contract, or other agreement; or
    (3) Any activity specifically authorized by statute to be undertaken 
with funds from the grant, contract, or other agreement.
    c. When an institution seeks reimbursement for F&A costs, total 
lobbying costs shall be separately identified in the F&A cost rate 
proposal, and thereafter treated as other unallowable activity costs in 
accordance with the procedures of Section B.1.d of this Appendix.
    d. Institutions shall submit as part of their annual F&A cost rate 
proposal a certification that the requirements and standards of this 
section have been complied with.

[[Page 100]]

    e. Institutions shall maintain adequate records to demonstrate that 
the determination of costs as being allowable or unallowable pursuant to 
this section complies with the requirements of this Appendix.
    f. Time logs, calendars, or similar records shall not be required to 
be created for purposes of complying with this section during any 
particular calendar month when:
    (1) the employee engages in lobbying (as defined in subsections 
J.28.a and b of this Appendix) 25 percent or less of the employee's 
compensated hours of employment during that calendar month; and
    (2) within the preceding five-year period, the institution has not 
materially misstated allowable or unallowable costs of any nature, 
including legislative lobbying costs. When conditions in subsections 
J.28.f.(1) and (2) of this Appendix are met, institutions are not 
required to establish records to support the allowability of claimed 
costs in addition to records already required or maintained. Also, when 
conditions in subsections J.28.f. (1) and (2) of this Appendix are met, 
the absence of time logs, calendars, or similar records will not serve 
as a basis for disallowing costs by contesting estimates of lobbying 
time spent by employees during a calendar month.
    g. Agencies shall establish procedures for resolving in advance, in 
consultation with OMB, any significant questions or disagreements 
concerning the interpretation or application of this section. Any such 
advance resolutions shall be binding in any subsequent settlements, 
audits, or investigations with respect to that grant or contract for 
purposes of interpretation of this Appendix, provided, however, that 
this shall not be construed to prevent a contractor or grantee from 
contesting the lawfulness of such a determination.
    h. Executive lobbying costs.
    Costs incurred in attempting to improperly influence either directly 
or indirectly, an employee or officer of the Executive Branch of the 
Federal Government to give consideration or to act regarding a sponsored 
agreement or a regulatory matter are unallowable. Improper influence 
means any influence that induces or tends to induce a Federal employee 
or officer to give consideration or to act regarding a federally-
sponsored agreement or regulatory matter on any basis other than the 
merits of the matter.
    29. Losses on other sponsored agreements or contracts.
    Any excess of costs over income under any other sponsored agreement 
or contract of any nature is unallowable. This includes, but is not 
limited to, the institution's contributed portion by reason of cost-
sharing agreements or any under-recoveries through negotiation of flat 
amounts for F&A costs.
    30. Maintenance and repair costs.
    Costs incurred for necessary maintenance, repair, or upkeep of 
buildings and equipment (including Federal property unless otherwise 
provided for) which neither add to the permanent value of the property 
nor appreciably prolong its intended life, but keep it in an efficient 
operating condition, are allowable. Costs incurred for improvements 
which add to the permanent value of the buildings and equipment or 
appreciably prolong their intended life shall be treated as capital 
expenditures (see section J.18.a(1) of this Appendix).
    31. Material and supplies costs.
    a. Costs incurred for materials, supplies, and fabricated parts 
necessary to carry out a sponsored agreement are allowable.
    b. Purchased materials and supplies shall be charged at their actual 
prices, net of applicable credits. Withdrawals from general stores or 
stockrooms should be charged at their actual net cost under any 
recognized method of pricing inventory withdrawals, consistently 
applied. Incoming transportation charges are a proper part of materials 
and supplies costs.
    c. Only materials and supplies actually used for the performance of 
a sponsored agreement may be charged as direct costs.
    d. Where federally-donated or furnished materials are used in 
performing the sponsored agreement, such materials will be used without 
charge.
    32. Meetings and Conferences.
    Costs of meetings and conferences, the primary purpose of which is 
the dissemination of technical information, are allowable. This includes 
costs of meals, transportation, rental of facilities, speakers' fees, 
and other items incidental to such meetings or conferences. But see 
section J.17 of this Appendix, Entertainment costs.
    33. Memberships, subscriptions and professional activity costs.
    a. Costs of the institution's membership in business, technical, and 
professional organizations are allowable.
    b. Costs of the institution's subscriptions to business, 
professional, and technical periodicals are allowable.
    c. Costs of membership in any civic or community organization are 
unallowable.
    d. Costs of membership in any country club or social or dining club 
or organization are unallowable.
    34. Patent costs.
    a. The following costs relating to patent and copyright matters are 
allowable:
    (1) Cost of preparing disclosures, reports, and other documents 
required by the sponsored agreement and of searching the art to the 
extent necessary to make such disclosures;

[[Page 101]]

    (2) Cost of preparing documents and any other patent costs in 
connection with the filing and prosecution of a United States patent 
application where title or royalty-free license is required by the 
Federal Government to be conveyed to the Federal Government; and
    (3) General counseling services relating to patent and copyright 
matters, such as advice on patent and copyright laws, regulations, 
clauses, and employee agreements (but see sections J.37, Professional 
service costs, and J.44, Royalties and other costs for use of patents, 
of this Appendix).
    b. The following costs related to patent and copyright matter are 
unallowable:
    (1) Cost of preparing disclosures, reports, and other documents and 
of searching the art to the extent necessary to make disclosures not 
required by the award
    (2) Costs in connection with filing and prosecuting any foreign 
patent application, or any United States patent application, where the 
sponsored agreement award does not require conveying title or a royalty-
free license to the Federal Government, (but see section J.44, Royalties 
and other costs for use of patents, of this Appendix).
    35. Plant and homeland security costs.
    Necessary and reasonable expenses incurred for routine and homeland 
security to protect facilities, personnel, and work products are 
allowable. Such costs include, but are not limited to, wages and 
uniforms of personnel engaged in security activities; equipment; 
barriers; contractual security services; consultants; etc. Capital 
expenditures for homeland and plant security purposes are subject to 
section J.18, Equipment and other capital expenditures, of this 
Appendix.
    36. Preagreement costs. Costs incurred prior to the effective date 
of the sponsored agreement, whether or not they would have been 
allowable thereunder if incurred after such date, are unallowable unless 
approved by the sponsoring agency.
    37. Professional service costs.
    a. Costs of professional and consultant services rendered by persons 
who are members of a particular profession or possess a special skill, 
and who are not officers or employees of the institution, are allowable, 
subject to subparagraphs J.37.b and c of this Appendix when reasonable 
in relation to the services rendered and when not contingent upon 
recovery of the costs from the Federal Government. In addition, legal 
and related services are limited under section J.13 of this Appendix.
    b. In determining the allowability of costs in a particular case, no 
single factor or any special combination of factors is necessarily 
determinative. However, the following factors are relevant:
    (1) The nature and scope of the service rendered in relation to the 
service required.
    (2) The necessity of contracting for the service, considering the 
institution's capability in the particular area.
    (3) The past pattern of such costs, particularly in the years prior 
to sponsored agreements.
    (4) The impact on the institution's business (i.e., what new 
problems have arisen).
    (5) Whether the proportion of Federal work to the institution's 
total business is such as to influence the institution in favor of 
incurring the cost, particularly where the services rendered are not of 
a continuing nature and have little relationship to work under Federal 
grants and contracts.
    (6) Whether the service can be performed more economically by direct 
employment rather than contracting.
    (7) The qualifications of the individual or concern rendering the 
service and the customary fees charged, especially on non-sponsored 
agreements.
    (8) Adequacy of the contractual agreement for the service (e.g., 
description of the service, estimate of time required, rate of 
compensation, and termination provisions).
    c. In addition to the factors in subparagraph J.37.b of this 
Appendix, retainer fees to be allowable must be supported by evidence of 
bona fide services available or rendered.
    38. Proposal costs.
    Proposal costs are the costs of preparing bids or proposals on 
potential federally and non-federally-funded sponsored agreements or 
projects, including the development of data necessary to support the 
institution's bids or proposals. Proposal costs of the current 
accounting period of both successful and unsuccessful bids and proposals 
normally should be treated as F&A costs and allocated currently to all 
activities of the institution, and no proposal costs of past accounting 
periods will be allocable to the current period. However, the 
institution's established practices may be to treat proposal costs by 
some other recognized method. Regardless of the method used, the results 
obtained may be accepted only if found to be reasonable and equitable.
    39. Publication and printing costs.
    a. Publication costs include the costs of printing (including the 
processes of composition, plate-making, press work, binding, and the end 
products produced by such processes), distribution, promotion, mailing, 
and general handling. Publication costs also include page charges in 
professional publications.
    b. If these costs are not identifiable with a particular cost 
objective, they should be allocated as indirect costs to all benefiting 
activities of the institution.
    c. Page charges for professional journal publications are allowable 
as a necessary part of research costs where:

[[Page 102]]

    (1) The research papers report work supported by the Federal 
Government: and
    (2) The charges are levied impartially on all research papers 
published by the journal, whether or not by federally-sponsored authors.
    40. Rearrangement and alteration costs.
    Costs incurred for ordinary or normal rearrangement and alteration 
of facilities are allowable. Special arrangement and alteration costs 
incurred specifically for the project are allowable with the prior 
approval of the sponsoring agency.
    41. Reconversion costs.
    Costs incurred in the restoration or rehabilitation of the 
institution's facilities to approximately the same condition existing 
immediately prior to commencement of a sponsored agreement, fair wear 
and tear excepted, are allowable.
    42. Recruiting costs.
    a. Subject to subsections J.42.b, c, and d of this Appendix, and 
provided that the size of the staff recruited and maintained is in 
keeping with workload requirements, costs of ``help wanted'' 
advertising, operating costs of an employment office necessary to secure 
and maintain an adequate staff, costs of operating an aptitude and 
educational testing program, travel costs of employees while engaged in 
recruiting personnel, travel costs of applicants for interviews for 
prospective employment, and relocation costs incurred incident to 
recruitment of new employees, are allowable to the extent that such 
costs are incurred pursuant to a well-managed recruitment program. Where 
the institution uses employment agencies, costs not in excess of 
standard commercial rates for such services are allowable.
    b. In publications, costs of help wanted advertising that includes 
color, includes advertising material for other than recruitment 
purposes, or is excessive in size (taking into consideration recruitment 
purposes for which intended and normal institutional practices in this 
respect), are unallowable.
    c. Costs of help wanted advertising, special emoluments, fringe 
benefits, and salary allowances incurred to attract professional 
personnel from other institutions that do not meet the test of 
reasonableness or do not conform with the established practices of the 
institution, are unallowable.
    d. Where relocation costs incurred incident to recruitment of a new 
employee have been allowed either as an allocable direct or F&A cost, 
and the newly hired employee resigns for reasons within his control 
within 12 months after hire, the institution will be required to refund 
or credit such relocation costs to the Federal Government.
    43. Rental costs of buildings and equipment.
    a. Subject to the limitations described in subsections b. through d. 
of this section, rental costs are allowable to the extent that the rates 
are reasonable in light of such factors as: rental costs of comparable 
property, if any; market conditions in the area; alternatives available; 
and, the type, life expectancy, condition, and value of the property 
leased. Rental arrangements should be reviewed periodically to determine 
if circumstances have changed and other options are available.
    b. Rental costs under ``sale and lease back'' arrangements are 
allowable only up to the amount that would be allowed had the 
institution continued to own the property. This amount would include 
expenses such as depreciation or use allowance, maintenance, taxes, and 
insurance.
    c. Rental costs under ``less-than-arms-length'' leases are allowable 
only up to the amount (as explained in subsection J.43.b of this 
Appendix) that would be allowed had title to the property vested in the 
institution. For this purpose, a less-than-arms-length lease is one 
under which one party to the lease agreement is able to control or 
substantially influence the actions of the other. Such leases include, 
but are not limited to those between--
    (1) Divisions of an institution;
    (2) Non-Federal entities under common control through common 
officers, directors, or members; and
    (3) An institution and a director, trustee, officer, or key employee 
of the institution or his immediate family, either directly or through 
corporations, trusts, or similar arrangements in which they hold a 
controlling interest. For example, an institution may establish a 
separate corporation for the sole purpose of owning property and leasing 
it back to the institution.
    d. Rental costs under leases which are required to be treated as 
capital leases under GAAP are allowable only up to the amount (as 
explained in subsection J.43.b of this Appendix) that would be allowed 
had the institution purchased the property on the date the lease 
agreement was executed. The provisions of Financial Accounting Standards 
Board Statement 13, Accounting for Leases, shall be used to determine 
whether a lease is a capital lease. Interest costs related to capital 
leases are allowable to the extent they meet the criteria in section 
J.26 of this Appendix. Unallowable costs include amounts paid for 
profit, management fees, and taxes that would not have been incurred had 
the institution purchased the facility.
    44. Royalties and other costs for use of patents.
    a. Royalties on a patent or copyright or amortization of the cost of 
acquiring by purchase a copyright, patent, or rights thereto, necessary 
for the proper performance of the award are allowable unless:
    (1) The Federal Government has a license or the right to free use of 
the patent or copyright.

[[Page 103]]

    (2) The patent or copyright has been adjudicated to be invalid, or 
has been administratively determined to be invalid.
    (3) The patent or copyright is considered to be unenforceable.
    (4) The patent or copyright is expired.
    b. Special care should be exercised in determining reasonableness 
where the royalties may have been arrived at as a result of less-than-
arm's-length bargaining, e.g.:
    (1) Royalties paid to persons, including corporations, affiliated 
with the institution.
    (2) Royalties paid to unaffiliated parties, including corporations, 
under an agreement entered into in contemplation that a sponsored 
agreement award would be made.
    (3) Royalties paid under an agreement entered into after an award is 
made to an institution.
    c. In any case involving a patent or copyright formerly owned by the 
institution, the amount of royalty allowed should not exceed the cost 
which would have been allowed had the institution retained title 
thereto.
    45. Scholarships and student aid costs.
    a. Costs of scholarships, fellowships, and other programs of student 
aid are allowable only when the purpose of the sponsored agreement is to 
provide training to selected participants and the charge is approved by 
the sponsoring agency. However, tuition remission and other forms of 
compensation paid as, or in lieu of, wages to students performing 
necessary work are allowable provided that--
    (1) The individual is conducting activities necessary to the 
sponsored agreement;
    (2) Tuition remission and other support are provided in accordance 
with established educational institutional policy and consistently 
provided in a like manner to students in return for similar activities 
conducted in nonsponsored as well as sponsored activities; and
    (3) During the academic period, the student is enrolled in an 
advanced degree program at the institution or affiliated institution and 
the activities of the student in relation to the Federally-sponsored 
research project are related to the degree program;
    (4) The tuition or other payments are reasonable compensation for 
the work performed and are conditioned explicitly upon the performance 
of necessary work; and
    (5) It is the institution's practice to similarly compensate 
students in nonsponsored as well as sponsored activities.
    b. Charges for tuition remission and other forms of compensation 
paid to students as, or in lieu of, salaries and wages shall be subject 
to the reporting requirements stipulated in Section J.10 of this 
Appendix, and shall be treated as direct or F&A cost in accordance with 
the actual work being performed. Tuition remission may be charged on an 
average rate basis.
    46. Selling and marketing.
    Costs of selling and marketing any products or services of the 
institution are unallowable (unless allowed under subsection J.1 of this 
Appendix as allowable public relations costs or under subsection J.38 of 
this Appendix as allowable proposal costs).
    47. Specialized service facilities.
    a. The costs of services provided by highly complex or specialized 
facilities operated by the institution, such as computers, wind tunnels, 
and reactors are allowable, provided the charges for the services meet 
the conditions of either subsection J.47.b. or 47.c. of this Appendix 
and, in addition, take into account any items of income or Federal 
financing that qualify as applicable credits under subsection C.5. of 
this Appendix.
    b. The costs of such services, when material, must be charged 
directly to applicable awards based on actual usage of the services on 
the basis of a schedule of rates or established methodology that:
    (1) Does not discriminate against federally-supported activities of 
the institution, including usage by the institution for internal 
purposes, and
    (2) Is designed to recover only the aggregate costs of the services. 
The costs of each service shall consist normally of both its direct 
costs and its allocable share of all F&A costs. Rates shall be adjusted 
at least biennially, and shall take into consideration over/under 
applied costs of the previous period(s).
    c. Where the costs incurred for a service are not material, they may 
be allocated as F&A costs.
    d. Under some extraordinary circumstances, where it is in the best 
interest of the Federal Government and the institution to establish 
alternative costing arrangements, such arrangements may be worked out 
with the cognizant Federal agency.
    48. Student activity costs.
    Costs incurred for intramural activities, student publications, 
student clubs, and other student activities, are unallowable, unless 
specifically provided for in the sponsored agreements.
    49. Taxes.
    a. In general, taxes which the institution is required to pay and 
which are paid or accrued in accordance with generally accepted 
accounting principles are allowable. Payments made to local governments 
in lieu of taxes which are commensurate with the local government 
services received are allowable, except for--
    (1) Taxes from which exemptions are available to the institution 
directly or which are available to the institution based on an exemption 
afforded the Federal Government, and in the latter case when the 
sponsoring agency makes available the necessary exemption certificates; 
and
    (2) Special assessments on land which represent capital 
improvements.

[[Page 104]]

    b. Any refund of taxes, interest, or penalties, and any payment to 
the institution of interest thereon, attributable to taxes, interest, or 
penalties which were allowed as sponsored agreement costs, will be 
credited or paid to the Federal Government in the manner directed by the 
Federal Government. However, any interest actually paid or credited to 
an institution incident to a refund of tax, interest, and penalty will 
be paid or credited to the Federal Government only to the extent that 
such interest accrued over the period during which the institution has 
been reimbursed by the Federal Government for the taxes, interest, and 
penalties.
    50. Termination costs applicable to sponsored agreements.
    Termination of awards generally gives rise to the incurrence of 
costs, or the need for special treatment of costs, which would not have 
arisen had the sponsored agreement not been terminated. Cost principles 
covering these items are set forth below. They are to be used in 
conjunction with the other provisions of this Appendix in termination 
situations.
    a. The cost of items reasonably usable on the institution's other 
work shall not be allowable unless the institution submits evidence that 
it would not retain such items at cost without sustaining a loss. In 
deciding whether such items are reasonably usable on other work of the 
institution, the awarding agency should consider the institution's plans 
and orders for current and scheduled activity. Contemporaneous purchases 
of common items by the institution shall be regarded as evidence that 
such items are reasonably usable on the institution's other work. Any 
acceptance of common items as allocable to the terminated portion of the 
sponsored agreement shall be limited to the extent that the quantities 
of such items on hand, in transit, and on order are in excess of the 
reasonable quantitative requirements of other work.
    b. If in a particular case, despite all reasonable efforts by the 
institution, certain costs cannot be discontinued immediately after the 
effective date of termination, such costs are generally allowable within 
the limitations set forth in this Appendix, except that any such costs 
continuing after termination due to the negligent or willful failure of 
the institution to discontinue such costs shall be unallowable.
    c. Loss of useful value of special tooling, machinery, and equipment 
is generally allowable if:
    (1) Such special tooling, special machinery, or equipment is not 
reasonably capable of use in the other work of the institution,
    (2) The interest of the Federal Government is protected by transfer 
of title or by other means deemed appropriate by the awarding agency, 
and
    (3) The loss of useful value for any one terminated sponsored 
agreement is limited to that portion of the acquisition cost which bears 
the same ratio to the total acquisition cost as the terminated portion 
of the sponsored agreement bears to the entire terminated sponsored 
agreement award and other sponsored agreements for which the special 
tooling, machinery, or equipment was acquired.
    d. Rental costs under unexpired leases are generally allowable where 
clearly shown to have been reasonably necessary for the performance of 
the terminated sponsored agreement less the residual value of such 
leases, if:
    (1) The amount of such rental claimed does not exceed the reasonable 
use value of the property leased for the period of the sponsored 
agreement and such further period as may be reasonable, and
    (2) The institution makes all reasonable efforts to terminate, 
assign, settle, or otherwise reduce the cost of such lease. There also 
may be included the cost of alterations of such leased property, 
provided such alterations were necessary for the performance of the 
sponsored agreement, and of reasonable restoration required by the 
provisions of the lease.
    e. Settlement expenses including the following are generally 
allowable:
    (1) Accounting, legal, clerical, and similar costs reasonably 
necessary for:
    (a) The preparation and presentation to the awarding agency of 
settlement claims and supporting data with respect to the terminated 
portion of the sponsored agreement, unless the termination is for 
default (see Sec. 215.61 of 2 CFR Part 215); and
    (b) The termination and settlement of subawards.
    (2) Reasonable costs for the storage, transportation, protection, 
and disposition of property provided by the Federal Government or 
acquired or produced for the sponsored agreement, except when 
institutions are reimbursed for disposals at a predetermined amount in 
accordance with Sec. 215.32 through Sec. 215.37 of 2 CFR Part 215.
    (3) F&A costs related to salaries and wages incurred as settlement 
expenses in subsections J.50.b.(1) and (2) of this Appendix. Normally, 
such F&A costs shall be limited to fringe benefits, occupancy cost, and 
immediate supervision.
    f. Claims under subawards, including the allocable portion of claims 
which are common to the sponsored agreement and to other work of the 
institution, are generally allowable.
    g. An appropriate share of the institution's F&A costs may be 
allocated to the amount of settlements with subcontractors and/or 
subgrantees, provided that the amount allocated is otherwise consistent 
with the basic guidelines contained in section E, F&A costs.

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The F&A costs so allocated shall exclude the same and similar costs 
claimed directly or indirectly as settlement expenses.
    51. Training costs.
    The cost of training provided for employee development is allowable.
    52. Transportation costs.
    Costs incurred for freight, express, cartage, postage, and other 
transportation services relating either to goods purchased, in process, 
or delivered, are allowable. When such costs can readily be identified 
with the items involved, they may be charged directly as transportation 
costs or added to the cost of such items. Where identification with the 
materials received cannot readily be made, inbound transportation cost 
may be charged to the appropriate F&A cost accounts if the institution 
follows a consistent, equitable procedure in this respect. Outbound 
freight, if reimbursable under the terms of the sponsored agreement, 
should be treated as a direct cost.
    53. Travel costs.
    a. General.
    Travel costs are the expenses for transportation, lodging, 
subsistence, and related items incurred by employees who are in travel 
status on official business of the institution. Such costs may be 
charged on an actual cost basis, on a per diem or mileage basis in lieu 
of actual costs incurred, or on a combination of the two, provided the 
method used is applied to an entire trip and not to selected days of the 
trip, and results in charges consistent with those normally allowed in 
like circumstances in the institution's non-federally-sponsored 
activities.
    b. Lodging and subsistence.
    Costs incurred by employees and officers for travel, including costs 
of lodging, other subsistence, and incidental expenses, shall be 
considered reasonable and allowable only to the extent such costs do not 
exceed charges normally allowed by the institution in its regular 
operations as the result of the institution's written travel policy. In 
the absence of an acceptable, written institution policy regarding 
travel costs, the rates and amounts established under subchapter I of 
Chapter 57, Title 5, United States Code (``Travel and Subsistence 
Expenses; Mileage Allowances''), or by the Administrator of General 
Services, or by the President (or his or her designee) pursuant to any 
provisions of such subchapter shall apply to travel under sponsored 
agreements (48 CFR 31.205-46(a)).
    c. Commercial air travel.
    (1) Airfare costs in excess of the customary standard commercial 
airfare (coach or equivalent), Federal Government contract airfare 
(where authorized and available), or the lowest commercial discount 
airfare are unallowable except when such accommodations would:
    (a) Require circuitous routing;
    (b) Require travel during unreasonable hours;
    (c) Excessively prolong travel;
    (d) Result in additional costs that would offset the transportation 
savings; or
    (e) Offer accommodations not reasonably adequate for the traveler's 
medical needs. The institution must justify and document these 
conditions on a case-by-case basis in order for the use of first-class 
airfare to be allowable in such cases.
    (2) Unless a pattern of avoidance is detected, the Federal 
Government will generally not question an institution's determinations 
that customary standard airfare or other discount airfare is unavailable 
for specific trips if the institution can demonstrate either of the 
following:
    (a) That such airfare was not available in the specific case; or
    (b) That it is the institution's overall practice to make routine 
use of such airfare.
    d. Air travel by other than commercial carrier.
    Costs of travel by institution-owned, -leased, or -chartered 
aircraft include the cost of lease, charter, operation (including 
personnel costs), maintenance, depreciation, insurance, and other 
related costs. The portion of such costs that exceeds the cost of 
allowable commercial air travel, as provided for in subsection J.53.c. 
of this Appendix, is unallowable.
    54. Trustees.
    Travel and subsistence costs of trustees (or directors) are 
allowable. The costs are subject to restrictions regarding lodging, 
subsistence and air travel costs provided in Section J.53 of this 
Appendix.

                       K. Certification of Charges

    1. To assure that expenditures for sponsored agreements are proper 
and in accordance with the agreement documents and approved project 
budgets, the annual and/or final fiscal reports or vouchers requesting 
payment under the agreements will include a certification, signed by an 
authorized official of the university, which reads essentially as 
follows: ``I certify that all expenditures reported (or payment 
requested) are for appropriate purposes and in accordance with the 
provisions of the application and award documents.''
    2. Certification of F&A costs.
    a. Policy.
    (1) No proposal to establish F&A cost rates shall be acceptable 
unless such costs have been certified by the educational institution 
using the Certificate of F&A Costs set forth in subsection K.2.b of this 
Appendix. The certificate must be signed on behalf of the institution by 
an individual at a level no lower than vice president or chief financial 
officer of the institution that submits the proposal.
    (2) No F&A cost rate shall be binding upon the Federal Government if 
the most recent

[[Page 106]]

required proposal from the institution has not been certified. Where it 
is necessary to establish F&A cost rates, and the institution has not 
submitted a certified proposal for establishing such rates in accordance 
with the requirements of this section, the Federal Government shall 
unilaterally establish such rates. Such rates may be based upon audited 
historical data or such other data that have been furnished to the 
cognizant Federal agency and for which it can be demonstrated that all 
unallowable costs have been excluded. When F&A cost rates are 
unilaterally established by the Federal Government because of failure of 
the institution to submit a certified proposal for establishing such 
rates in accordance with this section, the rates established will be set 
at a level low enough to ensure that potentially unallowable costs will 
not be reimbursed.
    b. Certificate. The certificate required by this section shall be in 
the following form:
    Certificate of F&A Costs
    This is to certify that to the best of my knowledge and belief:
    (1) I have reviewed the F&A cost proposal submitted herewith;
    (2) All costs included in this proposal [identify date] to establish 
billing or final F&A costs rate for [identify period covered by rate] 
are allowable in accordance with the requirements of the Federal 
agreement(s) to which they apply and with the cost principles applicable 
to those agreements.
    (3) This proposal does not include any costs which are unallowable 
under applicable cost principles such as (without limitation): 
advertising and public relations costs, contributions and donations, 
entertainment costs, fines and penalties, lobbying costs, and defense of 
fraud proceedings; and
    (4) All costs included in this proposal are properly allocable to 
Federal agreements on the basis of a beneficial or causal relationship 
between the expenses incurred and the agreements to which they are 
allocated in accordance with applicable requirements.
    For educational institutions that are required to file a DS-2 in 
accordance with Section C.14 of this Appendix, the following statement 
shall be added to the ``Certificate of F&A Costs'':
    (5) The rate proposal is prepared using the same cost accounting 
practices that are disclosed in the DS-2, including its amendments and 
revisions, filed with and approved by the cognizant agency.

I declare under penalty of perjury that the foregoing is true and 
correct.
Institution:____________________________________________________________
Signature:______________________________________________________________
Name of Official:_______________________________________________________
Title:__________________________________________________________________
Date of Execution:______________________________________________________

 Exhibit A--List of Colleges and Universities Subject to Section J.12.h 
                            of This Appendix

1. Johns Hopkins University
2. Stanford University
3. Massachusetts Institute of Technology
4. University of Washington
5. University of California--Los Angeles
6. University of Michigan
7. University of California--San Diego
8. University of California--San Francisco
9. University of Wisconsin--Madison
10. Columbia University
11. Yale University
12. Harvard University
13. Cornell University
14. University of Pennsylvania
15. University of California--Berkeley
16. University of Minnesota
17. Pennsylvania State University
18. University of Southern California
19. Duke University
20. Washington University
21. University of Colorado
22. University of Illinois--Urbana
23. University of Rochester
24. University of North Carolina--Chapel Hill
25. University of Pittsburgh
26. University of Chicago
27. University of Texas--Austin
28. University of Arizona
29. New York University
30. University of Iowa
31. Ohio State University
32. University of Alabama--Birmingham
33. Case Western Reserve
34. Baylor College of Medicine
35. California Institute of Technology
36. Yeshiva University
37. University of Massachusetts
38. Vanderbilt University
39. Purdue University
40. University of Utah
41. Georgia Institute of Technology
42. University of Maryland--College Park
43. University of Miami
44. University of California--Davis
45. Boston University
46. University of Florida
47. Carnegie-Mellon University
48. Northwestern University
49. Indiana University
50. Michigan State University
51. University of Virginia
52. University of Texas--SW Medical Center
53. University of California--Irvine
54. Princeton University
55. Tulane University of Louisiana
56. Emory University
57. University of Georgia
58. Texas A&M University--all campuses
59. New Mexico State University
60. North Carolina State University--Raleigh
61. University of Illinois--Chicago
62. Utah State University
63. Virginia Commonwealth University

[[Page 107]]

64. Oregon State University
65. SUNY-Stony Brook
66. University of Cincinnati
67. CUNY-Mount Sinai School of Medicine
68. University of Connecticut
69. Louisiana State University
70. Tufts University
71. University of California--Santa Barbara
72. University of Hawaii--Manoa
73. Rutgers State University of New Jersey
74. Colorado State University
75. Rockefeller University
76. University of Maryland--Baltimore
77. Virginia Polytechnic Institute & State University
78. SUNY--Buffalo
79. Brown University
80. University of Medicine & Dentistry of New Jersey
81. University of Texas--Health Science Center San Antonio
82. University of Vermont
83. University of Texas--Health Science Center Houston
84. Florida State University
85. University of Texas--MD Anderson Cancer Center
86. University of Kentucky
87. Wake Forest University
88. Wayne State University
89. Iowa State University of Science & Technology
90. University of New Mexico
91. Georgetown University
92. Dartmouth College
93. University of Kansas
94. Oregon Health Sciences University
95. University of Texas--Medical Branch-Galveston
96. University of Missouri--Columbia
97. Temple University
98. George Washington University
99. University of Dayton

  Exhibit B--Listing of Institutions That Are Eligible for the Utility 
                             Cost Adjustment

1. Baylor University
2. Boston College
3. Boston University
4. California Institute of Technology
5. Carnegie-Mellon University
6. Case Western University
7. Columbia University
8. Cornell University (Endowed)
9. Cornell University (Statutory)
10. Cornell University (Medical)
11. Dayton University
12. Emory University
13. George Washington University (Medical)
14. Georgetown University
15. Harvard Medical School
16. Harvard University (Main Campus)
17. Harvard University (School of Public Health)
18. Johns Hopkins University
19. Massachusetts Institute of Technology
20. Medical University of South Carolina
21. Mount Sinai School of Medicine
22. New York University (except New York University Medical Center)
23. New York University Medical Center
24. North Carolina State University
25. Northeastern University
26. Northwestern University
27. Oregon Health Sciences University
28. Oregon State University
29. Rice University
30. Rockefeller University
31. Stanford University
32. Tufts University
33. Tulane University
34. Vanderbilt University
35. Virginia Commonwealth University
36. Virginia Polytechnic Institute and State University
37. University of Arizona
38. University of CA, Berkeley
39. University of CA, Irvine
40. University of CA, Los Angeles
41. University of CA, San Diego
42. University of CA, San Francisco
43. University of Chicago
44. University of Cincinnati
45. University of Colorado, Health Sciences Center
46. University of Connecticut, Health Sciences Center
47. University of Health Science and The Chicago Medical School
48. University of Illinois, Urbana
49. University of Massachusetts, Medical Center
50. University of Medicine & Dentistry of New Jersey
51. University of Michigan
52. University of Pennsylvania
53. University of Pittsburgh
54. University of Rochester
55. University of Southern California
56. University of Tennessee, Knoxville
57. University of Texas, Galveston
58. University of Texas, Austin
60. University of Texas Southwestern Medical Center
61. University of Virginia
62. University of Vermont & State Agriculture College
63. University of Washington
64. Washington University
65. Yale University
66. Yeshiva University

   Exhibit C--Examples of ``Major Project'' Where Direct Charging of 
      Administrative or Clerical Staff Salaries May Be Appropriate

    1. As used in paragraph F.6.b.(2) of this Appendix, below are 
examples of ``major projects'':
    a. Large, complex programs such as General Clinical Research 
Centers, Primate Centers, Program Projects, environmental research 
centers, engineering research centers,

[[Page 108]]

and other grants and contracts that entail assembling and managing teams 
of investigators from a number of institutions.
    b. Projects which involve extensive data accumulation, analysis and 
entry, surveying, tabulation, cataloging, searching literature, and 
reporting (such as epidemiological studies, clinical trials, and 
retrospective clinical records studies).
    c. Projects that require making travel and meeting arrangements for 
large numbers of participants, such as conferences and seminars.
    d. Projects whose principal focus is the preparation and production 
of manuals and large reports, books and monographs (excluding routine 
progress and technical reports).
    e. Projects that are geographically inaccessible to normal 
departmental administrative services, such as research vessels, radio 
astronomy projects, and other research fields sites that are remote from 
campus.
    f. Individual projects requiring project-specific database 
management; individualized graphics or manuscript preparation; human or 
animal protocols; and multiple project-related investigator coordination 
and communications.
    2. These examples are not exhaustive nor are they intended to imply 
that direct charging of administrative or clerical salaries would always 
be appropriate for the situations illustrated in the examples. For 
instance, the examples would be appropriate when the costs of such 
activities are incurred in unlike circumstances, i.e., the actual 
activities charged direct are not the same as the actual activities 
normally included in the institution's facilities and administrative 
(F&A) cost pools or, if the same, the indirect activity costs are 
immaterial in amount. It would be inappropriate to charge the cost of 
such activities directly to specific sponsored agreements if, in similar 
circumstances, the costs of performing the same type of activity for 
other sponsored agreements were included as allocable costs in the 
institution's F&A cost pools. Application of negotiated predetermined 
F&A cost rates may also be inappropriate if such activity costs charged 
directly were not provided for in the allocation base that was used to 
determine the predetermined F&A cost rates.

   Attachment A to Appendix A--CASB's Cost Accounting Standards (CAS)

    A. CAS 9905.501--Consistency in estimating, accumulating and 
reporting costs by educational institutions.

                               1. Purpose

    The purpose of this standard is to ensure that each educational 
institution's practices used in estimating costs for a proposal are 
consistent with cost accounting practices used by the educational 
institution in accumulating and reporting costs. Consistency in the 
application of cost accounting practices is necessary to enhance the 
likelihood that comparable transactions are treated alike. With respect 
to individual sponsored agreements, the consistent application of cost 
accounting practices will facilitate the preparation of reliable cost 
estimates used in pricing a proposal and their comparison with the costs 
of performance of the resulting sponsored agreement. Such comparisons 
provide one important basis for financial control over costs during 
sponsored agreement performance and aid in establishing accountability 
for costs in the manner agreed to by both parties at the time of 
agreement. The comparisons also provide an improved basis for evaluating 
estimating capabilities.

                             2. Definitions

    (a) The following are definitions of terms which are prominent in 
this standard.
    (1) Accumulating costs means the collecting of cost data in an 
organized manner, such as through a system of accounts.
    (2) Actual cost means an amount determined on the basis of cost 
incurred (as distinguished from forecasted cost), including standard 
cost properly adjusted for applicable variance.
    (3) Estimating costs means the process of forecasting a future 
result in terms of cost, based upon information available at the time.
    (4) Indirect cost pool means a grouping of incurred costs identified 
with two or more objectives but not identified specifically with any 
final cost objective.
    (5) Pricing means the process of establishing the amount or amounts 
to be paid in return for goods or services.
    (6) Proposal means any offer or other submission used as a basis for 
pricing a sponsored agreement, sponsored agreement modification or 
termination settlement or for securing payments thereunder.
    (7) Reporting costs means the providing of cost information to 
others.

                       3. Fundamental Requirement

    (a) An educational institution's practices used in estimating costs 
in pricing a proposal shall be consistent with the educational 
institution's cost accounting practices used in accumulating and 
reporting costs.
    (b) An educational institution's cost accounting practices used in 
accumulating and reporting actual costs for a sponsored agreement shall 
be consistent with the educational institution's practices used in 
estimating costs in the related proposal or application.

[[Page 109]]

    (c) The grouping of homogeneous costs in estimates prepared for 
proposal purposes shall not per se be deemed an inconsistent application 
of cost accounting practices of this paragraph when such costs are 
accumulated and reported in greater detail on an actual costs basis 
during performance of the sponsored agreement.

                      4. Techniques for application

    (a) The standard allows grouping of homogeneous costs in order to 
cover those cases where it is not practicable to estimate sponsored 
agreement costs by individual cost element. However, costs estimated for 
proposal purposes shall be presented in such a manner and in such detail 
that any significant cost can be compared with the actual cost 
accumulated and reported therefor. In any event, the cost accounting 
practices used in estimating costs in pricing a proposal and in 
accumulating and reporting costs on the resulting sponsored agreement 
shall be consistent with respect to:
    (1) The classification of elements of cost as direct or indirect;
    (2) The indirect cost pools to which each element of cost is charged 
or proposed to be charged; and
    (3) The methods of allocating indirect costs to the sponsored 
agreement.
    (b) Adherence to the requirement of this standard shall be 
determined as of the date of award of the sponsored agreement, unless 
the sponsored agreement has submitted cost or pricing data pursuant to 
10 U.S.C. 2306(a) or 41 U.S.C. 254(d) (Pub. L. 87-653), in which case 
adherence to the requirement of this standard shall be determined as of 
the date of final agreement on price, as shown on the signed certificate 
of current cost or pricing data. Notwithstanding 9905.501-40(b), changes 
in established cost accounting practices during sponsored agreement 
performance may be made in accordance with Part 9903 (48 CFR part 9903).
    (c) The standard does not prescribe the amount of detail required in 
accumulating and reporting costs. The basic requirement which must be 
met, however, is that for any significant amount of estimated cost, the 
sponsored agreement must be able to accumulate and report actual cost at 
a level which permits sufficient and meaningful comparison with its 
estimates. The amount of detail required may vary considerably depending 
on how the proposed costs were estimated, the data presented in 
justification or lack thereof, and the significance of each situation. 
Accordingly, it is neither appropriate nor practical to prescribe a 
single set of accounting practices which would be consistent in all 
situations with the practices of estimating costs. Therefore, the amount 
of accounting and statistical detail to be required and maintained in 
accounting for estimated costs has been and continues to be a matter to 
be decided by Government procurement authorities on the basis of the 
individual facts and circumstances.

 B. CAS 9905.502--Consistency in Allocating Costs Incurred for the Same 
                   Purpose by Educational Institutions

                               1. Purpose

    The purpose of this standard is to require that each type of cost is 
allocated only once and on only one basis to any sponsored agreement or 
other cost objective. The criteria for determining the allocation of 
costs to a sponsored agreement or other cost objective should be the 
same for all similar objectives. Adherence to these cost accounting 
concepts is necessary to guard against the overcharging of some cost 
objectives and to prevent double counting. Double counting occurs most 
commonly when cost items are allocated directly to a cost objective 
without eliminating like cost items from indirect cost pools which are 
allocated to that cost objective.

                             2. Definitions

    (a) The following are definitions of terms which are prominent in 
this standard.
    (1) Allocate means to assign an item of cost, or a group of items of 
cost, to one or more cost objectives. This term includes both direct 
assignment of cost and the reassignment of a share from an indirect cost 
pool.
    (2) Cost objective means a function, organizational subdivision, 
sponsored agreement, or other work unit for which cost data are desired 
and for which provision is made to accumulate and measure the cost of 
processes, products, jobs, capitalized projects, etc.
    (3) Direct cost means any cost which is identified specifically with 
a particular final cost objective. Direct costs are not limited to items 
which are incorporated in the end product as material or labor. Costs 
identified specifically with a sponsored agreement are direct costs of 
that sponsored agreement. All costs identified specifically with other 
final cost objectives of the educational institution are direct costs of 
those cost objectives.
    (4) Final cost objective means a cost objective which has allocated 
to it both direct and indirect costs, and in the educational 
institution's accumulation system, is one of the final accumulation 
points.
    (5) Indirect cost means any cost not directly identified with a 
single final cost objective, but identified with two or more final cost 
objectives or with at least one intermediate cost objective.
    (6) Indirect cost pool means a grouping of incurred costs identified 
with two or more cost objectives but not identified with any final cost 
objective.

[[Page 110]]

    (7) Intermediate cost objective means a cost objective that is used 
to accumulate indirect costs or service center costs that are 
subsequently allocated to one or more indirect cost pools and/or final 
cost objectives.

                       3. Fundamental Requirement

    All costs incurred for the same purpose, in like circumstances, are 
either direct costs only or indirect costs only with respect to final 
cost objectives. No final cost objective shall have allocated to it as 
an indirect cost any cost, if other costs incurred for the same purpose, 
in like circumstances, have been included as a direct cost of that or 
any other final cost objective. Further, no final cost objective shall 
have allocated to it as a direct cost any cost, if other costs incurred 
for the same purpose, in like circumstances, have been included in any 
indirect cost pool to be allocated to that or any other final cost 
objective.

                      4. Techniques for Application

    (a) The Fundamental Requirement is stated in terms of cost incurred 
and is equally applicable to estimates of costs to be incurred as used 
in sponsored agreement proposals.
    (b) The Disclosure Statement to be submitted by the educational 
institution will require that the educational institution set forth its 
cost accounting practices with regard to the distinction between direct 
and indirect costs. In addition, for those types of cost which are 
sometimes accounted for as direct and sometimes accounted for as 
indirect, the educational institution will set forth in its Disclosure 
Statement the specific criteria and circumstances for making such 
distinctions. In essence, the Disclosure Statement submitted by the 
educational institution, by distinguishing between direct and indirect 
costs, and by describing the criteria and circumstances for allocating 
those items which are sometimes direct and sometimes indirect, will be 
determinative as to whether or not costs are incurred for the same 
purpose. Disclosure Statement as used herein refers to the statement 
required to be submitted by educational institutions in Appendix A to 
Part 220, Section C.14.
    (c) In the event that an educational institution has not submitted a 
Disclosure Statement, the determination of whether specific costs are 
directly allocable to sponsored agreements shall be based upon the 
educational institution's cost accounting practices used at the time of 
sponsored agreement proposal.
    (d) Whenever costs which serve the same purpose cannot equitably be 
indirectly allocated to one or more final cost objectives in accordance 
with the educational institution's disclosed accounting practices, the 
educational institution may either (1) use a method for reassigning all 
such costs which would provide an equitable distribution to all final 
cost objectives, or (2) directly assign all such costs to final cost 
objectives with which they are specifically identified. In the event the 
educational institution decides to make a change for either purpose, the 
Disclosure Statement shall be amended to reflect the revised accounting 
practices involved.
    (e) Any direct cost of minor dollar amount may be treated as an 
indirect cost for reasons of practicality where the accounting treatment 
for such cost is consistently applied to all final cost objectives, 
provided that such treatment produces results which are substantially 
the same as the results which would have been obtained if such cost had 
been treated as a direct cost.

                            5. Illustrations

    (a) Illustrations of costs which are incurred for the same purpose:
    (1) An educational institution normally allocates all travel as an 
indirect cost and previously disclosed this accounting practice to the 
Government. For purposes of a new proposal, the educational institution 
intends to allocate the travel costs of personnel whose time is 
accounted for as direct labor directly to the sponsored agreement. Since 
travel costs of personnel whose time is accounted for as direct labor 
working on other sponsored agreements are costs which are incurred for 
the same purpose, these costs may no longer be included within indirect 
cost pools for purposes of allocation to any covered Government 
sponsored agreement. The educational institution's Disclosure Statement 
must be amended for the proposed changes in accounting practices.
    (2) An educational institution normally allocates purchasing 
activity costs indirectly and allocates this cost to instruction and 
research on the basis of modified total costs. A proposal for a new 
sponsored agreement requires a disproportionate amount of subcontract 
administration to be performed by the purchasing activity. The 
educational institution prefers to continue to allocate purchasing 
activity costs indirectly. In order to equitably allocate the total 
purchasing activity costs, the educational institution may use a method 
for allocating all such costs which would provide an equitable 
distribution to all applicable indirect cost pools. For example, the 
educational institution may use the number of transactions processed 
rather than its former allocation base of modified total costs. The 
educational institution's Disclosure Statement must be amended for the 
proposed changes in accounting practices.
    (b) Illustrations of costs which are not incurred for the same 
purpose:
    (1) An educational institution normally allocates special test 
equipment costs directly

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to sponsored agreements. The costs of general purpose test equipment are 
normally included in the indirect cost pool which is allocated to 
sponsored agreements. Both of these accounting practices were previously 
disclosed to the Government. Since both types of costs involved were not 
incurred for the same purpose in accordance with the criteria set forth 
in the educational institution's Disclosure Statement, the allocation of 
general purpose test equipment costs from the indirect cost pool to the 
sponsored agreement, in addition to the directly allocated special test 
equipment costs, is not considered a violation of the standard.
    (2) An educational institution proposes to perform a sponsored 
agreement which will require three firemen on 24-hour duty at a fixed-
post to provide protection against damage to highly inflammable 
materials used on the sponsored agreement. The educational institution 
presently has a firefighting force of 10 employees for general 
protection of its facilities. The educational institution's costs for 
these latter firemen are treated as indirect costs and allocated to all 
sponsored agreements; however, it wants to allocate the three fixed-post 
firemen directly to the particular sponsored agreement requiring them 
and also allocate a portion of the cost of the general firefighting 
force to the same sponsored agreement. The educational institution may 
do so but only on condition that its disclosed practices indicate that 
the costs of the separate classes of firemen serve different purposes 
and that it is the educational institution's practice to allocate the 
general firefighting force indirectly and to allocate fixed-post firemen 
directly.

                            6. Interpretation

    (a) Consistency in Allocating Costs Incurred for the Same Purpose by 
Educational Institutions, provides, in this standard, that ``* * * no 
final cost objective shall have allocated to it as a direct cost any 
cost, if other costs incurred for the same purpose, in like 
circumstances, have been included in any indirect cost pool to be 
allocated to that or any other final cost objective.''
    (b) This interpretation deals with the way this standard applies to 
the treatment of costs incurred in preparing, submitting, and supporting 
proposals. In essence, it is addressed to whether or not, under the 
standard, all such costs are incurred for the same purpose, in like 
circumstances.
    (c) Under this standard, costs incurred in preparing, submitting, 
and supporting proposals pursuant to a specific requirement of an 
existing sponsored agreement are considered to have been incurred in 
different circumstances from the circumstances under which costs are 
incurred in preparing proposals which do not result from such specific 
requirement. The circumstances are different because the costs of 
preparing proposals specifically required by the provisions of an 
existing sponsored agreement relate only to that sponsored agreement 
while other proposal costs relate to all work of the educational 
institution.
    (d) This interpretation does not preclude the allocation, as 
indirect costs, of costs incurred in preparing all proposals. The cost 
accounting practices used by the educational institution, however, must 
be followed consistently and the method used to reallocate such costs, 
of course, must provide an equitable distribution to all final cost 
objectives.

     C. CAS 9905.505--Accounting for Unallowable Costs--Educational 
                              Institutions

                               1. Purpose

    (a) The purpose of this standard is to facilitate the negotiation, 
audit, administration and settlement of sponsored agreements by 
establishing guidelines covering (1) identification of costs 
specifically described as unallowable, at the time such costs first 
become defined or authoritatively designated as unallowable, and (2) the 
cost accounting treatment to be accorded such identified unallowable 
costs in order to promote the consistent application of sound cost 
accounting principles covering all incurred costs. The standard is 
predicated on the proposition that costs incurred in carrying on the 
activities of an educational institution--regardless of the allowability 
of such costs under Government sponsored agreements--are allocable to 
the cost objectives with which they are identified on the basis of their 
beneficial or causal relationships.
    (b) This standard does not govern the allowability of costs. This is 
a function of the appropriate procurement or reviewing authority.

                             2. Definitions

    (a) The following are definitions of terms which are prominent in 
this standard.
    (1) Directly associated cost means any cost which is generated 
solely as a result of the incurrence of another cost, and which would 
not have been incurred had the other cost not been incurred.
    (2) Expressly unallowable cost means a particular item or type of 
cost which, under the express provisions of an applicable law, 
regulation, or sponsored agreement, is specifically named and stated to 
be unallowable.
    (3) Indirect cost means any cost not directly identified with a 
single final cost objective, but identified with two or more final cost 
objectives or with at least one intermediate cost objective.
    (4) Unallowable cost means any cost which, under the provisions of 
any pertinent law, regulation, or sponsored agreement, cannot be 
included in prices, cost reimbursements,

[[Page 112]]

or settlements under a Government sponsored agreement to which it is 
allocable.

                       3. Fundamental Requirement

    (a) Costs expressly unallowable or mutually agreed to be 
unallowable, including costs mutually agreed to be unallowable directly 
associated costs, shall be identified and excluded from any billing, 
claim, application, or proposal applicable to a Government sponsored 
agreement.
    (b) Costs which specifically become designated as unallowable as a 
result of a written decision furnished by a Federal official pursuant to 
sponsored agreement disputes procedures shall be identified if included 
in or used in the computation of any billing, claim, or proposal 
applicable to a sponsored agreement. This identification requirement 
applies also to any costs incurred for the same purpose under like 
circumstances as the costs specifically identified as unallowable under 
either this paragraph or paragraph (a) of this subsection.
    (c) Costs which, in a Federal official's written decision furnished 
pursuant to disputes procedures, are designated as unallowable directly 
associated costs of unallowable costs covered by either paragraph (a) or 
(b) of this subsection shall be accorded the identification required by 
paragraph b. of this subsection.
    (d) The costs of any work project not contractually authorized, 
whether or not related to performance of a proposed or existing 
contract, shall be accounted for, to the extent appropriate, in a manner 
which permits ready separation from the costs of authorized work 
projects.
    (e) All unallowable costs covered by paragraphs (a) through (d) of 
this subsection shall be subject to the same cost accounting principles 
governing cost allocability as allowable costs. In circumstances where 
these unallowable costs normally would be part of a regular indirect-
cost allocation base or bases, they shall remain in such base or bases. 
Where a directly associated cost is part of a category of costs normally 
included in an indirect-cost pool that will be allocated over a base 
containing the unallowable cost with which it is associated, such a 
directly associated cost shall be retained in the indirect-cost pool and 
be allocated through the regular allocation process.
    (f) Where the total of the allocable and otherwise allowable costs 
exceeds a limitation-of-cost or ceiling-price provision in a sponsored 
agreement, full direct and indirect cost allocation shall be made to the 
cost objective, in accordance with established cost accounting practices 
and Standards which regularly govern a given entity's allocations to 
Government sponsored agreement cost objectives. In any determination of 
unallowable cost overrun, the amount thereof shall be identified in 
terms of the excess of allowable costs over the ceiling amount, rather 
than through specific identification of particular cost items or cost 
elements.

                      4. Techniques for Application

    (a) The detail and depth of records required as backup support for 
proposals, billings, or claims shall be that which is adequate to 
establish and maintain visibility of identified unallowable costs 
(including directly associated costs), their accounting status in terms 
of their allocability to sponsored agreement cost objectives, and the 
cost accounting treatment which has been accorded such costs. Adherence 
to this cost accounting principle does not require that allocation of 
unallowable costs to final cost objectives be made in the detailed cost 
accounting records. It does require that unallowable costs be given 
appropriate consideration in any cost accounting determinations 
governing the content of allocation bases used for distributing indirect 
costs to cost objectives. Unallowable costs involved in the 
determination of rates used for standard costs, or for indirect-cost 
bidding or billing, need be identified only at the time rates are 
proposed, established, revised or adjusted.
    (b) The visibility requirement of paragraph (a) of this subsection, 
may be satisfied by any form of cost identification which is adequate 
for purposes of sponsored agreement cost determination and verification. 
The standard does not require such cost identification for purposes 
which are not relevant to the determination of Government sponsored 
agreement cost. Thus, to provide visibility for incurred costs, 
acceptable alternative practices would include the segregation of 
unallowable costs in separate accounts maintained for this purpose in 
the regular books of account, the development and maintenance of 
separate accounting records or workpapers, or the use of any less formal 
cost accounting techniques which establishes and maintains adequate cost 
identification to permit audit verification of the accounting 
recognition given unallowable costs. Educational institutions may 
satisfy the visibility requirements for estimated costs either by 
designation and description (in backup data, workpapers, etc.) of the 
amounts and types of any unallowable costs which have specifically been 
identified and recognized in making the estimates, or by description of 
any other estimating technique employed to provide appropriate 
recognition of any unallowable costs pertinent to the estimates.
    (c) Specific identification of unallowable costs is not required in 
circumstances where, based upon considerations of materiality, the 
Government and the educational institution reach agreement on an 
alternate method that satisfies the purpose of the standard.

[[Page 113]]

                            5. Illustrations

    (a) An auditor recommends disallowance of certain direct labor and 
direct material costs, for which a billing has been submitted under a 
sponsored agreement, on the basis that these particular costs were not 
required for performance and were not authorized by the sponsored 
agreement. The Federal officer issues a written decision which supports 
the auditor's position that the questioned costs are unallowable. 
Following receipt of the Federal officer's decision, the educational 
institution must clearly identify the disallowed direct labor and direct 
material costs in the educational institution's accounting records and 
reports covering any subsequent submission which includes such costs. 
Also, if the educational institution's base for allocation of any 
indirect cost pool relevant to the subject sponsored agreement consists 
of direct labor, direct material, total prime cost, total cost input, 
etc., the educational institution must include the disallowed direct 
labor and material costs in its allocation base for such pool. Had the 
Federal officer's decision been against the auditor, the educational 
institution would not, of course, have been required to account 
separately for the costs questioned by the auditor.
    (b) An educational institution incurs, and separately identifies, as 
a part of a service center or expense pool, certain costs which are 
expressly unallowable under the existing and currently effective 
regulations. If the costs of the service center or indirect expense pool 
are regularly a part of the educational institution's base for 
allocation of general administration and general expenses (GA&GE) or 
other indirect expenses, the educational institution must allocate the 
GA&GE or other indirect expenses to sponsored agreements and other final 
cost objectives by means of a base which includes the identified 
unallowable indirect costs.
    (c) An auditor recommends disallowance of certain indirect costs. 
The educational institution claims that the costs in question are 
allowable under the provisions of Appendix A to Part 220, Cost 
Principles For Educational Institutions; the auditor disagrees. The 
issue is referred to the Federal officer for resolution pursuant to the 
sponsored agreement disputes clause. The Federal officer issues a 
written decision supporting the auditor's position that the total costs 
questioned are unallowable under Appendix A. Following receipt of the 
Federal officer's decision, the educational institution must identify 
the disallowed costs and specific other costs incurred for the same 
purpose in like circumstances in any subsequent estimating, cost 
accumulation or reporting for Government sponsored agreements, in which 
such costs are included. If the Federal officer's decision had supported 
the educational institution's contention, the costs questioned by the 
auditor would have been allowable and the educational institution would 
not have been required to provide special identification.
    (d) An educational institution incurred certain unallowable costs 
that were charged indirectly as general administration and general 
expenses (GA&GE). In the educational institution's proposals for final 
indirect cost rates to be applied in determining allowable sponsored 
agreement costs, the educational institution identified and excluded the 
expressly unallowable costs. In addition, during the course of 
negotiation of indirect cost rates to be used for bidding and billing 
purposes, the educational institution agreed to classify as unallowable 
cost, various directly associated costs of the identifiable unallowable 
costs. On the basis of negotiations and agreements between the 
educational institution and the Federal officer's authorized 
representatives, indirect cost rates were established, based on the net 
balance of allowable GA&GE. Application of the rates negotiated to 
proposals, and to billings, for covered sponsored agreements constitutes 
compliance with the standard.
    (e) An employee, whose salary, travel, and subsistence expenses are 
charged regularly to the general administration and general expenses 
(GA&GE) pool, takes several business associates on what is clearly a 
business entertainment trip. The entertainment costs of such trips is 
expressly unallowable because it constitutes entertainment expense 
prohibited by Appendix A to Part 220, and is separately identified by 
the educational institution. The educational institution does not 
regularly include its GA&GE in any indirect-expense allocation base. In 
these circumstances, the employee's travel and subsistence expenses 
would be directly associated costs for identification with the 
unallowable entertainment expense. However, unless this type of activity 
constituted a significant part of the employee's regular duties and 
responsibilities on which his salary was based, no part of the 
employee's salary would be required to be identified as a directly 
associated cost of the unallowable entertainment expense.

    D. CAS 9905.506--Cost Accounting Period--Educational Institutions

                               1. Purpose

    The purpose of this standard is to provide criteria for the 
selection of the time periods to be used as cost accounting periods for 
sponsored agreement cost estimating, accumulating, and reporting. This 
standard will reduce the effects of variations in the flow of costs 
within each cost accounting period. It will also enhance objectivity, 
consistency, and verifiability, and promote uniformity

[[Page 114]]

and comparability in sponsored agreement cost measurements.

                             2. Definitions

    (a) The following are definitions of terms which are prominent in 
this standard.
    (1) Allocate means to assign an item of cost, or a group of items of 
cost, to one or more cost objectives. This term includes both direct 
assignment of cost and the reassignment of a share from an indirect cost 
pool.
    (2) Cost Objective means a function, organizational subdivision, 
sponsored agreement, or other work unit for which cost data are desired 
and for which provision is made to accumulate and measure the cost of 
processes, products, jobs, capitalized projects, etc.
    (3) Fiscal year means the accounting period for which annual 
financial statements are regularly prepared, generally a period of 12 
months, 52 weeks, or 53 weeks.
    (4) Indirect cost pool means a grouping of incurred costs identified 
with two or more cost objectives but not identified specifically with 
any final cost objective.

                       3. Fundamental Requirement

    (a) Educational institutions shall use their fiscal year as their 
cost accounting period, except that:
    (b) Costs of an indirect function which exists for only a part of a 
cost accounting period may be allocated to cost objectives of that same 
part of the period.
    (c) An annual period other than the fiscal year may be used as the 
cost accounting period if its use is an established practice of the 
educational institution.
    (d) A transitional cost accounting period other than a year shall be 
used whenever a change of fiscal year occurs.
    (e) An educational institution shall follow consistent practices in 
the selection of the cost accounting period or periods in which any 
types of expense and any types of adjustment to expense (including 
prior-period adjustments) are accumulated and allocated.
    (f) The same cost accounting period shall be used for accumulating 
costs in an indirect cost pool as for establishing its allocation base, 
except that the contracting parties may agree to use a different period 
for establishing an allocation base.

                      4. Techniques for Application

    (a) The cost of an indirect function which exists for only a part of 
a cost accounting period may be allocated on the basis of data for that 
part of the cost accounting period if the cost is material in amount, 
accumulated in a separate indirect cost pool or expense pool, and 
allocated on the basis of an appropriate direct measure of the activity 
or output of the function during that part of the period.
    (b) The practices required by this standard shall include 
appropriate practices for deferrals, accruals, and other adjustments to 
be used in identifying the cost accounting periods among which any types 
of expense and any types of adjustment to expense are distributed. If an 
expense, such as insurance or employee leave, is identified with a 
fixed, recurring, annual period which is different from the educational 
institution's cost accounting period, the standard permits continued use 
of that different period. Such expenses shall be distributed to cost 
accounting periods in accordance with the educational institution's 
established practices for accruals, deferrals, and other adjustments.
    (c) Indirect cost allocation rates, based on estimates, which are 
used for the purpose of expediting the closing of sponsored agreements 
which are terminated or completed prior to the end of a cost accounting 
period need not be those finally determined or negotiated for that cost 
accounting period. They shall, however, be developed to represent a full 
cost accounting period, except as provided in paragraph (a) of this 
subsection.
    (d) An educational institution may, upon mutual agreement with the 
Government, use as its cost accounting period a fixed annual period 
other than its fiscal year, if the use of such a period is an 
established practice of the educational institution and is consistently 
used for managing and controlling revenues and disbursements, and 
appropriate accruals, deferrals or other adjustments are made with 
respect to such annual periods.
    (e) The parties may agree to use an annual period which does not 
coincide precisely with the cost accounting period for developing the 
data used in establishing an allocation base: Provided,
    (1) The practice is necessary to obtain significant administrative 
convenience,
    (2) The practice is consistently followed by the educational 
institution,
    (3) The annual period used is representative of the activity of the 
cost accounting period for which the indirect costs to be allocated are 
accumulated, and
    (4) The practice can reasonably be estimated to provide a 
distribution to cost objectives of the cost accounting period not 
materially different from that which otherwise would be obtained.
    (f) When a transitional cost accounting period is required, 
educational institution may select any one of the following: the period, 
less than a year in length, extending from the end of its previous cost 
accounting period to the beginning of its next regular cost accounting 
period, a period in excess of a year, but not longer than 15 months, 
obtained by combining the period described in subparagraph (f)(1) of 
this subsection with the previous cost accounting period, or a period in 
excess of a year, but not longer than

[[Page 115]]

15 months, obtained by combining the period described in subparagraph 
(f)(1) of this subsection with the next regular cost accounting period. 
A change in the educational institution's cost accounting period is a 
change in accounting practices for which an adjustment in the sponsored 
agreement price may be required.

                            5. Illustrations

    (a) An educational institution allocates indirect expenses for 
Organized Research on the basis of a modified total direct cost base. In 
a proposal for a sponsored agreement, it estimates the allocable 
expenses based solely on the estimated amount of indirect costs 
allocated to Organized Research and the amount of the modified total 
direct cost base estimated to be incurred during the 8 months in which 
performance is scheduled to be commenced and completed. Such a proposal 
would be in violation of the requirements of this standard that the 
calculation of the amounts of both the indirect cost pools and the 
allocation bases be based on the educational institution's cost 
accounting period.
    (b) An educational institution whose cost accounting period is the 
calendar year, installs a computer service center to begin operations on 
May 1. The operating expense related to the new service center is 
expected to be material in amount, will be accumulated in an 
intermediate cost objective, and will be allocated to the benefitting 
cost objectives on the basis of measured usage. The total operating 
expenses of the computer service center for the 8-month part of the cost 
accounting period may be allocated to the benefitting cost objectives of 
that same 8-month period.
    (c) An educational institution changes its fiscal year from a 
calendar year to the 12-month period ending May 31. For financial 
reporting purposes, it has a 5-month transitional ``fiscal year.'' The 
same 5-month period must be used as the transitional cost accounting 
period; it may not be combined, because the transitional period would be 
longer than 15 months. The new fiscal year must be adopted thereafter as 
its regular cost accounting period. The change in its cost accounting 
period is a change in accounting practices; adjustments of the sponsored 
agreement prices may thereafter be required.
    (d) Financial reports are prepared on a calendar year basis on a 
university-wide basis. However, the contracting segment does all 
internal financial planning, budgeting, and internal reporting on the 
basis of a twelve month period ended June 30. The contracting parties 
agree to use the period ended June 30 and they agree to overhead rates 
on the June 30 basis. They also agree on a technique for prorating 
fiscal year assignment of the university's central system office 
expenses between such June 30 periods. This practice is permitted by the 
standard.
    (e) Most financial accounts and sponsored agreement cost records are 
maintained on the basis of a fiscal year which ends November 30 each 
year. However, employee vacation allowances are regularly managed on the 
basis of a ``vacation year'' which ends September 30 each year. Vacation 
expenses are estimated uniformly during each ``vacation year.'' 
Adjustments are made each October to adjust the accrued liability to 
actual, and the estimating rates are modified to the extent deemed 
appropriate. This use of a separate annual period for determining the 
amounts of vacation expense is permitted.
    Attachment B to Appendix A--CASB's Disclosure Statement (DS-2) is 
available on the OMB Web site at http://www.whitehouse.gov/omb/grants/
a21-appx--b.pdf
    Attachment C to Appendix A--Documentation Requirements for 
Facilities and Administrative (F&A) Rate Proposals is available on the 
OMB Web site at http://www.whitehouse.gov/omb/grants/a21-appx--c.pdf

                        PARTS 221-224 [RESERVED]



PART 225_COST PRINCIPLES FOR STATE, LOCAL, AND INDIAN TRIBAL GOVERNMENTS (OMB 

CIRCULAR A-87)--Table of Contents




Sec.
225.5 Purpose.
225.10 Authority
225.15 Background
225.20 Policy.
225.25 Definitions.
225.30 OMB responsibilities.
225.35 Federal agency responsibilities.
225.40 Effective date of changes.
225.45 Relationship to previous issuance.
225.50 Policy review date.
225.55 Information Contact.

Appendix A to Part 225--General Principles for Determining Allowable 
          Costs
Appendix B to Part 225--Selected Items of Cost
Appendix C to Part 225--State/Local-Wide Central Service Cost Allocation 
          Plans
Appendix D to Part 225--Public Assistance Cost Allocation Plans
Appendix E to Part 225--State and Local Indirect Cost Rate Proposals

    Authority: 31 U.S.C. 503; 31 U.S.C. 1111; 41 U.S.C. 405; 
Reorganization Plan No. 2 of 1970; E.O. 11541, 35 FR 10737, 3 CFR, 1966-
1970, p. 939.

    Source: 70 FR 51910, Aug. 31, 2005, unless otherwise noted.

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Sec. 225.5  Purpose.

    This part establishes principles and standards for determining costs 
for Federal awards carried out through grants, cost reimbursement 
contracts, and other agreements with State and local governments and 
federally-recognized Indian tribal governments (governmental units).



Sec. 225.10  Authority.

    This part is issued under the authority of the Budget and Accounting 
Act of 1921, as amended; the Budget and Accounting Procedures Act of 
1950, as amended; the Chief Financial Officers Act of 1990; 
Reorganization Plan No. 2 of 1970; and Executive Order No. 11541 
(``Prescribing the Duties of the Office of Management and Budget and the 
Domestic Policy Council in the Executive Office of the President'').



Sec. 225.15  Background.

    As part of the government-wide grant streamlining effort under 
Public Law 106-107, Federal Financial Award Management Improvement Act 
of 1999, OMB led an interagency workgroup to simplify and make 
consistent, to the extent feasible, the various rules used to award 
Federal grants. An interagency task force was established in 2001 to 
review existing cost principles for Federal awards to State, local, and 
Indian tribal governments; colleges and universities; and non-profit 
organizations. The task force studied ``Selected Items of Cost'' in each 
of the three cost principles to determine which items of costs could be 
stated consistently and/or more clearly.



Sec. 225.20  Policy.

    This part establishes principles and standards to provide a uniform 
approach for determining costs and to promote effective program 
delivery, efficiency, and better relationships between governmental 
units and the Federal Government. The principles are for determining 
allowable costs only. They are not intended to identify the 
circumstances or to dictate the extent of Federal and governmental unit 
participation in the financing of a particular Federal award. Provision 
for profit or other increment above cost is outside the scope of this 
part.



Sec. 225.25  Definitions.

    Definitions of key terms used in this part are contained in Appendix 
A to this part, Section B.



Sec. 225.30  OMB responsibilities.

    The Office of Management and Budget (OMB) will review agency 
regulations and implementation of this part, and will provide policy 
interpretations and assistance to insure effective and efficient 
implementation. Any exceptions will be subject to approval by OMB. 
Exceptions will only be made in particular cases where adequate 
justification is presented.



Sec. 225.35  Federal agency responsibilities.

    Agencies responsible for administering programs that involve cost 
reimbursement contracts, grants, and other agreements with governmental 
units shall issue regulations to implement the provisions of this part 
and its appendices.



Sec. 225.40  Effective date of changes.

    This part is effective August 31, 2005.



Sec. 225.45  Relationship to previous issuance.

    (a) The guidance in this part previously was issued as OMB Circular 
A-87. Appendix A to this part contains the guidance that was in 
Attachment A (general principles) to the OMB circular; Appendix B 
contains the guidance that was in Attachment B (selected items of cost); 
Appendix C contains the information that was in Attachment C (state/
local-wide central service cost allocation plans); Appendix D contains 
the guidance that was in Attachment D (public assistance cost allocation 
plans); and Appendix E contains the guidance that was in Attachment E 
(state and local indirect cost rate proposals).
    (b) This part supersedes OMB Circular A-87, as amended May 10, 2004, 
which superseded Circular A-87, as amended and issued May 4, 1995.

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Sec. 225.50  Policy review date.

    This part will have a policy review three years from the date of 
issuance.



Sec. 225.55  Information contact.

    Further information concerning this part may be obtained by 
contacting the Office of Federal Financial Management, Financial 
Standards and Reporting Branch, Office of Management and Budget, 
Washington, DC 20503, telephone 202-395-3993.

  Appendix A to Part 225--General Principles for Determining Allowable 
                                  Costs

                            Table of Contents

A. Purpose and Scope
1. Objectives
2. Policy guides
3. Application
B. Definitions
1. Approval or authorization of the awarding or cognizant Federal agency
2. Award
3. Awarding agency
4. Central service cost allocation plan
5. Claim
6. Cognizant agency
7. Common rule
8. Contract
9. Cost
10. Cost allocation plan
11. Cost objective
12. Federally-recognized Indian tribal government
13. Governmental unit
14. Grantee department or agency
15. Indirect cost rate proposal
16. Local government
17. Public assistance cost allocation plan
18. State
C. Basic Guidelines
1. Factors affecting allowability of costs
2. Reasonable costs
3. Allocable costs
4. Applicable credits
D. Composition of Cost
1. Total cost
2. Classification of costs
E. Direct Costs
1. General
2. Application
3. Minor items
F. Indirect Costs
1. General
2. Cost allocation plans and indirect cost proposals
3. Limitation on indirect or administrative costs
G. Interagency Services
H. Required Certifications
General Principles for Determining Allowable Costs

    A. Purpose and Scope
    1. Objectives. This Appendix establishes principles for determining 
the allowable costs incurred by State, local, and federally-recognized 
Indian tribal governments (governmental units) under grants, cost 
reimbursement contracts, and other agreements with the Federal 
Government (collectively referred to in this appendix and other 
appendices to 2 CFR part 225 as ``Federal awards''). The principles are 
for the purpose of cost determination and are not intended to identify 
the circumstances or dictate the extent of Federal or governmental unit 
participation in the financing of a particular program or project. The 
principles are designed to provide that Federal awards bear their fair 
share of cost recognized under these principles except where restricted 
or prohibited by law. Provision for profit or other increment above cost 
is outside the scope of 2 CFR part 225.
    2. Policy guides.
    a. The application of these principles is based on the fundamental 
premises that:
    (1) Governmental units are responsible for the efficient and 
effective administration of Federal awards through the application of 
sound management practices.
    (2) Governmental units assume responsibility for administering 
Federal funds in a manner consistent with underlying agreements, program 
objectives, and the terms and conditions of the Federal award.
    (3) Each governmental unit, in recognition of its own unique 
combination of staff, facilities, and experience, will have the primary 
responsibility for employing whatever form of organization and 
management techniques may be necessary to assure proper and efficient 
administration of Federal awards.
    b. Federal agencies should work with States or localities which wish 
to test alternative mechanisms for paying costs for administering 
Federal programs. The Office of Management and Budget (OMB) encourages 
Federal agencies to test fee-for-service alternatives as a replacement 
for current cost-reimbursement payment methods in response to the 
National Performance Review's (NPR) recommendation. The NPR recommended 
the fee-for-service approach to reduce the burden associated with 
maintaining systems for charging administrative costs to Federal 
programs and preparing and approving cost allocation plans. This 
approach should also increase incentives for administrative efficiencies 
and improve outcomes.
    3. Application.
    a. These principles will be applied by all Federal agencies in 
determining costs incurred by governmental units under Federal awards 
(including subawards) except those with (1) publicly-financed 
educational institutions subject to, 2 CFR part 220, Cost Principles for 
Educational Institutions (OMB Circular A-21), and (2) programs 
administered

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by publicly-owned hospitals and other providers of medical care that are 
subject to requirements promulgated by the sponsoring Federal agencies. 
However, 2 CFR part 225 does apply to all central service and 
department/agency costs that are allocated or billed to those 
educational institutions, hospitals, and other providers of medical care 
or services by other State and local government departments and 
agencies.
    b. All subawards are subject to those Federal cost principles 
applicable to the particular organization concerned. Thus, if a subaward 
is to a governmental unit (other than a college, university or 
hospital), 2 CFR part 225 shall apply; if a subaward is to a commercial 
organization, the cost principles applicable to commercial organizations 
shall apply; if a subaward is to a college or university, 2 CFR part 220 
(Circular A-21) shall apply; if a subaward is to a hospital, the cost 
principles used by the Federal awarding agency for awards to hospitals 
shall apply, subject to the provisions of subsection A.3.a. of this 
Appendix; if a subaward is to some other non-profit organization, 2 CFR 
part 230, Cost Principles for Non-Profit Organizations (Circular A-122), 
shall apply.
    c. These principles shall be used as a guide in the pricing of fixed 
price arrangements where costs are used in determining the appropriate 
price.
    d. Where a Federal contract awarded to a governmental unit 
incorporates a Cost Accounting Standards (CAS) clause, the requirements 
of that clause shall apply. In such cases, the governmental unit and the 
cognizant Federal agency shall establish an appropriate advance 
agreement on how the governmental unit will comply with applicable CAS 
requirements when estimating, accumulating and reporting costs under 
CAS-covered contracts. The agreement shall indicate that 2 CFR part 225 
(OMB Circular A-87) requirements will be applied to other Federal 
awards. In all cases, only one set of records needs to be maintained by 
the governmental unit.
    e. Conditional exemptions.
    (1) OMB authorizes conditional exemption from OMB administrative 
requirements and cost principles for certain Federal programs with 
statutorily-authorized consolidated planning and consolidated 
administrative funding, that are identified by a Federal agency and 
approved by the head of the Executive department or establishment. A 
Federal agency shall consult with OMB during its consideration of 
whether to grant such an exemption.
    (2) To promote efficiency in State and local program administration, 
when Federal non-entitlement programs with common purposes have specific 
statutorily-authorized consolidated planning and consolidated 
administrative funding and where most of the State agency's resources 
come from non-Federal sources, Federal agencies may exempt these covered 
State-administered, non-entitlement grant programs from certain OMB 
grants management requirements. The exemptions would be from all but the 
allocability of costs provisions of Appendix A subsection C.3 of 2 CFR 
part 225, Cost Principles for State, Local, and Indian Tribal 
Governments (OMB Circular A-87); Appendix A, Section C.4 of 2 CFR 220, 
Cost Principles for Educational Institutions (Circular A-21); Appendix 
A, subsection A.4 of 2 CFR 230 Cost Principles for Non-Profit 
Organizations (Circular A-122); and from all of the administrative 
requirements provisions of 2 CFR part 215, Uniform Administrative 
Requirements for Grants and Agreements with Institutions of Higher 
Education, Hospitals, and Other Non-Profit Organizations (Circular A-
110), and the agencies' grants management common rule.
    (3) When a Federal agency provides this flexibility, as a 
prerequisite to a State's exercising this option, a State must adopt its 
own written fiscal and administrative requirements for expending and 
accounting for all funds, which are consistent with the provisions of 2 
CFR part 225 (OMB Circular A-87), and extend such policies to all 
subrecipients. These fiscal and administrative requirements must be 
sufficiently specific to ensure that: Funds are used in compliance with 
all applicable Federal statutory and regulatory provisions, costs are 
reasonable and necessary for operating these programs, and funds are not 
used for general expenses required to carry out other responsibilities 
of a State or its subrecipients.
    B. Definitions
    1. ``Approval or authorization of the awarding or cognizant Federal 
agency'' means documentation evidencing consent prior to incurring a 
specific cost. If such costs are specifically identified in a Federal 
award document, approval of the document constitutes approval of the 
costs. If the costs are covered by a State/local-wide cost allocation 
plan or an indirect cost proposal, approval of the plan constitutes the 
approval.
    2. ``Award'' means grants, cost reimbursement contracts and other 
agreements between a State, local and Indian tribal government and the 
Federal Government.
    3. ``Awarding agency'' means (a) with respect to a grant, 
cooperative agreement, or cost reimbursement contract, the Federal 
agency, and (b) with respect to a subaward, the party that awarded the 
subaward.
    4. ``Central service cost allocation plan'' means the documentation 
identifying, accumulating, and allocating or developing billing rates 
based on the allowable costs of services provided by a governmental unit 
on a centralized basis to its departments and agencies. The costs of 
these services may be allocated or billed to users.

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    5. ``Claim'' means a written demand or written assertion by the 
governmental unit or grantor seeking, as a matter of right, the payment 
of money in a sum certain, the adjustment or interpretation of award 
terms, or other relief arising under or relating to the award. A 
voucher, invoice or other routine request for payment that is not a 
dispute when submitted is not a claim. Appeals, such as those filed by a 
governmental unit in response to questioned audit costs, are not 
considered claims until a final management decision is made by the 
Federal awarding agency.
    6. ``Cognizant agency'' means the Federal agency responsible for 
reviewing, negotiating, and approving cost allocation plans or indirect 
cost proposals developed under 2 CFR part 225 on behalf of all Federal 
agencies. OMB publishes a listing of cognizant agencies.
    7. ``Common Rule'' means the ``Uniform Administrative Requirements 
for Grants and Cooperative Agreements to State and Local Governments; 
Final Rule'' originally issued at 53 FR 8034-8103 (March 11, 1988). 
Other common rules will be referred to by their specific titles.
    8. ``Contract'' means a mutually binding legal relationship 
obligating the seller to furnish the supplies or services (including 
construction) and the buyer to pay for them. It includes all types of 
commitments that obligate the government to an expenditure of 
appropriated funds and that, except as otherwise authorized, are in 
writing. In addition to bilateral instruments, contracts include (but 
are not limited to): Awards and notices of awards; job orders or task 
orders issued under basic ordering agreements; letter contracts; orders, 
such as purchase orders, under which the contract becomes effective by 
written acceptance or performance; and, bilateral contract 
modifications. Contracts do not include grants and cooperative 
agreements covered by 31 U.S.C. 6301 et seq.
    9. ``Cost'' means an amount as determined on a cash, accrual, or 
other basis acceptable to the Federal awarding or cognizant agency. It 
does not include transfers to a general or similar fund.
    10. ``Cost allocation plan'' means central service cost allocation 
plan, public assistance cost allocation plan, and indirect cost rate 
proposal. Each of these terms is further defined in this section.
    11. ``Cost objective'' means a function, organizational subdivision, 
contract, grant, or other activity for which cost data are needed and 
for which costs are incurred.
    12. ``Federally-recognized Indian tribal government'' means the 
governing body or a governmental agency of any Indian tribe, band, 
nation, or other organized group or community (including any native 
village as defined in Section 3 of the Alaska Native Claims Settlement 
Act, 85 Stat. 688) certified by the Secretary of the Interior as 
eligible for the special programs and services provided through the 
Bureau of Indian Affairs.
    13. ``Governmental unit'' means the entire State, local, or 
federally-recognized Indian tribal government, including any component 
thereof. Components of governmental units may function independently of 
the governmental unit in accordance with the term of the award.
    14. ``Grantee department or agency'' means the component of a State, 
local, or federally-recognized Indian tribal government which is 
responsible for the performance or administration of all or some part of 
a Federal award.
    15. ``Indirect cost rate proposal'' means the documentation prepared 
by a governmental unit or component thereof to substantiate its request 
for the establishment of an indirect cost rate as described in Appendix 
E of 2 CFR part 225.
    16. ``Local government'' means a county, municipality, city, town, 
township, local public authority, school district, special district, 
intrastate district, council of governments (whether or not incorporated 
as a non-profit corporation under State law), any other regional or 
interstate government entity, or any agency or instrumentality of a 
local government.
    17. ``Public assistance cost allocation plan'' means a narrative 
description of the procedures that will be used in identifying, 
measuring and allocating all administrative costs to all of the programs 
administered or supervised by State public assistance agencies as 
described in Appendix D of 2 CFR part 225.
    18. ``State'' means any of the several States of the United States, 
the District of Columbia, the Commonwealth of Puerto Rico, any territory 
or possession of the United States, or any agency or instrumentality of 
a State exclusive of local governments.
    C. Basic Guidelines
    1. Factors affecting allowability of costs. To be allowable under 
Federal awards, costs must meet the following general criteria:
    a. Be necessary and reasonable for proper and efficient performance 
and administration of Federal awards.
    b. Be allocable to Federal awards under the provisions of 2 CFR part 
225.
    c. Be authorized or not prohibited under State or local laws or 
regulations.
    d. Conform to any limitations or exclusions set forth in these 
principles, Federal laws, terms and conditions of the Federal award, or 
other governing regulations as to types or amounts of cost items.
    e. Be consistent with policies, regulations, and procedures that 
apply uniformly to both Federal awards and other activities of the 
governmental unit.
    f. Be accorded consistent treatment. A cost may not be assigned to a 
Federal award as a

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direct cost if any other cost incurred for the same purpose in like 
circumstances has been allocated to the Federal award as an indirect 
cost.
    g. Except as otherwise provided for in 2 CFR part 225, be determined 
in accordance with generally accepted accounting principles.
    h. Not be included as a cost or used to meet cost sharing or 
matching requirements of any other Federal award in either the current 
or a prior period, except as specifically provided by Federal law or 
regulation.
    i. Be the net of all applicable credits.
    j. Be adequately documented.
    2. Reasonable costs. A cost is reasonable if, in its nature and 
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. The question of reasonableness is particularly 
important when governmental units or components are predominately 
federally-funded. In determining reasonableness of a given cost, 
consideration shall be given to:
    a. Whether the cost is of a type generally recognized as ordinary 
and necessary for the operation of the governmental unit or the 
performance of the Federal award.
    b. The restraints or requirements imposed by such factors as: Sound 
business practices; arm's-length bargaining; Federal, State and other 
laws and regulations; and, terms and conditions of the Federal award.
    c. Market prices for comparable goods or services.
    d. Whether the individuals concerned acted with prudence in the 
circumstances considering their responsibilities to the governmental 
unit, its employees, the public at large, and the Federal Government.
    e. Significant deviations from the established practices of the 
governmental unit which may unjustifiably increase the Federal award's 
cost.
    3. Allocable costs.
    a. A cost is allocable to a particular cost objective if the goods 
or services involved are chargeable or assignable to such cost objective 
in accordance with relative benefits received.
    b. All activities which benefit from the governmental unit's 
indirect cost, including unallowable activities and services donated to 
the governmental unit by third parties, will receive an appropriate 
allocation of indirect costs.
    c. Any cost allocable to a particular Federal award or cost 
objective under the principles provided for in 2 CFR part 225 may not be 
charged to other Federal awards to overcome fund deficiencies, to avoid 
restrictions imposed by law or terms of the Federal awards, or for other 
reasons.
    d. Where an accumulation of indirect costs will ultimately result in 
charges to a Federal award, a cost allocation plan will be required as 
described in Appendices C, D, and E to this part.
    4. Applicable credits.
    a. Applicable credits refer to those receipts or reduction of 
expenditure-type transactions that offset or reduce expense items 
allocable to Federal awards as direct or indirect costs. Examples of 
such transactions are: Purchase discounts, rebates or allowances, 
recoveries or indemnities on losses, insurance refunds or rebates, and 
adjustments of overpayments or erroneous charges. To the extent that 
such credits accruing to or received by the governmental unit relate to 
allowable costs, they shall be credited to the Federal award either as a 
cost reduction or cash refund, as appropriate.
    b. In some instances, the amounts received from the Federal 
Government to finance activities or service operations of the 
governmental unit should be treated as applicable credits. Specifically, 
the concept of netting such credit items (including any amounts used to 
meet cost sharing or matching requirements) should be recognized in 
determining the rates or amounts to be charged to Federal awards. (See 
Appendix B to this part, item 11, ``Depreciation and use allowances,'' 
for areas of potential application in the matter of Federal financing of 
activities.)
    D. Composition of Cost
    1. Total cost. The total cost of Federal awards is comprised of the 
allowable direct cost of the program, plus its allocable portion of 
allowable indirect costs, less applicable credits.
    2. Classification of costs. There is no universal rule for 
classifying certain costs as either direct or indirect under every 
accounting system. A cost may be direct with respect to some specific 
service or function, but indirect with respect to the Federal award or 
other final cost objective. Therefore, it is essential that each item of 
cost be treated consistently in like circumstances either as a direct or 
an indirect cost. Guidelines for determining direct and indirect costs 
charged to Federal awards are provided in the sections that follow.
    E. Direct Costs
    1. General. Direct costs are those that can be identified 
specifically with a particular final cost objective.
    2. Application. Typical direct costs chargeable to Federal awards 
are:
    a. Compensation of employees for the time devoted and identified 
specifically to the performance of those awards.
    b. Cost of materials acquired, consumed, or expended specifically 
for the purpose of those awards.
    c. Equipment and other approved capital expenditures.
    d. Travel expenses incurred specifically to carry out the award.

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    3. Minor items. Any direct cost of a minor amount may be treated as 
an indirect cost for reasons of practicality where such accounting 
treatment for that item of cost is consistently applied to all cost 
objectives.
    F. Indirect Costs
    1. General. Indirect costs are those: Incurred for a common or joint 
purpose benefiting more than one cost objective, and not readily 
assignable to the cost objectives specifically benefitted, without 
effort disproportionate to the results achieved. The term ``indirect 
costs,'' as used herein, applies to costs of this type originating in 
the grantee department, as well as those incurred by other departments 
in supplying goods, services, and facilities. To facilitate equitable 
distribution of indirect expenses to the cost objectives served, it may 
be necessary to establish a number of pools of indirect costs within a 
governmental unit department or in other agencies providing services to 
a governmental unit department. Indirect cost pools should be 
distributed to benefitted cost objectives on bases that will produce an 
equitable result in consideration of relative benefits derived.
    2. Cost allocation plans and indirect cost proposals. Requirements 
for development and submission of cost allocation plans and indirect 
cost rate proposals are contained in Appendices C, D, and E to this 
part.
    3. Limitation on indirect or administrative costs.
    a. In addition to restrictions contained in 2 CFR part 225, there 
may be laws that further limit the amount of administrative or indirect 
cost allowed.
    b. Amounts not recoverable as indirect costs or administrative costs 
under one Federal award may not be shifted to another Federal award, 
unless specifically authorized by Federal legislation or regulation.
    G. Interagency Services. The cost of services provided by one agency 
to another within the governmental unit may include allowable direct 
costs of the service plus a pro rate share of indirect costs. A standard 
indirect cost allowance equal to ten percent of the direct salary and 
wage cost of providing the service (excluding overtime, shift premiums, 
and fringe benefits) may be used in lieu of determining the actual 
indirect costs of the service. These services do not include centralized 
services included in central service cost allocation plans as described 
in Appendix C to this part.
    H. Required Certifications. Each cost allocation plan or indirect 
cost rate proposal required by Appendices C and E to this part must 
comply with the following:
    1. No proposal to establish a cost allocation plan or an indirect 
cost rate, whether submitted to a Federal cognizant agency or maintained 
on file by the governmental unit, shall be acceptable unless such costs 
have been certified by the governmental unit using the Certificate of 
Cost Allocation Plan or Certificate of Indirect Costs as set forth in 
Appendices C and E to this part. The certificate must be signed on 
behalf of the governmental unit by an individual at a level no lower 
than chief financial officer of the governmental unit that submits the 
proposal or component covered by the proposal.
    2. No cost allocation plan or indirect cost rate shall be approved 
by the Federal Government unless the plan or rate proposal has been 
certified. Where it is necessary to establish a cost allocation plan or 
an indirect cost rate and the governmental unit has not submitted a 
certified proposal for establishing such a plan or rate in accordance 
with the requirements, the Federal Government may either disallow all 
indirect costs or unilaterally establish such a plan or rate. Such a 
plan or rate may be based upon audited historical data or such other 
data that have been furnished to the cognizant Federal agency and for 
which it can be demonstrated that all unallowable costs have been 
excluded. When a cost allocation plan or indirect cost rate is 
unilaterally established by the Federal Government because of failure of 
the governmental unit to submit a certified proposal, the plan or rate 
established will be set to ensure that potentially unallowable costs 
will not be reimbursed.

             Appendix B to Part 225--Selected Items of Cost

                            Table of Contents

1. Advertising and public relations costs
2. Advisory councils
3. Alcoholic beverages
4. Audit costs and related services
5. Bad debts
6. Bonding costs
7. Communication costs
8. Compensation for personal services
9. Contingency provisions
10. Defense and prosecution of criminal and civil proceedings, and 
          claims
11. Depreciation and use allowances
12. Donations and contributions
13. Employee morale, health, and welfare costs
14. Entertainment costs
15. Equipment and other capital expenditures
16. Fines and penalties
17. Fund raising and investment management costs
18. Gains and losses on disposition of depreciable property and other 
          capital assets and substantial relocation of Federal programs
19. General government expenses
20. Goods or services for personal use
21. Idle facilities and idle capacity
22. Insurance and indemnification
23. Interest
24. Lobbying

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25. Maintenance, operations, and repairs
26. Materials and supplies costs
27. Meetings and conferences
28. Memberships, subscriptions, and professional activity costs
29. Patent costs
30. Plant and homeland security costs
31. Pre-award costs
32. Professional service costs
33. Proposal costs
34. Publication and printing costs
35. Rearrangement and alteration costs
36. Reconversion costs
37. Rental costs of building and equipment
38. Royalties and other costs for the use of patents
39. Selling and marketing
40. Taxes
41. Termination costs applicable to sponsored agreements
42. Training costs
43. Travel costs

    Sections 1 through 43 provide principles to be applied in 
establishing the allowability or unallowability of certain items of 
cost. These principles apply whether a cost is treated as direct or 
indirect. A cost is allowable for Federal reimbursement only to the 
extent of benefits received by Federal awards and its conformance with 
the general policies and principles stated in Appendix A to this part. 
Failure to mention a particular item of cost in these sections is not 
intended to imply that it is either allowable or unallowable; rather, 
determination of allowability in each case should be based on the 
treatment or standards provided for similar or related items of cost.
    1. Advertising and public relations costs.
    a. The term advertising costs means the costs of advertising media 
and corollary administrative costs. Advertising media include magazines, 
newspapers, radio and television, direct mail, exhibits, electronic or 
computer transmittals, and the like.
    b. The term public relations includes community relations and means 
those activities dedicated to maintaining the image of the governmental 
unit or maintaining or promoting understanding and favorable relations 
with the community or public at large or any segment of the public.
    c. The only allowable advertising costs are those which are solely 
for:
    (1) The recruitment of personnel required for the performance by the 
governmental unit of obligations arising under a Federal award;
    (2) The procurement of goods and services for the performance of a 
Federal award;
    (3) The disposal of scrap or surplus materials acquired in the 
performance of a Federal award except when governmental units are 
reimbursed for disposal costs at a predetermined amount; or
    (4) Other specific purposes necessary to meet the requirements of 
the Federal award.
    d. The only allowable public relations costs are:
    (1) Costs specifically required by the Federal award;
    (2) Costs of communicating with the public and press pertaining to 
specific activities or accomplishments which result from performance of 
Federal awards (these costs are considered necessary as part of the 
outreach effort for the Federal award); or
    (3) Costs of conducting general liaison with news media and 
government public relations officers, to the extent that such activities 
are limited to communication and liaison necessary keep the public 
informed on matters of public concern, such as notices of Federal 
contract/grant awards, financial matters, etc.
    e. Costs identified in subsections c and d if incurred for more than 
one Federal award or for both sponsored work and other work of the 
governmental unit, are allowable to the extent that the principles in 
Appendix A to this part, sections E. (``Direct Costs'') and F. 
(``Indirect Costs'') are observed.
    f. Unallowable advertising and public relations costs include the 
following:
    (1) All advertising and public relations costs other than as 
specified in subsections 1.c, d, and e of this appendix;
    (2) Costs of meetings, conventions, convocations, or other events 
related to other activities of the governmental unit, including:
    (a) Costs of displays, demonstrations, and exhibits;
    (b) Costs of meeting rooms, hospitality suites, and other special 
facilities used in conjunction with shows and other special events; and
    (c) Salaries and wages of employees engaged in setting up and 
displaying exhibits, making demonstrations, and providing briefings;
    (3) Costs of promotional items and memorabilia, including models, 
gifts, and souvenirs;
    (4) Costs of advertising and public relations designed solely to 
promote the governmental unit.
    2. Advisory councils. Costs incurred by advisory councils or 
committees are allowable as a direct cost where authorized by the 
Federal awarding agency or as an indirect cost where allocable to 
Federal awards.
    3. Alcoholic beverages. Costs of alcoholic beverages are 
unallowable.
    4. Audit costs and related services.
    a. The costs of audits required by , and performed in accordance 
with, the Single Audit Act, as implemented by Circular A-133, ``Audits 
of States, Local Governments, and Non-Profit Organizations'' are 
allowable. Also see 31 U.S.C. 7505(b) and section 230 (``Audit Costs'') 
of Circular A-133.
    b. Other audit costs are allowable if included in a cost allocation 
plan or indirect

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cost proposal, or if specifically approved by the awarding agency as a 
direct cost to an award.
    c. The cost of agreed-upon procedures engagements to monitor 
subrecipients who are exempted from A-133 under section 200(d) are 
allowable, subject to the conditions listed in A-133, section 230 
(b)(2).
    5. Bad debts. Bad debts, including losses (whether actual or 
estimated) arising from uncollectable accounts and other claims, related 
collection costs, and related legal costs, are unallowable.
    6. Bonding costs.
    a. Bonding costs arise when the Federal Government requires 
assurance against financial loss to itself or others by reason of the 
act or default of the governmental unit. They arise also in instances 
where the governmental unit requires similar assurance. Included are 
such bonds as bid, performance, payment, advance payment, infringement, 
and fidelity bonds.
    b. Costs of bonding required pursuant to the terms of the award are 
allowable.
    c. Costs of bonding required by the governmental unit in the general 
conduct of its operations are allowable to the extent that such bonding 
is in accordance with sound business practice and the rates and premiums 
are reasonable under the circumstances.
    7. Communication costs. Costs incurred for telephone services, local 
and long distance telephone calls, telegrams, postage, messenger, 
electronic or computer transmittal services and the like are allowable.
    8. Compensation for personal services.
    a. General. Compensation for personnel services includes all 
remuneration, paid currently or accrued, for services rendered during 
the period of performance under Federal awards, including but not 
necessarily limited to wages, salaries, and fringe benefits. The costs 
of such compensation are allowable to the extent that they satisfy the 
specific requirements of this and other appendices under 2 CFR Part 225, 
and that the total compensation for individual employees:
    (1) Is reasonable for the services rendered and conforms to the 
established policy of the governmental unit consistently applied to both 
Federal and non-Federal activities;
    (2) Follows an appointment made in accordance with a governmental 
unit's laws and rules and meets merit system or other requirements 
required by Federal law, where applicable; and
    (3) Is determined and supported as provided in subsection h.
    b. Reasonableness. Compensation for employees engaged in work on 
Federal awards will be considered reasonable to the extent that it is 
consistent with that paid for similar work in other activities of the 
governmental unit. In cases where the kinds of employees required for 
Federal awards are not found in the other activities of the governmental 
unit, compensation will be considered reasonable to the extent that it 
is comparable to that paid for similar work in the labor market in which 
the employing government competes for the kind of employees involved. 
Compensation surveys providing data representative of the labor market 
involved will be an acceptable basis for evaluating reasonableness.
    c. Unallowable costs. Costs which are unallowable under other 
sections of these principles shall not be allowable under this section 
solely on the basis that they constitute personnel compensation.
    d. Fringe benefits.
    (1) Fringe benefits are allowances and services provided by 
employers to their employees as compensation in addition to regular 
salaries and wages. Fringe benefits include, but are not limited to, the 
costs of leave, employee insurance, pensions, and unemployment benefit 
plans. Except as provided elsewhere in these principles, the costs of 
fringe benefits are allowable to the extent that the benefits are 
reasonable and are required by law, governmental unit-employee 
agreement, or an established policy of the governmental unit.
    (2) The cost of fringe benefits in the form of regular compensation 
paid to employees during periods of authorized absences from the job, 
such as for annual leave, sick leave, holidays, court leave, military 
leave, and other similar benefits, are allowable if: They are provided 
under established written leave policies; the costs are equitably 
allocated to all related activities, including Federal awards; and, the 
accounting basis (cash or accrual) selected for costing each type of 
leave is consistently followed by the governmental unit.
    (3) When a governmental unit uses the cash basis of accounting, the 
cost of leave is recognized in the period that the leave is taken and 
paid for. Payments for unused leave when an employee retires or 
terminates employment are allowable in the year of payment provided they 
are allocated as a general administrative expense to all activities of 
the governmental unit or component.
    (4) The accrual basis may be only used for those types of leave for 
which a liability as defined by Generally Accepted Accounting Principles 
(GAAP) exists when the leave is earned. When a governmental unit uses 
the accrual basis of accounting, in accordance with GAAP, allowable 
leave costs are the lesser of the amount accrued or funded.
    (5) The cost of fringe benefits in the form of employer 
contributions or expenses for social security; employee life, health, 
unemployment, and worker's compensation insurance (except as indicated 
in section 22, Insurance and indemnification); pension plan costs (see 
subsection e.); and other similar

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benefits are allowable, provided such benefits are granted under 
established written policies. Such benefits, whether treated as indirect 
costs or as direct costs, shall be allocated to Federal awards and all 
other activities in a manner consistent with the pattern of benefits 
attributable to the individuals or group(s) of employees whose salaries 
and wages are chargeable to such Federal awards and other activities.
    e. Pension plan costs. Pension plan costs may be computed using a 
pay-as-you-go method or an acceptable actuarial cost method in 
accordance with established written policies of the governmental unit.
    (1) For pension plans financed on a pay-as-you-go method, allowable 
costs will be limited to those representing actual payments to retirees 
or their beneficiaries.
    (2) Pension costs calculated using an actuarial cost-based method 
recognized by GAAP are allowable for a given fiscal year if they are 
funded for that year within six months after the end of that year. Costs 
funded after the six month period (or a later period agreed to by the 
cognizant agency) are allowable in the year funded. The cognizant agency 
may agree to an extension of the six month period if an appropriate 
adjustment is made to compensate for the timing of the charges to the 
Federal Government and related Federal reimbursement and the 
governmental unit's contribution to the pension fund. Adjustments may be 
made by cash refund or other equitable procedures to compensate the 
Federal Government for the time value of Federal reimbursements in 
excess of contributions to the pension fund.
    (3) Amounts funded by the governmental unit in excess of the 
actuarially determined amount for a fiscal year may be used as the 
governmental unit's contribution in future periods.
    (4) When a governmental unit converts to an acceptable actuarial 
cost method, as defined by GAAP, and funds pension costs in accordance 
with this method, the unfunded liability at the time of conversion shall 
be allowable if amortized over a period of years in accordance with 
GAAP.
    (5) The Federal Government shall receive an equitable share of any 
previously allowed pension costs (including earnings thereon) which 
revert or inure to the governmental unit in the form of a refund, 
withdrawal, or other credit.
    f. Post-retirement health benefits. Post-retirement health benefits 
(PRHB) refers to costs of health insurance or health services not 
included in a pension plan covered by subsection 8.e. of this appendix 
for retirees and their spouses, dependents, and survivors. PRHB costs 
may be computed using a pay-as-you-go method or an acceptable actuarial 
cost method in accordance with established written polices of the 
governmental unit.
    (1) For PRHB financed on a pay as-you-go method, allowable costs 
will be limited to those representing actual payments to retirees or 
their beneficiaries.
    (2) PRHB costs calculated using an actuarial cost method recognized 
by GAAP are allowable if they are funded for that year within six months 
after the end of that year. Costs funded after the six month period (or 
a later period agreed to by the cognizant agency) are allowable in the 
year funded. The cognizant agency may agree to an extension of the six 
month period if an appropriate adjustment is made to compensate for the 
timing of the charges to the Federal Government and related Federal 
reimbursements and the governmental unit's contributions to the PRHB 
fund. Adjustments may be made by cash refund, reduction in current 
year's PRHB costs, or other equitable procedures to compensate the 
Federal Government for the time value of Federal reimbursements in 
excess of contributions to the PRHB fund.
    (3) Amounts funded in excess of the actuarially determined amount 
for a fiscal year may be used as the government's contribution in a 
future period.
    (4) When a governmental unit converts to an acceptable actuarial 
cost method and funds PRHB costs in accordance with this method, the 
initial unfunded liability attributable to prior years shall be 
allowable if amortized over a period of years in accordance with GAAP, 
or, if no such GAAP period exists, over a period negotiated with the 
cognizant agency.
    (5) To be allowable in the current year, the PRHB costs must be paid 
either to:
    (a) An insurer or other benefit provider as current year costs or 
premiums, or
    (b) An insurer or trustee to maintain a trust fund or reserve for 
the sole purpose of providing post-retirement benefits to retirees and 
other beneficiaries.
    (6) The Federal Government shall receive an equitable share of any 
amounts of previously allowed post-retirement benefit costs (including 
earnings thereon) which revert or inure to the governmental unit in the 
form of a refund, withdrawal, or other credit.
    g. Severance pay.
    (1) Payments in addition to regular salaries and wages made to 
workers whose employment is being terminated are allowable to the extent 
that, in each case, they are required by law, employer-employee 
agreement, or established written policy.
    (2) Severance payments (but not accruals) associated with normal 
turnover are allowable. Such payments shall be allocated to all 
activities of the governmental unit as an indirect cost.
    (3) Abnormal or mass severance pay will be considered on a case-by-
case basis and is allowable only if approved by the cognizant Federal 
agency.

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    h. Support of salaries and wages. These standards regarding time 
distribution are in addition to the standards for payroll documentation.
    (1) Charges to Federal awards for salaries and wages, whether 
treated as direct or indirect costs, will be based on payrolls 
documented in accordance with generally accepted practice of the 
governmental unit and approved by a responsible official(s) of the 
governmental unit.
    (2) No further documentation is required for the salaries and wages 
of employees who work in a single indirect cost activity.
    (3) Where employees are expected to work solely on a single Federal 
award or cost objective, charges for their salaries and wages will be 
supported by periodic certifications that the employees worked solely on 
that program for the period covered by the certification. These 
certifications will be prepared at least semi-annually and will be 
signed by the employee or supervisory official having first hand 
knowledge of the work performed by the employee.
    (4) Where employees work on multiple activities or cost objectives, 
a distribution of their salaries or wages will be supported by personnel 
activity reports or equivalent documentation which meets the standards 
in subsection 8.h.(5) of this appendix unless a statistical sampling 
system (see subsection 8.h.(6) of this appendix) or other substitute 
system has been approved by the cognizant Federal agency. Such 
documentary support will be required where employees work on:
    (a) More than one Federal award,
    (b) A Federal award and a non-Federal award,
    (c) An indirect cost activity and a direct cost activity,
    (d) Two or more indirect activities which are allocated using 
different allocation bases, or
    (e) An unallowable activity and a direct or indirect cost activity.
    (5) Personnel activity reports or equivalent documentation must meet 
the following standards:
    (a) They must reflect an after-the-fact distribution of the actual 
activity of each employee,
    (b) They must account for the total activity for which each employee 
is compensated,
    (c) They must be prepared at least monthly and must coincide with 
one or more pay periods, and
    (d) They must be signed by the employee.
    (e) Budget estimates or other distribution percentages determined 
before the services are performed do not qualify as support for charges 
to Federal awards but may be used for interim accounting purposes, 
provided that:
    (i) The governmental unit's system for establishing the estimates 
produces reasonable approximations of the activity actually performed;
    (ii) At least quarterly, comparisons of actual costs to budgeted 
distributions based on the monthly activity reports are made. Costs 
charged to Federal awards to reflect adjustments made as a result of the 
activity actually performed may be recorded annually if the quarterly 
comparisons show the differences between budgeted and actual costs are 
less than ten percent; and
    (iii) The budget estimates or other distribution percentages are 
revised at least quarterly, if necessary, to reflect changed 
circumstances.
    (6) Substitute systems for allocating salaries and wages to Federal 
awards may be used in place of activity reports. These systems are 
subject to approval if required by the cognizant agency. Such systems 
may include, but are not limited to, random moment sampling, case 
counts, or other quantifiable measures of employee effort.
    (a) Substitute systems which use sampling methods (primarily for 
Temporary Assistance to Needy Families (TANF), Medicaid, and other 
public assistance programs) must meet acceptable statistical sampling 
standards including:
    (i) The sampling universe must include all of the employees whose 
salaries and wages are to be allocated based on sample results except as 
provided in subsection 8.h.(6)(c) of this appendix;
    (ii) The entire time period involved must be covered by the sample; 
and
    (iii) The results must be statistically valid and applied to the 
period being sampled.
    (b) Allocating charges for the sampled employees' supervisors, 
clerical and support staffs, based on the results of the sampled 
employees, will be acceptable.
    (c) Less than full compliance with the statistical sampling 
standards noted in subsection 8.h.(6)(a) of this appendix may be 
accepted by the cognizant agency if it concludes that the amounts to be 
allocated to Federal awards will be minimal, or if it concludes that the 
system proposed by the governmental unit will result in lower costs to 
Federal awards than a system which complies with the standards.
    (7) Salaries and wages of employees used in meeting cost sharing or 
matching requirements of Federal awards must be supported in the same 
manner as those claimed as allowable costs under Federal awards.
    i. Donated services.
    (1) Donated or volunteer services may be furnished to a governmental 
unit by professional and technical personnel, consultants, and other 
skilled and unskilled labor. The value of these services is not 
reimbursable either as a direct or indirect cost. However, the value of 
donated services may be used to meet cost sharing or matching 
requirements

[[Page 126]]

in accordance with the provisions of the Common Rule.
    (2) The value of donated services utilized in the performance of a 
direct cost activity shall, when material in amount, be considered in 
the determination of the governmental unit's indirect costs or rate(s) 
and, accordingly, shall be allocated a proportionate share of applicable 
indirect costs.
    (3) To the extent feasible, donated services will be supported by 
the same methods used by the governmental unit to support the 
allocability of regular personnel services.
    9. Contingency provisions. Contributions to a contingency reserve or 
any similar provision made for events the occurrence of which cannot be 
foretold with certainty as to time, intensity, or with an assurance of 
their happening, are unallowable. The term ``contingency reserve'' 
excludes self-insurance reserves (see section 22.c. of this appendix), 
pension plan reserves (see section 8.e.), and post-retirement health and 
other benefit reserves (section 8.f.) computed using acceptable 
actuarial cost methods.
    10. Defense and prosecution of criminal and civil proceedings, and 
claims.
    a. The following costs are unallowable for contracts covered by 10 
U.S.C. 2324(k), ``Allowable costs under defense contracts.''
    (1) Costs incurred in defense of any civil or criminal fraud 
proceeding or similar proceeding (including filing of false 
certification brought by the United States where the contractor is found 
liable or has pleaded nolo contendere to a charge of fraud or similar 
proceeding (including filing of a false certification).
    (2) Costs incurred by a contractor in connection with any criminal, 
civil or administrative proceedings commenced by the United States or a 
State to the extent provided in 10 U.S.C. 2324(k).
    b. Legal expenses required in the administration of Federal programs 
are allowable. Legal expenses for prosecution of claims against the 
Federal Government are unallowable.
    11. Depreciation and use allowances.
    a. Depreciation and use allowances are means of allocating the cost 
of fixed assets to periods benefiting from asset use. Compensation for 
the use of fixed assets on hand may be made through depreciation or use 
allowances. A combination of the two methods may not be used in 
connection with a single class of fixed assets (e.g., buildings, office 
equipment, computer equipment, etc.) except as provided for in 
subsection g. Except for enterprise funds and internal service funds 
that are included as part of a State/local cost allocation plan, classes 
of assets shall be determined on the same basis used for the government-
wide financial statements.
    b. The computation of depreciation or use allowances shall be based 
on the acquisition cost of the assets involved. Where actual cost 
records have not been maintained, a reasonable estimate of the original 
acquisition cost may be used. The value of an asset donated to the 
governmental unit by an unrelated third party shall be its fair market 
value at the time of donation. Governmental or quasi-governmental 
organizations located within the same State shall not be considered 
unrelated third parties for this purpose.
    c. The computation of depreciation or use allowances will exclude:
    (1) The cost of land;
    (2) Any portion of the cost of buildings and equipment borne by or 
donated by the Federal Government irrespective of where title was 
originally vested or where it presently resides; and
    (3) Any portion of the cost of buildings and equipment contributed 
by or for the governmental unit, or a related donor organization, in 
satisfaction of a matching requirement.
    d. Where the depreciation method is followed, the following general 
criteria apply:
    (1) The period of useful service (useful life) established in each 
case for usable capital assets must take into consideration such factors 
as type of construction, nature of the equipment used, historical usage 
patterns, technological developments, and the renewal and replacement 
policies of the governmental unit followed for the individual items or 
classes of assets involved. In the absence of clear evidence indicating 
that the expected consumption of the asset will be significantly greater 
in the early portions than in the later portions of its useful life, the 
straight line method of depreciation shall be used.
    (2) Depreciation methods once used shall not be changed unless 
approved by the Federal cognizant or awarding agency. When the 
depreciation method is introduced for application to an asset previously 
subject to a use allowance, the annual depreciation charge thereon may 
not exceed the amount that would have resulted had the depreciation 
method been in effect from the date of acquisition of the asset. The 
combination of use allowances and depreciation applicable to the asset 
shall not exceed the total acquisition cost of the asset or fair market 
value at time of donation.
    e. When the depreciation method is used for buildings, a building's 
shell may be segregated from the major component of the building (e.g., 
plumbing system, heating, and air conditioning system, etc.) and each 
major component depreciated over its estimated useful life, or the 
entire building (i.e., the shell and all components) may be treated as a 
single asset and depreciated over a single useful life.
    f. Where the use allowance method is followed, the following general 
criteria apply:
    (1) The use allowance for buildings and improvements (including land 
improvements, such as paved parking areas, fences, and

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sidewalks) will be computed at an annual rate not exceeding two percent 
of acquisition costs.
    (2) The use allowance for equipment will be computed at an annual 
rate not exceeding 6\2/3\ percent of acquisition cost.
    (3) When the use allowance method is used for buildings, the entire 
building must be treated as a single asset; the building's components 
(e.g., plumbing system, heating and air condition, etc.) cannot be 
segregated from the building's shell. The two percent limitation, 
however, need not be applied to equipment which is merely attached or 
fastened to the building but not permanently fixed to it and which is 
used as furnishings or decorations or for specialized purposes (e.g., 
dentist chairs and dental treatment units, counters, laboratory benches 
bolted to the floor, dishwashers, modular furniture, carpeting, etc.). 
Such equipment will be considered as not being permanently fixed to the 
building if it can be removed without the destruction of, or need for 
costly or extensive alterations or repairs, to the building or the 
equipment. Equipment that meets these criteria will be subject to the 
6\2/3\ percent equipment use allowance limitation.
    g. A reasonable use allowance may be negotiated for any assets that 
are considered to be fully depreciated, after taking into consideration 
the amount of depreciation previously charged to the government, the 
estimated useful life remaining at the time of negotiation, the effect 
of any increased maintenance charges, decreased efficiency due to age, 
and any other factors pertinent to the utilization of the asset for the 
purpose contemplated.
    h. Charges for use allowances or depreciation must be supported by 
adequate property records. Physical inventories must be taken at least 
once every two years (a statistical sampling approach is acceptable) to 
ensure that assets exist, and are in use. Governmental units will manage 
equipment in accordance with State laws and procedures. When the 
depreciation method is followed, depreciation records indicating the 
amount of depreciation taken each period must also be maintained.
    12. Donations and contributions.
    a. Contributions or donations rendered. Contributions or donations, 
including cash, property, and services, made by the governmental unit, 
regardless of the recipient, are unallowable.
    b. Donated services received:
    (1) Donated or volunteer services may be furnished to a governmental 
unit by professional and technical personnel, consultants, and other 
skilled and unskilled labor. The value of these services is not 
reimbursable either as a direct or indirect cost. However, the value of 
donated services may be used to meet cost sharing or matching 
requirements in accordance with the Federal Grants Management Common 
Rule.
    (2) The value of donated services utilized in the performance of a 
direct cost activity shall, when material in amount, be considered in 
the determination of the governmental unit's indirect costs or rate(s) 
and, accordingly, shall be allocated a proportionate share of applicable 
indirect costs.
    (3) To the extent feasible, donated services will be supported by 
the same methods used by the governmental unit to support the 
allocability of regular personnel services.
    13. Employee morale, health, and welfare costs.
    a. The costs of employee information publications, health or first-
aid clinics and/or infirmaries, recreational activities, employee 
counseling services, and any other expenses incurred in accordance with 
the governmental unit's established practice or custom for the 
improvement of working conditions, employer-employee relations, employee 
morale, and employee performance are allowable.
    b. Such costs will be equitably apportioned to all activities of the 
governmental unit. Income generated from any of these activities will be 
offset against expenses.
    14. Entertainment. Costs of entertainment, including amusement, 
diversion, and social activities and any costs directly associated with 
such costs (such as tickets to shows or sports events, meals, lodging, 
rentals, transportation, and gratuities) are unallowable.
    15. Equipment and other capital expenditures.
    a. For purposes of this subsection 15, the following definitions 
apply:
    (1) ``Capital Expenditures'' means expenditures for the acquisition 
cost of capital assets (equipment, buildings, land), or expenditures to 
make improvements to capital assets that materially increase their value 
or useful life. Acquisition cost means the cost of the asset including 
the cost to put it in place. Acquisition cost for equipment, for 
example, means the net invoice price of the equipment, including the 
cost of any modifications, attachments, accessories, or auxiliary 
apparatus necessary to make it usable for the purpose for which it is 
acquired. Ancillary charges, such as taxes, duty, protective in transit 
insurance, freight, and installation may be included in, or excluded 
from the acquisition cost in accordance with the governmental unit's 
regular accounting practices.
    (2) ``Equipment'' means an article of nonexpendable, tangible 
personal property having a useful life of more than one year and an 
acquisition cost which equals or exceeds the lesser of the 
capitalization level established by the governmental unit for financial 
statement purposes, or $5000.
    (3) ``Special purpose equipment'' means equipment which is used only 
for research,

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medical, scientific, or other technical activities. Examples of special 
purpose equipment include microscopes, x-ray machines, surgical 
instruments, and spectrometers.
    (4) ``General purpose equipment'' means equipment, which is not 
limited to research, medical, scientific or other technical activities. 
Examples include office equipment and furnishings, modular offices, 
telephone networks, information technology equipment and systems, air 
conditioning equipment, reproduction and printing equipment, and motor 
vehicles.
    b. The following rules of allowability shall apply to equipment and 
other capital expenditures:
    (1) Capital expenditures for general purpose equipment, buildings, 
and land are unallowable as direct charges, except where approved in 
advance by the awarding agency.
    (2) Capital expenditures for special purpose equipment are allowable 
as direct costs, provided that items with a unit cost of $5000 or more 
have the prior approval of the awarding agency.
    (3) Capital expenditures for improvements to land, buildings, or 
equipment which materially increase their value or useful life are 
unallowable as a direct cost except with the prior approval of the 
awarding agency.
    (4) When approved as a direct charge pursuant to section 15.b(1), 
(2), and (3)of this appendix, capital expenditures will be charged in 
the period in which the expenditure is incurred, or as otherwise 
determined appropriate and negotiated with the awarding agency. In 
addition, Federal awarding agencies are authorized at their option to 
waive or delegate the prior approval requirement.
    (5) Equipment and other capital expenditures are unallowable as 
indirect costs. However, see section 11 of this appendix, Depreciation 
and use allowance, for rules on the allowability of use allowances or 
depreciation on buildings, capital improvements, and equipment. Also, 
see section 37 of this appendix, Rental costs, concerning the 
allowability of rental costs for land, buildings, and equipment.
    (6) The unamortized portion of any equipment written off as a result 
of a change in capitalization levels may be recovered by continuing to 
claim the otherwise allowable use allowances or depreciation on the 
equipment, or by amortizing the amount to be written off over a period 
of years negotiated with the cognizant agency.
    (7) When replacing equipment purchased in whole or in part with 
Federal funds, the governmental unit may use the equipment to be 
replaced as a trade-in or sell the property and use the proceeds to 
offset the cost of the replacement property.
    16. Fines and penalties. Fines, penalties, damages, and other 
settlements resulting from violations (or alleged violations) of, or 
failure of the governmental unit to comply with, Federal, State, local, 
or Indian tribal laws and regulations are unallowable except when 
incurred as a result of compliance with specific provisions of the 
Federal award or written instructions by the awarding agency authorizing 
in advance such payments.
    17. Fund raising and investment management costs.
    a. Costs of organized fund raising, including financial campaigns, 
solicitation of gifts and bequests, and similar expenses incurred to 
raise capital or obtain contributions are unallowable, regardless of the 
purpose for which the funds will be used.
    b. Costs of investment counsel and staff and similar expenses 
incurred to enhance income from investments are unallowable. However, 
such costs associated with investments covering pension, self-insurance, 
or other funds which include Federal participation allowed by this and 
other appendices of 2 CFR part 225 are allowable.
    c. Fund raising and investment activities shall be allocated an 
appropriate share of indirect costs under the conditions described in 
subsection C.3.b. of Appendix A to this part.
    18. Gains and losses on disposition of depreciable property and 
other capital assets and substantial relocation of Federal programs.
    a. (1) Gains and losses on the sale, retirement, or other 
disposition of depreciable property shall be included in the year in 
which they occur as credits or charges to the asset cost grouping(s) in 
which the property was included. The amount of the gain or loss to be 
included as a credit or charge to the appropriate asset cost grouping(s) 
shall be the difference between the amount realized on the property and 
the undepreciated basis of the property.
    (2) Gains and losses on the disposition of depreciable property 
shall not be recognized as a separate credit or charge under the 
following conditions:
    (a) The gain or loss is processed through a depreciation account and 
is reflected in the depreciation allowable under sections 11 and 15 of 
this appendix.
    (b) The property is given in exchange as part of the purchase price 
of a similar item and the gain or loss is taken into account in 
determining the depreciation cost basis of the new item.
    (c) A loss results from the failure to maintain permissible 
insurance, except as otherwise provided in subsection 22.d of this 
appendix.
    (d) Compensation for the use of the property was provided through 
use allowances in lieu of depreciation.
    b. Substantial relocation of Federal awards from a facility where 
the Federal Government participated in the financing to another facility 
prior to the expiration of the useful life of the financed facility 
requires Federal agency approval. The extent of the

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relocation, the amount of the Federal participation in the financing, 
and the depreciation charged to date may require negotiation of space 
charges for Federal awards.
    c. Gains or losses of any nature arising from the sale or exchange 
of property other than the property covered in subsection 18.a. of this 
appendix, e.g., land or included in the fair market value used in any 
adjustment resulting from a relocation of Federal awards covered in 
subsection b. shall be excluded in computing Federal award costs.
    19. General government expenses.
    a. The general costs of government are unallowable (except as 
provided in section 43 of this appendix, Travel costs). These include:
    (1) Salaries and expenses of the Office of the Governor of a State 
or the chief executive of a political subdivision or the chief executive 
of federally-recognized Indian tribal government;
    (2) Salaries and other expenses of a State legislature, tribal 
council, or similar local governmental body, such as a county 
supervisor, city council, school board, etc., whether incurred for 
purposes of legislation or executive direction;
    (3) Costs of the judiciary branch of a government;
    (4) Costs of prosecutorial activities unless treated as a direct 
cost to a specific program if authorized by program statute or 
regulation (however, this does not preclude the allowability of other 
legal activities of the Attorney General); and
    (5) Costs of other general types of government services normally 
provided to the general public, such as fire and police, unless provided 
for as a direct cost under a program statute or regulation.
    b. For federally-recognized Indian tribal governments and Councils 
Of Governments (COGs), the portion of salaries and expenses directly 
attributable to managing and operating Federal programs by the chief 
executive and his staff is allowable.
    20. Goods or services for personal use. Costs of goods or services 
for personal use of the governmental unit's employees are unallowable 
regardless of whether the cost is reported as taxable income to the 
employees.
    21. Idle facilities and idle capacity.
    As used in this section the following terms have the meanings set 
forth below:
    (1) ``Facilities'' means land and buildings or any portion thereof, 
equipment individually or collectively, or any other tangible capital 
asset, wherever located, and whether owned or leased by the governmental 
unit.
    (2) ``Idle facilities'' means completely unused facilities that are 
excess to the governmental unit's current needs.
    (3) ``Idle capacity'' means the unused capacity of partially used 
facilities. It is the difference between: that which a facility could 
achieve under 100 percent operating time on a one-shift basis less 
operating interruptions resulting from time lost for repairs, setups, 
unsatisfactory materials, and other normal delays; and the extent to 
which the facility was actually used to meet demands during the 
accounting period. A multi-shift basis should be used if it can be shown 
that this amount of usage would normally be expected for the type of 
facility involved.
    (4) ``Cost of idle facilities or idle capacity'' means costs such as 
maintenance, repair, housing, rent, and other related costs, e.g., 
insurance, interest, property taxes and depreciation or use allowances.
    b. The costs of idle facilities are unallowable except to the extent 
that:
    (1) They are necessary to meet fluctuations in workload; or
    (2) Although not necessary to meet fluctuations in workload, they 
were necessary when acquired and are now idle because of changes in 
program requirements, efforts to achieve more economical operations, 
reorganization, termination, or other causes which could not have been 
reasonably foreseen. Under the exception stated in this subsection, 
costs of idle facilities are allowable for a reasonable period of time, 
ordinarily not to exceed one year, depending on the initiative taken to 
use, lease, or dispose of such facilities.
    c. The costs of idle capacity are normal costs of doing business and 
are a factor in the normal fluctuations of usage or indirect cost rates 
from period to period. Such costs are allowable, provided that the 
capacity is reasonably anticipated to be necessary or was originally 
reasonable and is not subject to reduction or elimination by use on 
other Federal awards, subletting, renting, or sale, in accordance with 
sound business, economic, or security practices. Widespread idle 
capacity throughout an entire facility or among a group of assets having 
substantially the same function may be considered idle facilities.
    22. Insurance and indemnification.
    a. Costs of insurance required or approved and maintained, pursuant 
to the Federal award, are allowable.
    b. Costs of other insurance in connection with the general conduct 
of activities are allowable subject to the following limitations:
    (1) Types and extent and cost of coverage are in accordance with the 
governmental unit's policy and sound business practice.
    (2) Costs of insurance or of contributions to any reserve covering 
the risk of loss of, or damage to, Federal Government property are 
unallowable except to the extent that the awarding agency has 
specifically required or approved such costs.
    c. Actual losses which could have been covered by permissible 
insurance (through a self-insurance program or otherwise) are 
unallowable, unless expressly provided for in the Federal award or as 
described below.

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However, the Federal Government will participate in actual losses of a 
self insurance fund that are in excess of reserves. Costs incurred 
because of losses not covered under nominal deductible insurance 
coverage provided in keeping with sound management practice, and minor 
losses not covered by insurance, such as spoilage, breakage, and 
disappearance of small hand tools, which occur in the ordinary course of 
operations, are allowable.
    d. Contributions to a reserve for certain self-insurance programs 
including workers compensation, unemployment compensation, and severance 
pay are allowable subject to the following provisions:
    (1) The type of coverage and the extent of coverage and the rates 
and premiums would have been allowed had insurance (including 
reinsurance) been purchased to cover the risks. However, provision for 
known or reasonably estimated self-insured liabilities, which do not 
become payable for more than one year after the provision is made, shall 
not exceed the discounted present value of the liability. The rate used 
for discounting the liability must be determined by giving consideration 
to such factors as the governmental unit's settlement rate for those 
liabilities and its investment rate of return.
    (2) Earnings or investment income on reserves must be credited to 
those reserves.
    (3) Contributions to reserves must be based on sound actuarial 
principles using historical experience and reasonable assumptions. 
Reserve levels must be analyzed and updated at least biennially for each 
major risk being insured and take into account any reinsurance, 
coinsurance, etc. Reserve levels related to employee-related coverages 
will normally be limited to the value of claims submitted and 
adjudicated but not paid, submitted but not adjudicated, and incurred 
but not submitted. Reserve levels in excess of the amounts based on the 
above must be identified and justified in the cost allocation plan or 
indirect cost rate proposal.
    (4) Accounting records, actuarial studies, and cost allocations (or 
billings) must recognize any significant differences due to types of 
insured risk and losses generated by the various insured activities or 
agencies of the governmental unit. If individual departments or agencies 
of the governmental unit experience significantly different levels of 
claims for a particular risk, those differences are to be recognized by 
the use of separate allocations or other techniques resulting in an 
equitable allocation.
    (5) Whenever funds are transferred from a self-insurance reserve to 
other accounts (e.g., general fund), refunds shall be made to the 
Federal Government for its share of funds transferred, including earned 
or imputed interest from the date of transfer.
    e. Actual claims paid to or on behalf of employees or former 
employees for workers' compensation, unemployment compensation, 
severance pay, and similar employee benefits (e.g., subsection 8.f. for 
post retirement health benefits), are allowable in the year of payment 
provided the governmental unit follows a consistent costing policy and 
they are allocated as a general administrative expense to all activities 
of the governmental unit.
    f. Insurance refunds shall be credited against insurance costs in 
the year the refund is received.
    g. Indemnification includes securing the governmental unit against 
liabilities to third persons and other losses not compensated by 
insurance or otherwise. The Federal Government is obligated to indemnify 
the governmental unit only to the extent expressly provided for in the 
Federal award, except as provided in subsection 22.d of this appendix.
    h. Costs of commercial insurance that protects against the costs of 
the contractor for correction of the contractor's own defects in 
materials or workmanship are unallowable.
    23. Interest.
    a. Costs incurred for interest on borrowed capital or the use of a 
governmental unit's own funds, however represented, are unallowable 
except as specifically provided in subsection b. or authorized by 
Federal legislation.
    b. Financing costs (including interest) paid or incurred which are 
associated with the otherwise allowable costs of building acquisition, 
construction, or fabrication, reconstruction or remodeling completed on 
or after October 1, 1980 is allowable subject to the conditions in 
section 23.b.(1) through (4) of this appendix. Financing costs 
(including interest) paid or incurred on or after September 1, 1995 for 
land or associated with otherwise allowable costs of equipment is 
allowable, subject to the conditions in section 23.b. (1) through (4) of 
this appendix.
    (1) The financing is provided (from other than tax or user fee 
sources) by a bona fide third party external to the governmental unit;
    (2) The assets are used in support of Federal awards;
    (3) Earnings on debt service reserve funds or interest earned on 
borrowed funds pending payment of the construction or acquisition costs 
are used to offset the current period's cost or the capitalized 
interest, as appropriate. Earnings subject to being reported to the 
Federal Internal Revenue Service under arbitrage requirements are 
excludable.
    (4) For debt arrangements over $1 million, unless the governmental 
unit makes an initial equity contribution to the asset purchase of 25 
percent or more, the governmental unit shall reduce claims for interest 
cost by an amount equal to imputed interest earnings on excess cash 
flow, which is to be calculated as follows. Annually, non-Federal

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entities shall prepare a cumulative (from the inception of the project) 
report of monthly cash flows that includes inflows and outflows, 
regardless of the funding source. Inflows consist of depreciation 
expense, amortization of capitalized construction interest, and annual 
interest cost. For cash flow calculations, the annual inflow figures 
shall be divided by the number of months in the year (i.e., usually 12) 
that the building is in service for monthly amounts. Outflows consist of 
initial equity contributions, debt principal payments (less the pro rata 
share attributable to the unallowable costs of land) and interest 
payments. Where cumulative inflows exceed cumulative outflows, interest 
shall be calculated on the excess inflows for that period and be treated 
as a reduction to allowable interest cost. The rate of interest to be 
used to compute earnings on excess cash flows shall be the three-month 
Treasury bill closing rate as of the last business day of that month.
    (5) Interest attributable to fully depreciated assets is 
unallowable.
    24. Lobbying.
    a. General. The cost of certain influencing activities associated 
with obtaining grants, contracts, cooperative agreements, or loans is an 
unallowable cost. Lobbying with respect to certain grants, contracts, 
cooperative agreements, and loans shall be governed by the common rule, 
``New Restrictions on Lobbying'' (see Section J.24 of Appendix A to 2 
CFR part 220), including definitions, and the Office of Management and 
Budget ``Government-wide Guidance for New Restrictions on Lobbying'' and 
notices published at 54 FR 52306 (December 20, 1989), 55 FR 24540 (June 
15, 1990), and 57 FR 1772 (January 15, 1992), respectively.
    b. Executive lobbying costs. Costs incurred in attempting to 
improperly influence either directly or indirectly, an employee or 
officer of the Executive Branch of the Federal Government to give 
consideration or to act regarding a sponsored agreement or a regulatory 
matter are unallowable. Improper influence means any influence that 
induces or tends to induce a Federal employee or officer to give 
consideration or to act regarding a federally-sponsored agreement or 
regulatory matter on any basis other than the merits of the matter.
    25. Maintenance, operations, and repairs. Unless prohibited by law, 
the cost of utilities, insurance, security, janitorial services, 
elevator service, upkeep of grounds, necessary maintenance, normal 
repairs and alterations, and the like are allowable to the extent that 
they: keep property (including Federal property, unless otherwise 
provided for) in an efficient operating condition, do not add to the 
permanent value of property or appreciably prolong its intended life, 
and are not otherwise included in rental or other charges for space. 
Costs which add to the permanent value of property or appreciably 
prolong its intended life shall be treated as capital expenditures (see 
sections 11 and 15 of this appendix).
    26. Materials and supplies costs.
    a. Costs incurred for materials, supplies, and fabricated parts 
necessary to carry out a Federal award are allowable.
    b. Purchased materials and supplies shall be charged at their actual 
prices, net of applicable credits. Withdrawals from general stores or 
stockrooms should be charged at their actual net cost under any 
recognized method of pricing inventory withdrawals, consistently 
applied. Incoming transportation charges are a proper part of materials 
and supplies costs.
    c. Only materials and supplies actually used for the performance of 
a Federal award may be charged as direct costs.
    d. Where federally-donated or furnished materials are used in 
performing the Federal award, such materials will be used without 
charge.
    27. Meetings and conferences. Costs of meetings and conferences, the 
primary purpose of which is the dissemination of technical information, 
are allowable. This includes costs of meals, transportation, rental of 
facilities, speakers' fees, and other items incidental to such meetings 
or conferences. But see section 14, Entertainment costs, of this 
appendix.
    28. Memberships, subscriptions, and professional activity costs.
    a. Costs of the governmental unit's memberships in business, 
technical, and professional organizations are allowable.
    b. Costs of the governmental unit's subscriptions to business, 
professional, and technical periodicals are allowable.
    c. Costs of membership in civic and community, social organizations 
are allowable as a direct cost with the approval of the Federal awarding 
agency.
    d. Costs of membership in organizations substantially engaged in 
lobbying are unallowable.
    29. Patent costs.
    a. The following costs relating to patent and copyright matters are 
allowable: cost of preparing disclosures, reports, and other documents 
required by the Federal award and of searching the art to the extent 
necessary to make such disclosures; cost of preparing documents and any 
other patent costs in connection with the filing and prosecution of a 
United States patent application where title or royalty-free license is 
required by the Federal Government to be conveyed to the Federal 
Government; and general counseling services relating to patent and 
copyright matters, such as advice on patent and copyright laws, 
regulations, clauses, and employee agreements (but see sections 32, 
Professional service costs, and 38, Royalties and

[[Page 132]]

other costs for use of patents and copyrights, of this appendix).
    b. The following costs related to patent and copyright matter are 
unallowable: Cost of preparing disclosures, reports, and other documents 
and of searching the art to the extent necessary to make disclosures not 
required by the award; costs in connection with filing and prosecuting 
any foreign patent application; or any United States patent application, 
where the Federal award does not require conveying title or a royalty-
free license to the Federal Government (but see section 38, Royalties 
and other costs for use of patents and copyrights, of this appendix).
    30. Plant and homeland security costs. Necessary and reasonable 
expenses incurred for routine and homeland security to protect 
facilities, personnel, and work products are allowable. Such costs 
include, but are not limited to, wages and uniforms of personnel engaged 
in security activities; equipment; barriers; contractual security 
services; consultants; etc. Capital expenditures for homeland and plant 
security purposes are subject to section 15, Equipment and other capital 
expenditures, of this appendix.
    31. Pre-award costs. Pre-award costs are those incurred prior to the 
effective date of the award directly pursuant to the negotiation and in 
anticipation of the award where such costs are necessary to comply with 
the proposed delivery schedule or period of performance. Such costs are 
allowable only to the extent that they would have been allowable if 
incurred after the date of the award and only with the written approval 
of the awarding agency.
    32. Professional service costs.
    a. Costs of professional and consultant services rendered by persons 
who are members of a particular profession or possess a special skill, 
and who are not officers or employees of the governmental unit, are 
allowable, subject to subparagraphs b and c when reasonable in relation 
to the services rendered and when not contingent upon recovery of the 
costs from the Federal Government. In addition, legal and related 
services are limited under section 10 of this appendix.
    b. In determining the allowability of costs in a particular case, no 
single factor or any special combination of factors is necessarily 
determinative. However, the following factors are relevant:
    (1) The nature and scope of the service rendered in relation to the 
service required.
    (2) The necessity of contracting for the service, considering the 
governmental unit's capability in the particular area.
    (3) The past pattern of such costs, particularly in the years prior 
to Federal awards.
    (4) The impact of Federal awards on the governmental unit's business 
(i.e., what new problems have arisen).
    (5) Whether the proportion of Federal work to the governmental 
unit's total business is such as to influence the governmental unit in 
favor of incurring the cost, particularly where the services rendered 
are not of a continuing nature and have little relationship to work 
under Federal grants and contracts.
    (6) Whether the service can be performed more economically by direct 
employment rather than contracting.
    (7) The qualifications of the individual or concern rendering the 
service and the customary fees charged, especially on non-Federal 
awards.
    (8) Adequacy of the contractual agreement for the service (e.g., 
description of the service, estimate of time required, rate of 
compensation, and termination provisions).
    c. In addition to the factors in subparagraph b, retainer fees to be 
allowable must be supported by available or rendered evidence of bona 
fide services available or rendered.
    33. Proposal costs. Costs of preparing proposals for potential 
Federal awards are allowable. Proposal costs should normally be treated 
as indirect costs and should be allocated to all activities of the 
governmental unit utilizing the cost allocation plan and indirect cost 
rate proposal. However, proposal costs may be charged directly to 
Federal awards with the prior approval of the Federal awarding agency.
    34. Publication and printing costs.
    a. Publication costs include the costs of printing (including the 
processes of composition, plate-making, press work, binding, and the end 
products produced by such processes), distribution, promotion, mailing, 
and general handling. Publication costs also include page charges in 
professional publications.
    b. If these costs are not identifiable with a particular cost 
objective, they should be allocated as indirect costs to all benefiting 
activities of the governmental unit.
    c. Page charges for professional journal publications are allowable 
as a necessary part of research costs where:
    (1) The research papers report work supported by the Federal 
Government; and
    (2) The charges are levied impartially on all research papers 
published by the journal, whether or not by federally-sponsored authors.
    35. Rearrangement and alteration costs. Costs incurred for ordinary 
and normal rearrangement and alteration of facilities are allowable. 
Special arrangements and alterations costs incurred specifically for a 
Federal award are allowable with the prior approval of the Federal 
awarding agency.
    36. Reconversion costs. Costs incurred in the restoration or 
rehabilitation of the governmental unit's facilities to approximately 
the same condition existing immediately prior to commencement of Federal 
awards, less costs related to normal wear and tear, are allowable.

[[Page 133]]

    37. Rental costs of buildings and equipment.
    a. Subject to the limitations described in subsections b. through d. 
of this section, rental costs are allowable to the extent that the rates 
are reasonable in light of such factors as: rental costs of comparable 
property, if any; market conditions in the area; alternatives available; 
and the type, life expectancy, condition, and value of the property 
leased. Rental arrangements should be reviewed periodically to determine 
if circumstances have changed and other options are available.
    b. Rental costs under ``sale and lease back'' arrangements are 
allowable only up to the amount that would be allowed had the 
governmental unit continued to own the property. This amount would 
include expenses such as depreciation or use allowance, maintenance, 
taxes, and insurance.
    c. Rental costs under ``less-than-arm's-length'' leases are 
allowable only up to the amount (as explained in section 37.b of this 
appendix) that would be allowed had title to the property vested in the 
governmental unit. For this purpose, a less-than-arm's-length lease is 
one under which one party to the lease agreement is able to control or 
substantially influence the actions of the other. Such leases include, 
but are not limited to those between divisions of a governmental unit; 
governmental units under common control through common officers, 
directors, or members; and a governmental unit and a director, trustee, 
officer, or key employee of the governmental unit or his immediate 
family, either directly or through corporations, trusts, or similar 
arrangements in which they hold a controlling interest. For example, a 
governmental unit may establish a separate corporation for the sole 
purpose of owning property and leasing it back to the governmental unit.
    d. Rental costs under leases which are required to be treated as 
capital leases under GAAP are allowable only up to the amount (as 
explained in subsection 37.b of this appendix) that would be allowed had 
the governmental unit purchased the property on the date the lease 
agreement was executed. The provisions of Financial Accounting Standards 
Board Statement 13, Accounting for Leases, shall be used to determine 
whether a lease is a capital lease. Interest costs related to capital 
leases are allowable to the extent they meet the criteria in section 23 
of this appendix. Unallowable costs include amounts paid for profit, 
management fees, and taxes that would not have been incurred had the 
governmental unit purchased the facility.
    38. Royalties and other costs for the use of patents.
    a. Royalties on a patent or copyright or amortization of the cost of 
acquiring by purchase a copyright, patent, or rights thereto, necessary 
for the proper performance of the award are allowable unless:
    (1) The Federal Government has a license or the right to free use of 
the patent or copyright.
    (2) The patent or copyright has been adjudicated to be invalid, or 
has been administratively determined to be invalid.
    (3) The patent or copyright is considered to be unenforceable.
    (4) The patent or copyright is expired.
    b. Special care should be exercised in determining reasonableness 
where the royalties may have been arrived at as a result of less-than-
arm's-length bargaining, e.g.:
    (1) Royalties paid to persons, including corporations, affiliated 
with the governmental unit.
    (2) Royalties paid to unaffiliated parties, including corporations, 
under an agreement entered into in contemplation that a Federal award 
would be made.
    (3) Royalties paid under an agreement entered into after an award is 
made to a governmental unit.
    c. In any case involving a patent or copyright formerly owned by the 
governmental unit, the amount of royalty allowed should not exceed the 
cost which would have been allowed had the governmental unit retained 
title thereto.
    39. Selling and marketing. Costs of selling and marketing any 
products or services of the governmental unit are unallowable (unless 
allowed under section 1. of this appendix as allowable public relations 
costs or under section 33. of this appendix as allowable proposal costs.
    40. Taxes.
    a. Taxes that a governmental unit is legally required to pay are 
allowable, except for self-assessed taxes that disproportionately affect 
Federal programs or changes in tax policies that disproportionately 
affect Federal programs. This provision is applicable to taxes paid 
during the governmental unit's first fiscal year that begins on or after 
January 1, 1998, and applies thereafter.
    b. Gasoline taxes, motor vehicle fees, and other taxes that are in 
effect user fees for benefits provided to the Federal Government are 
allowable.
    c. This provision does not restrict the authority of Federal 
agencies to identify taxes where Federal participation is inappropriate. 
Where the identification of the amount of unallowable taxes would 
require an inordinate amount of effort, the cognizant agency may accept 
a reasonable approximation thereof.
    41. Termination costs applicable to sponsored agreements. 
Termination of awards generally gives rise to the incurrence of costs, 
or the need for special treatment of costs, which would not have arisen 
had the Federal award not been terminated. Cost principles covering 
these items are set forth below. They

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are to be used in conjunction with the other provisions of this appendix 
in termination situations.
    a. The cost of items reasonably usable on the governmental unit's 
other work shall not be allowable unless the governmental unit submits 
evidence that it would not retain such items at cost without sustaining 
a loss. In deciding whether such items are reasonably usable on other 
work of the governmental unit, the awarding agency should consider the 
governmental unit's plans and orders for current and scheduled activity. 
Contemporaneous purchases of common items by the governmental unit shall 
be regarded as evidence that such items are reasonably usable on the 
governmental unit's other work. Any acceptance of common items as 
allocable to the terminated portion of the Federal award shall be 
limited to the extent that the quantities of such items on hand, in 
transit, and on order are in excess of the reasonable quantitative 
requirements of other work.
    b. If in a particular case, despite all reasonable efforts by the 
governmental unit, certain costs cannot be discontinued immediately 
after the effective date of termination, such costs are generally 
allowable within the limitations set forth in this and other appendices 
of 2 CFR part 225, except that any such costs continuing after 
termination due to the negligent or willful failure of the governmental 
unit to discontinue such costs shall be unallowable.
    c. Loss of useful value of special tooling, machinery, and equipment 
is generally allowable if:
    (1) Such special tooling, special machinery, or equipment is not 
reasonably capable of use in the other work of the governmental unit,
    (2) The interest of the Federal Government is protected by transfer 
of title or by other means deemed appropriate by the awarding agency, 
and
    (3) The loss of useful value for any one terminated Federal award is 
limited to that portion of the acquisition cost which bears the same 
ratio to the total acquisition cost as the terminated portion of the 
Federal award bears to the entire terminated Federal award and other 
Federal awards for which the special tooling, machinery, or equipment 
was acquired.
    d. Rental costs under unexpired leases are generally allowable where 
clearly shown to have been reasonably necessary for the performance of 
the terminated Federal award less the residual value of such leases, if:
    (1) The amount of such rental claimed does not exceed the reasonable 
use value of the property leased for the period of the Federal award and 
such further period as may be reasonable, and
    (2) The governmental unit makes all reasonable efforts to terminate, 
assign, settle, or otherwise reduce the cost of such lease. There also 
may be included the cost of alterations of such leased property, 
provided such alterations were necessary for the performance of the 
Federal award, and of reasonable restoration required by the provisions 
of the lease.
    e. Settlement expenses including the following are generally 
allowable:
    (1) Accounting, legal, clerical, and similar costs reasonably 
necessary for:
    (a) The preparation and presentation to the awarding agency of 
settlement claims and supporting data with respect to the terminated 
portion of the Federal award, unless the termination is for default (see 
Subpart --.44 of the Grants Management Common Rule (see Sec. 215.5) 
implementing OMB Circular A-102); and
    (b) The termination and settlement of subawards.
    (2) Reasonable costs for the storage, transportation, protection, 
and disposition of property provided by the Federal Government or 
acquired or produced for the Federal award, except when grantees or 
contractors are reimbursed for disposals at a predetermined amount in 
accordance with Subparts --.31 and --.32 of the Grants Management Common 
Rule (see Sec. 215.5) implementing OMB Circular A-102.
    f. Claims under subawards, including the allocable portion of claims 
which are common to the Federal award, and to other work of the 
governmental unit are generally allowable. An appropriate share of the 
governmental unit's indirect expense may be allocated to the amount of 
settlements with subcontractors and/or subgrantees, provided that the 
amount allocated is otherwise consistent with the basic guidelines 
contained in Appendix A to this part. The indirect expense so allocated 
shall exclude the same and similar costs claimed directly or indirectly 
as settlement expenses.
    42. Training costs. The cost of training provided for employee 
development is allowable.
    43. Travel costs.
    a. General. Travel costs are the expenses for transportation, 
lodging, subsistence, and related items incurred by employees who are in 
travel status on official business of the governmental unit. Such costs 
may be charged on an actual cost basis, on a per diem or mileage basis 
in lieu of actual costs incurred, or on a combination of the two, 
provided the method used is applied to an entire trip and not to 
selected days of the trip, and results in charges consistent with those 
normally allowed in like circumstances in the governmental unit's non-
federally-sponsored activities. Notwithstanding the provisions of 
section 19 of this appendix, General government expenses, travel costs 
of officials covered by that section are allowable

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with the prior approval of an awarding agency when they are specifically 
related to Federal awards.
    b. Lodging and subsistence. Costs incurred by employees and officers 
for travel, including costs of lodging, other subsistence, and 
incidental expenses, shall be considered reasonable and allowable only 
to the extent such costs do not exceed charges normally allowed by the 
governmental unit in its regular operations as the result of the 
governmental unit's written travel policy. In the absence of an 
acceptable, written governmental unit policy regarding travel costs, the 
rates and amounts established under subchapter I of Chapter 57, Title 5, 
United States Code (``Travel and Subsistence Expenses; Mileage 
Allowances''), or by the Administrator of General Services, or by the 
President (or his or her designee) pursuant to any provisions of such 
subchapter shall apply to travel under Federal awards (48 CFR 31.205-
46(a)).
    c. Commercial air travel.
    (1) Airfare costs in excess of the customary standard commercial 
airfare (coach or equivalent), Federal Government contract airfare 
(where authorized and available), or the lowest commercial discount 
airfare are unallowable except when such accommodations would:
    (a) Require circuitous routing;
    (b) Require travel during unreasonable hours;
    (c) Excessively prolong travel;
    (d) Result in additional costs that would offset the transportation 
savings; or
    (e) Offer accommodations not reasonably adequate for the traveler's 
medical needs. The governmental unit must justify and document these 
conditions on a case-by-case basis in order for the use of first-class 
airfare to be allowable in such cases.
    (2) Unless a pattern of avoidance is detected, the Federal 
Government will generally not question a governmental unit's 
determinations that customary standard airfare or other discount airfare 
is unavailable for specific trips if the governmental unit can 
demonstrate either of the following:
    (aa) That such airfare was not available in the specific case; or
    (b) That it is the governmental unit's overall practice to make 
routine use of such airfare.
    d. Air travel by other than commercial carrier. Costs of travel by 
governmental unit-owned, -leased, or -chartered aircraft include the 
cost of lease, charter, operation (including personnel costs), 
maintenance, depreciation, insurance, and other related costs. The 
portion of such costs that exceeds the cost of allowable commercial air 
travel, as provided for in subsection 43.c. of this appendix, is 
unallowable.
    e. Foreign travel. Direct charges for foreign travel costs are 
allowable only when the travel has received prior approval of the 
awarding agency. Each separate foreign trip must receive such approval. 
For purposes of this provision, ``foreign travel'' includes any travel 
outside Canada, Mexico, the United States, and any United States 
territories and possessions. However, the term ``foreign travel'' for a 
governmental unit located in a foreign country means travel outside that 
country.

Appendix C to Part 225--State/Local-Wide Central Service Cost Allocation 
                                  Plans

                            Table of Contents

A. General
B. Definitions
1. Billed central services
2. Allocated central services
3. Agency or operating agency
C. Scope of the Central Service Cost Allocation Plans
D. Submission Requirements
E. Documentation Requirements for Submitted Plans
1. General
2. Allocated central services
3. Billed services
a. General
b. Internal service funds
c. Self-insurance funds
d. Fringe benefits
4. Required certification
F. Negotiation and Approval of Central Service Plans
G. Other Policies
1. Billed central service activities
2. Working capital reserves
3. Carry-forward adjustments of allocated central service costs
4. Adjustments of billed central services
5. Records retention
6. Appeals
7. OMB assistance State/Local-Wide Central Service Cost Allocation Plans
    A. General.
    1. Most governmental units provide certain services, such as motor 
pools, computer centers, purchasing, accounting, etc., to operating 
agencies on a centralized basis. Since federally-supported awards are 
performed within the individual operating agencies, there needs to be a 
process whereby these central service costs can be identified and 
assigned to benefitted activities on a reasonable and consistent basis. 
The central service cost allocation plan provides that process. All 
costs and other data used to distribute the costs included in the plan 
should be supported by formal accounting and other records that will 
support the propriety of the costs assigned to Federal awards.
    2. Guidelines and illustrations of central service cost allocation 
plans are provided in a brochure published by the Department of

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Health and Human Services entitled ``A Guide for State and Local 
Government Agencies: Cost Principles and Procedures for Establishing 
Cost Allocation Plans and Indirect Cost Rates for Grants and Contracts 
with the Federal Government.'' A copy of this brochure may be obtained 
from the Superintendent of Documents, U.S. Government Printing Office, 
Washington, DC 20401.
    B. Definitions.
    1. ``Billed central services'' means central services that are 
billed to benefitted agencies and/or programs on an individual fee-for-
service or similar basis. Typical examples of billed central services 
include computer services, transportation services, insurance, and 
fringe benefits.
    2. ``Allocated central services'' means central services that 
benefit operating agencies but are not billed to the agencies on a fee-
for-service or similar basis. These costs are allocated to benefitted 
agencies on some reasonable basis. Examples of such services might 
include general accounting, personnel administration, purchasing, etc.
    3. ``Agency or operating agency'' means an organizational unit or 
sub-division within a governmental unit that is responsible for the 
performance or administration of awards or activities of the 
governmental unit.
    C. Scope of the Central Service Cost Allocation Plans. The central 
service cost allocation plan will include all central service costs that 
will be claimed (either as a billed or an allocated cost) under Federal 
awards and will be documented as described in section E. Costs of 
central services omitted from the plan will not be reimbursed.
    D. Submission Requirements.
    1. Each State will submit a plan to the Department of Health and 
Human Services for each year in which it claims central service costs 
under Federal awards. The plan should include a projection of the next 
year's allocated central service cost (based either on actual costs for 
the most recently completed year or the budget projection for the coming 
year), and a reconciliation of actual allocated central service costs to 
the estimated costs used for either the most recently completed year or 
the year immediately preceding the most recently completed year.
    2. Each local government that has been designated as a ``major local 
government'' by the Office of Management and Budget (OMB) is also 
required to submit a plan to its cognizant agency annually. OMB 
periodically lists major local governments in the Federal Register.
    3. All other local governments claiming central service costs must 
develop a plan in accordance with the requirements described in this 
appendix and maintain the plan and related supporting documentation for 
audit. These local governments are not required to submit their plans 
for Federal approval unless they are specifically requested to do so by 
the cognizant agency. Where a local government only receives funds as a 
sub-recipient, the primary recipient will be responsible for negotiating 
indirect cost rates and/or monitoring the sub-recipient's plan.
    4. All central service cost allocation plans will be prepared and, 
when required, submitted within six months prior to the beginning of 
each of the governmental unit's fiscal years in which it proposes to 
claim central service costs. Extensions may be granted by the cognizant 
agency on a case-by-case basis.
    E. Documentation Requirements for Submitted Plans. The documentation 
requirements described in this section may be modified, expanded, or 
reduced by the cognizant agency on a case-by-case basis. For example, 
the requirements may be reduced for those central services which have 
little or no impact on Federal awards. Conversely, if a review of a plan 
indicates that certain additional information is needed, and will likely 
be needed in future years, it may be routinely requested in future plan 
submissions. Items marked with an asterisk (*) should be submitted only 
once; subsequent plans should merely indicate any changes since the last 
plan.
    1. General. All proposed plans must be accompanied by the following: 
An organization chart sufficiently detailed to show operations including 
the central service activities of the State/local government whether or 
not they are shown as benefiting from central service functions; a copy 
of the Comprehensive Annual Financial Report (or a copy of the Executive 
Budget if budgeted costs are being proposed) to support the allowable 
costs of each central service activity included in the plan; and, a 
certification (see subsection 4.) that the plan was prepared in 
accordance with this and other appendices to this part, contains only 
allowable costs, and was prepared in a manner that treated similar costs 
consistently among the various Federal awards and between Federal and 
non-Federal awards/activities.
    2. Allocated central services. For each allocated central service, 
the plan must also include the following: A brief description of the 
service*, an identification of the unit rendering the service and the 
operating agencies receiving the service, the items of expense included 
in the cost of the service, the method used to distribute the cost of 
the service to benefitted agencies, and a summary schedule showing the 
allocation of each service to the specific benefitted agencies. If any 
self-insurance funds or fringe benefits costs are treated as allocated 
(rather than billed) central services, documentation discussed in 
subsections 3.b. and c. shall also be included.
    3. Billed services.
    a. General. The information described below shall be provided for 
all billed central

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services, including internal service funds, self-insurance funds, and 
fringe benefit funds.
    b. Internal service funds.
    (1) For each internal service fund or similar activity with an 
operating budget of $5 million or more, the plan shall include: A brief 
description of each service; a balance sheet for each fund based on 
individual accounts contained in the governmental unit's accounting 
system; a revenue/expenses statement, with revenues broken out by 
source, e.g., regular billings, interest earned, etc.; a listing of all 
non-operating transfers (as defined by Generally Accepted Accounting 
Principles (GAAP)) into and out of the fund; a description of the 
procedures (methodology) used to charge the costs of each service to 
users, including how billing rates are determined; a schedule of current 
rates; and, a schedule comparing total revenues (including imputed 
revenues) generated by the service to the allowable costs of the 
service, as determined under this and other appendices of this part, 
with an explanation of how variances will be handled.
    (2) Revenues shall consist of all revenues generated by the service, 
including unbilled and uncollected revenues. If some users were not 
billed for the services (or were not billed at the full rate for that 
class of users), a schedule showing the full imputed revenues associated 
with these users shall be provided. Expenses shall be broken out by 
object cost categories (e.g., salaries, supplies, etc.).
    c. Self-insurance funds. For each self-insurance fund, the plan 
shall include: The fund balance sheet; a statement of revenue and 
expenses including a summary of billings and claims paid by agency; a 
listing of all non-operating transfers into and out of the fund; the 
type(s) of risk(s) covered by the fund (e.g., automobile liability, 
workers' compensation, etc.); an explanation of how the level of fund 
contributions are determined, including a copy of the current actuarial 
report (with the actuarial assumptions used) if the contributions are 
determined on an actuarial basis; and, a description of the procedures 
used to charge or allocate fund contributions to benefitted activities. 
Reserve levels in excess of claims submitted and adjudicated but not 
paid, submitted but not adjudicated, and incurred but not submitted must 
be identified and explained.
    d. Fringe benefits. For fringe benefit costs, the plan shall 
include: A listing of fringe benefits provided to covered employees, and 
the overall annual cost of each type of benefit; current fringe benefit 
policies*; and procedures used to charge or allocate the costs of the 
benefits to benefitted activities. In addition, for pension and post-
retirement health insurance plans, the following information shall be 
provided: the governmental unit's funding policies, e.g., legislative 
bills, trust agreements, or State-mandated contribution rules, if 
different from actuarially determined rates; the pension plan's costs 
accrued for the year; the amount funded, and date(s) of funding; a copy 
of the current actuarial report (including the actuarial assumptions); 
the plan trustee's report; and, a schedule from the activity showing the 
value of the interest cost associated with late funding.
    4. Required certification. Each central service cost allocation plan 
will be accompanied by a certification in the following form:

                   Certificate of Cost Allocation Plan

    This is to certify that I have reviewed the cost allocation plan 
submitted herewith and to the best of my knowledge and belief:
    (1) All costs included in this proposal [identify date] to establish 
cost allocations or billings for [identify period covered by plan] are 
allowable in accordance with the requirements of 2 CFR Part 225, Cost 
Principles for State, Local, and Indian Tribal Governments (OMB Circular 
A-87), and the Federal award(s) to which they apply. Unallowable costs 
have been adjusted for in allocating costs as indicated in the cost 
allocation plan.
    (2) All costs included in this proposal are properly allocable to 
Federal awards on the basis of a beneficial or causal relationship 
between the expenses incurred and the awards to which they are allocated 
in accordance with applicable requirements. Further, the same costs that 
have been treated as indirect costs have not been claimed as direct 
costs. Similar types of costs have been accounted for consistently.
    I declare that the foregoing is true and correct.

[fxsp0]Governmental Unit:_______________________________________________

[fxsp0]Signature:_______________________________________________________

[fxsp0]Name of Official:________________________________________________

[fxsp0]Title:___________________________________________________________

[fxsp0]Date of Execution:_______________________________________________

    F. Negotiation and Approval of Central Service Plans.
    1. All proposed central service cost allocation plans that are 
required to be submitted will be reviewed, negotiated, and approved by 
the Federal cognizant agency on a timely basis. The cognizant agency 
will review the proposal within six months of receipt of the proposal 
and either negotiate/approve the proposal or advise the governmental 
unit of the additional documentation needed to support/evaluate the 
proposed plan or the changes required to make the proposal acceptable. 
Once an agreement with the governmental unit has been reached, the 
agreement will be accepted and used by all Federal agencies, unless 
prohibited or limited by statute. Where a Federal funding agency has 
reason to believe that special operating factors affecting its awards 
necessitate special

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consideration, the funding agency will, prior to the time the plans are 
negotiated, notify the cognizant agency.
    2. The results of each negotiation shall be formalized in a written 
agreement between the cognizant agency and the governmental unit. This 
agreement will be subject to re-opening if the agreement is subsequently 
found to violate a statute or the information upon which the plan was 
negotiated is later found to be materially incomplete or inaccurate. The 
results of the negotiation shall be made available to all Federal 
agencies for their use.
    3. Negotiated cost allocation plans based on a proposal later found 
to have included costs that: Are unallowable as specified by law or 
regulation, as identified in Appendix B of this part, or by the terms 
and conditions of Federal awards, or are unallowable because they are 
clearly not allocable to Federal awards, shall be adjusted, or a refund 
shall be made at the option of the Federal cognizant agency. These 
adjustments or refunds are designed to correct the plans and do not 
constitute a reopening of the negotiation.
    G. Other Policies.
    1. Billed central service activities. Each billed central service 
activity must separately account for all revenues (including imputed 
revenues) generated by the service, expenses incurred to furnish the 
service, and profit/loss.
    2. Working capital reserves. Internal service funds are dependent 
upon a reasonable level of working capital reserve to operate from one 
billing cycle to the next. Charges by an internal service activity to 
provide for the establishment and maintenance of a reasonable level of 
working capital reserve, in addition to the full recovery of costs, are 
allowable. A working capital reserve as part of retained earnings of up 
to 60 days cash expenses for normal operating purposes is considered 
reasonable. A working capital reserve exceeding 60 days may be approved 
by the cognizant Federal agency in exceptional cases.
    3. Carry-forward adjustments of allocated central service costs. 
Allocated central service costs are usually negotiated and approved for 
a future fiscal year on a ``fixed with carry-forward'' basis. Under this 
procedure, the fixed amounts for the future year covered by agreement 
are not subject to adjustment for that year. However, when the actual 
costs of the year involved become known, the differences between the 
fixed amounts previously approved and the actual costs will be carried 
forward and used as an adjustment to the fixed amounts established for a 
later year. This ``carry-forward'' procedure applies to all central 
services whose costs were fixed in the approved plan. However, a carry-
forward adjustment is not permitted, for a central service activity that 
was not included in the approved plan, or for unallowable costs that 
must be reimbursed immediately.
    4. Adjustments of billed central services. Billing rates used to 
charge Federal awards shall be based on the estimated costs of providing 
the services, including an estimate of the allocable central service 
costs. A comparison of the revenue generated by each billed service 
(including total revenues whether or not billed or collected) to the 
actual allowable costs of the service will be made at least annually, 
and an adjustment will be made for the difference between the revenue 
and the allowable costs. These adjustments will be made through one of 
the following adjustment methods: A cash refund to the Federal 
Government for the Federal share of the adjustment, credits to the 
amounts charged to the individual programs, adjustments to future 
billing rates, or adjustments to allocated central service costs. 
Adjustments to allocated central services will not be permitted where 
the total amount of the adjustment for a particular service (Federal 
share and non-Federal) share exceeds $500,000.
    5. Records retention. All central service cost allocation plans and 
related documentation used as a basis for claiming costs under Federal 
awards must be retained for audit in accordance with the records 
retention requirements contained in the Common Rule.
    6. Appeals. If a dispute arises in the negotiation of a plan between 
the cognizant agency and the governmental unit, the dispute shall be 
resolved in accordance with the appeals procedures of the cognizant 
agency.
    7. OMB assistance. To the extent that problems are encountered among 
the Federal agencies and/or governmental units in connection with the 
negotiation and approval process, OMB will lend assistance, as required, 
to resolve such problems in a timely manner.

     Appendix D to Part 225--Public Assistance Cost Allocation Plans

                            Table of Contents

A. General
B. Definitions
1. State public assistance agency
2. State public assistance agency costs
C. Policy
D. Submission, Documentation, and Approval of Public Assistance Cost 
          Allocation Plans
E. Review of Implementation of Approved Plans
F. Unallowable Costs
    A. General. Federally-financed programs administered by State public 
assistance agencies are funded predominately by the Department of Health 
and Human Services

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(HHS). In support of its stewardship requirements, HHS has published 
requirements for the development, documentation, submission, 
negotiation, and approval of public assistance cost allocation plans in 
Subpart E of 45 CFR part 95. All administrative costs (direct and 
indirect) are normally charged to Federal awards by implementing the 
public assistance cost allocation plan. This appendix extends these 
requirements to all Federal agencies whose programs are administered by 
a State public assistance agency. Major federally-financed programs 
typically administered by State public assistance agencies include: 
Temporary Assistance to Needy Families (TANF), Medicaid, Food Stamps, 
Child Support Enforcement, Adoption Assistance and Foster Care, and 
Social Services Block Grant.
    B. Definitions.
    1. ``State public assistance agency'' means a State agency 
administering or supervising the administration of one or more public 
assistance programs operated by the State as identified in Subpart E of 
45 CFR part 95. For the purpose of this appendix, these programs include 
all programs administered by the State public assistance agency.
    2. ``State public assistance agency costs'' means all costs incurred 
by, or allocable to, the State public assistance agency, except 
expenditures for financial assistance, medical vendor payments, food 
stamps, and payments for services and goods provided directly to program 
recipients.
    C. Policy. State public assistance agencies will develop, document 
and implement, and the Federal Government will review, negotiate, and 
approve, public assistance cost allocation plans in accordance with 
Subpart E of 45 CFR part 95. The plan will include all programs 
administered by the State public assistance agency. Where a letter of 
approval or disapproval is transmitted to a State public assistance 
agency in accordance with Subpart E, the letter will apply to all 
Federal agencies and programs. The remaining sections of this appendix 
(except for the requirement for certification) summarize the provisions 
of Subpart E of 45 CFR part 95.
    D. Submission, Documentation, and Approval of Public Assistance Cost 
Allocation Plans.
    1. State public assistance agencies are required to promptly submit 
amendments to the cost allocation plan to HHS for review and approval.
    2. Under the coordination process outlined in subsection E, affected 
Federal agencies will review all new plans and plan amendments and 
provide comments, as appropriate, to HHS. The effective date of the plan 
or plan amendment will be the first day of the quarter following the 
submission of the plan or amendment, unless another date is specifically 
approved by HHS. HHS, as the cognizant agency acting on behalf of all 
affected Federal agencies, will, as necessary, conduct negotiations with 
the State public assistance agency and will inform the State agency of 
the action taken on the plan or plan amendment.
    E. Review of Implementation of Approved Plans.
    1. Since public assistance cost allocation plans are of a narrative 
nature, the review during the plan approval process consists of 
evaluating the appropriateness of the proposed groupings of costs (cost 
centers) and the related allocation bases. As such, the Federal 
Government needs some assurance that the cost allocation plan has been 
implemented as approved. This is accomplished by reviews by the funding 
agencies, single audits, or audits conducted by the cognizant audit 
agency.
    2. Where inappropriate charges affecting more than one funding 
agency are identified, the cognizant HHS cost negotiation office will be 
advised and will take the lead in resolving the issue(s) as provided for 
in Subpart E of 45 CFR part 95.
    3. If a dispute arises in the negotiation of a plan or from a 
disallowance involving two or more funding agencies, the dispute shall 
be resolved in accordance with the appeals procedures set out in 45 CFR 
part 75. Disputes involving only one funding agency will be resolved in 
accordance with the funding agency's appeal process.
    4. To the extent that problems are encountered among the Federal 
agencies and/or governmental units in connection with the negotiation 
and approval process, the Office of Management and Budget will lend 
assistance, as required, to resolve such problems in a timely manner.
    F. Unallowable Costs. Claims developed under approved cost 
allocation plans will be based on allowable costs as identified in 2 CFR 
part 225. Where unallowable costs have been claimed and reimbursed, they 
will be refunded to the program that reimbursed the unallowable cost 
using one of the following methods: a cash refund, offset to a 
subsequent claim, or credits to the amounts charged to individual 
awards.

  Appendix E to Part 225--State and Local Indirect Cost Rate Proposals

                            Table of Contents

A. General
B. Definitions
1. Indirect cost rate proposal
2. Indirect cost rate
3. Indirect cost pool
4. Base
5. Predetermined rate
6. Fixed rate
7. Provisional rate
8. Final rate
9. Base period
C. Allocation of Indirect Costs and Determination of Indirect Cost Rates

[[Page 140]]

1. General
2. Simplified method
3. Multiple allocation base method
4. Special indirect cost rates
D. Submission and Documentation of Proposals
1. Submission of indirect cost rate proposals
2. Documentation of proposals
3. Required certification
E. Negotiation and Approval of Rates
F. Other Policies
1. Fringe benefit rates
2. Billed services provided by the grantee agency
3. Indirect cost allocations not using rates
4. Appeals
5. Collections of unallowable costs and erroneous payments
6. OMB assistance
A. General.
    1. Indirect costs are those that have been incurred for common or 
joint purposes. These costs benefit more than one cost objective and 
cannot be readily identified with a particular final cost objective 
without effort disproportionate to the results achieved. After direct 
costs have been determined and assigned directly to Federal awards and 
other activities as appropriate, indirect costs are those remaining to 
be allocated to benefitted cost objectives. A cost may not be allocated 
to a Federal award as an indirect cost if any other cost incurred for 
the same purpose, in like circumstances, has been assigned to a Federal 
award as a direct cost.
    2. Indirect costs include the indirect costs originating in each 
department or agency of the governmental unit carrying out Federal 
awards and the costs of central governmental services distributed 
through the central service cost allocation plan (as described in 
Appendix C to this part) and not otherwise treated as direct costs.
    3. Indirect costs are normally charged to Federal awards by the use 
of an indirect cost rate. A separate indirect cost rate(s) is usually 
necessary for each department or agency of the governmental unit 
claiming indirect costs under Federal awards. Guidelines and 
illustrations of indirect cost proposals are provided in a brochure 
published by the Department of Health and Human Services entitled ``A 
Guide for State and Local Government Agencies: Cost Principles and 
Procedures for Establishing Cost Allocation Plans and Indirect Cost 
Rates for Grants and Contracts with the Federal Government.'' A copy of 
this brochure may be obtained from the Superintendent of Documents, U.S. 
Government Printing Office, Washington, DC 20401.
    4. Because of the diverse characteristics and accounting practices 
of governmental units, the types of costs which may be classified as 
indirect costs cannot be specified in all situations. However, typical 
examples of indirect costs may include certain State/local-wide central 
service costs, general administration of the grantee department or 
agency, accounting and personnel services performed within the grantee 
department or agency, depreciation or use allowances on buildings and 
equipment, the costs of operating and maintaining facilities, etc.
    5. This appendix does not apply to State public assistance agencies. 
These agencies should refer instead to Appendix D to this part.
    B. Definitions.
    1. ``Indirect cost rate proposal'' means the documentation prepared 
by a governmental unit or subdivision thereof to substantiate its 
request for the establishment of an indirect cost rate.
    2. ``Indirect cost rate'' is a device for determining in a 
reasonable manner the proportion of indirect costs each program should 
bear. It is the ratio (expressed as a percentage) of the indirect costs 
to a direct cost base.
    3. ``Indirect cost pool'' is the accumulated costs that jointly 
benefit two or more programs or other cost objectives.
    4. ``Base'' means the accumulated direct costs (normally either 
total direct salaries and wages or total direct costs exclusive of any 
extraordinary or distorting expenditures) used to distribute indirect 
costs to individual Federal awards. The direct cost base selected should 
result in each award bearing a fair share of the indirect costs in 
reasonable relation to the benefits received from the costs.
    5. ``Predetermined rate'' means an indirect cost rate, applicable to 
a specified current or future period, usually the governmental unit's 
fiscal year. This rate is based on an estimate of the costs to be 
incurred during the period. Except under very unusual circumstances, a 
predetermined rate is not subject to adjustment. (Because of legal 
constraints, predetermined rates are not permitted for Federal 
contracts; they may, however, be used for grants or cooperative 
agreements.) Predetermined rates may not be used by governmental units 
that have not submitted and negotiated the rate with the cognizant 
agency. In view of the potential advantages offered by this procedure, 
negotiation of predetermined rates for indirect costs for a period of 
two to four years should be the norm in those situations where the cost 
experience and other pertinent facts available are deemed sufficient to 
enable the parties involved to reach an informed judgment as to the 
probable level of indirect costs during the ensuing accounting periods.
    6. ``Fixed rate'' means an indirect cost rate which has the same 
characteristics as a predetermined rate, except that the difference 
between the estimated costs and the actual, allowable costs of the 
period covered by the

[[Page 141]]

rate is carried forward as an adjustment to the rate computation of a 
subsequent period.
    7. ``Provisional rate'' means a temporary indirect cost rate 
applicable to a specified period which is used for funding, interim 
reimbursement, and reporting indirect costs on Federal awards pending 
the establishment of a ``final'' rate for that period.
    8. ``Final rate'' means an indirect cost rate applicable to a 
specified past period which is based on the actual allowable costs of 
the period. A final audited rate is not subject to adjustment.
    9. ``Base period'' for the allocation of indirect costs is the 
period in which such costs are incurred and accumulated for allocation 
to activities performed in that period. The base period normally should 
coincide with the governmental unit's fiscal year, but in any event, 
shall be so selected as to avoid inequities in the allocation of costs.
    C. Allocation of Indirect Costs and Determination of Indirect Cost 
Rates.
    1. General.
    a. Where a governmental unit's department or agency has only one 
major function, or where all its major functions benefit from the 
indirect costs to approximately the same degree, the allocation of 
indirect costs and the computation of an indirect cost rate may be 
accomplished through simplified allocation procedures as described in 
subsection 2 of this appendix.
    b. Where a governmental unit's department or agency has several 
major functions which benefit from its indirect costs in varying 
degrees, the allocation of indirect costs may require the accumulation 
of such costs into separate cost groupings which then are allocated 
individually to benefitted functions by means of a base which best 
measures the relative degree of benefit. The indirect costs allocated to 
each function are then distributed to individual awards and other 
activities included in that function by means of an indirect cost 
rate(s).
    c. Specific methods for allocating indirect costs and computing 
indirect cost rates along with the conditions under which each method 
should be used are described in subsections 2, 3 and 4 of this appendix.
    2. Simplified method.
    a. Where a grantee agency's major functions benefit from its 
indirect costs to approximately the same degree, the allocation of 
indirect costs may be accomplished by classifying the grantee agency's 
total costs for the base period as either direct or indirect, and 
dividing the total allowable indirect costs (net of applicable credits) 
by an equitable distribution base. The result of this process is an 
indirect cost rate which is used to distribute indirect costs to 
individual Federal awards. The rate should be expressed as the 
percentage which the total amount of allowable indirect costs bears to 
the base selected. This method should also be used where a governmental 
unit's department or agency has only one major function encompassing a 
number of individual projects or activities, and may be used where the 
level of Federal awards to that department or agency is relatively 
small.
    b. Both the direct costs and the indirect costs shall exclude 
capital expenditures and unallowable costs. However, unallowable costs 
must be included in the direct costs if they represent activities to 
which indirect costs are properly allocable.
    c. The distribution base may be total direct costs (excluding 
capital expenditures and other distorting items, such as pass-through 
funds, major subcontracts, etc.), direct salaries and wages, or another 
base which results in an equitable distribution.
    3. Multiple allocation base method.
    a. Where a grantee agency's indirect costs benefit its major 
functions in varying degrees, such costs shall be accumulated into 
separate cost groupings. Each grouping shall then be allocated 
individually to benefitted functions by means of a base which best 
measures the relative benefits.
    b. The cost groupings should be established so as to permit the 
allocation of each grouping on the basis of benefits provided to the 
major functions. Each grouping should constitute a pool of expenses that 
are of like character in terms of the functions they benefit and in 
terms of the allocation base which best measures the relative benefits 
provided to each function. The number of separate groupings should be 
held within practical limits, taking into consideration the materiality 
of the amounts involved and the degree of precision needed.
    c. Actual conditions must be taken into account in selecting the 
base to be used in allocating the expenses in each grouping to 
benefitted functions. When an allocation can be made by assignment of a 
cost grouping directly to the function benefitted, the allocation shall 
be made in that manner. When the expenses in a grouping are more general 
in nature, the allocation should be made through the use of a selected 
base which produces results that are equitable to both the Federal 
Government and the governmental unit. In general, any cost element or 
related factor associated with the governmental unit's activities is 
potentially adaptable for use as an allocation base provided that: it 
can readily be expressed in terms of dollars or other quantitative 
measures (total direct costs, direct salaries and wages, staff hours 
applied, square feet used, hours of usage, number of documents 
processed, population served, and the like), and it is common to the 
benefitted functions during the base period.
    d. Except where a special indirect cost rate(s) is required in 
accordance with subsection 4, the separate groupings of indirect costs 
allocated to each major function shall

[[Page 142]]

be aggregated and treated as a common pool for that function. The costs 
in the common pool shall then be distributed to individual Federal 
awards included in that function by use of a single indirect cost rate.
    e. The distribution base used in computing the indirect cost rate 
for each function may be total direct costs (excluding capital 
expenditures and other distorting items such as pass-through funds, 
major subcontracts, etc.), direct salaries and wages, or another base 
which results in an equitable distribution. An indirect cost rate should 
be developed for each separate indirect cost pool developed. The rate in 
each case should be stated as the percentage relationship between the 
particular indirect cost pool and the distribution base identified with 
that pool.
    4. Special indirect cost rates.
    a. In some instances, a single indirect cost rate for all activities 
of a grantee department or agency or for each major function of the 
agency may not be appropriate. It may not take into account those 
different factors which may substantially affect the indirect costs 
applicable to a particular program or group of programs. The factors may 
include the physical location of the work, the level of administrative 
support required, the nature of the facilities or other resources 
employed, the organizational arrangements used, or any combination 
thereof. When a particular award is carried out in an environment which 
appears to generate a significantly different level of indirect costs, 
provisions should be made for a separate indirect cost pool applicable 
to that award. The separate indirect cost pool should be developed 
during the course of the regular allocation process, and the separate 
indirect cost rate resulting therefrom should be used, provided that: 
the rate differs significantly from the rate which would have been 
developed under subsections 2. and 3. of this appendix, and the award to 
which the rate would apply is material in amount.
    b. Although 2 CFR part 225 adopts the concept of the full allocation 
of indirect costs, there are some Federal statutes which restrict the 
reimbursement of certain indirect costs. Where such restrictions exist, 
it may be necessary to develop a special rate for the affected award. 
Where a ``restricted rate'' is required, the procedure for developing a 
non-restricted rate will be used except for the additional step of the 
elimination from the indirect cost pool those costs for which the law 
prohibits reimbursement.
    D. Submission and Documentation of Proposals.
    1. Submission of indirect cost rate proposals.
    a. All departments or agencies of the governmental unit desiring to 
claim indirect costs under Federal awards must prepare an indirect cost 
rate proposal and related documentation to support those costs. The 
proposal and related documentation must be retained for audit in 
accordance with the records retention requirements contained in the 
Common Rule.
    b. A governmental unit for which a cognizant agency assignment has 
been specifically designated must submit its indirect cost rate proposal 
to its cognizant agency. The Office of Management and Budget (OMB) will 
periodically publish lists of governmental units identifying the 
appropriate Federal cognizant agencies. The cognizant agency for all 
governmental units or agencies not identified by OMB will be determined 
based on the Federal agency providing the largest amount of Federal 
funds. In these cases, a governmental unit must develop an indirect cost 
proposal in accordance with the requirements of 2 CFR 225 and maintain 
the proposal and related supporting documentation for audit. These 
governmental units are not required to submit their proposals unless 
they are specifically requested to do so by the cognizant agency. Where 
a local government only receives funds as a sub-recipient, the primary 
recipient will be responsible for negotiating and/or monitoring the sub-
recipient's plan.
    c. Each Indian tribal government desiring reimbursement of indirect 
costs must submit its indirect cost proposal to the Department of the 
Interior (its cognizant Federal agency).
    d. Indirect cost proposals must be developed (and, when required, 
submitted) within six months after the close of the governmental unit's 
fiscal year, unless an exception is approved by the cognizant Federal 
agency. If the proposed central service cost allocation plan for the 
same period has not been approved by that time, the indirect cost 
proposal may be prepared including an amount for central services that 
is based on the latest federally-approved central service cost 
allocation plan. The difference between these central service amounts 
and the amounts ultimately approved will be compensated for by an 
adjustment in a subsequent period.
    2. Documentation of proposals. The following shall be included with 
each indirect cost proposal:
    a. The rates proposed, including subsidiary work sheets and other 
relevant data, cross referenced and reconciled to the financial data 
noted in subsection b of this appendix. Allocated central service costs 
will be supported by the summary table included in the approved central 
service cost allocation plan. This summary table is not required to be 
submitted with the indirect cost proposal if the central service cost 
allocation plan for the same fiscal year has been approved by the 
cognizant agency and is available to the funding agency.
    b. A copy of the financial data (financial statements, comprehensive 
annual financial

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report, executive budgets, accounting reports, etc.) upon which the rate 
is based. Adjustments resulting from the use of unaudited data will be 
recognized, where appropriate, by the Federal cognizant agency in a 
subsequent proposal.
    c. The approximate amount of direct base costs incurred under 
Federal awards. These costs should be broken out between salaries and 
wages and other direct costs.
    d. A chart showing the organizational structure of the agency during 
the period for which the proposal applies, along with a functional 
statement(s) noting the duties and/or responsibilities of all units that 
comprise the agency. (Once this is submitted, only revisions need be 
submitted with subsequent proposals.)
    3. Required certification. Each indirect cost rate proposal shall be 
accompanied by a certification in the following form:

                      Certificate of Indirect Costs

    This is to certify that I have reviewed the indirect cost rate 
proposal submitted herewith and to the best of my knowledge and belief:
    (1) All costs included in this proposal [identify date] to establish 
billing or final indirect costs rates for [identify period covered by 
rate] are allowable in accordance with the requirements of the Federal 
award(s) to which they apply and 2 CFR part 225, Cost Principles for 
State, Local, and Indian Tribal Governments (OMB Circular A-87). 
Unallowable costs have been adjusted for in allocating costs as 
indicated in the cost allocation plan.
    (2) All costs included in this proposal are properly allocable to 
Federal awards on the basis of a beneficial or causal relationship 
between the expenses incurred and the agreements to which they are 
allocated in accordance with applicable requirements. Further, the same 
costs that have been treated as indirect costs have not been claimed as 
direct costs. Similar types of costs have been accounted for 
consistently and the Federal Government will be notified of any 
accounting changes that would affect the predetermined rate.
    I declare that the foregoing is true and correct.

[fxsp0]Governmental Unit:_______________________________________________

[fxsp0]Signature:_______________________________________________________

[fxsp0]Name of Official:________________________________________________

[fxsp0]Title:___________________________________________________________

[fxsp0]Date of Execution:_______________________________________________

    E. Negotiation and Approval of Rates.
    1. Indirect cost rates will be reviewed, negotiated, and approved by 
the cognizant Federal agency on a timely basis. Once a rate has been 
agreed upon, it will be accepted and used by all Federal agencies unless 
prohibited or limited by statute. Where a Federal funding agency has 
reason to believe that special operating factors affecting its awards 
necessitate special indirect cost rates, the funding agency will, prior 
to the time the rates are negotiated, notify the cognizant Federal 
agency.
    2. The use of predetermined rates, if allowed, is encouraged where 
the cognizant agency has reasonable assurance based on past experience 
and reliable projection of the grantee agency's costs, that the rate is 
not likely to exceed a rate based on actual costs. Long-term agreements 
utilizing predetermined rates extending over two or more years are 
encouraged, where appropriate.
    3. The results of each negotiation shall be formalized in a written 
agreement between the cognizant agency and the governmental unit. This 
agreement will be subject to re-opening if the agreement is subsequently 
found to violate a statute, or the information upon which the plan was 
negotiated is later found to be materially incomplete or inaccurate. The 
agreed upon rates shall be made available to all Federal agencies for 
their use.
    4. Refunds shall be made if proposals are later found to have 
included costs that are unallowable as specified by law or regulation, 
as identified in Appendix B to this part, or by the terms and conditions 
of Federal awards, or are unallowable because they are clearly not 
allocable to Federal awards. These adjustments or refunds will be made 
regardless of the type of rate negotiated (predetermined, final, fixed, 
or provisional).
    F. Other Policies.
    1. Fringe benefit rates. If overall fringe benefit rates are not 
approved for the governmental unit as part of the central service cost 
allocation plan, these rates will be reviewed, negotiated and approved 
for individual grantee agencies during the indirect cost negotiation 
process. In these cases, a proposed fringe benefit rate computation 
should accompany the indirect cost proposal. If fringe benefit rates are 
not used at the grantee agency level (i.e., the agency specifically 
identifies fringe benefit costs to individual employees), the 
governmental unit should so advise the cognizant agency.
    2. Billed services provided by the grantee agency. In some cases, 
governmental units provide and bill for services similar to those 
covered by central service cost allocation plans (e.g., computer 
centers). Where this occurs, the governmental unit should be guided by 
the requirements in Appendix C to this part relating to the development 
of billing rates and documentation requirements, and should advise the 
cognizant agency of any billed services. Reviews of these types of 
services (including reviews of costing/billing methodology, profits or 
losses, etc.) will be made on a case-by-case basis as warranted by the 
circumstances involved.

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    3. Indirect cost allocations not using rates. In certain situations, 
a governmental unit, because of the nature of its awards, may be 
required to develop a cost allocation plan that distributes indirect 
(and, in some cases, direct) costs to the specific funding sources. In 
these cases, a narrative cost allocation methodology should be 
developed, documented, maintained for audit, or submitted, as 
appropriate, to the cognizant agency for review, negotiation, and 
approval.
    4. Appeals. If a dispute arises in a negotiation of an indirect cost 
rate (or other rate) between the cognizant agency and the governmental 
unit, the dispute shall be resolved in accordance with the appeals 
procedures of the cognizant agency.
    5. Collection of unallowable costs and erroneous payments. Costs 
specifically identified as unallowable and charged to Federal awards 
either directly or indirectly will be refunded (including interest 
chargeable in accordance with applicable Federal agency regulations).
    6. OMB assistance. To the extent that problems are encountered among 
the Federal agencies and/or governmental units in connection with the 
negotiation and approval process, OMB will lend assistance, as required, 
to resolve such problems in a timely manner.

                        PARTS 226-229 [RESERVED]



PART 230_COST PRINCIPLES FOR NON-PROFIT ORGANIZATIONS (OMB CIRCULAR 

A-122)--Table of Contents




Sec.
230.5 Purpose.
230.10 Scope.
230.15 Policy.
230.20 Applicability.
230.25 Definitions
230.30 OMB responsibilities.
230.35 Federal agency responsibilities.
230.40 Effective date of changes.
230.45 Relationship to previous issuance.
230.50 Information Contact.

Appendix A to Part 230--General Principles
Appendix B to Part 230--Selected Items of Cost
Appendix C to Part 230--Non-Profit Organizations Not Subject to This 
          Part

    Authority: 31 U.S.C. 503; 31 U.S.C. 1111; 41 U.S.C. 405; 
Reorganization Plan No. 2 of 1970; E.O. 11541, 35 FR 10737, 3 CFR, 1966-
1970, p. 939

    Source: 70 FR 51927, Aug. 31, 2005, unless otherwise noted.



Sec. 230.5  Purpose.

    This part establishes principles for determining costs of grants, 
contracts and other agreements with non-profit organizations.



Sec. 230.10  Scope.

    (a) This part does not apply to colleges and universities which are 
covered by 2 CFR part 220 Cost Principles for Educational Institutions 
(OMB Circular A-21); State, local, and federally-recognized Indian 
tribal governments which are covered by 2 CFR part 225 Cost Principles 
for State, Local, and Indian Tribal Governments (OMB Circular A-87); or 
hospitals.
    (b) The principles deal with the subject of cost determination, and 
make no attempt to identify the circumstances or dictate the extent of 
agency and non-profit organization participation in the financing of a 
particular project. Provision for profit or other increment above cost 
is outside the scope of this part.



Sec. 230.15  Policy.

    The principles are designed to provide that the Federal Government 
bear its fair share of costs except where restricted or prohibited by 
law. The principles do not attempt to prescribe the extent of cost 
sharing or matching on grants, contracts, or other agreements. However, 
such cost sharing or matching shall not be accomplished through 
arbitrary limitations on individual cost elements by Federal agencies.



Sec. 230.20  Applicability.

    (a) These principles shall be used by all Federal agencies in 
determining the costs of work performed by non-profit organizations 
under grants, cooperative agreements, cost reimbursement contracts, and 
other contracts in which costs are used in pricing, administration, or 
settlement. All of these instruments are hereafter referred to as 
awards. The principles do not apply to awards under which an 
organization is not required to account to the Federal Government for 
actual costs incurred.
    (b) All cost reimbursement subawards (subgrants, subcontracts, etc.)

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are subject to those Federal cost principles applicable to the 
particular organization concerned. Thus, if a subaward is to a non-
profit organization, this part shall apply; if a subaward is to a 
commercial organization, the cost principles applicable to commercial 
concerns shall apply; if a subaward is to a college or university, 2 CFR 
part 220 shall apply; if a subaward is to a State, local, or federally-
recognized Indian tribal government, 2 CFR part 225 shall apply.
    (c) Exclusion of some non-profit organizations. Some non-profit 
organizations, because of their size and nature of operations, can be 
considered to be similar to commercial concerns for purpose of 
applicability of cost principles. Such non-profit organizations shall 
operate under Federal cost principles applicable to commercial concerns. 
A listing of these organizations is contained in Appendix C to this 
part. Other organizations may be added from time to time.



Sec. 230.25  Definitions.

    (a) Non-profit organization means any corporation, trust, 
association, cooperative, or other organization which:
    (1) Is operated primarily for scientific, educational, service, 
charitable, or similar purposes in the public interest;
    (2) Is not organized primarily for profit; and
    (3) Uses its net proceeds to maintain, improve, and/or expand its 
operations. For this purpose, the term ``non-profit organization'' 
excludes colleges and universities; hospitals; State, local, and 
federally-recognized Indian tribal governments; and those non-profit 
organizations which are excluded from coverage of this part in 
accordance with Sec. 230.20(c).
    (b) Prior approval means securing the awarding agency's permission 
in advance to incur cost for those items that are designated as 
requiring prior approval by the part and its Appendices. Generally this 
permission will be in writing. Where an item of cost requiring prior 
approval is specified in the budget of an award, approval of the budget 
constitutes approval of that cost.



Sec. 230.30  OMB responsibilities.

    OMB may grant exceptions to the requirements of this part when 
permissible under existing law. However, in the interest of achieving 
maximum uniformity, exceptions will be permitted only in highly unusual 
circumstances.



Sec. 230.35  Federal agency responsibilities.

    The head of each Federal agency that awards and administers grants 
and agreements subject to this part is responsible for requesting 
approval from and/or consulting with OMB (as applicable) for deviations 
from the guidance in the appendices to this part and performing the 
applicable functions specified in the appendices to this part.



Sec. 230.40  Effective date of changes.

    The provisions of this part are effective August 31, 2005. 
Implementation shall be phased in by incorporating the provisions into 
new awards made after the start of the organization's next fiscal year. 
For existing awards, the new principles may be applied if an 
organization and the cognizant Federal agency agree. Earlier 
implementation, or a delay in implementation of individual provisions, 
is also permitted by mutual agreement between an organization and the 
cognizant Federal agency.



Sec. 230.45  Relationship to previous issuance.

    (a) The guidance in this part previously was issued as OMB Circular 
A-122. Appendix A to this part contains the guidance that was in 
Attachment A (general principles) to the OMB circular; Appendix B 
contains the guidance that was in Attachment B (selected items of cost) 
to the OMB circular; and Appendix C contains the information that was in 
Attachment C (non-profit organizations not subject to the Circular) to 
the OMB circular.
    (b) Historically, OMB Circular A-122 superseded cost principles 
issued by individual agencies for non-profit organizations.



Sec. 230.50  Information contact.

    Further information concerning this part may be obtained by 
contacting the

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Office of Federal Financial Management, OMB, Washington, DC 20503, 
telephone (202) 395-3993.

               Appendix A to Part 230--General Principles

                           General Principles

                            Table of Contents

A. Basic Considerations
1. Composition of total costs
2. Factors affecting allowability of costs
3. Reasonable costs
4. Allocable costs
5. Applicable credits
6. Advance understandings
7. Conditional exemptions
B. Direct Costs
C. Indirect Costs
D. Allocation of Indirect Costs and Determination of Indirect Cost Rates
1. General
2. Simplified allocation method
3. Multiple allocation base method
4. Direct allocation method
5. Special indirect cost rates
E. Negotiation and Approval of Indirect Cost Rates
1. Definitions
2. Negotiation and approval of rates

                           General Principles

                         A. Basic Considerations

    1. Composition of total costs. The total cost of an award is the sum 
of the allowable direct and allocable indirect costs less any applicable 
credits.
    2. Factors affecting allowability of costs. To be allowable under an 
award, costs must meet the following general criteria:
    a. Be reasonable for the performance of the award and be allocable 
thereto under these principles.
    b. Conform to any limitations or exclusions set forth in these 
principles or in the award as to types or amount of cost items.
    c. Be consistent with policies and procedures that apply uniformly 
to both federally-financed and other activities of the organization.
    d. Be accorded consistent treatment.
    e. Be determined in accordance with generally accepted accounting 
principles (GAAP).
    f. Not be included as a cost or used to meet cost sharing or 
matching requirements of any other federally-financed program in either 
the current or a prior period.
    g. Be adequately documented.
    3. Reasonable costs. A cost is reasonable if, in its nature or 
amount, it does not exceed that which would be incurred by a prudent 
person under the circumstances prevailing at the time the decision was 
made to incur the costs. The question of the reasonableness of specific 
costs must be scrutinized with particular care in connection with 
organizations or separate divisions thereof which receive the 
preponderance of their support from awards made by Federal agencies. In 
determining the reasonableness of a given cost, consideration shall be 
given to:
    a. Whether the cost is of a type generally recognized as ordinary 
and necessary for the operation of the organization or the performance 
of the award.
    b. The restraints or requirements imposed by such factors as 
generally accepted sound business practices, arms length bargaining, 
Federal and State laws and regulations, and terms and conditions of the 
award.
    c. Whether the individuals concerned acted with prudence in the 
circumstances, considering their responsibilities to the organization, 
its members, employees, and clients, the public at large, and the 
Federal Government.
    d. Significant deviations from the established practices of the 
organization which may unjustifiably increase the award costs.
    4. Allocable costs. a. A cost is allocable to a particular cost 
objective, such as a grant, contract, project, service, or other 
activity, in accordance with the relative benefits received. A cost is 
allocable to a Federal award if it is treated consistently with other 
costs incurred for the same purpose in like circumstances and if it:
    (1) Is incurred specifically for the award.
    (2) Benefits both the award and other work and can be distributed in 
reasonable proportion to the benefits received, or
    (3) Is necessary to the overall operation of the organization, 
although a direct relationship to any particular cost objective cannot 
be shown.
    b. Any cost allocable to a particular award or other cost objective 
under these principles may not be shifted to other Federal awards to 
overcome funding deficiencies, or to avoid restrictions imposed by law 
or by the terms of the award.
    5. Applicable credits. a. The term applicable credits refers to 
those receipts, or reduction of expenditures which operate to offset or 
reduce expense items that are allocable to awards as direct or indirect 
costs. Typical examples of such transactions are: Purchase discounts, 
rebates or allowances, recoveries or indemnities on losses, insurance 
refunds, and adjustments of overpayments or erroneous charges. To the 
extent that such credits accruing or received by the organization relate 
to allowable cost, they shall be credited to the Federal Government 
either as a cost reduction or cash refund, as appropriate.
    b. In some instances, the amounts received from the Federal 
Government to finance organizational activities or service operations

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should be treated as applicable credits. Specifically, the concept of 
netting such credit items against related expenditures should be applied 
by the organization in determining the rates or amounts to be charged to 
Federal awards for services rendered whenever the facilities or other 
resources used in providing such services have been financed directly, 
in whole or in part, by Federal funds.
    c. For rules covering program income (i.e., gross income earned from 
federally-supported activities) see Sec. 215.24 of 2 CFR part 215 
Uniform Administrative Requirements for Grants and Agreements with 
Institutions of Higher Education, Hospitals, and Other Non-Profit 
Organizations (OMB Circular A-110).
    6. Advance understandings. Under any given award, the reasonableness 
and allocability of certain items of costs may be difficult to 
determine. This is particularly true in connection with organizations 
that receive a preponderance of their support from Federal agencies. In 
order to avoid subsequent disallowance or dispute based on 
unreasonableness or nonallocability, it is often desirable to seek a 
written agreement with the cognizant or awarding agency in advance of 
the incurrence of special or unusual costs. The absence of an advance 
agreement on any element of cost will not, in itself, affect the 
reasonableness or allocability of that element.
    7. Conditional exemptions. a. OMB authorizes conditional exemption 
from OMB administrative requirements and cost principles for certain 
Federal programs with statutorily-authorized consolidated planning and 
consolidated administrative funding, that are identified by a Federal 
agency and approved by the head of the Executive department or 
establishment. A Federal agency shall consult with OMB during its 
consideration of whether to grant such an exemption.
    b. To promote efficiency in State and local program administration, 
when Federal non-entitlement programs with common purposes have specific 
statutorily-authorized consolidated planning and consolidated 
administrative funding and where most of the State agency's resources 
come from non-Federal sources, Federal agencies may exempt these covered 
State-administered, non-entitlement grant programs from certain OMB 
grants management requirements. The exemptions would be from all but the 
allocability of costs provisions of Appendix A, subsection C.e. of 2 CFR 
part 225 (OMB Circular A-87); Appendix A, Section C.4. of 2 CFR part 220 
(OMB Circular A-21); Section A.4. of this appendix; and from all of the 
administrative requirements provisions of 2 CFR part 215 (OMB Circular 
A-110) and the agencies' grants management common rule.
    c. When a Federal agency provides this flexibility, as a 
prerequisite to a State's exercising this option, a State must adopt its 
own written fiscal and administrative requirements for expending and 
accounting for all funds, which are consistent with the provisions of 2 
CFR part 225 (OMB Circular A-87), and extend such policies to all 
subrecipients. These fiscal and administrative requirements must be 
sufficiently specific to ensure that: Funds are used in compliance with 
all applicable Federal statutory and regulatory provisions, costs are 
reasonable and necessary for operating these programs, and funds are not 
to be used for general expenses required to carry out other 
responsibilities of a State or its subrecipients.

                             B. Direct Costs

    1. Direct costs are those that can be identified specifically with a 
particular final cost objective, i.e., a particular award, project, 
service, or other direct activity of an organization. However, a cost 
may not be assigned to an award as a direct cost if any other cost 
incurred for the same purpose, in like circumstance, has been allocated 
to an award as an indirect cost. Costs identified specifically with 
awards are direct costs of the awards and are to be assigned directly 
thereto. Costs identified specifically with other final cost objectives 
of the organization are direct costs of those cost objectives and are 
not to be assigned to other awards directly or indirectly.
    2. Any direct cost of a minor amount may be treated as an indirect 
cost for reasons of practicality where the accounting treatment for such 
cost is consistently applied to all final cost objectives.
    3. The cost of certain activities are not allowable as charges to 
Federal awards (see, for example, fundraising costs in paragraph 17 of 
Appendix B to this part). However, even though these costs are 
unallowable for purposes of computing charges to Federal awards, they 
nonetheless must be treated as direct costs for purposes of determining 
indirect cost rates and be allocated their share of the organization's 
indirect costs if they represent activities which include the salaries 
of personnel, occupy space, and benefit from the organization's indirect 
costs.
    4. The costs of activities performed primarily as a service to 
members, clients, or the general public when significant and necessary 
to the organization's mission must be treated as direct costs whether or 
not allowable and be allocated an equitable share of indirect costs. 
Some examples of these types of activities include:
    a. Maintenance of membership rolls, subscriptions, publications, and 
related functions.
    b. Providing services and information to members, legislative or 
administrative bodies, or the public.
    c. Promotion, lobbying, and other forms of public relations.

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    d. Meetings and conferences except those held to conduct the general 
administration of the organization.
    e. Maintenance, protection, and investment of special funds not used 
in operation of the organization.
    f. Administration of group benefits on behalf of members or clients, 
including life and hospital insurance, annuity or retirement plans, 
financial aid, etc.

                            C. Indirect Costs

    1. Indirect costs are those that have been incurred for common or 
joint objectives and cannot be readily identified with a particular 
final cost objective. Direct cost of minor amounts may be treated as 
indirect costs under the conditions described in subparagraph B.2 of 
this appendix. After direct costs have been determined and assigned 
directly to awards or other work as appropriate, indirect costs are 
those remaining to be allocated to benefiting cost objectives. A cost 
may not be allocated to an award as an indirect cost if any other cost 
incurred for the same purpose, in like circumstances, has been assigned 
to an award as a direct cost.
    2. Because of the diverse characteristics and accounting practices 
of non-profit organizations, it is not possible to specify the types of 
cost which may be classified as indirect cost in all situations. 
However, typical examples of indirect cost for many non-profit 
organizations may include depreciation or use allowances on buildings 
and equipment, the costs of operating and maintaining facilities, and 
general administration and general expenses, such as the salaries and 
expenses of executive officers, personnel administration, and 
accounting.
    3. Indirect costs shall be classified within two broad categories: 
``Facilities'' and ``Administration.'' ``Facilities'' is defined as 
depreciation and use allowances on buildings, equipment and capital 
improvement, interest on debt associated with certain buildings, 
equipment and capital improvements, and operations and maintenance 
expenses. ``Administration'' is defined as general administration and 
general expenses such as the director's office, accounting, personnel, 
library expenses and all other types of expenditures not listed 
specifically under one of the subcategories of ``Facilities'' (including 
cross allocations from other pools, where applicable). See indirect cost 
rate reporting requirements in subparagraphs D.2.e and D.3.g of this 
appendix.

D. Allocation of Indirect Costs and Determination of Indirect Cost Rates

    1. General. a. Where a non-profit organization has only one major 
function, or where all its major functions benefit from its indirect 
costs to approximately the same degree, the allocation of indirect costs 
and the computation of an indirect cost rate may be accomplished through 
simplified allocation procedures, as described in subparagraph D.2 of 
this appendix.
    b. Where an organization has several major functions which benefit 
from its indirect costs in varying degrees, allocation of indirect costs 
may require the accumulation of such costs into separate cost groupings 
which then are allocated individually to benefiting functions by means 
of a base which best measures the relative degree of benefit. The 
indirect costs allocated to each function are then distributed to 
individual awards and other activities included in that function by 
means of an indirect cost rate(s).
    c. The determination of what constitutes an organization's major 
functions will depend on its purpose in being; the types of services it 
renders to the public, its clients, and its members; and the amount of 
effort it devotes to such activities as fundraising, public information 
and membership activities.
    d. Specific methods for allocating indirect costs and computing 
indirect cost rates along with the conditions under which each method 
should be used are described in subparagraphs D.2 through 5 of this 
appendix.
    e. The base period for the allocation of indirect costs is the 
period in which such costs are incurred and accumulated for allocation 
to work performed in that period. The base period normally should 
coincide with the organization's fiscal year but, in any event, shall be 
so selected as to avoid inequities in the allocation of the costs.
    2. Simplified allocation method. a. Where an organization's major 
functions benefit from its indirect costs to approximately the same 
degree, the allocation of indirect costs may be accomplished by 
separating the organization's total costs for the base period as either 
direct or indirect, and dividing the total allowable indirect costs (net 
of applicable credits) by an equitable distribution base. The result of 
this process is an indirect cost rate which is used to distribute 
indirect costs to individual awards. The rate should be expressed as the 
percentage which the total amount of allowable indirect costs bears to 
the base selected. This method should also be used where an organization 
has only one major function encompassing a number of individual projects 
or activities, and may be used where the level of Federal awards to an 
organization is relatively small.
    b. Both the direct costs and the indirect costs shall exclude 
capital expenditures and unallowable costs. However, unallowable costs 
which represent activities must be included in the direct costs under 
the conditions described in subparagraph B.3 of this appendix.
    c. The distribution base may be total direct costs (excluding 
capital expenditures

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and other distorting items, such as major subcontracts or subgrants), 
direct salaries and wages, or other base which results in an equitable 
distribution. The distribution base shall generally exclude participant 
support costs as defined in paragraph 32 of Appendix B.
    d. Except where a special rate(s) is required in accordance with 
subparagraph 5 of this appendix, the indirect cost rate developed under 
the above principles is applicable to all awards at the organization. If 
a special rate(s) is required, appropriate modifications shall be made 
in order to develop the special rate(s).
    e. For an organization that receives more than $10 million in 
Federal funding of direct costs in a fiscal year, a breakout of the 
indirect cost component into two broad categories, Facilities and 
Administration as defined in subparagraph C.3 of this appendix, is 
required. The rate in each case shall be stated as the percentage which 
the amount of the particular indirect cost category (i.e., Facilities or 
Administration) is of the distribution base identified with that 
category.
    3. Multiple allocation base method.
    a. General. Where an organization's indirect costs benefit its major 
functions in varying degrees, indirect costs shall be accumulated into 
separate cost groupings, as described in subparagraph D.3.b of this 
appendix. Each grouping shall then be allocated individually to 
benefiting functions by means of a base which best measures the relative 
benefits. The default allocation bases by cost pool are described in 
subparagraph D.3.c of this appendix.
    b. Identification of indirect costs. Cost groupings shall be 
established so as to permit the allocation of each grouping on the basis 
of benefits provided to the major functions. Each grouping shall 
constitute a pool of expenses that are of like character in terms of 
functions they benefit and in terms of the allocation base which best 
measures the relative benefits provided to each function. The groupings 
are classified within the two broad categories: ``Facilities'' and 
``Administration,'' as described in subparagraph C.3 of this appendix. 
The indirect cost pools are defined as follows:
    (1) Depreciation and use allowances. The expenses under this heading 
are the portion of the costs of the organization's buildings, capital 
improvements to land and buildings, and equipment which are computed in 
accordance with paragraph 11 of Appendix B to this part (``Depreciation 
and use allowances'').
    (2) Interest. Interest on debt associated with certain buildings, 
equipment and capital improvements are computed in accordance with 
paragraph 23 of Appendix B to this part (``Interest'').
    (3) Operation and maintenance expenses. The expenses under this 
heading are those that have been incurred for the administration, 
operation, maintenance, preservation, and protection of the 
organization's physical plant. They include expenses normally incurred 
for such items as: Janitorial and utility services; repairs and ordinary 
or normal alterations of buildings, furniture and equipment; care of 
grounds; maintenance and operation of buildings and other plant 
facilities; security; earthquake and disaster preparedness; 
environmental safety; hazardous waste disposal; property, liability and 
other insurance relating to property; space and capital leasing; 
facility planning and management; and, central receiving. The operation 
and maintenance expenses category shall also include its allocable share 
of fringe benefit costs, depreciation and use allowances, and interest 
costs.
    (4) General administration and general expenses. (a) The expenses 
under this heading are those that have been incurred for the overall 
general executive and administrative offices of the organization and 
other expenses of a general nature which do not relate solely to any 
major function of the organization. This category shall also include its 
allocable share of fringe benefit costs, operation and maintenance 
expense, depreciation and use allowances, and interest costs. Examples 
of this category include central offices, such as the director's office, 
the office of finance, business services, budget and planning, 
personnel, safety and risk management, general counsel, management 
information systems, and library costs.
    (b) In developing this cost pool, special care should be exercised 
to ensure that costs incurred for the same purpose in like circumstances 
are treated consistently as either direct or indirect costs. For 
example, salaries of technical staff, project supplies, project 
publication, telephone toll charges, computer costs, travel costs, and 
specialized services costs shall be treated as direct costs wherever 
identifiable to a particular program. The salaries and wages of 
administrative and pooled clerical staff should normally be treated as 
indirect costs. Direct charging of these costs may be appropriate where 
a major project or activity explicitly requires and budgets for 
administrative or clerical services and other individuals involved can 
be identified with the program or activity. Items such as office 
supplies, postage, local telephone costs, periodicals and memberships 
should normally be treated as indirect costs.
    c. Allocation bases. Actual conditions shall be taken into account 
in selecting the base to be used in allocating the expenses in each 
grouping to benefiting functions. The essential consideration in 
selecting a method or a base is that it is the one best suited for 
assigning the pool of costs to cost objectives in accordance with 
benefits derived; a traceable cause and effect relationship; or logic 
and

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reason, where neither the cause nor the effect of the relationship is 
determinable. When an allocation can be made by assignment of a cost 
grouping directly to the function benefited, the allocation shall be 
made in that manner. When the expenses in a cost grouping are more 
general in nature, the allocation shall be made through the use of a 
selected base which produces results that are equitable to both the 
Federal Government and the organization. The distribution shall be made 
in accordance with the bases described herein unless it can be 
demonstrated that the use of a different base would result in a more 
equitable allocation of the costs, or that a more readily available base 
would not increase the costs charged to sponsored awards. The results of 
special cost studies (such as an engineering utility study) shall not be 
used to determine and allocate the indirect costs to sponsored awards.
    (1) Depreciation and use allowances. Depreciation and use allowances 
expenses shall be allocated in the following manner:
    (a) Depreciation or use allowances on buildings used exclusively in 
the conduct of a single function, and on capital improvements and 
equipment used in such buildings, shall be assigned to that function.
    (b) Depreciation or use allowances on buildings used for more than 
one function, and on capital improvements and equipment used in such 
buildings, shall be allocated to the individual functions performed in 
each building on the basis of usable square feet of space, excluding 
common areas, such as hallways, stairwells, and restrooms.
    (c) Depreciation or use allowances on buildings, capital 
improvements and equipment related space (e.g., individual rooms, and 
laboratories) used jointly by more than one function (as determined by 
the users of the space) shall be treated as follows. The cost of each 
jointly used unit of space shall be allocated to the benefiting 
functions on the basis of either the employees and other users on a 
full-time equivalent (FTE) basis or salaries and wages of those 
individual functions benefiting from the use of that space; or 
organization-wide employee FTEs or salaries and wages applicable to the 
benefiting functions of the organization.
    (d) Depreciation or use allowances on certain capital improvements 
to land, such as paved parking areas, fences, sidewalks, and the like, 
not included in the cost of buildings, shall be allocated to user 
categories on a FTE basis and distributed to major functions in 
proportion to the salaries and wages of all employees applicable to the 
functions.
    (2) Interest. Interest costs shall be allocated in the same manner 
as the depreciation or use allowances on the buildings, equipment and 
capital equipments to which the interest relates.
    (3) Operation and maintenance expenses. Operation and maintenance 
expenses shall be allocated in the same manner as the depreciation and 
use allowances.
    (4) General administration and general expenses. General 
administration and general expenses shall be allocated to benefiting 
functions based on modified total direct costs (MTDC), as described in 
subparagraph D.3.f of this appendix. The expenses included in this 
category could be grouped first according to major functions of the 
organization to which they render services or provide benefits. The 
aggregate expenses of each group shall then be allocated to benefiting 
functions based on MTDC.
    d. Order of distribution. (1) Indirect cost categories consisting of 
depreciation and use allowances, interest, operation and maintenance, 
and general administration and general expenses shall be allocated in 
that order to the remaining indirect cost categories as well as to the 
major functions of the organization. Other cost categories could be 
allocated in the order determined to be most appropriate by the 
organization. When cross allocation of costs is made as provided in 
subparagraph D.3.d.(2) of this appendix, this order of allocation does 
not apply.
    (2) Normally, an indirect cost category will be considered closed 
once it has been allocated to other cost objectives, and costs shall not 
be subsequently allocated to it. However, a cross allocation of costs 
between two or more indirect costs categories could be used if such 
allocation will result in a more equitable allocation of costs. If a 
cross allocation is used, an appropriate modification to the composition 
of the indirect cost categories is required.
    e. Application of indirect cost rate or rates. Except where a 
special indirect cost rate(s) is required in accordance with 
subparagraph D.5 of this appendix, the separate groupings of indirect 
costs allocated to each major function shall be aggregated and treated 
as a common pool for that function. The costs in the common pool shall 
then be distributed to individual awards included in that function by 
use of a single indirect cost rate.
    f. Distribution basis. Indirect costs shall be distributed to 
applicable sponsored awards and other benefiting activities within each 
major function on the basis of MTDC. MTDC consists of all salaries and 
wages, fringe benefits, materials and supplies, services, travel, and 
subgrants and subcontracts up to the first $25,000 of each subgrant or 
subcontract (regardless of the period covered by the subgrant or 
subcontract). Equipment, capital expenditures, charges for patient care, 
rental costs and the portion in excess of $25,000 shall be excluded from 
MTDC. Participant support costs shall generally be excluded from MTDC. 
Other items may only be excluded when the Federal cost cognizant

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agency determines that an exclusion is necessary to avoid a serious 
inequity in the distribution of indirect costs.
    g. Individual Rate Components. An indirect cost rate shall be 
determined for each separate indirect cost pool developed. The rate in 
each case shall be stated as the percentage which the amount of the 
particular indirect cost pool is of the distribution base identified 
with that pool. Each indirect cost rate negotiation or determination 
agreement shall include development of the rate for each indirect cost 
pool as well as the overall indirect cost rate. The indirect cost pools 
shall be classified within two broad categories: ``Facilities'' and 
``Administration,'' as described in subparagraph C.3 of this appendix.
    4. Direct allocation method. a. Some non-profit organizations treat 
all costs as direct costs except general administration and general 
expenses. These organizations generally separate their costs into three 
basic categories: General administration and general expenses, 
fundraising, and other direct functions (including projects performed 
under Federal awards). Joint costs, such as depreciation, rental costs, 
operation and maintenance of facilities, telephone expenses, and the 
like are prorated individually as direct costs to each category and to 
each award or other activity using a base most appropriate to the 
particular cost being prorated.
    b. This method is acceptable, provided each joint cost is prorated 
using a base which accurately measures the benefits provided to each 
award or other activity. The bases must be established in accordance 
with reasonable criteria, and be supported by current data. This method 
is compatible with the Standards of Accounting and Financial Reporting 
for Voluntary Health and Welfare Organizations issued jointly by the 
National Health Council, Inc., the National Assembly of Voluntary Health 
and Social Welfare Organizations, and the United Way of America.
    c. Under this method, indirect costs consist exclusively of general 
administration and general expenses. In all other respects, the 
organization's indirect cost rates shall be computed in the same manner 
as that described in subparagraph D.2 of this appendix.
    5. Special indirect cost rates. In some instances, a single indirect 
cost rate for all activities of an organization or for each major 
function of the organization may not be appropriate, since it would not 
take into account those different factors which may substantially affect 
the indirect costs applicable to a particular segment of work. For this 
purpose, a particular segment of work may be that performed under a 
single award or it may consist of work under a group of awards performed 
in a common environment. These factors may include the physical location 
of the work, the level of administrative support required, the nature of 
the facilities or other resources employed, the scientific disciplines 
or technical skills involved, the organizational arrangements used, or 
any combination thereof. When a particular segment of work is performed 
in an environment which appears to generate a significantly different 
level of indirect costs, provisions should be made for a separate 
indirect cost pool applicable to such work. The separate indirect cost 
pool should be developed during the course of the regular allocation 
process, and the separate indirect cost rate resulting therefrom should 
be used, provided it is determined that the rate differs significantly 
from that which would have been obtained under subparagraphs D.2, 3, and 
4 of this appendix, and the volume of work to which the rate would apply 
is material.

           E. Negotiation and Approval of Indirect Cost Rates

    1. Definitions. As used in this section, the following terms have 
the meanings set forth below:
    a. Cognizant agency means the Federal agency responsible for 
negotiating and approving indirect cost rates for a non-profit 
organization on behalf of all Federal agencies.
    b. Predetermined rate means an indirect cost rate, applicable to a 
specified current or future period, usually the organization's fiscal 
year. The rate is based on an estimate of the costs to be incurred 
during the period. A predetermined rate is not subject to adjustment.
    c. Fixed rate means an indirect cost rate which has the same 
characteristics as a predetermined rate, except that the difference 
between the estimated costs and the actual costs of the period covered 
by the rate is carried forward as an adjustment to the rate computation 
of a subsequent period.
    d. Final rate means an indirect cost rate applicable to a specified 
past period which is based on the actual costs of the period. A final 
rate is not subject to adjustment.
    e. Provisional rate or billing rate means a temporary indirect cost 
rate applicable to a specified period which is used for funding, interim 
reimbursement, and reporting indirect costs on awards pending the 
establishment of a final rate for the period.
    f. Indirect cost proposal means the documentation prepared by an 
organization to substantiate its claim for the reimbursement of indirect 
costs. This proposal provides the basis for the review and negotiation 
leading to the establishment of an organization's indirect cost rate.
    g. Cost objective means a function, organizational subdivision, 
contract, grant, or other work unit for which cost data are desired and 
for which provision is made to accumulate and measure the cost of 
processes, projects, jobs and capitalized projects.

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    2. Negotiation and approval of rates. a. Unless different 
arrangements are agreed to by the agencies concerned, the Federal agency 
with the largest dollar value of awards with an organization will be 
designated as the cognizant agency for the negotiation and approval of 
the indirect cost rates and, where necessary, other rates such as fringe 
benefit and computer charge-out rates. Once an agency is assigned 
cognizance for a particular non-profit organization, the assignment will 
not be changed unless there is a major long-term shift in the dollar 
volume of the Federal awards to the organization. All concerned Federal 
agencies shall be given the opportunity to participate in the 
negotiation process but, after a rate has been agreed upon, it will be 
accepted by all Federal agencies. When a Federal agency has reason to 
believe that special operating factors affecting its awards necessitate 
special indirect cost rates in accordance with subparagraph D.5 of this 
appendix, it will, prior to the time the rates are negotiated, notify 
the cognizant agency.
    b. A non-profit organization which has not previously established an 
indirect cost rate with a Federal agency shall submit its initial 
indirect cost proposal immediately after the organization is advised 
that an award will be made and, in no event, later than three months 
after the effective date of the award.
    c. Organizations that have previously established indirect cost 
rates must submit a new indirect cost proposal to the cognizant agency 
within six months after the close of each fiscal year.
    d. A predetermined rate may be negotiated for use on awards where 
there is reasonable assurance, based on past experience and reliable 
projection of the organization's costs, that the rate is not likely to 
exceed a rate based on the organization's actual costs.
    e. Fixed rates may be negotiated where predetermined rates are not 
considered appropriate. A fixed rate, however, shall not be negotiated 
if all or a substantial portion of the organization's awards are 
expected to expire before the carry-forward adjustment can be made; the 
mix of Federal and non-Federal work at the organization is too erratic 
to permit an equitable carry-forward adjustment; or the organization's 
operations fluctuate significantly from year to year.
    f. Provisional and final rates shall be negotiated where neither 
predetermined nor fixed rates are appropriate.
    g. The results of each negotiation shall be formalized in a written 
agreement between the cognizant agency and the non-profit organization. 
The cognizant agency shall distribute copies of the agreement to all 
concerned Federal agencies.
    h. If a dispute arises in a negotiation of an indirect cost rate 
between the cognizant agency and the non-profit organization, the 
dispute shall be resolved in accordance with the appeals procedures of 
the cognizant agency.
    i. To the extent that problems are encountered among the Federal 
agencies in connection with the negotiation and approval process, OMB 
will lend assistance as required to resolve such problems in a timely 
manner.

             Appendix B to Part 230--Selected Items of Cost

                         Selected Items of Cost

                            Table of Contents

1. Advertising and public relations costs
2. Advisory councils
3. Alcoholic beverages
4. Audit costs and related services
5. Bad debts
6. Bonding costs
7. Communication costs
8. Compensation for personal services
9. Contingency provisions
10. Defense and prosecution of criminal and civil proceedings, claims, 
appeals and patent infringement
11. Depreciation and use allowances
12. Donations and contributions
13. Employee morale, health, and welfare costs
14. Entertainment costs
15. Equipment and other capital expenditures
16. Fines and penalties
17. Fund raising and investment management costs
18. Gains and losses on depreciable assets
19. Goods or services for personal use
20. Housing and personal living expenses
21. Idle facilities and idle capacity
22. Insurance and indemnification
23. Interest
24. Labor relations costs
25. Lobbying
26. Losses on other sponsored agreements or contracts
27. Maintenance and repair costs
28. Materials and supplies costs
29. Meetings and conferences
30. Memberships, subscriptions, and professional activity costs
31. Organization costs
32. Page charges in professional journals
33. Participant support costs
34. Patent costs
35. Plant and homeland security costs
36. Pre-agreement costs
37. Professional services costs
38. Publication and printing costs
39. Rearrangement and alteration costs
40. Reconversion costs
41. Recruiting costs
42. Relocation costs
43. Rental costs of buildings and equipment
44. Royalties and other costs for use of patents and copyrights

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45. Selling and marketing
46. Specialized service facilities
47. Taxes
48. Termination costs applicable to sponsored agreements
49. Training costs
50. Transportation costs
51. Travel costs
52. Trustees

             Appendix B to Part 230--Selected Items of Cost

    Paragraphs 1 through 52 of this appendix provide principles to be 
applied in establishing the allowability of certain items of cost. These 
principles apply whether a cost is treated as direct or indirect. 
Failure to mention a particular item of cost is not intended to imply 
that it is unallowable; rather, determination as to allowability in each 
case should be based on the treatment or principles provided for similar 
or related items of cost.
    1. Advertising and public relations costs. a. The term advertising 
costs means the costs of advertising media and corollary administrative 
costs. Advertising media include magazines, newspapers, radio and 
television, direct mail, exhibits, electronic or computer transmittals, 
and the like.
    b. The term public relations includes community relations and means 
those activities dedicated to maintaining the image of the non-profit 
organization or maintaining or promoting understanding and favorable 
relations with the community or public at large or any segment of the 
public.
    c. The only allowable advertising costs are those which are solely 
for:
    (1) The recruitment of personnel required for the performance by the 
non-profit organization of obligations arising under a Federal award 
(See also paragraph 41, Recruiting costs, and paragraph 42, Relocation 
costs, of this appendix);
    (2) The procurement of goods and services for the performance of a 
Federal award;
    (3) The disposal of scrap or surplus materials acquired in the 
performance of a Federal award except when non-profit organizations are 
reimbursed for disposal costs at a predetermined amount; or
    (4) Other specific purposes necessary to meet the requirements of 
the Federal award.
    d. The only allowable public relations costs are:
    (1) Costs specifically required by the Federal award;
    (2) Costs of communicating with the public and press pertaining to 
specific activities or accomplishments which result from performance of 
Federal awards (these costs are considered necessary as part of the 
outreach effort for the Federal award); or
    (3) Costs of conducting general liaison with news media and 
government public relations officers, to the extent that such activities 
are limited to communication and liaison necessary keep the public 
informed on matters of public concern, such as notices of Federal 
contract/grant awards, financial matters, etc.
    e. Costs identified in subparagraphs c and d if incurred for more 
than one Federal award or for both sponsored work and other work of the 
non-profit organization, are allowable to the extent that the principles 
in Appendix A to this part, paragraphs B. (``Direct Costs'') and C. 
(``Indirect Costs'') are observed.
    f. Unallowable advertising and public relations costs include the 
following:
    (1) All advertising and public relations costs other than as 
specified in subparagraphs c, d, and e;
    (2) Costs of meetings, conventions, convocations, or other events 
related to other activities of the non-profit organization, including:
    (a) Costs of displays, demonstrations, and exhibits;
    (b) Costs of meeting rooms, hospitality suites, and other special 
facilities used in conjunction with shows and other special events; and
    (c) Salaries and wages of employees engaged in setting up and 
displaying exhibits, making demonstrations, and providing briefings;
    (3) Costs of promotional items and memorabilia, including models, 
gifts, and souvenirs;
    (4) Costs of advertising and public relations designed solely to 
promote the non-profit organization.
    2. Advisory Councils. Costs incurred by advisory councils or 
committees are allowable as a direct cost where authorized by the 
Federal awarding agency or as an indirect cost where allocable to 
Federal awards.
    3. Alcoholic beverages. Costs of alcoholic beverages are 
unallowable.
    4. Audit costs and related services. a. The costs of audits required 
by, and performed in accordance with, the Single Audit Act, as 
implemented by Circular A-133, ``Audits of States, Local Governments, 
and Non-Profit Organizations'' are allowable. Also see 31 U.S.C. 7505(b) 
and section 230 (``Audit Costs'') of Circular A-133.
    b. Other audit costs are allowable if included in an indirect cost 
rate proposal, or if specifically approved by the awarding agency as a 
direct cost to an award.
    c. The cost of agreed-upon procedures engagements to monitor 
subrecipients who are exempted from A-133 under section 200(d) are 
allowable, subject to the conditions listed in A-133, section 230 
(b)(2).
    5. Bad debts. Bad debts, including losses (whether actual or 
estimated) arising from uncollectable accounts and other claims, related 
collection costs, and related legal costs, are unallowable.

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    6. Bonding costs. a. Bonding costs arise when the Federal Government 
requires assurance against financial loss to itself or others by reason 
of the act or default of the non-profit organization. They arise also in 
instances where the non-profit organization requires similar assurance. 
Included are such bonds as bid, performance, payment, advance payment, 
infringement, and fidelity bonds.
    b. Costs of bonding required pursuant to the terms of the award are 
allowable.
    c. Costs of bonding required by the non-profit organization in the 
general conduct of its operations are allowable to the extent that such 
bonding is in accordance with sound business practice and the rates and 
premiums are reasonable under the circumstances.
    7. Communication costs. Costs incurred for telephone services, local 
and long distance telephone calls, telegrams, postage, messenger, 
electronic or computer transmittal services and the like are allowable.
    8. Compensation for personal services. a. Definition. Compensation 
for personal services includes all compensation paid currently or 
accrued by the organization for services of employees rendered during 
the period of the award (except as otherwise provided in subparagraph 
8.h of this appendix). It includes, but is not limited to, salaries, 
wages, director's and executive committee member's fees, incentive 
awards, fringe benefits, pension plan costs, allowances for off-site 
pay, incentive pay, location allowances, hardship pay, and cost of 
living differentials.
    b. Allowability. Except as otherwise specifically provided in this 
paragraph, the costs of such compensation are allowable to the extent 
that:
    (1) Total compensation to individual employees is reasonable for the 
services rendered and conforms to the established policy of the 
organization consistently applied to both Federal and non-Federal 
activities; and
    (2) Charges to awards whether treated as direct or indirect costs 
are determined and supported as required in this paragraph.
    c. Reasonableness. (1) When the organization is predominantly 
engaged in activities other than those sponsored by the Federal 
Government, compensation for employees on federally-sponsored work will 
be considered reasonable to the extent that it is consistent with that 
paid for similar work in the organization's other activities.
    (2) When the organization is predominantly engaged in federally-
sponsored activities and in cases where the kind of employees required 
for the Federal activities are not found in the organization's other 
activities, compensation for employees on federally-sponsored work will 
be considered reasonable to the extent that it is comparable to that 
paid for similar work in the labor markets in which the organization 
competes for the kind of employees involved.
    d. Special considerations in determining allowability. Certain 
conditions require special consideration and possible limitations in 
determining costs under Federal awards where amounts or types of 
compensation appear unreasonable. Among such conditions are the 
following:
    (1) Compensation to members of non-profit organizations, trustees, 
directors, associates, officers, or the immediate families thereof. 
Determination should be made that such compensation is reasonable for 
the actual personal services rendered rather than a distribution of 
earnings in excess of costs.
    (2) Any change in an organization's compensation policy resulting in 
a substantial increase in the organization's level of compensation, 
particularly when it was concurrent with an increase in the ratio of 
Federal awards to other activities of the organization or any change in 
the treatment of allowability of specific types of compensation due to 
changes in Federal policy.
    e. Unallowable costs. Costs which are unallowable under other 
paragraphs of this appendix shall not be allowable under this paragraph 
solely on the basis that they constitute personal compensation.
    f. Overtime, extra-pay shift, and multi-shift premiums. Premiums for 
overtime, extra-pay shifts, and multi-shift work are allowable only with 
the prior approval of the awarding agency except:
    (1) When necessary to cope with emergencies, such as those resulting 
from accidents, natural disasters, breakdowns of equipment, or 
occasional operational bottlenecks of a sporadic nature.
    (2) When employees are performing indirect functions, such as 
administration, maintenance, or accounting.
    (3) In the performance of tests, laboratory procedures, or other 
similar operations which are continuous in nature and cannot reasonably 
be interrupted or otherwise completed.
    (4) When lower overall cost to the Federal Government will result.
    g. Fringe benefits. (1) Fringe benefits in the form of regular 
compensation paid to employees during periods of authorized absences 
from the job, such as vacation leave, sick leave, military leave, and 
the like, are allowable, provided such costs are absorbed by all 
organization activities in proportion to the relative amount of time or 
effort actually devoted to each.
    (2) Fringe benefits in the form of employer contributions or 
expenses for social security, employee insurance, workmen's compensation 
insurance, pension plan costs (see subparagraph 8.h of this appendix), 
and the like, are allowable, provided such benefits are granted in 
accordance with established written organization policies. Such benefits 
whether treated as indirect costs or as direct costs, shall be 
distributed to particular

[[Page 155]]

awards and other activities in a manner consistent with the pattern of 
benefits accruing to the individuals or group of employees whose 
salaries and wages are chargeable to such awards and other activities.
    (3)(a) Provisions for a reserve under a self-insurance program for 
unemployment compensation or workers' compensation are allowable to the 
extent that the provisions represent reasonable estimates of the 
liabilities for such compensation, and the types of coverage, extent of 
coverage, and rates and premiums would have been allowable had insurance 
been purchased to cover the risks. However, provisions for self-insured 
liabilities which do not become payable for more than one year after the 
provision is made shall not exceed the present value of the liability.
    (b) Where an organization follows a consistent policy of expensing 
actual payments to, or on behalf of, employees or former employees for 
unemployment compensation or workers' compensation, such payments are 
allowable in the year of payment with the prior approval of the awarding 
agency, provided they are allocated to all activities of the 
organization.
    (4) Costs of insurance on the lives of trustees, officers, or other 
employees holding positions of similar responsibility are allowable only 
to the extent that the insurance represents additional compensation. The 
costs of such insurance when the organization is named as beneficiary 
are unallowable.
    h. Organization-furnished automobiles. That portion of the cost of 
organization-furnished automobiles that relates to personal use by 
employees (including transportation to and from work) is unallowable as 
fringe benefit or indirect costs regardless of whether the cost is 
reported as taxable income to the employees. These costs are allowable 
as direct costs to sponsored award when necessary for the performance of 
the sponsored award and approved by awarding agencies.
    i. Pension plan costs. (1) Costs of the organization's pension plan 
which are incurred in accordance with the established policies of the 
organization are allowable, provided:
    (a) Such policies meet the test of reasonableness;
    (b) The methods of cost allocation are not discriminatory;
    (c) The cost assigned to each fiscal year is determined in 
accordance with generally accepted accounting principles (GAAP), as 
prescribed in Accounting Principles Board Opinion No. 8 issued by the 
American Institute of Certified Public Accountants; and
    (d) The costs assigned to a given fiscal year are funded for all 
plan participants within six months after the end of that year. However, 
increases to normal and past service pension costs caused by a delay in 
funding the actuarial liability beyond 30 days after each quarter of the 
year to which such costs are assignable are unallowable.
    (2) Pension plan termination insurance premiums paid pursuant to the 
Employee Retirement Income Security Act (ERISA) of 1974 (Pub. L. 93-406) 
are allowable. Late payment charges on such premiums are unallowable.
    (3) Excise taxes on accumulated funding deficiencies and other 
penalties imposed under ERISA are unallowable.
    j. Incentive compensation. Incentive compensation to employees based 
on cost reduction, or efficient performance, suggestion awards, safety 
awards, etc., are allowable to the extent that the overall compensation 
is determined to be reasonable and such costs are paid or accrued 
pursuant to an agreement entered into in good faith between the 
organization and the employees before the services were rendered, or 
pursuant to an established plan followed by the organization so 
consistently as to imply, in effect, an agreement to make such payment.
    k. Severance pay. (1) Severance pay, also commonly referred to as 
dismissal wages, is a payment in addition to regular salaries and wages, 
by organizations to workers whose employment is being terminated. Costs 
of severance pay are allowable only to the extent that in each case, it 
is required by:

(a) Law
(b) Employer-employee agreement
(c) Established policy that constitutes, in effect, an implied agreement 
on the organization's part, or
(d) Circumstances of the particular employment.

    (2) Costs of severance payments are divided into two categories as 
follows:
    (a) Actual normal turnover severance payments shall be allocated to 
all activities; or, where the organization provides for a reserve for 
normal severances, such method will be acceptable if the charge to 
current operations is reasonable in light of payments actually made for 
normal severances over a representative past period, and if amounts 
charged are allocated to all activities of the organization.
    (b) Abnormal or mass severance pay is of such a conjectural nature 
that measurement of costs by means of an accrual will not achieve equity 
to both parties. Thus, accruals for this purpose are not allowable. 
However, the Federal Government recognizes its obligation to 
participate, to the extent of its fair share, in any specific payment. 
Thus, allowability will be considered on a case-by-case basis in the 
event or occurrence.
    (c) Costs incurred in certain severance pay packages (commonly known 
as ``a golden parachute'' payment) which are in an amount in excess of 
the normal severance pay paid by the organization to an employee upon 
termination of employment and are

[[Page 156]]

paid to the employee contingent upon a change in management control 
over, or ownership of, the organization's assets are unallowable.
    (d) Severance payments to foreign nationals employed by the 
organization outside the United States, to the extent that the amount 
exceeds the customary or prevailing practices for the organization in 
the United States are unallowable, unless they are necessary for the 
performance of Federal programs and approved by awarding agencies.
    (e) Severance payments to foreign nationals employed by the 
organization outside the United States due to the termination of the 
foreign national as a result of the closing of, or curtailment of 
activities by, the organization in that country, are unallowable, unless 
they are necessary for the performance of Federal programs and approved 
by awarding agencies.
    l. Training costs. See paragraph 49 of this appendix.
    m. Support of salaries and wages.
    (1) Charges to awards for salaries and wages, whether treated as 
direct costs or indirect costs, will be based on documented payrolls 
approved by a responsible official(s) of the organization. The 
distribution of salaries and wages to awards must be supported by 
personnel activity reports, as prescribed in subparagraph 8.m.(2) of 
this appendix, except when a substitute system has been approved in 
writing by the cognizant agency. (See subparagraph E.2 of Appendix A to 
this part.)
    (2) Reports reflecting the distribution of activity of each employee 
must be maintained for all staff members (professionals and 
nonprofessionals) whose compensation is charged, in whole or in part, 
directly to awards. In addition, in order to support the allocation of 
indirect costs, such reports must also be maintained for other employees 
whose work involves two or more functions or activities if a 
distribution of their compensation between such functions or activities 
is needed in the determination of the organization's indirect cost 
rate(s) (e.g., an employee engaged part-time in indirect cost activities 
and part-time in a direct function). Reports maintained by non-profit 
organizations to satisfy these requirements must meet the following 
standards:
    (a) The reports must reflect an after-the-fact determination of the 
actual activity of each employee. Budget estimates (i.e., estimates 
determined before the services are performed) do not qualify as support 
for charges to awards.
    (b) Each report must account for the total activity for which 
employees are compensated and which is required in fulfillment of their 
obligations to the organization.
    (c) The reports must be signed by the individual employee, or by a 
responsible supervisory official having first hand knowledge of the 
activities performed by the employee, that the distribution of activity 
represents a reasonable estimate of the actual work performed by the 
employee during the periods covered by the reports.
    (d) The reports must be prepared at least monthly and must coincide 
with one or more pay periods.
    (3) Charges for the salaries and wages of nonprofessional employees, 
in addition to the supporting documentation described in subparagraphs 
(1) and (2), must also be supported by records indicating the total 
number of hours worked each day maintained in conformance with 
Department of Labor regulations implementing the Fair Labor Standards 
Act (FLSA) (29 CFR part 516). For this purpose, the term 
``nonprofessional employee'' shall have the same meaning as ``nonexempt 
employee,'' under FLSA.
    (4) Salaries and wages of employees used in meeting cost sharing or 
matching requirements on awards must be supported in the same manner as 
salaries and wages claimed for reimbursement from awarding agencies.
    9. Contingency provisions. Contributions to a contingency reserve or 
any similar provision made for events the occurrence of which cannot be 
foretold with certainty as to time, intensity, or with an assurance of 
their happening, are unallowable. The term ``contingency reserve'' 
excludes self-insurance reserves (see Appendix B to this part, 
paragraphs 8.g.(3) and 22.a(2)(d)); pension funds (see paragraph 8.i): 
and reserves for normal severance pay (see paragraph 8.k.)
    10. Defense and prosecution of criminal and civil proceedings, 
claims, appeals and patent infringement.
    a. Definitions. (1) Conviction, as used herein, means a judgment or 
a conviction of a criminal offense by any court of competent 
jurisdiction, whether entered upon as a verdict or a plea, including a 
conviction due to a plea of nolo contendere.
    (2) Costs include, but are not limited to, administrative and 
clerical expenses; the cost of legal services, whether performed by in-
house or private counsel; and the costs of the services of accountants, 
consultants, or others retained by the organization to assist it; costs 
of employees, officers and trustees, and any similar costs incurred 
before, during, and after commencement of a judicial or administrative 
proceeding that bears a direct relationship to the proceedings.
    (3) Fraud, as used herein, means acts of fraud corruption or 
attempts to defraud the Federal Government or to corrupt its agents, 
acts that constitute a cause for debarment or suspension (as specified 
in agency regulations), and acts which violate the False Claims Act, 31 
U.S.C., sections 3729-3731, or the Anti-Kickback Act, 41 U.S.C., 
sections 51 and 54.
    (4) Penalty does not include restitution, reimbursement, or 
compensatory damages.

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    (5) Proceeding includes an investigation.
    b. (1) Except as otherwise described herein, costs incurred in 
connection with any criminal, civil or administrative proceeding 
(including filing of a false certification) commenced by the Federal 
Government, or a State, local or foreign government, are not allowable 
if the proceeding: Relates to a violation of, or failure to comply with, 
a Federal, State, local or foreign statute or regulation by the 
organization (including its agents and employees), and results in any of 
the following dispositions:
    (a) In a criminal proceeding, a conviction.
    (b) In a civil or administrative proceeding involving an allegation 
of fraud or similar misconduct, a determination of organizational 
liability.
    (c) In the case of any civil or administrative proceeding, the 
imposition of a monetary penalty.
    (d) A final decision by an appropriate Federal official to debar or 
suspend the organization, to rescind or void an award, or to terminate 
an award for default by reason of a violation or failure to comply with 
a law or regulation.
    (e) A disposition by consent or compromise, if the action could have 
resulted in any of the dispositions described in subparagraphs 
10.b.(1)(a), (b), (c) or (d) of this appendix.
    (2) If more than one proceeding involves the same alleged 
misconduct, the costs of all such proceedings shall be unallowable if 
any one of them results in one of the dispositions shown in subparagraph 
10.b.(1) of this appendix.
    c. If a proceeding referred to in subparagraph 10.b of this appendix 
is commenced by the Federal Government and is resolved by consent or 
compromise pursuant to an agreement entered into by the organization and 
the Federal Government, then the costs incurred by the organization in 
connection with such proceedings that are otherwise not allowable under 
subparagraph 10.b of this appendix may be allowed to the extent 
specifically provided in such agreement.
    d. If a proceeding referred to in subparagraph 10.b of this appendix 
is commenced by a State, local or foreign government, the authorized 
Federal official may allow the costs incurred by the organization for 
such proceedings, if such authorized official determines that the costs 
were incurred as a result of a specific term or condition of a 
federally-sponsored award, or specific written direction of an 
authorized official of the sponsoring agency.
    e. Costs incurred in connection with proceedings described in 
subparagraph 10.b of this appendix, but which are not made unallowable 
by that subparagraph, may be allowed by the Federal Government, but only 
to the extent that:
    (1) The costs are reasonable in relation to the activities required 
to deal with the proceeding and the underlying cause of action;
    (2) Payment of the costs incurred, as allowable and allocable costs, 
is not prohibited by any other provision(s) of the sponsored award;
    (3) The costs are not otherwise recovered from the Federal 
Government or a third party, either directly as a result of the 
proceeding or otherwise; and,
    (4) The percentage of costs allowed does not exceed the percentage 
determined by an authorized Federal official to be appropriate, 
considering the complexity of the litigation, generally accepted 
principles governing the award of legal fees in civil actions involving 
the United States as a party, and such other factors as may be 
appropriate. Such percentage shall not exceed 80 percent. However, if an 
agreement reached under subparagraph 10.c of this appendix has 
explicitly considered this 80 percent limitation and permitted a higher 
percentage, then the full amount of costs resulting from that agreement 
shall be allowable.
    f. Costs incurred by the organization in connection with the defense 
of suits brought by its employees or ex-employees under section 2 of the 
Major Fraud Act of 1988 (Pub. L. 100-700), including the cost of all 
relief necessary to make such employee whole, where the organization was 
found liable or settled, are unallowable.
    g. Costs of legal, accounting, and consultant services, and related 
costs, incurred in connection with defense against Federal Government 
claims or appeals, antitrust suits, or the prosecution of claims or 
appeals against the Federal Government, are unallowable.
    h. Costs of legal, accounting, and consultant services, and related 
costs, incurred in connection with patent infringement litigation, are 
unallowable unless otherwise provided for in the sponsored awards.
    i. Costs which may be unallowable under this paragraph, including 
directly associated costs, shall be segregated and accounted for by the 
organization separately. During the pendency of any proceeding covered 
by subparagraphs 10.b and f of this appendix, the Federal Government 
shall generally withhold payment of such costs. However, if in the best 
interests of the Federal Government, the Federal Government may provide 
for conditional payment upon provision of adequate security, or other 
adequate assurance, and agreements by the organization to repay all 
unallowable costs, plus interest, if the costs are subsequently 
determined to be unallowable.
    11. Depreciation and use allowances. a. Compensation for the use of 
buildings, other capital improvements, and equipment on hand may be made 
through use allowance or depreciation. However, except as provided in

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paragraph 11.f of this appendix, a combination of the two methods may 
not be used in connection with a single class of fixed assets (e.g., 
buildings, office equipment, computer equipment, etc.).
    b. The computation of use allowances or depreciation shall be based 
on the acquisition cost of the assets involved. The acquisition cost of 
an asset donated to the non-profit organization by a third party shall 
be its fair market value at the time of the donation.
    c. The computation of use allowances or depreciation will exclude:
    (1) The cost of land;
    (2) Any portion of the cost of buildings and equipment borne by or 
donated by the Federal Government irrespective of where title was 
originally vested or where it presently resides; and
    (3) Any portion of the cost of buildings and equipment contributed 
by or for the non-profit organization in satisfaction of a statutory 
matching requirement.
    d. General criteria where depreciation method is followed:
    (1) The period of useful service (useful life) established in each 
case for usable capital assets must take into consideration such factors 
as type of construction, nature of the equipment used, technological 
developments in the particular program area, and the renewal and 
replacement policies followed for the individual items or classes of 
assets involved. The method of depreciation used to assign the cost of 
an asset (or group of assets) to accounting periods shall reflect the 
pattern of consumption of the asset during its useful life.
    (2) In the absence of clear evidence indicating that the expected 
consumption of the asset will be significantly greater or lesser in the 
early portions of its useful life than in the later portions, the 
straight-line method shall be presumed to be the appropriate method.
    (3) Depreciation methods once used shall not be changed unless 
approved in advance by the cognizant Federal agency. When the 
depreciation method is introduced for application to assets previously 
subject to a use allowance, the combination of use allowances and 
depreciation applicable to such assets must not exceed the total 
acquisition cost of the assets.
    e. When the depreciation method is used for buildings, a building's 
shell may be segregated from each building component (e.g., plumbing 
system, heating, and air conditioning system, etc.) and each item 
depreciated over its estimated useful life; or the entire building 
(i.e., the shell and all components) may be treated as a single asset 
and depreciated over a single useful life.
    f. When the depreciation method is used for a particular class of 
assets, no depreciation may be allowed on any such assets that, under 
subparagraph 11.d of this appendix, would be viewed as fully 
depreciated. However, a reasonable use allowance may be negotiated for 
such assets if warranted after taking into consideration the amount of 
depreciation previously charged to the Federal Government, the estimated 
useful life remaining at time of negotiation, the effect of any 
increased maintenance charges or decreased efficiency due to age, and 
any other factors pertinent to the utilization of the asset for the 
purpose contemplated.
    g. Criteria where the use allowance method is followed:
    (1) The use allowance for buildings and improvement (including land 
improvements, such as paved parking areas, fences, and sidewalks) will 
be computed at an annual rate not exceeding two percent of acquisition 
cost.
    (2) The use allowance for equipment will be computed at an annual 
rate not exceeding six and two-thirds percent of acquisition cost. When 
the use allowance method is used for buildings, the entire building must 
be treated as a single asset; the building's components (e.g., plumbing 
system, heating and air conditioning, etc.) cannot be segregated from 
the building's shell.
    (3) The two percent limitation, however, need not be applied to 
equipment which is merely attached or fastened to the building but not 
permanently fixed to it and which is used as furnishings or decorations 
or for specialized purposes (e.g., dentist chairs and dental treatment 
units, counters, laboratory benches bolted to the floor, dishwashers, 
modular furniture, carpeting, etc.). Such equipment will be considered 
as not being permanently fixed to the building if it can be removed 
without the need for costly or extensive alterations or repairs to the 
building or the equipment. Equipment that meets these criteria will be 
subject to the 6\2/3\ percent equipment use allowance limitation.
    h. Charges for use allowances or depreciation must be supported by 
adequate property records and physical inventories must be taken at 
least once every two years (a statistical sampling basis is acceptable) 
to ensure that assets exist and are usable and needed. When the 
depreciation method is followed, adequate depreciation records 
indicating the amount of depreciation taken each period must also be 
maintained.
    12. Donations and contributions.
    a. Contributions or donations rendered. Contributions or donations, 
including cash, property, and services, made by the organization, 
regardless of the recipient, are unallowable.
    b. Donated services received:
    (1) Donated or volunteer services may be furnished to an 
organization by professional and technical personnel, consultants, and 
other skilled and unskilled labor. The value of these services is not 
reimbursable either

[[Page 159]]

as a direct or indirect cost. However, the value of donated services may 
be used to meet cost sharing or matching requirements in accordance with 
the Common Rule.
    (2) The value of donated services utilized in the performance of a 
direct cost activity shall, when material in amount, be considered in 
the determination of the non-profit organization's indirect costs or 
rate(s) and, accordingly, shall be allocated a proportionate share of 
applicable indirect costs when the following exist:
    (a) The aggregate value of the services is material;
    (b) The services are supported by a significant amount of the 
indirect costs incurred by the non-profit organization; and
    (c) The direct cost activity is not pursued primarily for the 
benefit of the Federal Government.
    (3) In those instances where there is no basis for determining the 
fair market value of the services rendered, the recipient and the 
cognizant agency shall negotiate an appropriate allocation of indirect 
cost to the services.
    (4) Where donated services directly benefit a project supported by 
an award, the indirect costs allocated to the services will be 
considered as a part of the total costs of the project. Such indirect 
costs may be reimbursed under the award or used to meet cost sharing or 
matching requirements.
    (5) The value of the donated services may be used to meet cost 
sharing or matching requirements under conditions described in Section 
215.23 of 2 CFR part 215 (OMB Circular A-110). Where donated services 
are treated as indirect costs, indirect cost rates will separate the 
value of the donations so that reimbursement will not be made.
    c. Donated goods or space. (1) Donated goods; i.e., expendable 
personal property/supplies, and donated use of space may be furnished to 
a non-profit organization. The value of the goods and space is not 
reimbursable either as a direct or indirect cost.
    (2) The value of the donations may be used to meet cost sharing or 
matching share requirements under the conditions described in 2 CFR part 
215 (OMB Circular A-110). Where donations are treated as indirect costs, 
indirect cost rates will separate the value of the donations so that 
reimbursement will not be made.
    13. Employee morale, health, and welfare costs.
    a. The costs of employee information publications, health or first-
aid clinics and/or infirmaries, recreational activities, employee 
counseling services, and any other expenses incurred in accordance with 
the non-profit organization's established practice or custom for the 
improvement of working conditions, employer-employee relations, employee 
morale, and employee performance are allowable.
    b. Such costs will be equitably apportioned to all activities of the 
non-profit organization. Income generated from any of these activities 
will be credited to the cost thereof unless such income has been 
irrevocably set over to employee welfare organizations.
    14. Entertainment costs. Costs of entertainment, including 
amusement, diversion, and social activities and any costs directly 
associated with such costs (such as tickets to shows or sports events, 
meals, lodging, rentals, transportation, and gratuities) are 
unallowable.
    15. Equipment and other capital expenditures.
    a. For purposes of this subparagraph, the following definitions 
apply:
    (1) ``Capital Expenditures'' means expenditures for the acquisition 
cost of capital assets (equipment, buildings, land), or expenditures to 
make improvements to capital assets that materially increase their value 
or useful life. Acquisition cost means the cost of the asset including 
the cost to put it in place. Acquisition cost for equipment, for 
example, means the net invoice price of the equipment, including the 
cost of any modifications, attachments, accessories, or auxiliary 
apparatus necessary to make it usable for the purpose for which it is 
acquired. Ancillary charges, such as taxes, duty, protective in transit 
insurance, freight, and installation may be included in, or excluded 
from the acquisition cost in accordance with the non-profit 
organization's regular accounting practices.
    (2) ``Equipment'' means an article of nonexpendable, tangible 
personal property having a useful life of more than one year and an 
acquisition cost which equals or exceeds the lesser of the 
capitalization level established by the non-profit organization for 
financial statement purposes, or $5000.
    (3) ``Special purpose equipment'' means equipment which is used only 
for research, medical, scientific, or other technical activities. 
Examples of special purpose equipment include microscopes, x-ray 
machines, surgical instruments, and spectrometers.
    (4) ``General purpose equipment'' means equipment, which is not 
limited to research, medical, scientific or other technical activities. 
Examples include office equipment and furnishings, modular offices, 
telephone networks, information technology equipment and systems, air 
conditioning equipment, reproduction and printing equipment, and motor 
vehicles.
    b. The following rules of allowability shall apply to equipment and 
other capital expenditures:
    (1) Capital expenditures for general purpose equipment, buildings, 
and land are unallowable as direct charges, except where approved in 
advance by the awarding agency.

[[Page 160]]

    (2) Capital expenditures for special purpose equipment are allowable 
as direct costs, provided that items with a unit cost of $5000 or more 
have the prior approval of the awarding agency.
    (3) Capital expenditures for improvements to land, buildings, or 
equipment which materially increase their value or useful life are 
unallowable as a direct cost except with the prior approval of the 
awarding agency.
    (4) When approved as a direct charge pursuant to paragraph 15.b.(1), 
(2), and (3) above, capital expenditures will be charged in the period 
in which the expenditure is incurred, or as otherwise determined 
appropriate by and negotiated with the awarding agency.
    (5) Equipment and other capital expenditures are unallowable as 
indirect costs. However, see paragraph 11., Depreciation and use 
allowance, of this appendix for rules on the allowability of use 
allowances or depreciation on buildings, capital improvements, and 
equipment. Also, see paragraph 43., Rental costs of buildings and 
equipment, of this appendix for rules on the allowability of rental 
costs for land, buildings, and equipment.
    (6) The unamortized portion of any equipment written off as a result 
of a change in capitalization levels may be recovered by continuing to 
claim the otherwise allowable use allowances or depreciation on the 
equipment, or by amortizing the amount to be written off over a period 
of years negotiated with the cognizant agency.
    16. Fines and penalties. Costs of fines and penalties resulting from 
violations of, or failure of the organization to comply with Federal, 
State, and local laws and regulations are unallowable except when 
incurred as a result of compliance with specific provisions of an award 
or instructions in writing from the awarding agency.
    17. Fund raising and investment management costs. a. Costs of 
organized fund raising, including financial campaigns, endowment drives, 
solicitation of gifts and bequests, and similar expenses incurred solely 
to raise capital or obtain contributions are unallowable.
    b. Costs of investment counsel and staff and similar expenses 
incurred solely to enhance income from investments are unallowable.
    c. Fund raising and investment activities shall be allocated an 
appropriate share of indirect costs under the conditions described in 
subparagraph B.3 of Appendix A to this part.
    18. Gains and losses on depreciable assets. a. (1) Gains and losses 
on sale, retirement, or other disposition of depreciable property shall 
be included in the year in which they occur as credits or charges to 
cost grouping(s) in which the depreciation applicable to such property 
was included. The amount of the gain or loss to be included as a credit 
or charge to the appropriate cost grouping(s) shall be the difference 
between the amount realized on the property and the undepreciated basis 
of the property.
    (2) Gains and losses on the disposition of depreciable property 
shall not be recognized as a separate credit or charge under the 
following conditions:
    (a) The gain or loss is processed through a depreciation account and 
is reflected in the depreciation allowable under paragraph 11 of this 
appendix.
    (b) The property is given in exchange as part of the purchase price 
of a similar item and the gain or loss is taken into account in 
determining the depreciation cost basis of the new item.
    (c) A loss results from the failure to maintain permissible 
insurance, except as otherwise provided in paragraph 22 of this 
appendix.
    (d) Compensation for the use of the property was provided through 
use allowances in lieu of depreciation in accordance with paragraph 9 of 
this appendix.
    (e) Gains and losses arising from mass or extraordinary sales, 
retirements, or other dispositions shall be considered on a case-by-case 
basis.
    b. Gains or losses of any nature arising from the sale or exchange 
of property other than the property covered in subparagraph a shall be 
excluded in computing award costs.
    19. Goods or services for personal use. Costs of goods or services 
for personal use of the organization's employees are unallowable 
regardless of whether the cost is reported as taxable income to the 
employees.
    20. Housing and personal living expenses. a. Costs of housing (e.g., 
depreciation, maintenance, utilities, furnishings, rent, etc.), housing 
allowances and personal living expenses for/of the organization's 
officers are unallowable as fringe benefit or indirect costs regardless 
of whether the cost is reported as taxable income to the employees. 
These costs are allowable as direct costs to sponsored award when 
necessary for the performance of the sponsored award and approved by 
awarding agencies.
    b. The term ``officers'' includes current and past officers and 
employees.
    21. Idle facilities and idle capacity. a. As used in this section 
the following terms have the meanings set forth below:
    (1) ``Facilities'' means land and buildings or any portion thereof, 
equipment individually or collectively, or any other tangible capital 
asset, wherever located, and whether owned or leased by the non-profit 
organization.
    (2) ``Idle facilities'' means completely unused facilities that are 
excess to the non-profit organization's current needs.
    (3) ``Idle capacity'' means the unused capacity of partially used 
facilities. It is the difference between: That which a facility could 
achieve under 100 percent operating

[[Page 161]]

time on a one-shift basis less operating interruptions resulting from 
time lost for repairs, setups, unsatisfactory materials, and other 
normal delays; and the extent to which the facility was actually used to 
meet demands during the accounting period. A multi-shift basis should be 
used if it can be shown that this amount of usage would normally be 
expected for the type of facility involved.
    (4) ``Cost of idle facilities or idle capacity'' means costs such as 
maintenance, repair, housing, rent, and other related costs, e.g., 
insurance, interest, property taxes and depreciation or use allowances.
    b. The costs of idle facilities are unallowable except to the extent 
that:
    (1) They are necessary to meet fluctuations in workload; or
    (2) Although not necessary to meet fluctuations in workload, they 
were necessary when acquired and are now idle because of changes in 
program requirements, efforts to achieve more economical operations, 
reorganization, termination, or other causes which could not have been 
reasonably foreseen. Under the exception stated in this subparagraph, 
costs of idle facilities are allowable for a reasonable period of time, 
ordinarily not to exceed one year, depending on the initiative taken to 
use, lease, or dispose of such facilities.
    c. The costs of idle capacity are normal costs of doing business and 
are a factor in the normal fluctuations of usage or indirect cost rates 
from period to period. Such costs are allowable, provided that the 
capacity is reasonably anticipated to be necessary or was originally 
reasonable and is not subject to reduction or elimination by use on 
other Federal awards, subletting, renting, or sale, in accordance with 
sound business, economic, or security practices. Widespread idle 
capacity throughout an entire facility or among a group of assets having 
substantially the same function may be considered idle facilities.
    22. Insurance and indemnification. a. Insurance includes insurance 
which the organization is required to carry, or which is approved, under 
the terms of the award and any other insurance which the organization 
maintains in connection with the general conduct of its operations. This 
paragraph does not apply to insurance which represents fringe benefits 
for employees (see subparagraphs 8.g and 8.i(2) of this appendix).
    (1) Costs of insurance required or approved, and maintained, 
pursuant to the award are allowable.
    (2) Costs of other insurance maintained by the organization in 
connection with the general conduct of its operations are allowable 
subject to the following limitations:
    (a) Types and extent of coverage shall be in accordance with sound 
business practice and the rates and premiums shall be reasonable under 
the circumstances.
    (b) Costs allowed for business interruption or other similar 
insurance shall be limited to exclude coverage of management fees.
    (c) Costs of insurance or of any provisions for a reserve covering 
the risk of loss or damage to Federal property are allowable only to the 
extent that the organization is liable for such loss or damage.
    (d) Provisions for a reserve under a self-insurance program are 
allowable to the extent that types of coverage, extent of coverage, 
rates, and premiums would have been allowed had insurance been purchased 
to cover the risks. However, provision for known or reasonably estimated 
self-insured liabilities, which do not become payable for more than one 
year after the provision is made, shall not exceed the present value of 
the liability.
    (e) Costs of insurance on the lives of trustees, officers, or other 
employees holding positions of similar responsibilities are allowable 
only to the extent that the insurance represents additional compensation 
(see subparagraph 8.g(4) of this appendix). The cost of such insurance 
when the organization is identified as the beneficiary is unallowable.
    (f) Insurance against defects. Costs of insurance with respect to 
any costs incurred to correct defects in the organization's materials or 
workmanship are unallowable.
    (g) Medical liability (malpractice) insurance. Medical liability 
insurance is an allowable cost of Federal research programs only to the 
extent that the Federal research programs involve human subjects or 
training of participants in research techniques. Medical liability 
insurance costs shall be treated as a direct cost and shall be assigned 
to individual projects based on the manner in which the insurer 
allocates the risk to the population covered by the insurance.
    (3) Actual losses which could have been covered by permissible 
insurance (through the purchase of insurance or a self-insurance 
program) are unallowable unless expressly provided for in the award, 
except:
    (a) Costs incurred because of losses not covered under nominal 
deductible insurance coverage provided in keeping with sound business 
practice are allowable.
    (b) Minor losses not covered by insurance, such as spoilage, 
breakage, and disappearance of supplies, which occur in the ordinary 
course of operations, are allowable.
    b. Indemnification includes securing the organization against 
liabilities to third persons and any other loss or damage, not 
compensated by insurance or otherwise. The Federal Government is 
obligated to indemnify the organization only to the extent expressly 
provided in the award.
    23. Interest. a. Costs incurred for interest on borrowed capital, 
temporary use of endowment funds, or the use of the non-profit

[[Page 162]]

organization's own funds, however represented, are unallowable. However, 
interest on debt incurred after September 29, 1995 to acquire or replace 
capital assets (including renovations, alterations, equipment, land, and 
capital assets acquired through capital leases), acquired after 
September 29, 1995 and used in support of Federal awards is allowable, 
provided that:
    (1) For facilities acquisitions (excluding renovations and 
alterations) costing over $10 million where the Federal Government's 
reimbursement is expected to equal or exceed 40 percent of an asset's 
cost, the non-profit organization prepares, prior to the acquisition or 
replacement of the capital asset(s), a justification that demonstrates 
the need for the facility in the conduct of federally-sponsored 
activities. Upon request, the needs justification must be provided to 
the Federal agency with cost cognizance authority as a prerequisite to 
the continued allowability of interest on debt and depreciation related 
to the facility. The needs justification for the acquisition of a 
facility should include, at a minimum, the following:
    (a) A statement of purpose and justification for facility 
acquisition or replacement.
    (b) A statement as to why current facilities are not adequate.
    (c) A statement of planned future use of the facility.
    (d) A description of the financing agreement to be arranged for the 
facility.
    (e) A summary of the building contract with estimated cost 
information and statement of source and use of funds.
    (f) A schedule of planned occupancy dates.
    (2) For facilities costing over $500,000, the non-profit 
organization prepares, prior to the acquisition or replacement of the 
facility, a lease/purchase analysis in accordance with the provisions of 
Sec. Sec. 215.30 through 215.37 of 2 CFR 215 (OMB Circular A-110), 
which shows that a financed purchase or capital lease is less costly to 
the organization than other leasing alternatives, on a net present value 
basis. Discount rates used should be equal to the non-profit 
organization's anticipated interest rates and should be no higher than 
the fair market rate available to the non-profit organization from an 
unrelated (``arm's length'') third-party. The lease/purchase analysis 
shall include a comparison of the net present value of the projected 
total cost comparisons of both alternatives over the period the asset is 
expected to be used by the non-profit organization. The cost comparisons 
associated with purchasing the facility shall include the estimated 
purchase price, anticipated operating and maintenance costs (including 
property taxes, if applicable) not included in the debt financing, less 
any estimated asset salvage value at the end of the period defined 
above. The cost comparison for a capital lease shall include the 
estimated total lease payments, any estimated bargain purchase option, 
operating and maintenance costs, and taxes not included in the capital 
leasing arrangement, less any estimated credits due under the lease at 
the end of the period defined above. Projected operating lease costs 
shall be based on the anticipated cost of leasing comparable facilities 
at fair market rates under rental agreements that would be renewed or 
reestablished over the period defined above, and any expected 
maintenance costs and allowable property taxes to be borne by the non-
profit organization directly or as part of the lease arrangement.
    (3) The actual interest cost claimed is predicated upon interest 
rates that are no higher than the fair market rate available to the non-
profit organization from an unrelated (``arm's length'') third party.
    (4) Investment earnings, including interest income, on bond or loan 
principal, pending payment of the construction or acquisition costs, are 
used to offset allowable interest cost. Arbitrage earnings reportable to 
the Internal Revenue Service are not required to be offset against 
allowable interest costs.
    (5) Reimbursements are limited to the least costly alternative based 
on the total cost analysis required under subparagraph 23.b. of this 
appendix. For example, if an operating lease is determined to be less 
costly than purchasing through debt financing, then reimbursement is 
limited to the amount determined if leasing had been used. In all cases 
where a lease/purchase analysis is performed, Federal reimbursement 
shall be based upon the least expensive alternative.
    (6) Non-profit organizations are also subject to the following 
conditions:
    (a) Interest on debt incurred to finance or refinance assets 
acquired before or reacquired after September 29, 1995, is not 
allowable.
    (b) Interest attributable to fully depreciated assets is 
unallowable.
    (c) For debt arrangements over $1 million, unless the non-profit 
organization makes an initial equity contribution to the asset purchase 
of 25 percent or more, non-profit organizations shall reduce claims for 
interest expense by an amount equal to imputed interest earnings on 
excess cash flow, which is to be calculated as follows. Annually, non-
profit organizations shall prepare a cumulative (from the inception of 
the project) report of monthly cash flows that includes inflows and 
outflows, regardless of the funding source. Inflows consist of 
depreciation expense, amortization of capitalized construction interest, 
and annual interest expense. For cash flow calculations, the annual 
inflow figures shall be divided by the number of months in the year 
(usually 12) that the building is in service for monthly amounts. 
Outflows consist of initial equity contributions, debt principal 
payments (less the pro rata share

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attributable to the unallowable costs of land) and interest payments. 
Where cumulative inflows exceed cumulative outflows, interest shall be 
calculated on the excess inflows for that period and be treated as a 
reduction to allowable interest expense. The rate of interest to be used 
to compute earnings on excess cash flows shall be the three month 
Treasury Bill closing rate as of the last business day of that month.
    (d) Substantial relocation of federally-sponsored activities from a 
facility financed by indebtedness, the cost of which was funded in whole 
or part through Federal reimbursements, to another facility prior to the 
expiration of a period of 20 years requires notice to the Federal 
cognizant agency. The extent of the relocation, the amount of the 
Federal participation in the financing, and the depreciation and 
interest charged to date may require negotiation and/or downward 
adjustments of replacement space charged to Federal programs in the 
future.
    (e) The allowable costs to acquire facilities and equipment are 
limited to a fair market value available to the non-profit organization 
from an unrelated (``arm's length'') third party.
    b. For non-profit organizations subject to ``full coverage'' under 
the Cost Accounting Standards (CAS) as defined at 48 CFR 9903.201, the 
interest allowability provisions of subparagraph a do not apply. 
Instead, these organizations' sponsored agreements are subject to CAS 
414 (48 CFR 9903.414), cost of money as an element of the cost of 
facilities capital, and CAS 417 (48 CFR 9903.417), cost of money as an 
element of the cost of capital assets under construction.
    c. The following definitions are to be used for purposes of this 
paragraph:
    (1) Re-acquired assets means assets held by the non-profit 
organization prior to September 29, 1995 that have again come to be held 
by the organization, whether through repurchase or refinancing. It does 
not include assets acquired to replace older assets.
    (2) Initial equity contribution means the amount or value of 
contributions made by non-profit organizations for the acquisition of 
the asset or prior to occupancy of facilities.
    (3) Asset costs means the capitalizable costs of an asset, including 
construction costs, acquisition costs, and other such costs capitalized 
in accordance with GAAP.
    24. Labor relations costs. Costs incurred in maintaining 
satisfactory relations between the organization and its employees, 
including costs of labor management committees, employee publications, 
and other related activities are allowable.
    25. Lobbying. a. Notwithstanding other provisions of this appendix, 
costs associated with the following activities are unallowable:
    (1) Attempts to influence the outcomes of any Federal, State, or 
local election, referendum, initiative, or similar procedure, through in 
kind or cash contributions, endorsements, publicity, or similar 
activity;
    (2) Establishing, administering, contributing to, or paying the 
expenses of a political party, campaign, political action committee, or 
other organization established for the purpose of influencing the 
outcomes of elections;
    (3) Any attempt to influence: The introduction of Federal or State 
legislation; or the enactment or modification of any pending Federal or 
State legislation through communication with any member or employee of 
the Congress or State legislature (including efforts to influence State 
or local officials to engage in similar lobbying activity), or with any 
Government official or employee in connection with a decision to sign or 
veto enrolled legislation;
    (4) Any attempt to influence: The introduction of Federal or State 
legislation; or the enactment or modification of any pending Federal or 
State legislation by preparing, distributing or using publicity or 
propaganda, or by urging members of the general public or any segment 
thereof to contribute to or participate in any mass demonstration, 
march, rally, fundraising drive, lobbying campaign or letter writing or 
telephone campaign; or
    (5) Legislative liaison activities, including attendance at 
legislative sessions or committee hearings, gathering information 
regarding legislation, and analyzing the effect of legislation, when 
such activities are carried on in support of or in knowing preparation 
for an effort to engage in unallowable lobbying.
    b. The following activities are excepted from the coverage of 
subparagraph 25.a of this appendix:
    (1) Providing a technical and factual presentation of information on 
a topic directly related to the performance of a grant, contract or 
other agreement through hearing testimony, statements or letters to the 
Congress or a State legislature, or subdivision, member, or cognizant 
staff member thereof, in response to a documented request (including a 
Congressional Record notice requesting testimony or statements for the 
record at a regularly scheduled hearing) made by the recipient member, 
legislative body or subdivision, or a cognizant staff member thereof; 
provided such information is readily obtainable and can be readily put 
in deliverable form; and further provided that costs under this section 
for travel, lodging or meals are unallowable unless incurred to offer 
testimony at a regularly scheduled Congressional hearing pursuant to a 
written request for such presentation made by the Chairman or Ranking 
Minority Member of the Committee or Subcommittee conducting such 
hearing.

[[Page 164]]

    (2) Any lobbying made unallowable by subparagraph 25.a.(3) of this 
appendix to influence State legislation in order to directly reduce the 
cost, or to avoid material impairment of the organization's authority to 
perform the grant, contract, or other agreement.
    (3) Any activity specifically authorized by statute to be undertaken 
with funds from the grant, contract, or other agreement.
    c. (1) When an organization seeks reimbursement for indirect costs, 
total lobbying costs shall be separately identified in the indirect cost 
rate proposal, and thereafter treated as other unallowable activity 
costs in accordance with the procedures of subparagraph B.3 of Appendix 
A to this part.
    (2) Organizations shall submit, as part of the annual indirect cost 
rate proposal, a certification that the requirements and standards of 
this paragraph have been complied with.
    (3) Organizations shall maintain adequate records to demonstrate 
that the determination of costs as being allowable or unallowable 
pursuant to paragraph 25 complies with the requirements of this 
Appendix.
    (4) Time logs, calendars, or similar records shall not be required 
to be created for purposes of complying with this paragraph during any 
particular calendar month when: the employee engages in lobbying (as 
defined in subparagraphs 25.a. and b. of this appendix) 25 percent or 
less of the employee's compensated hours of employment during that 
calendar month, and within the preceding five-year period, the 
organization has not materially misstated allowable or unallowable costs 
of any nature, including legislative lobbying costs. When the conditions 
described in this subparagraph are met, organizations are not required 
to establish records to support the allowability of claimed costs in 
addition to records already required or maintained. Also, when the 
conditions described in this subparagraph are met, the absence of time 
logs, calendars, or similar records will not serve as a basis for 
disallowing costs by contesting estimates of lobbying time spent by 
employees during a calendar month.
    (5) Agencies shall establish procedures for resolving in advance, in 
consultation with OMB, any significant questions or disagreements 
concerning the interpretation or application of paragraph 25. Any such 
advance resolution shall be binding in any subsequent settlements, 
audits or investigations with respect to that grant or contract for 
purposes of interpretation of this Appendix; provided, however, that 
this shall not be construed to prevent a contractor or grantee from 
contesting the lawfulness of such a determination.
    d. Executive lobbying costs. Costs incurred in attempting to 
improperly influence either directly or indirectly, an employee or 
officer of the Executive Branch of the Federal Government to give 
consideration or to act regarding a sponsored agreement or a regulatory 
matter are unallowable. Improper influence means any influence that 
induces or tends to induce a Federal employee or officer to give 
consideration or to act regarding a federally-sponsored agreement or 
regulatory matter on any basis other than the merits of the matter.
    26. Losses on other sponsored agreements or contracts. Any excess of 
costs over income on any award is unallowable as a cost of any other 
award. This includes, but is not limited to, the organization's 
contributed portion by reason of cost sharing agreements or any under-
recoveries through negotiation of lump sums for, or ceilings on, 
indirect costs.
    27. Maintenance and repair costs. Costs incurred for necessary 
maintenance, repair, or upkeep of buildings and equipment (including 
Federal property unless otherwise provided for) which neither add to the 
permanent value of the property nor appreciably prolong its intended 
life, but keep it in an efficient operating condition, are allowable. 
Costs incurred for improvements which add to the permanent value of the 
buildings and equipment or appreciably prolong their intended life shall 
be treated as capital expenditures (see paragraph 15 of this appendix).
    28. Materials and supplies costs. a. Costs incurred for materials, 
supplies, and fabricated parts necessary to carry out a Federal award 
are allowable.
    b. Purchased materials and supplies shall be charged at their actual 
prices, net of applicable credits. Withdrawals from general stores or 
stockrooms should be charged at their actual net cost under any 
recognized method of pricing inventory withdrawals, consistently 
applied. Incoming transportation charges are a proper part of materials 
and supplies costs.
    c. Only materials and supplies actually used for the performance of 
a Federal award may be charged as direct costs.
    d. Where federally-donated or furnished materials are used in 
performing the Federal award, such materials will be used without 
charge.
    29. Meetings and conferences. Costs of meetings and conferences, the 
primary purpose of which is the dissemination of technical information, 
are allowable. This includes costs of meals, transportation, rental of 
facilities, speakers' fees, and other items incidental to such meetings 
or conferences. But see paragraphs 14., Entertainment costs, and 33., 
Participant support costs of this appendix.
    30. Memberships, subscriptions, and professional activity costs. a. 
Costs of the non-

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profit organization's membership in business, technical, and 
professional organizations are allowable.
    b. Costs of the non-profit organization's subscriptions to business, 
professional, and technical periodicals are allowable.
    c. Costs of membership in any civic or community organization are 
allowable with prior approval by Federal cognizant agency.
    d. Costs of membership in any country club or social or dining club 
or organization are unallowable.
    31. Organization costs. Expenditures, such as incorporation fees, 
brokers' fees, fees to promoters, organizers or management consultants, 
attorneys, accountants, or investment counselors, whether or not 
employees of the organization, in connection with establishment or 
reorganization of an organization, are unallowable except with prior 
approval of the awarding agency.
    32. Page charges in professional journals. Page charges for 
professional journal publications are allowable as a necessary part of 
research costs, where:
    a. The research papers report work supported by the Federal 
Government; and
    b. The charges are levied impartially on all research papers 
published by the journal, whether or not by federally-sponsored authors.
    33. Participant support costs. Participant support costs are direct 
costs for items such as stipends or subsistence allowances, travel 
allowances, and registration fees paid to or on behalf of participants 
or trainees (but not employees) in connection with meetings, 
conferences, symposia, or training projects. These costs are allowable 
with the prior approval of the awarding agency.
    34. Patent costs. a. The following costs relating to patent and 
copyright matters are allowable: cost of preparing disclosures, reports, 
and other documents required by the Federal award and of searching the 
art to the extent necessary to make such disclosures; cost of preparing 
documents and any other patent costs in connection with the filing and 
prosecution of a United States patent application where title or 
royalty-free license is required by the Federal Government to be 
conveyed to the Federal Government; and general counseling services 
relating to patent and copyright matters, such as advice on patent and 
copyright laws, regulations, clauses, and employee agreements (but see 
paragraphs 37., Professional services costs, and 44., Royalties and 
other costs for use of patents and copyrights, of this appendix).
    b. The following costs related to patent and copyright matter are 
unallowable:
    (1) Cost of preparing disclosures, reports, and other documents and 
of searching the art to the extent necessary to make disclosures not 
required by the award.
    (2) Costs in connection with filing and prosecuting any foreign 
patent application, or any United States patent application, where the 
Federal award does not require conveying title or a royalty-free license 
to the Federal Government (but see paragraph 45., Royalties and other 
costs for use of patents and copyrights, of this appendix).
    35. Plant and homeland security costs. Necessary and reasonable 
expenses incurred for routine and homeland security to protect 
facilities, personnel, and work products are allowable. Such costs 
include, but are not limited to, wages and uniforms of personnel engaged 
in security activities; equipment; barriers; contractual security 
services; consultants; etc. Capital expenditures for homeland and plant 
security purposes are subject to paragraph 15., Equipment and other 
capital expenditures, of this appendix.
    36. Pre-agreement costs. Pre-award costs are those incurred prior to 
the effective date of the award directly pursuant to the negotiation and 
in anticipation of the award where such costs are necessary to comply 
with the proposed delivery schedule or period of performance. Such costs 
are allowable only to the extent that they would have been allowable if 
incurred after the date of the award and only with the written approval 
of the awarding agency.
    37. Professional services costs. a. Costs of professional and 
consultant services rendered by persons who are members of a particular 
profession or possess a special skill, and who are not officers or 
employees of the non-profit organization, are allowable, subject to 
subparagraphs b and c when reasonable in relation to the services 
rendered and when not contingent upon recovery of the costs from the 
Federal Government. In addition, legal and related services are limited 
under paragraph 10 of this appendix.
    b. In determining the allowability of costs in a particular case, no 
single factor or any special combination of factors is necessarily 
determinative. However, the following factors are relevant:
    (1) The nature and scope of the service rendered in relation to the 
service required.
    (2) The necessity of contracting for the service, considering the 
non-profit organization's capability in the particular area.
    (3) The past pattern of such costs, particularly in the years prior 
to Federal awards.
    (4) The impact of Federal awards on the non-profit organization's 
business (i.e., what new problems have arisen).
    (5) Whether the proportion of Federal work to the non-profit 
organization's total business is such as to influence the non-profit 
organization in favor of incurring the cost, particularly where the 
services rendered are not of a continuing nature and have little 
relationship to work under Federal grants and contracts.
    (6) Whether the service can be performed more economically by direct 
employment rather than contracting.

[[Page 166]]

    (7) The qualifications of the individual or concern rendering the 
service and the customary fees charged, especially on non-Federal 
awards.
    (8) Adequacy of the contractual agreement for the service (e.g., 
description of the service, estimate of time required, rate of 
compensation, and termination provisions).
    c. In addition to the factors in subparagraph 37.b of this appendix, 
retainer fees to be allowable must be supported by evidence of bona fide 
services available or rendered
    38. Publication and printing costs. a. Publication costs include the 
costs of printing (including the processes of composition, plate-making, 
press work, binding, and the end products produced by such processes), 
distribution, promotion, mailing, and general handling. Publication 
costs also include page charges in professional publications.
    b. If these costs are not identifiable with a particular cost 
objective, they should be allocated as indirect costs to all benefiting 
activities of the non-profit organization.
    c. Page charges for professional journal publications are allowable 
as a necessary part of research costs where:
    (1) The research papers report work supported by the Federal 
Government: and
    (2) The charges are levied impartially on all research papers 
published by the journal, whether or not by federally-sponsored authors.
    39. Rearrangement and alteration costs. Costs incurred for ordinary 
or normal rearrangement and alteration of facilities are allowable. 
Special arrangement and alteration costs incurred specifically for the 
project are allowable with the prior approval of the awarding agency.
    40. Reconversion costs. Costs incurred in the restoration or 
rehabilitation of the non-profit organization's facilities to 
approximately the same condition existing immediately prior to 
commencement of Federal awards, less costs related to normal wear and 
tear, are allowable.
    41. Recruiting costs. a. Subject to subparagraphs 41.b, c, and d of 
this appendix, and provided that the size of the staff recruited and 
maintained is in keeping with workload requirements, costs of ``help 
wanted'' advertising, operating costs of an employment office necessary 
to secure and maintain an adequate staff, costs of operating an aptitude 
and educational testing program, travel costs of employees while engaged 
in recruiting personnel, travel costs of applicants for interviews for 
prospective employment, and relocation costs incurred incident to 
recruitment of new employees, are allowable to the extent that such 
costs are incurred pursuant to a well-managed recruitment program. Where 
the organization uses employment agencies, costs that are not in excess 
of standard commercial rates for such services are allowable.
    b. In publications, costs of help wanted advertising that includes 
color, includes advertising material for other than recruitment 
purposes, or is excessive in size (taking into consideration recruitment 
purposes for which intended and normal organizational practices in this 
respect), are unallowable.
    c. Costs of help wanted advertising, special emoluments, fringe 
benefits, and salary allowances incurred to attract professional 
personnel from other organizations that do not meet the test of 
reasonableness or do not conform with the established practices of the 
organization, are unallowable.
    d. Where relocation costs incurred incident to recruitment of a new 
employee have been allowed either as an allocable direct or indirect 
cost, and the newly hired employee resigns for reasons within his 
control within twelve months after being hired, the organization will be 
required to refund or credit such relocation costs to the Federal 
Government.
    42. Relocation costs. a. Relocation costs are costs incident to the 
permanent change of duty assignment (for an indefinite period or for a 
stated period of not less than 12 months) of an existing employee or 
upon recruitment of a new employee. Relocation costs are allowable, 
subject to the limitation described in subparagraphs 42.b, c, and d of 
this appendix, provided that:
    (1) The move is for the benefit of the employer.
    (2) Reimbursement to the employee is in accordance with an 
established written policy consistently followed by the employer.
    (3) The reimbursement does not exceed the employee's actual (or 
reasonably estimated) expenses.
    b. Allowable relocation costs for current employees are limited to 
the following:
    (1) The costs of transportation of the employee, members of his 
immediate family and his household, and personal effects to the new 
location.
    (2) The costs of finding a new home, such as advance trips by 
employees and spouses to locate living quarters and temporary lodging 
during the transition period, up to maximum period of 30 days, including 
advance trip time.
    (3) Closing costs, such as brokerage, legal, and appraisal fees, 
incident to the disposition of the employee's former home. These costs, 
together with those described in subparagraph 42.b.(4) of this appendix, 
are limited to 8 percent of the sales price of the employee's former 
home.
    (4) The continuing costs of ownership of the vacant former home 
after the settlement or lease date of the employee's new permanent home, 
such as maintenance of buildings and grounds (exclusive of fixing up 
expenses), utilities, taxes, and property insurance.
    (5) Other necessary and reasonable expenses normally incident to 
relocation, such

[[Page 167]]

as the costs of canceling an unexpired lease, disconnecting and 
reinstalling household appliances, and purchasing insurance against loss 
of or damages to personal property. The cost of canceling an unexpired 
lease is limited to three times the monthly rental.
    c. Allowable relocation costs for new employees are limited to those 
described in subparagraph 42.b(1) and (2) of this appendix. When 
relocation costs incurred incident to the recruitment of new employees 
have been allowed either as a direct or indirect cost and the employee 
resigns for reasons within his control within 12 months after hire, the 
organization shall refund or credit the Federal Government for its share 
of the cost. However, the costs of travel to an overseas location shall 
be considered travel costs in accordance with paragraph 50 and not 
relocation costs for the purpose of this paragraph if dependents are not 
permitted at the location for any reason and the costs do not include 
costs of transporting household goods.
    d. The following costs related to relocation are unallowable:
    (1) Fees and other costs associated with acquiring a new home.
    (2) A loss on the sale of a former home.
    (3) Continuing mortgage principal and interest payments on a home 
being sold.
    (4) Income taxes paid by an employee related to reimbursed 
relocation costs.
    43. Rental costs of buildings and equipment. a. Subject to the 
limitations described in subparagraphs 43.b. through d. of this 
appendix, rental costs are allowable to the extent that the rates are 
reasonable in light of such factors as: Rental costs of comparable 
property, if any; market conditions in the area; alternatives available; 
and, the type, life expectancy, condition, and value of the property 
leased. Rental arrangements should be reviewed periodically to determine 
if circumstances have changed and other options are available.
    b. Rental costs under ``sale and lease back'' arrangements are 
allowable only up to the amount that would be allowed had the non-profit 
organization continued to own the property. This amount would include 
expenses such as depreciation or use allowance, maintenance, taxes, and 
insurance.
    c. Rental costs under ``less-than-arms-length'' leases are allowable 
only up to the amount (as explained in subparagraph 43.b. of this 
appendix) that would be allowed had title to the property vested in the 
non-profit organization. For this purpose, a less-than-arms-length lease 
is one under which one party to the lease agreement is able to control 
or substantially influence the actions of the other. Such leases 
include, but are not limited to those between divisions of a non-profit 
organization; non-profit organizations under common control through 
common officers, directors, or members; and a non-profit organization 
and a director, trustee, officer, or key employee of the non-profit 
organization or his immediate family, either directly or through 
corporations, trusts, or similar arrangements in which they hold a 
controlling interest. For example, a non-profit organization may 
establish a separate corporation for the sole purpose of owning property 
and leasing it back to the non-profit organization.
    d. Rental costs under leases which are required to be treated as 
capital leases under GAAP are allowable only up to the amount (as 
explained in subparagraph b) that would be allowed had the non-profit 
organization purchased the property on the date the lease agreement was 
executed. The provisions of Financial Accounting Standards Board 
Statement 13, Accounting for Leases, shall be used to determine whether 
a lease is a capital lease. Interest costs related to capital leases are 
allowable to the extent they meet the criteria in paragraph 23 of this 
appendix. Unallowable costs include amounts paid for profit, management 
fees, and taxes that would not have been incurred had the non-profit 
organization purchased the facility.
    44. Royalties and other costs for use of patents and copyrights. a. 
Royalties on a patent or copyright or amortization of the cost of 
acquiring by purchase a copyright, patent, or rights thereto, necessary 
for the proper performance of the award are allowable unless:
    (1) The Federal Government has a license or the right to free use of 
the patent or copyright.
    (2) The patent or copyright has been adjudicated to be invalid, or 
has been administratively determined to be invalid.
    (3) The patent or copyright is considered to be unenforceable.
    (4) The patent or copyright is expired.
    b. Special care should be exercised in determining reasonableness 
where the royalties may have arrived at as a result of less-than-arm's-
length bargaining, e.g.:
    (1) Royalties paid to persons, including corporations, affiliated 
with the non-profit organization.
    (2) Royalties paid to unaffiliated parties, including corporations, 
under an agreement entered into in contemplation that a Federal award 
would be made.
    (3) Royalties paid under an agreement entered into after an award is 
made to a non-profit organization.
    c. In any case involving a patent or copyright formerly owned by the 
non-profit organization, the amount of royalty allowed should not exceed 
the cost which would have been allowed had the non-profit organization 
retained title thereto.
    45. Selling and marketing. Costs of selling and marketing any 
products or services of the non-profit organization are unallowable 
(unless allowed under paragraph 1. of this appendix as allowable public 
relations cost.

[[Page 168]]

However, these costs are allowable as direct costs, with prior approval 
by awarding agencies, when they are necessary for the performance of 
Federal programs.
    46. Specialized service facilities. a. The costs of services 
provided by highly complex or specialized facilities operated by the 
non-profit organization, such as computers, wind tunnels, and reactors 
are allowable, provided the charges for the services meet the conditions 
of either paragraph 46 b. or c. of this appendix and, in addition, take 
into account any items of income or Federal financing that qualify as 
applicable credits under subparagraph A.5. of Appendix A to this part.
    b. The costs of such services, when material, must be charged 
directly to applicable awards based on actual usage of the services on 
the basis of a schedule of rates or established methodology that does 
not discriminate against federally-supported activities of the non-
profit organization, including usage by the non-profit organization for 
internal purposes, and is designed to recover only the aggregate costs 
of the services. The costs of each service shall consist normally of 
both its direct costs and its allocable share of all indirect costs. 
Rates shall be adjusted at least biennially, and shall take into 
consideration over/under applied costs of the previous period(s).
    c. Where the costs incurred for a service are not material, they may 
be allocated as indirect costs.
    d. Under some extraordinary circumstances, where it is in the best 
interest of the Federal Government and the institution to establish 
alternative costing arrangements, such arrangements may be worked out 
with the cognizant Federal agency.
    47. Taxes. a. In general, taxes which the organization is required 
to pay and which are paid or accrued in accordance with GAAP, and 
payments made to local governments in lieu of taxes which are 
commensurate with the local government services received are allowable, 
except for taxes from which exemptions are available to the organization 
directly or which are available to the organization based on an 
exemption afforded the Federal Government and in the latter case when 
the awarding agency makes available the necessary exemption 
certificates, special assessments on land which represent capital 
improvements, and Federal income taxes.
    b. Any refund of taxes, and any payment to the organization of 
interest thereon, which were allowed as award costs, will be credited 
either as a cost reduction or cash refund, as appropriate, to the 
Federal Government.
    48. Termination costs applicable to sponsored agreements. 
Termination of awards generally gives rise to the incurrence of costs, 
or the need for special treatment of costs, which would not have arisen 
had the Federal award not been terminated. Cost principles covering 
these items are set forth below. They are to be used in conjunction with 
the other provisions of this appendix in termination situations.
    a. The cost of items reasonably usable on the non-profit 
organization's other work shall not be allowable unless the non-profit 
organization submits evidence that it would not retain such items at 
cost without sustaining a loss. In deciding whether such items are 
reasonably usable on other work of the non-profit organization, the 
awarding agency should consider the non-profit organization's plans and 
orders for current and scheduled activity. Contemporaneous purchases of 
common items by the non-profit organization shall be regarded as 
evidence that such items are reasonably usable on the non-profit 
organization's other work. Any acceptance of common items as allocable 
to the terminated portion of the Federal award shall be limited to the 
extent that the quantities of such items on hand, in transit, and on 
order are in excess of the reasonable quantitative requirements of other 
work.
    b. If in a particular case, despite all reasonable efforts by the 
non-profit organization, certain costs cannot be discontinued 
immediately after the effective date of termination, such costs are 
generally allowable within the limitations set forth in this appendix, 
except that any such costs continuing after termination due to the 
negligent or willful failure of the non-profit organization to 
discontinue such costs shall be unallowable.
    c. Loss of useful value of special tooling, machinery, and is 
generally allowable if:
    (1) Such special tooling, special machinery, or equipment is not 
reasonably capable of use in the other work of the non-profit 
organization,
    (2) The interest of the Federal Government is protected by transfer 
of title or by other means deemed appropriate by the awarding agency, 
and
    (3) The loss of useful value for any one terminated Federal award is 
limited to that portion of the acquisition cost which bears the same 
ratio to the total acquisition cost as the terminated portion of the 
Federal award bears to the entire terminated Federal award and other 
Federal awards for which the special tooling, special machinery, or 
equipment was acquired.
    d. Rental costs under unexpired leases are generally allowable where 
clearly shown to have been reasonably necessary for the performance of 
the terminated Federal award less the residual value of such leases, if:
    (1) The amount of such rental claimed does not exceed the reasonable 
use value of the property leased for the period of the Federal award and 
such further period as may be reasonable, and
    (2) The non-profit organization makes all reasonable efforts to 
terminate, assign, settle, or otherwise reduce the cost of such

[[Page 169]]

lease. There also may be included the cost of alterations of such leased 
property, provided such alterations were necessary for the performance 
of the Federal award, and of reasonable restoration required by the 
provisions of the lease.
    e. Settlement expenses including the following are generally 
allowable:
    (1) Accounting, legal, clerical, and similar costs reasonably 
necessary for:
    (a) The preparation and presentation to the awarding agency of 
settlement claims and supporting data with respect to the terminated 
portion of the Federal award, unless the termination is for default (see 
Sec. 215.61 of 2 CFR part 215 (OMB Circular A-110)); and
    (b) The termination and settlement of subawards.
    (2) Reasonable costs for the storage, transportation, protection, 
and disposition of property provided by the Federal Government or 
acquired or produced for the Federal award, except when grantees or 
contractors are reimbursed for disposals at a predetermined amount in 
accordance with Sec. 215.32 through 215.37 of 2 CFR part 215 (OMB 
Circular A-110).
    (3) Indirect costs related to salaries and wages incurred as 
settlement expenses in subparagraphs 48.e.(1) and (2) of this appendix. 
Normally, such indirect costs shall be limited to fringe benefits, 
occupancy cost, and immediate supervision.
    f. Claims under sub awards, including the allocable portion of 
claims which are common to the Federal award, and to other work of the 
non-profit organization are generally allowable.
    An appropriate share of the non-profit organization's indirect 
expense may be allocated to the amount of settlements with 
subcontractors and/or subgrantees, provided that the amount allocated is 
otherwise consistent with the basic guidelines contained in Appendix A. 
The indirect expense so allocated shall exclude the same and similar 
costs claimed directly or indirectly as settlement expenses.
    49. Training costs. a. Costs of preparation and maintenance of a 
program of instruction including but not limited to on-the-job, 
classroom, and apprenticeship training, designed to increase the 
vocational effectiveness of employees, including training materials, 
textbooks, salaries or wages of trainees (excluding overtime 
compensation which might arise therefrom), and (i) salaries of the 
director of training and staff when the training program is conducted by 
the organization; or (ii) tuition and fees when the training is in an 
institution not operated by the organization, are allowable.
    b. Costs of part-time education, at an undergraduate or post-
graduate college level, including that provided at the organization's 
own facilities, are allowable only when the course or degree pursued is 
relative to the field in which the employee is now working or may 
reasonably be expected to work, and are limited to:
    (1) Training materials.
    (2) Textbooks.
    (3) Fees charges by the educational institution.
    (4) Tuition charged by the educational institution or, in lieu of 
tuition, instructors' salaries and the related share of indirect costs 
of the educational institution to the extent that the sum thereof is not 
in excess of the tuition which would have been paid to the participating 
educational institution.
    (5) Salaries and related costs of instructors who are employees of 
the organization.
    (6) Straight-time compensation of each employee for time spent 
attending classes during working hours not in excess of 156 hours per 
year and only to the extent that circumstances do not permit the 
operation of classes or attendance at classes after regular working 
hours; otherwise, such compensation is unallowable.
    c. Costs of tuition, fees, training materials, and textbooks (but 
not subsistence, salary, or any other emoluments) in connection with 
full-time education, including that provided at the organization's own 
facilities, at a post-graduate (but not undergraduate) college level, 
are allowable only when the course or degree pursued is related to the 
field in which the employee is now working or may reasonably be expected 
to work, and only where the costs receive the prior approval of the 
awarding agency. Such costs are limited to the costs attributable to a 
total period not to exceed one school year for each employee so trained. 
In unusual cases the period may be extended.
    d. Costs of attendance of up to 16 weeks per employee per year at 
specialized programs specifically designed to enhance the effectiveness 
of executives or managers or to prepare employees for such positions are 
allowable. Such costs include enrollment fees, training materials, 
textbooks and related charges, employees' salaries, subsistence, and 
travel. Costs allowable under this paragraph do not include those for 
courses that are part of a degree-oriented curriculum, which are 
allowable only to the extent set forth in subparagraphs b and c.
    e. Maintenance expense, and normal depreciation or fair rental, on 
facilities owned or leased by the organization for training purposes are 
allowable to the extent set forth in paragraphs 11, 27, and 50 of this 
appendix.
    f. Contributions or donations to educational or training 
institutions, including the donation of facilities or other properties, 
and scholarships or fellowships, are unallowable.
    g. Training and education costs in excess of those otherwise 
allowable under subparagraphs 49.b and c of this appendix may be allowed 
with prior approval of the awarding

[[Page 170]]

agency. To be considered for approval, the organization must demonstrate 
that such costs are consistently incurred pursuant to an established 
training and education program, and that the course or degree pursued is 
relative to the field in which the employee is now working or may 
reasonably be expected to work.
    50. Transportation costs. Transportation costs include freight, 
express, cartage, and postage charges relating either to goods 
purchased, in process, or delivered. These costs are allowable. When 
such costs can readily be identified with the items involved, they may 
be directly charged as transportation costs or added to the cost of such 
items (see paragraph 28 of this appendix). Where identification with the 
materials received cannot readily be made, transportation costs may be 
charged to the appropriate indirect cost accounts if the organization 
follows a consistent, equitable procedure in this respect.
    51. Travel costs.
    a. General. Travel costs are the expenses for transportation, 
lodging, subsistence, and related items incurred by employees who are in 
travel status on official business of the non-profit organization. Such 
costs may be charged on an actual cost basis, on a per diem or mileage 
basis in lieu of actual costs incurred, or on a combination of the two, 
provided the method used is applied to an entire trip and not to 
selected days of the trip, and results in charges consistent with those 
normally allowed in like circumstances in the non-profit organization's 
non-federally-sponsored activities.
    b. Lodging and subsistence. Costs incurred by employees and officers 
for travel, including costs of lodging, other subsistence, and 
incidental expenses, shall be considered reasonable and allowable only 
to the extent such costs do not exceed charges normally allowed by the 
non-profit organization in its regular operations as the result of the 
non-profit organization's written travel policy. In the absence of an 
acceptable, written non-profit organization policy regarding travel 
costs, the rates and amounts established under subchapter I of Chapter 
57, Title 5, United States Code (``Travel and Subsistence Expenses; 
Mileage Allowances''), or by the Administrator of General Services, or 
by the President (or his or her designee) pursuant to any provisions of 
such subchapter shall apply to travel under Federal awards (48 CFR 
31.205-46(a)).
    c. Commercial air travel. (1) Airfare costs in excess of the 
customary standard commercial airfare (coach or equivalent), Federal 
Government contract airfare (where authorized and available), or the 
lowest commercial discount airfare are unallowable except when such 
accommodations would: require circuitous routing; require travel during 
unreasonable hours; excessively prolong travel; result in additional 
costs that would offset the transportation savings; or offer 
accommodations not reasonably adequate for the traveler's medical needs. 
The non-profit organization must justify and document these conditions 
on a case-by-case basis in order for the use of first-class airfare to 
be allowable in such cases.
    (2) Unless a pattern of avoidance is detected, the Federal 
Government will generally not question a non-profit organization's 
determinations that customary standard airfare or other discount airfare 
is unavailable for specific trips if the non-profit organization can 
demonstrate either of the following: that such airfare was not available 
in the specific case; or that it is the non-profit organization's 
overall practice to make routine use of such airfare.
    d. Air travel by other than commercial carrier. Costs of travel by 
non-profit organization-owned, -leased, or -chartered aircraft include 
the cost of lease, charter, operation (including personnel costs), 
maintenance, depreciation, insurance, and other related costs. The 
portion of such costs that exceeds the cost of allowable commercial air 
travel, as provided for in subparagraph] c., is unallowable.
    e. Foreign travel. Direct charges for foreign travel costs are 
allowable only when the travel has received prior approval of the 
awarding agency. Each separate foreign trip must receive such approval. 
For purposes of this provision, ``foreign travel'' includes any travel 
outside Canada, Mexico, the United States, and any United States 
territories and possessions. However, the term ``foreign travel'' for a 
non-profit organization located in a foreign country means travel 
outside that country.
    52. Trustees. Travel and subsistence costs of trustees (or 
directors) are allowable. The costs are subject to restrictions 
regarding lodging, subsistence and air travel costs provided in 
paragraph 51 of this appendix.

  Appendix C to Part 230--Non-Profit Organizations Not Subject to This 
                                  Part

1. Advance Technology Institute (ATI), Charleston, South Carolina
2. Aerospace Corporation, El Segundo, California
3. American Institutes of Research (AIR), Washington DC
4. Argonne National Laboratory, Chicago, Illinois
5. Atomic Casualty Commission, Washington, DC
6. Battelle Memorial Institute, Headquartered in Columbus, Ohio
7. Brookhaven National Laboratory, Upton, New York
8. Charles Stark Draper Laboratory, Incorporated, Cambridge, 
Massachusetts

[[Page 171]]

9. CNA Corporation (CNAC), Alexandria, Virginia
10. Environmental Institute of Michigan, Ann Arbor, Michigan
11. Georgia Institute of Technology/Georgia Tech Applied Research 
Corporation/Georgia Tech Research Institute, Atlanta, Georgia
12. Hanford Environmental Health Foundation, Richland, Washington
13. IIT Research Institute, Chicago, Illinois
14. Institute of Gas Technology, Chicago, Illinois
15. Institute for Defense Analysis, Alexandria, Virginia
16. LMI, McLean, Virginia
17. Mitre Corporation, Bedford, Massachusetts
18. Mitretek Systems, Inc., Falls Church, Virginia
19. National Radiological Astronomy Observatory, Green Bank, West 
Virginia
20. National Renewable Energy Laboratory, Golden, Colorado
21. Oak Ridge Associated Universities, Oak Ridge, Tennessee
22. Rand Corporation, Santa Monica, California
23. Research Triangle Institute, Research Triangle Park, North Carolina
24. Riverside Research Institute, New York, New York
25. South Carolina Research Authority (SCRA), Charleston, South Carolina
26. Southern Research Institute, Birmingham, Alabama
27. Southwest Research Institute, San Antonio, Texas
28. SRI International, Menlo Park, California
29. Syracuse Research Corporation, Syracuse, New York
30. Universities Research Association, Incorporated (National 
Acceleration Lab), Argonne, Illinois
31. Urban Institute, Washington DC
32. Non-profit insurance companies, such as Blue Cross and Blue Shield 
Organizations
33. Other non-profit organizations as negotiated with awarding agencies

                        PARTS 231-299 [RESERVED]

[[Page 173]]

    Subtitle B--Federal Agency Regulations for Grants and Agreements

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901             Nonprocurement Debarment and Suspension.....         177
1326            Nonprocurement Debarment and Suspension.....         181
3700            Nonprocurement Debarment and Suspension.....         187

[[Page 175]]



                    CHAPTER IX--DEPARTMENT OF ENERGY




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Part                                                                Page
901             Nonprocurement debarment and suspension.....         177

[[Page 177]]



PART 901_NONPROCUREMENT DEBARMENT AND SUSPENSION--Table of Contents




Sec.
901.10 What does this part do?
901.20 Does this part apply to me?
901.30 What policies and procedures must I follow?

                            Subpart A_General

901.137 Who in the Department of Energy may grant an exception to let an 
          excluded person participate in a covered transaction?

                     Subpart B_Covered Transactions

901.220 What contracts and subcontracts, in addition to those listed in 
          2 CFR 180.220, are covered transactions?

    Subpart C_Responsibilities of Participants Regarding Transactions

901.332 What methods must I use to pass requirements down to 
          participants at lower tiers with whom I intend to do business?

    Subpart D_Responsibilities of Federal Agency Officials Regarding 
                              Transactions

901.437 What method do I use to communicate to a participant the 
          requirements described in the OMB guidance at 2 CFR 180.435?

Subpart E-H [Reserved]

                          Subpart I_Definitions

901.930 Debarring official (Department of Energy supplement to 
          government-wide definition at 2 CFR 180.935).
901.950 Federal agency (Department of Energy supplement to government-
          wide definition at 2 CFR 180.910).
901.1010 Suspending official (Department of Energy supplement to 
          government-wide definition at 2 CFR 180.1010).

Subpart J [Reserved]

    Authority: Sec. 2455, Pub. L. 103-355, 108 Stat. 3327 (31 U.S.C. 
6101 note); E.O. 12549 (3 CFR, 1986 Comp., p. 189); E.O. 12689 (3 CFR, 
1989 Comp., p. 235); 42 U.S.C. 7101 et seq.; 50 U.S.C. 2401 et seq.

    Source: 71 FR 70459, Dec. 5, 2006, unless otherwise noted.



Sec. 901.10  What does this part do?

    This part adopts the Office of Management and Budget (OMB) guidance 
in subparts A through I of 2 CFR part 180, as supplemented by this part, 
as the DOE policies and procedures for nonprocurement debarment and 
suspension. It thereby gives regulatory effect for DOE to the OMB 
guidance as supplemented by this part. This part satisfies the 
requirements in section 3 of Executive Order 12549, ``Debarment and 
Suspension'' (3 CFR 1986 Comp., p. 189); Executive Order 12689, 
``Debarment and Suspension'' (3 CFR 1989 Comp., p. 235); and section 
2455 of the Federal Acquisition Streamlining Act of 1994, Pub. L. 103-
355 (31 U.S.C. 6101 note).



Sec. 901.20  Does this part apply to me?

    This part and, through this part, pertinent portions of the OMB 
guidance in subparts A through I of 2 CFR part 180 (see table at 2 CFR 
180.100(b)) apply to you if you are a--
    (a) Participant or principal in a ``covered transaction'' (see 
subpart B of 2 CFR part 180 and the definition of ``nonprocurement 
transaction'' at 2 CFR 180.970);
    (b) Respondent in a DOE suspension or debarment action;
    (c) DOE debarment or suspension official; and
    (d) DOE grants officer, agreements officer, or other official 
authorized to enter into any type of nonprocurement transaction that is 
a covered transaction.



Sec. 901.30  What policies and procedures must I follow?

    The DOE policies and procedures that you must follow are the 
policies and procedures specified in each applicable section of the OMB 
guidance in subparts A through I of 2 CFR part 180 and any supplemental 
policies and procedures set forth in this part.

[[Page 178]]



                            Subpart A_General



Sec. 901.137  Who in the Department of Energy may grant an exception to let an excluded person participate in a covered transaction?

    The Director, Office of Procurement and Assistance Management, DOE, 
for DOE actions, and the Director, Office of Acquisition and Supply 
Management, NNSA, for NNSA actions, may grant an exception permitting an 
excluded person to participate in a particular covered transaction. If 
the Director, Office of Procurement and Assistance Management, DOE, for 
DOE actions, and Director, Office of Acquisition and Supply Management, 
NNSA, for NNSA actions, grants an exception, the exception must be in 
writing and state the reason(s) for deviating from the government-wide 
policy in Executive Order 12549.



                     Subpart B_Covered Transactions



Sec. 901.220  What contracts and subcontracts, in addition to those listed in 2 CFR 180.220, are covered transactions?

    Although the OMB guidance at 2 CFR180.220(c) allows a Federal agency 
to do so (also see optional lower tier coverage in the figure in the 
Appendix to 2 CFR part 180), DOE does not extend coverage of 
nonprocurement suspension and debarment requirements beyond first-tier 
procurement contracts under a covered nonprocurement transaction.



    Subpart C_Responsibilities of Participants Regarding Transactions



Sec. 901.332  What methods must I use to pass requirements down to participants at lower tiers with whom I intend to do business?

    You, as a participant, must include a term or condition in lower-
tier transactions requiring lower-tier participants to comply with 
subpart C of the OMB guidance in 2 CFR part 180, as supplemented by this 
subpart.



    Subpart D_Responsibilities of Federal Agency Officials Regarding 
                              Transactions



Sec. 901.437  What method do I use to communicate to a participant the requirements described in the OMB guidance at 2 CFR 180.435?

    To communicate to a participant the requirements described in 2 CFR 
180.435 of the OMB guidance, you must include a term or condition in the 
transaction that requires the participant's compliance with subpart C of 
2 CFR part 180, as supplemented by subpart C of this part, and requires 
the participant to include a similar term or condition in lower-tier 
covered transactions.

Subpart E-H [Reserved]



                          Subpart I_Definitions



Sec. 901.930  Debarring official (Department of Energy supplement to government-wide definition at 2 CFR 180.930).

    The Debarring Official for the Department of Energy, exclusive of 
NNSA, is the Director, Office of Procurement and Assistance Management, 
DOE. The Debarring Official for NNSA is the Director, Office of 
Acquisition and Supply Management, NNSA.



Sec. 901.950  Federal agency (Department of Energy supplement to 

government-wide definition at 2 CFR 180.950).

    DOE means the U.S. Department of Energy, including the NNSA.
    NNSA means the National Nuclear Security Administration.



Sec. 901.1010  Suspending official (Department of Energy supplement to government-wide definition at 2 CFR 180.1010).

    The suspending official for the Department of Energy, exclusive of 
NNSA, is the Director, Office of Procurement and Assistance Management, 
DOE. The suspending official for NNSA is the Director, Office of 
Acquisition and Supply Management, NNSA.

Subpart J [Reserved]

[[Page 179]]



                  CHAPTER XIII--DEPARTMENT OF COMMERCE




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Part                                                                Page
1326            Nonprocurement debarment and suspension.....         181

[[Page 181]]



PART 1326_NONPROCUREMENT DEBARMENT AND SUSPENSION--Table of Contents




Sec.
1326.10 What does this part do?
1326.20 Does this part apply to me?
1326.30 What policies and procedures must I follow?

                            Subpart A_General

1326.137 Who in the Department of Commerce may grant an exception to let 
          an excluded person participate in a covered transaction?

                     Subpart B_Covered Transactions

1326.215 Which nonprocurement transactions, in addition to those listed 
          in 2 CFR 180.215, are not covered transactions?
1326.220 What contracts and subcontracts, in addition to those listed in 
          2 CFR 180.220, are covered transactions?

    Subpart C_Responsibilities of Participants Regarding Transactions

1326.332 What methods must I use to pass requirements down to 
          participants at lower tiers with whom I intend to do business?

    Subpart D_Responsibilities of Federal Agency Officials Regarding 
                              Transactions

1326.437 What method do I use to communicate to a participant the 
          requirements described in the OMB guidance at 2 CFR 180.435?

Subparts E-H [Reserved]

                          Subpart I_Definitions

1326.970 Nonprocurement transaction (Department of Commerce supplement 
          to government-wide definition at 2 CFR 180.970).

Subpart J [Reserved]

    Authority: 5 U.S.C. 301; Sec. 2455, Pub. L. 103-355, 108 Stat. 3327; 
E.O. 12549, 3 CFR, 1986 Comp., p. 189; E.O. 12689, 3 CFR, 1989 Comp., p. 
235.

    Source: 71 FR 76574, Dec. 21, 2006, unless otherwise noted.



Sec. 1326.10  What does this part do?

    This part adopts the Office of Management and Budget (OMB) guidance 
in Subparts A through I of 2 CFR part 180, as supplemented by this part, 
as the Department of Commerce policies and procedures for nonprocurement 
debarment and suspension. It thereby gives regulatory effect to the OMB 
guidance as supplemented by this part. This part satisfies the 
requirements in section 3 of Executive Order 12549, ``Debarment and 
Suspension'' (3 CFR 1986 Comp., p. 189), Executive Order 12689, 
``Debarment and Suspension'' (3 CFR 1989 Comp., p. 235) and 31 U.S.C. 
6101 note (Section 2455, Public Law 103-355, 108 Stat. 3327).



Sec. 1326.20  Does this part apply to me?

    This part and, through this part, pertinent portions of the OMB 
guidance in Subparts A through I of 2 CFR part 180 (see table at 2 CFR 
180.100(b)) apply to you if you are a--
    (a) Participant or principal in a ``covered transaction'' (see 
Subpart B of 2 CFR part 180 and the definition of ``nonprocurement 
transaction'' at 2 CFR 180.970, as supplemented by by Subpart B and 
Sec. 1326.970 of this part).
    (b) Respondent in a Department of Commerce suspension or debarment 
action.
    (c) Department of Commerce debarment or suspension official;
    (d) Department of Commerce grants officer, agreements officer, or 
other official authorized to enter into any type of nonprocurement 
transaction that is a covered transaction;



Sec. 1326.30  What policies and procedures must I follow?

    The Department of Commerce policies and procedures that you must 
follow are the policies and procedures specified in each applicable 
section of the OMB guidance in Subparts A through I of 2 CFR part 180, 
as that section is supplemented by the section in this part with the 
same section number. The contracts that are covered transactions, for 
example, are specified by section 220 of the OMB guidance (i.e., 2 CFR 
180.220) as supplemented by section 220 in this part (i.e., Sec. 
1326.220). For any section of OMB guidance in Subparts A through I of 2 
CFR 180 that has no corresponding section in this part, Department of 
Commerce policies and procedures are those in the OMB guidance.

[[Page 182]]



                            Subpart A_General



Sec. 1326.137  Who in the Department of Commerce may grant an exception to 

let an excluded person participate in a covered transaction?

    Within the Department of Commerce, the Secretary of Commerce or 
designee has the authority to grant an exception to let an excluded 
person participate in a covered transaction, as provided in the OMB 
guidance at 2 CFR 180.135.



                     Subpart B_Covered Transactions



Sec. 1326.215  Which nonprocurement transactions, in addition to those listed 

in 2 CFR 180.215, are not covered transactions?

    (a) For purposes of the Department of Commerce, a transaction that 
the Department needs to respond to a national or agency-recognized 
emergency or disaster includes the Fisherman's Contingency Fund.
    (b) For purposes of the Department of Commerce, an incidental 
benefit that results from ordinary governmental operations includes:
    (1) Export Promotion, Trade Information and Counseling, and Trade 
policy.
    (2) Geodetic Surveys and Services (Specialized Services).
    (3) Fishery Products Inspection Certification.
    (4) Standard Reference Materials.
    (5) Calibration, Measurement, and Testing.
    (6) Critically Evaluated Data (Standard Reference Data).
    (7) Phoenix Data System.
    (8) The sale or provision of products, information, and services to 
the general public.
    (c) For purposes of the Department of Commerce, any other 
transaction if the application of an exclusion to the transaction is 
prohibited by law includes:
    (1) The Administration of the Anti-dumping and Countervailing Duty 
Statutes.
    (2) The export Trading Company Act Certification of Review Program.
    (3) Trade Adjustment Assistance Program Certification.
    (4) Foreign Trade Zones Act of 1934, as amended.
    (5) Statutory Import Program.



Sec. 1326.220  What contracts and subcontracts, in addition to those listed 

in 2 CFR 180.220, are covered transactions?

    In addition to the contracts covered under 2 CFR 180.220(b) of the 
OMB guidance, this part applies to a subcontract that is awarded by a 
participant in a procurement transaction covered under 2 CFR 180.220(a), 
if the amount of the subcontract exceeds or is expected to exceed 
$25,000. This extends the coverage of the Department of Commerce 
nonprocurement suspension and debarment requirements to one additional 
tier of contracts under covered nonprocurement transactions, as 
permitted under the OMB guidance at 2 CFR 180.220(c) (see optional lower 
tier coverage in the figure in the Appendix to 2 CFR part 180).



    Subpart C_Responsibilities of Participants Regarding Transactions



Sec. 1326.332  What methods must I use to pass requirements down to 

participants at lower tiers with whom I intend to do business?

    You as a participant must include a term or condition in lower-tier 
transactions requiring lower-tier participants to comply with Subpart C 
of the OMB guidance in 2 CFR Part 180, as supplemented by this subpart.



    Subpart D_Responsibilities of Federal Agency Officials Regarding 
                              Transactions



Sec. 1326.437  What method do I use to communicate to a participant the 

requirements described in the OMB guidance at 2 CFR 180.435?

    To communicate to a participant the requirements described in 2 CFR 
180.435 of the OMB guidance, you must include a term or condition in the 
transaction that requires the participant's compliance with subpart C of 
2 CFR part 180, as supplemented by Subpart C of this part, and requires 
the participant to include a similar term or condition in lower-tier 
covered transactions.

Subparts E-H [Reserved]

[[Page 183]]



                          Subpart I_Definitions



Sec. 1326.970  Nonprocurement transaction (Department of Commerce supplement 

to government-wide definition at 2 CFR 180.970).

    For purposes of the Department of Commerce, nonprocurement 
transaction includes the following:
    (a) Joint project Agreements under 15 U.S.C. 1525.
    (b) Cooperative research and development agreements.
    (c) Joint statistical agreements.
    (d) Patent licenses under 35 U.S.C. 207.
    (e) NTIS joint ventures, 15 U.S.C. 3704b.

Subpart J [Reserved]

    Effective Date Note: At 71 FR 76574, Dec. 21, 2006, Chapter 13, 
consisting of part 1326 was added, effective Jan. 22, 2007.

[[Page 185]]



                       CHAPTER XXXVII--PEACE CORPS




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Part                                                                Page
3700            Nonprocurement debarment and suspension.....         187

[[Page 187]]



PART 3700_NONPROCUREMENT DEBARMENT AND SUSPENSION--Table of Contents




Sec.
3700.10 What does this part do?
3700.20 Does this part apply to me?
3700.30 What policies and procedures must I follow?
3700.137 Who in the Peace Corps may grant an exception to let an 
          excluded person participate in a covered transaction?
3700.220 What contracts and subcontracts, in addition to those listed in 
          2 CFR 180.220, are covered transactions?
3700.332 What methods must I use to pass requirements down to 
          participants at lower tiers with whom I intend to do business?
3700.437 What method do I use to communicate to a participant the 
          requirements described in the OMB guidance at 2 CFR 180.435?

    Authority: Sec. 2455, Pub. L. 103-355, 108 Stat. 3327; E.O. 12549, 3 
CFR, 1986 Comp., p. 189; E.O. 12689, 3 CFR, 1989 Comp., p. 235; 22 
U.S.C. 2503(b).

    Source: 71 FR 67431, Nov. 22, 2006, unless otherwise noted.



Sec. 3700.10  What does this part do?

    This part adopts the Office of Management and Budget (OMB) guidance 
in Subparts A through I of 2 CFR part 180, as supplemented by this part, 
as the Peace Corps policies and procedures for nonprocurement debarment 
and suspension. It thereby gives regulatory effect for the Peace Corps 
to the OMB guidance as supplemented by this part. This part satisfies 
the requirements in section 3 of Executive Order 12549, ``Debarment and 
Suspension'' (3 CFR 1986 Comp., p. 189), Executive Order 12689, 
``Debarment and Suspension'' (3 CFR 1989 Comp., p. 235) and 31 U.S.C. 
6101 note (Section 2455, Pub. L. 103-355, 108 Stat. 3327).



Sec. 3700.20  Does this part apply to me?

    This part and, through this part, pertinent portions of the OMB 
guidance in Subparts A through I of 2 CFR part (see table at 2 CFR 
180.100(b)) apply to you if you are a--
    (a) Participant or principal in a ``covered transaction'' (see 
Subpart B of 2 CFR part 180 and the definition of ``nonprocurement 
transaction'' at 2 CFR 180.970);
    (b) Respondent in a Peace Corps suspension or debarment action;
    (c) Peace Corps debarment or suspension official; or
    (d) Peace Corps grants officer, agreements officer, or other 
official authorized to enter into any type of nonprocurement transaction 
that is a covered transaction.



Sec. 3700.30  What policies and procedures must I follow?

    The Peace Corps policies and procedures that you must follow are the 
policies and procedures specified in each applicable section of the OMB 
guidance in Subparts A through I of 2 CFR part 180, as that section is 
supplemented by the section in this part with the same section number. 
The contracts that are covered transactions, for example, are specified 
by section 220 of the OMB guidance (i.e., 2 CFR 180.220) as supplemented 
by section 220 in this part (i.e., Sec. 3700.220). For any section of 
OMB guidance in Subparts A through I of 2 CFR 180 that has no 
corresponding section in this part, Peace Corps policies and procedures 
are those in the OMB guidance.



Sec. 3700.137  Who in the Peace Corps may grant an exception to let an 

excluded person participate in a covered transaction?

    The Director of the Peace Corps has the authority to grant an 
exception to let an excluded person participate in a covered 
transaction, as provided in the OMB guidance at 2 CFR 180.135.



Sec. 3700.220  What contracts and subcontracts, in addition to those listed 

in 2 CFR 180.220, are covered transactions?

    Although the OMB guidance at 2 CFR 180.220(c) allows a Federal 
agency to do so (also see optional lower tier coverage in the figure in 
the Appendix to 2 CFR part 180), Peace Corps does not extend coverage of 
nonprocurement suspension and debarment requirements beyond first-tier 
procurement contracts under a covered nonprocurement transaction.

[[Page 188]]



Sec. 3700.332  What methods must I use to pass requirements down to 

participants at lower tiers with whom I intend to do business?

    You as a participant must include a term or condition in lower-tier 
transactions requiring lower-tier participants to comply with Subpart C 
of the OMB guidance in 2 CFR part 180.



Sec. 3700.437  What method do I use to communicate to a participant the 

requirements described in the OMB guidance at 2 CFR 180.435?

    To communicate to a participant the requirements described in 2 CFR 
180.435 of the OMB guidance, you as an agency official must include a 
term or condition in the transaction that requires the participant's 
compliance with subpart C of 2 CFR part 180, and requires the 
participant to include a similar term or condition in lower-tier covered 
transactions.

    Effective Date Note: At 71 FR 67431, Nov. 22, 2006, Chapter 37, 
consisting of part 3700 was added, effective Jan. 8, 2007.


[[Page 189]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 191]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 2007)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
        IV  Miscellaneous Agencies (Parts 400--500)

                    Title 2--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 100-199)
        II  Office of Management and Budget Circulars and Guidance 
                (200-299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
        IX  Department of Energy (Part 901)
    XXXVII  Peace Corps (Part 3700)

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--99)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Part 2100)

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       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
        XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Part 3201)
     XXIII  Department of Energy (Part 3301)
      XXIV  Federal Energy Regulatory Commission (Part 3401)
       XXV  Department of the Interior (Part 3501)
      XXVI  Department of Defense (Part 3601)
    XXVIII  Department of Justice (Part 3801)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Part 4301)
      XXXV  Office of Personnel Management (Part 4501)
        XL  Interstate Commerce Commission (Part 5001)
       XLI  Commodity Futures Trading Commission (Part 5101)
      XLII  Department of Labor (Part 5201)
     XLIII  National Science Foundation (Part 5301)
       XLV  Department of Health and Human Services (Part 5501)
      XLVI  Postal Rate Commission (Part 5601)
     XLVII  Federal Trade Commission (Part 5701)
    XLVIII  Nuclear Regulatory Commission (Part 5801)
         L  Department of Transportation (Part 6001)
       LII  Export-Import Bank of the United States (Part 6201)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Part 6401)
        LV  National Endowment for the Arts (Part 6501)
       LVI  National Endowment for the Humanities (Part 6601)
      LVII  General Services Administration (Part 6701)
     LVIII  Board of Governors of the Federal Reserve System (Part 
                6801)
       LIX  National Aeronautics and Space Administration (Part 
                6901)
        LX  United States Postal Service (Part 7001)
       LXI  National Labor Relations Board (Part 7101)
      LXII  Equal Employment Opportunity Commission (Part 7201)
     LXIII  Inter-American Foundation (Part 7301)
       LXV  Department of Housing and Urban Development (Part 
                7501)
      LXVI  National Archives and Records Administration (Part 
                7601)
     LXVII  Institute of Museum and Library Services (Part 7701)
      LXIX  Tennessee Valley Authority (Part 7901)
      LXXI  Consumer Product Safety Commission (Part 8101)
    LXXIII  Department of Agriculture (Part 8301)

[[Page 193]]

     LXXIV  Federal Mine Safety and Health Review Commission (Part 
                8401)
     LXXVI  Federal Retirement Thrift Investment Board (Part 8601)
    LXXVII  Office of Management and Budget (Part 8701)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Part 
                9701)
      XCIX  Department of Defense Human Resources Management and 
                Labor Relations Systems (Department of Defense--
                Office of Personnel Management) (Part 9901)

                      Title 6--Homeland Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 0--99)

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)

[[Page 194]]

       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy Policy and New Uses, Department of 
                Agriculture (Parts 2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  Cooperative State Research, Education, and Extension 
                Service, Department of Agriculture (Parts 3400--
                3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)

[[Page 195]]

        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XIII  Nuclear Waste Technical Review Board (Parts 1303--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Part 1800)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)

[[Page 196]]

        IV  Emergency Steel Guarantee Loan Board, Department of 
                Commerce (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board, 
                Department of Commerce (Parts 500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--499)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

[[Page 197]]

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  Bureau of Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Bureau of Immigration and Customs Enforcement, 
                Department of Homeland Security (Parts 400--599)

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Employment Standards Administration, Department of 
                Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training, Department of Labor 
                (Parts 1000--1099)

[[Page 198]]

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board Regulations (Parts 
                900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)

[[Page 199]]

        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Part 1200)

[[Page 200]]

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--899)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)
        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)

[[Page 201]]

     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Minerals Management Service, Department of the 
                Interior (Parts 200--299)
       III  Board of Surface Mining and Reclamation Appeals, 
                Department of the Interior (Parts 300--399)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)

[[Page 202]]

        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Corps of Engineers, Department of the Army (Parts 
                200--399)
        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
        XI  National Institute for Literacy (Parts 1100--1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)

[[Page 203]]

         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Part 1501)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)
       III  Copyright Royalty Board, Library of Congress (Parts 
                301--399)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--499)
         V  Under Secretary for Technology, Department of Commerce 
                (Parts 500--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--99)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Rate Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)

          Title 41--Public Contracts and Property Management

            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)

[[Page 204]]

        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System
       201  Federal Information Resources Management Regulation 
                (Parts 201-1--201-99) [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--499)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 200--499)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10010)

[[Page 205]]

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)

[[Page 206]]

       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Defense Acquisition Regulations System, Department of 
                Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  United States Agency for International Development 
                (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management, Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees' 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)

[[Page 207]]

        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        35  [Reserved]
        44  Federal Emergency Management Agency (Parts 4400--4499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399)
        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  General Services Administration Board of Contract 
                Appeals (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Pipeline and Hazardous Materials Safety 
                Administration, Department of Transportation 
                (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation [Reserved]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

[[Page 208]]

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

                      CFR Index and Finding Aids

            Subject/Agency Index
            List of Agency Prepared Indexes
            Parallel Tables of Statutory Authorities and Rules
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR

[[Page 209]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 2007)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development, United      22, II
     States
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            5, LXXIII
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Cooperative State Research, Education, and      7, XXXIV
       Extension Service
  Economic Research Service                       7, XXXVII
  Energy, Office of                               7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX

[[Page 210]]

Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase From People Who Are
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Civil Rights, Commission on                       45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               44, IV
  Census Bureau                                   15, I
  Economic Affairs, Under Secretary               37, V
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV, VI
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology, Under Secretary for                 37, V
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Product Safety Commission                5, LXXI; 16, II
Cooperative State Research, Education, and        7, XXXIV
     Extension Service
Copyright Office                                  37, II
Copyright Royalty Board                           37, III
Corporation for National and Community Service    45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    28, VIII
     for the District of Columbia
Customs and Border Protection Bureau              19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A; 
                                                  40, VII

[[Page 211]]

  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Acquisition Regulations System          48, II
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
District of Columbia, Court Services and          28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Under Secretary                 37, V
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             5, XXIII; 10, II, III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   5, LIV; 40, I, IV, VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                5, III, LXXVII; 14, VI; 
                                                  48, 99
  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II

[[Page 212]]

  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       11, I
Federal Emergency Management Agency               44, I
  Federal Acquisition Regulation                  48, 44
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority, and General    5, XIV; 22, XIV
     Counsel of the Federal Labor Relations 
     Authority
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Fishery Conservation and Management               50, VI
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102

[[Page 213]]

  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Accountability Office                  4, I
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          5, XLV; 45, Subtitle A
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Defense Acquisition Regulations System          48, 2
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V; 42, I
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  6, I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection Bureau            19, I
  Federal Emergency Management Agency             44, I
  Immigration and Customs Enforcement Bureau      19, IV
  Immigration and Naturalization                  8, I
  Transportation Security Administration          49, XII
Housing and Urban Development, Department of      5, LXV; 24, Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Human Development Services, Office of             45, XIII
Immigration and Customs Enforcement Bureau        19, IV
Immigration and Naturalization                    8, I
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V; 42, I
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
   Archives and Records Administration
[[Page 214]]

Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  Minerals Management Service                     30, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            43, Subtitle A
  Surface Mining and Reclamation Appeals, Board   30, III
       of
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Fishing and Related Activities      50, III
International Investment, Office of               31, VIII
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                5, XXVIII; 28, I, XI; 40, 
                                                  IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  5, XLII
  Benefits Review Board                           20, VII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Public Contracts                                41, 50

[[Page 215]]

  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
  Copyright Royalty Board                         37, III
Local Television Loan Guarantee Board             7, XX
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II
Micronesian Status Negotiations, Office for       32, XXVII
Mine Safety and Health Administration             30, I
Minerals Management Service                       30, II
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
National Aeronautics and Space Administration     5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   45, XII, XXV
National Archives and Records Administration      5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Bureau of Standards                      15, II
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           21, III
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Standards and Technology    15, II
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV, VI
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III
     Administration
National Transportation Safety Board              49, VIII
National Weather Service                          15, IX
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52

[[Page 216]]

Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Offices of Independent Counsel                    28, VI
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Pipeline and Hazardous Materials Safety           49, I
     Administration
Postal Rate Commission                            5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Procurement and Property Management, Office of    7, XXXII
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Regional Action Planning Commissions              13, V
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                17, II
Selective Service System                          32, XVI
Small Business Administration                     13, I
Smithsonian Institution                           36, V
Social Security Administration                    20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining and Reclamation Appeals, Board of  30, III
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII

[[Page 217]]

Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV
Technology, Under Secretary for                   37, V
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     5, L
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 49, V
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               5, XXI; 12, XV; 17, IV; 
                                                  31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection Bureau            19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Law Enforcement Training Center         31, VII
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  International Investment, Office of             31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 219]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations that were 
made by documents published in the Federal Register since Jan. 1, 2004, 
are enumerated in the following list. Entries indicate the nature of the 
changes effected. Page numbers refer to Federal Register pages. The user 
should consult the entries for chapters and parts as well as sections 
for revisions.

                                  2004

2 CFR
                                                                   69 FR
                                                                    Page
Title 2 Established................................................26280
Subtitle A Established.............................................26280
1 Added............................................................26280
Chapter II Established.............................................26280
215 Added..........................................................26281
Subtitle B Established.............................................26280

                                  2005

2 CFR
                                                                   70 FR
                                                                    Page
Subtitle A
1.205 Revised......................................................51863
1.215 Revised......................................................51863
Chapter I
100--199 (Chapter I) Established; heading added; interim...........51865
180 Added; interim.................................................51865
Chapter II
215.5 Amended......................................................51880
215.13 Revised; interim............................................51879
215.25 (c)(6) and (e) amended......................................51880
215.27 Revised.....................................................51881
215.29 (b) revised; (c) amended....................................51881
215.36 (c) amended; (d) redesignated as (e); new (d) added.........51881
215.72 (b) amended.................................................51881
215 Appendix A amended; interim....................................51879
220 Added..........................................................51881
225 Added..........................................................51910
230 Added..........................................................51927

                                  2006

2 CFR
                                                                   71 FR
                                                                    Page
Subtitle A
Chapter I
180.25 (b)(4) removed; (b)(5) redesignated as new (b)(4); (c)(2) 
        revised; (c)(7) added......................................66432
180.220 (c)(1) and (2) revised.....................................66432
180.300 (b) revised................................................66432
Subtitle B
Chapter IX
Chapter IX Established.............................................70459
901 Added..........................................................70459
Chapter XIII
Chapter XIII Established; eff. 1-22-07.............................76574
1326 Added; eff. 1-22-07...........................................76574
Chapter XXXVII
Chapter XXXVII Established; eff. 1-8-07............................67431
3700 Added; eff. 1-8-07............................................67431


                                  [all]
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