[Federal Register Volume 59, Number 221 (Thursday, November 17, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-28368]


[[Page Unknown]]

[Federal Register: November 17, 1994]


_______________________________________________________________________

Part III





Department of Education





_______________________________________________________________________



34 CFR Parts 75 and 76




Direct Grant Programs and State-Administered Programs; Final Rule
=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF EDUCATION

34 CFR Parts 75 and 76

RIN 1880-AA50

 
Direct Grant Programs and State-Administered Programs

AGENCY: Department of Education.

ACTION: Final regulations.

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

SUMMARY: The Secretary amends the Department's regulations on direct 
grant programs and State-administered programs to clarify the 
requirements and procedures for establishing and applying indirect cost 
rates under programs administered by the Department.

EFFECTIVE DATE: These regulations take effect on December 19, 1994.

FOR FURTHER INFORMATION CONTACT: Glenn Riley, U.S. Department of 
Education, 400 Maryland Avenue, S.W., Room 3636, ROB-3, Washington, 
D.C. 20202-4700. Telephone: (202) 708-7640. Individuals who use a 
telecommunications device for the deaf (TDD) may call the Federal 
Information Relay Service (FIRS) at 1-800-877-8339 between 8 a.m. and 8 
p.m., Eastern time, Monday through Friday.

SUPPLEMENTARY INFORMATION: On January 14, 1994, the Secretary published 
in the Federal Register (59 FR 2480) a notice of proposed rulemaking 
(NPRM) proposing to revise certain sections in the Education Department 
General Administrative Regulations (EDGAR) on indirect cost rates. 
These proposed revisions were intended to improve the administration of 
discretionary grants and to clarify for grantees the procedures and 
requirements of the Department.
    The proposed regulations addressed a number of problems in this 
area of grants administration, including the computation and use of 
restricted indirect cost rates in programs with a statutory supplement-
not-supplant requirement, the definition of a training grant, and the 
use of indirect costs as matching or cost-sharing.
    Significant differences between the NPRM and this final regulation 
include changes to Secs. 75.561 and 76.561 to allow State educational 
agencies to approve multi-year indirect cost rates for local 
educational agencies, the deletion of research training programs from 
the definition of a training grant in Sec. 75.562, and the inclusion of 
a definition of ``modified total direct cost base,'' also in 
Sec. 75.562.

Analysis of Comments and Changes

    In response to the Secretary's invitation in the NPRM, 21 parties 
submitted comments on the proposed regulations. An analysis of the 
comments and of the resulting changes in the regulations follows.
    Substantive issues are discussed under the section of the 
regulations to which they pertain. Technical and other minor changes--
and suggested changes the Secretary is not legally authorized to make 
under the applicable statutory authority--are not addressed.

Section 75.560  General Indirect Cost Rates; Exceptions

    Since the Department recently adopted the revised OMB Circular A-
110 as 34 CFR Part 74, references in this section have been revised to 
be consistent with the new Part 74.
    Comments: Several parties commented on the requirement that a 
recipient have a current indirect cost rate agreement to charge 
indirect costs to a grant, asking what should happen if a recipient has 
submitted an indirect cost proposal but has not received approval from 
the Department. One suggested that the Department should assign an 
indirect cost rate based on the applicant's last approved rate and 
another thought the applicant should be allowed to use its proposed 
rate.
    Discussion: The Department now allows six months to review a rate 
proposal and negotiate a new rate, which is generally adequate time to 
complete the process. If for some reason a rate has not been approved 
on time, the use of a temporary rate would be considered by the 
Department. Since other changes to these regulations give the 
Department authority to establish temporary rates, no additional 
changes concerning temporary rates are necessary.
    Changes: None.
    Comments: Another commenter asked about the effect of the proposed 
regulations on contractors under a grant and whether this section 
requires contractors to obtain a rate, including a temporary rate if 
necessary, from the Department.
    Discussion: Many contractors already have a negotiated indirect 
cost rate because they are direct recipients of Federal funds. Under 
current procedures State and local governments are expected to assign 
an indirect cost rate to a contractor or other lower tier organization 
that does not already have one. Thus State educational agencies assign 
rates to their local educational agencies (see Sec. 75.561). These 
regulations do nothing to change these practices and contractors or 
other lower tier organizations are not expected to negotiate a rate 
with the Department.
    Changes: None.

Section 75.561  Approval of indirect cost rates.

    Comments: Several commenters were confused by the statement in 
Sec. 75.561(c) that the Secretary approves indirect cost rate 
agreements, an apparent conflict with the practice of the cognizant 
agency negotiating a rate with an applicant.
    Discussion: The Secretary does negotiate indirect cost rates with 
applicants, but only when the Department is the cognizant agency. A 
change has been made to clarify this paragraph.
    Changes: Section 75.561(a) has been revised to make it clear that 
the Secretary approves indirect cost rates for applicants when the 
Department is the cognizant agency.
    Comments: One commenter suggested that State educational agencies 
have the same flexibility to approve multi-year indirect cost rates as 
the proposed revision to Sec. 75.561 would give the Secretary. The 
commenter observed that it would be more cost-effective, particularly 
for small local educational agencies, to have rates in effect for more 
than one year.
    Discussion: The Secretary agrees with this comment and has made a 
change.
    Changes: Section 75.561(b) has been revised to allow State 
educational agencies to approve indirect cost rates--for local 
educational agencies--that are in effect for more than one year.

Section 75.562  Indirect cost rates for educational training projects.

    Comments: A commenter objected to the inclusion of research 
training programs in the proposed definition of an educational training 
grant, observing that OMB Circular A-21 specifies that research 
training is part of an institution's sponsored research activities.
    Discussion: OMB Circular A-21, in Section B, Definition of Terms, 
states that the term ``sponsored research'' includes ``activities 
involving the training of individuals in research techniques (commonly 
called research training) * * *.'' In order to be consistent with this 
circular, the Secretary has made a change in the definition of an 
educational training grant.
    Changes: The phrase ``including special research training 
programs'' has been deleted from the definition of an educational 
training grant in Sec. 75.562(a).
    Comments: A few commenters thought that the definition of a 
training grant was ambiguous and too broad. One suggested that it be 
limited to grants that were designated as training grants by statute or 
where the grant includes such costs as tuition and fees (so-called 
``flow-through'' funds) that are used by the recipient to cover a 
portion of its indirect costs. Another asked if the Secretary would be 
using this definition in determining which grants are training grants, 
as stated in Sec. 75.562(b).
    Discussion: The fact that the proposed definition of a training 
grant is broad and comprehensive is a reflection of the great variety 
of grants administered by the Department that are training grants. The 
definition suggested by the commenter would overly limit the 
designation of training grants and exclude certain programs that 
clearly are primarily for the provision of training. The intent of the 
definition is to provide the public with the criteria used by the 
Secretary in determining what is a training grant and a change has been 
made to make this clear.
    Changes: Section 75.562(b) has been revised to indicate that the 
Secretary does use the definition of a training grant in paragraph (a) 
in determining which grants are educational training grants.
    Comments: Several commenters objected to the Department's use of 
the eight percent limit on training grants and thought the rate 
negotiated by the recipient with its cognizant agency should be 
employed instead.
    Discussion: Since its inception, the Department has consistently 
maintained the necessity of limiting the indirect cost rate on training 
grants. This policy was originally established when the Department was 
a component of the Department of Health, Education, and Welfare, now 
the Department of Health and Human Services (HHS). This policy is still 
in effect at HHS and is intended in part to maximize the number of 
projects funded under these programs. In addition, a number of training 
projects contain significant amounts of flow-through funds and 
therefore do not carry the same burden of overhead or administrative 
costs as do other projects. The Secretary does not agree that the 
recipients of training grants should be reimbursed at their full 
negotiated rates and no change in this section has been made.
    Changes: None.
    Comments: Nine comments were received on the proposed revision to 
Sec. 75.562(c) that would require the training rate of eight percent to 
be applied to a modified total direct cost base, instead of using a 
base of total direct costs as in the current regulation. Commenters 
opposed this change on grounds that it would further reduce a grantee's 
ability to recover legitimate indirect costs under training grants and 
reduce the number of organizations that could afford to apply for those 
grants. Several commenters also asked for a definition of ``modified 
total direct cost base.''
    Discussion: There is general agreement in the grants community that 
indirect costs should not be charged to activities that do not have 
significant administrative costs associated with them, such as ``flow-
through funds'' (e.g., tuition, fees, and stipends). The Secretary 
proposed to revise these regulations to be consistent with this 
principle and to clarify for all interested parties what base should be 
used in computing indirect costs under a training grant. Though this 
change will reduce the indirect costs charged to the Department's 
grants for some recipients, the Secretary does not agree that the 
indirect cost base for training grants should include activities or 
costs that do not generate significant administrative expenses. 
However, the Secretary has made a change to clarify the term ``modified 
total direct cost base.''
    Changes: Section 75.562(c) has been revised to include a definition 
of ``modified total direct cost base.'' It has also been reworded to 
make it clearer that the paragraph is referring to the lesser amount of 
funds, not the lesser rate.
    Comments: One commenter stated that the eight percent limitation 
should not apply to contractors under training grants, as required by 
Sec. 75.562(c)(1), since not all contractors are in a position to 
absorb the costs not covered by the limited rate.
    Discussion: If the contractor is not conducting training 
activities, the eight percent limitation would not apply and the 
contractor could use its negotiated rate. However, a contractor that is 
conducting training under a training grant would still be subject to 
the limitation of eight percent. No change has been made in this 
paragraph.
    Changes: None.
    Comments: Thirteen commenters objected to the requirement in 
Sec. 75.562(c)(3) that indirect costs in excess of the eight percent 
limitation may not be used to satisfy cost-sharing or matching 
requirements. Many cited the new provision in OMB Circular A-110 that 
allows the use of unrecovered indirect costs for this purpose, with the 
approval of the granting agency. Commenters were concerned that this 
limitation would make it difficult for many competent applicants to 
qualify for grants that require cost-sharing or matching.
    Discussion: The Department has a long-standing practice not to 
allow the use of unrecovered indirect costs under training grants as 
matching or cost-sharing. This practice was required because under a 
previous version of OMB Circular A-110 and the Department's 
implementing regulations in 34 CFR Part 74, only allowable costs could 
be used for matching or cost-sharing purposes. Since training grants 
are limited to an eight percent indirect cost rate, all indirect costs 
over that limit were considered unallowable and thus could not be used 
as matching or cost-sharing. The practice also had the result of 
maximizing the funds that support project activities, because the use 
of unrecovered indirect costs to meet matching or cost-sharing 
requirements would reduce the amount of direct cost funds being put 
into the project by the recipient.
    The Department recently revised 34 CFR Part 74 to implement 
revisions to OMB Circular A-110. The circular and Part 74 now allow 
institutions of higher education, non-profit organizations, and 
hospitals that receive funds under Federal programs to use unrecovered 
indirect costs for matching or cost-sharing, but only with the approval 
of the awarding agency. In light of this change and in response to the 
concerns expressed by commenters, the Secretary re-examined this 
practice but decided not to change it because it maximizes the impact 
of the limited funds available for training grant programs.
    Changes: None.
    Comments: The Department received comments suggesting that 
applicants be notified as early as possible in the application process 
that a program is subject to the training rate or to the restricted 
rate based on a statutory supplement-not-supplant requirement. 
Commenters thought this information should be included in the 
application packages and also on the grant award notices.
    Discussion: Many programs already include this information in 
application packages and notices, but, in an effort to assist 
applicants as much as possible, the Department will do this for the 
other programs as well. The issue is somewhat complicated by the fact 
that some, but not all, grants awarded under certain programs may be 
training grants. In this case the Department will include in the 
application package and notice a statement that some grants awarded 
under the program could be training grants subject to the eight percent 
limitation on indirect costs, depending upon the type of project 
proposed. The Department is already taking steps to include information 
in the Catalog of Federal Domestic Assistance that identifies those 
programs subject to the restricted rate based on the supplement-not-
supplant requirement. As for placing the information on the award 
notices, the Department is currently redesigning its core financial 
systems, including the grants management system, and this information 
will be on award notices produced under the new system. These 
notification issues were not addressed in the proposed regulations and 
no change has been made to include them in the final regulations.
    Changes: None.
    Comments: A few commenters thought that the Department should 
exclude training grants and their indirect costs from the process used 
by the Department to establish indirect cost rates. This would have the 
effect of increasing the organization's negotiated rate and would 
offset somewhat the loss of indirect costs under the training grants.
    Discussion: This issue was not included in the proposed regulations 
but will be considered by the Department during its periodic reviews of 
administrative procedures.
    Changes: None.

Section 75.563  Restricted Indirect Cost Rate--Programs Covered

    Comments: One commenter said that the restricted rates applicable 
to programs with the supplement-not-supplant requirement should not be 
applied to universities that have a negotiated indirect cost rate. They 
suggested that Secs. 75.563 and 75.564(f) be deleted.
    Discussion: The Department applies a restricted rate only to grants 
made under programs that have a statutory requirement that Federal 
funds be used to supplement, not supplant, institutional funds. If a 
recipient happens to be an institution of higher education, the 
restricted rate must be applied--the Department has no choice on the 
matter because the rate implements a statutory limitation. However, as 
a matter of practice, the recipients of grants under these programs are 
predominately State educational agencies or local educational agencies; 
very few institutions of higher education receive grants under 
restricted rate programs.
    Changes: None.

Section 75.564  Reimbursement of Indirect Costs

    Comments: Several commenters thought the language in Sec. 75.564(a) 
was confusing and contradicts Sec. 75.564(b) and Sec. 75.560(d). They 
thought Sec. 75.564(a) should be revised to make it clear that the 
Department accepts the rate negotiated with an applicant's cognizant 
agency.
    Discussion: This section addresses the issue of reimbursement of 
indirect costs and the opening paragraph is a general statement of the 
Department's policies in this area. As stated in the first sentence, 
there are administrative and statutory restrictions that affect the 
reimbursement of indirect costs under programs administered by ED. 
There are also situations, though infrequent, when indirect costs are 
not reimbursed due to a lack of funds. This usually occurs when a 
grantee is seeking reimbursement of indirect costs because the 
applicable rate was adjusted upwards during or after the performance of 
the grant. The Secretary agrees that the second sentence in this 
section is somewhat confusing and has made a change.
    Changes: The second sentence in Sec. 75.564(a), ``The extent to 
which indirect costs are reimbursed is a matter for determination 
between the Secretary and the grantee,'' has been deleted from the 
final regulation.
    Comments: The Department received comments that construction grants 
and grants in support of conferences should not be included in the list 
of grants in Sec. 75.564(c) for which indirect costs are unallowable. 
The commenters think these types of grants do carry considerable 
administrative costs and ED should reimburse recipients for their 
indirect costs. One commenter suggested that the language concerning 
conferences be revised to apply to grants made exclusively to support 
conferences.
    Discussion: The Department does not agree that construction grants 
carry the same administrative costs as other types of grants. Most of 
the construction work funded by those grants is carried out under 
subcontracts, a practice which results in recipients incurring 
relatively little overhead expense in comparison to other types of 
grants. Also, unlike other products of grant-supported activities, the 
costs of a building can be recovered through depreciation or use 
allowances. Therefore no change has been made concerning construction 
grants, but the language on grants for conferences has been revised.
    Changes: Section 75.564(c)(6) has been revised to apply to grants 
made exclusively to support conferences.
    Comments: Several commenters thought Sec. 75.564(e) prohibits the 
use of indirect costs to satisfy matching or cost-sharing requirements 
and so should be revised or deleted as inconsistent with OMB Circulars 
A-21 and A-110.
    Discussion: The OMB circulars that serve as cost principles or 
administrative guidance for grant recipients all contain the 
requirement that only allowable costs may be charged to a Federal grant 
as either direct or indirect costs. The same principle applies to funds 
used for matching or cost-sharing. However, the re-statement of this 
principle in these regulations has caused some confusion, particularly 
since a change to OMB Circular A-110, recently adopted by the 
Department as 34 CFR Part 74, gives granting agencies the option of 
approving unrecovered indirect costs to satisfy matching or cost-
sharing requirements. The Department has therefore decided to delete 
the proposed Sec. 75.564(e) from the final regulations.
    As discussed elsewhere in this document, the Department is 
continuing its practice of prohibiting the use of unrecovered indirect 
costs to satisfy matching or cost-sharing requirements under training 
and restricted rate grants. For grantees subject to 34 CFR Part 74, the 
Department will consider on a case-by-case basis requests to use 
unrecovered indirect costs as matching or cost-sharing when the grant 
in question is not a training grant or a grant subject to a restricted 
indirect cost rate.
    Changes: The proposed Sec. 75.564(e) has been deleted.
    Comments: The Department received one comment that Sec. 75.564(f) 
should be deleted and each member of a group of eligible parties be 
allowed to apply its own indirect cost rate to its portion of the grant 
funds.
    Discussion: It has been the Department's policy on certain indirect 
cost matters--for example, the eight percent training rate--to maximize 
the Federal funds going to support program activities. If the official 
recipient of the grant applies its rate to the full award amount and 
each member of the group applies its full rate to its portion of the 
grant, as has happened in such situations, a disproportionate amount of 
the grant is spent on indirect costs. Since the Department wishes to 
maximize the funds supporting the direct costs of a project, it is 
limiting the indirect costs for grants made to groups of eligible 
parties to the rate of the official grant recipient, the fiscal agent 
for the group. The members of the group can decide among themselves how 
the funds should be divided within the group.
    Changes: No change was made to the text of this paragraph, but, 
since the proposed Sec. 75.564(e) has been deleted, this paragraph has 
been redesignated as Sec. 75.564(e) in these final regulations.

Section 76.560  General indirect cost rates; exceptions.

    Since the Department recently adopted the revised OMB Circular A-
110 as 34 CFR Part 74, references in this section have been revised to 
be consistent with the new 34 CFR Part 74.

Section 76.561  Approval of indirect cost rates.

    The Department has revised this section to be consistent with the 
corresponding section of 34 CFR Part 75 so that State educational 
agencies may approve multi-year indirect cost rates for recipients 
subject to 34 CFR Part 76.

Section 76.564  Restricted indirect cost rate--formula.

    The Department has made a revision to this section to make its 
requirements consistent with similar requirements in 34 CFR Part 75. 
Specifically, Sec. 76.564(d) has been revised to prohibit the use of 
unrecovered indirect costs under a restricted rate grant to satisfy 
matching or cost-sharing requirements. This change is consistent with 
current departmental practices and with the restriction placed on 
training grants in Sec. 75.562(c)(3).

Section 76.565  General management costs--restricted rate.

    Comments: Several commenters found the language in Sec. 76.565 
concerning organization-wide activities to be unclear. Some of the 
commenters thought that the proposed regulations did not make it clear 
that some activities considered divisional administration may in fact 
be organization-wide activities, such as payroll or personnel 
functions.
    Discussion: The Department agrees with these commenters and has 
changed the wording in an attempt to make the final version clearer to 
readers.
    Changes: The wording of Sec. 76.565(a) has been changed to clarify 
the meaning of the term organization-wide. Section 76.565(c) has been 
revised to clarify the use of the term divisional administration.
    Comments: One commenter said a deputy chief executive officer who 
oversees general management activities should not be excluded as 
required in Sec. 76.565 (c) and (d). Another said that chief executive 
officers should be excluded only if their activities are limited to one 
component.
    Discussion: Chief executive officers and their deputies are 
positions that would exist whether or not the organization received 
Federal funds. To support them with Federal funds would be supplanting, 
which is prohibited under restricted rate programs.
    Changes: None.
    Comments: One commenter disagreed with the definition of component 
in Sec. 76.565(d)(2), saying it conflicts with the generally accepted 
accounting standard that an agency is a component of a State. The 
commenter maintains that the proposed definition of a component as an 
organizational unit within an agency would prohibit States from 
charging legitimate administrative costs to a grant.
    Discussion: As stated in Sec. 76.563, this section applies to 
``agencies of State and local governments,'' most commonly the State 
educational agency, not to the State itself. In this context, the 
component would be an organizational unit within a State agency, as 
described in the regulation. No change has been made in this section.
    Changes: None.

Section 76.567  Other expenditures--restricted rate.

    Comments: The Department received one comment that subgrants should 
be excluded from other expenditures, since their inclusion would 
distort the indirect cost calculation and subgrants are already 
excluded from the base in the formula in Sec. 76.569.
    Discussion: The Department agrees with this comment and has made a 
change.
    Changes: Section 76.567(b) has been revised to exclude subgrants 
from other expenditures.

Section 76.568  Occupancy and space maintenance costs--restricted rate.

    Comments: One commenter thought the last two sentences of 
Sec. 76.568(c) should be deleted as inconsistent with other Federal 
guidance in OMB Circular A-87 and OASC-10, that States cannot afford to 
pay for the office space occupied by Federal program staff.
    Discussion: The sentences in question are not intended to indicate 
that the costs of office space for Federal program staff must be borne 
by the States, nor are they inconsistent with other Federal guidance. 
Costs of space can be charged as indirect or direct costs as 
appropriate, but Federal funds cannot be used to supplant local funds 
under programs with statutory prohibitions of supplanting. The last 
sentence merely reiterates the standard practice that the Secretary 
approves the budgets of projects supported by grant funds. No changes 
have been made to this section.
    Changes: None.

Paperwork Reduction Act of 1980

    These regulations have been examined under the Paperwork Reduction 
Act of 1980 and have been found to contain no information collection 
requirements.

Assessment of Educational Impact

    In the notice of proposed rulemaking, the Secretary requested 
comments on whether the proposed regulations would require transmission 
of information that is being gathered by or is available from any other 
agency or authority of the United States.
    Based on the response to the proposed rules and on its own review, 
the Department has determined that the regulations in this document do 
not require transmission of information that is being gathered by or is 
available from any other agency or authority of the United States.

List of Subjects 34 CFR Part 75

    Education Department, Grant programs--education, Grant 
administration, Incorporation by reference.

List of Subjects in 34 CFR Part 76

    Education Department, Grant programs--education, Grant 
administration, Intergovernmental relations, State-administered 
programs.

(Catalog of Federal Domestic Assistance Number does not apply.)

    Dated: November 10, 1994.
Richard W. Riley,
Secretary of Education.

    The Secretary amends Parts 75 and 76 of Title 34 of the Code of 
Federal Regulations as follows:

PART 75--DIRECT GRANT PROGRAMS

    1. The authority citation for Part 75 continues to read as follows:

    Authority: 20 U.S.C. 1221e-3(a)(1) and 3474, unless otherwise 
noted.

    2. Section 75.129 is amended by revising paragraphs (a) (1) and (2) 
and adding paragraph (a)(3), to read as follows:


Sec. 75.129  Legal responsibilities of each member of the group.

    (a) * * *
    (1) The use of all grant funds;
    (2) Ensuring that the project is carried out by the group in 
accordance with Federal requirements; and
    (3) Ensuring that indirect cost funds are determined as required 
under Sec. 75.564(e).
* * * * *
    3. Section 75.560 is amended by revising paragraphs (a) (1), (2), 
(3), (4), and (5), by revising paragraph (b), by adding new paragraphs 
(c) and (d), by and revising the authority citation at the end of the 
section, to read as follows:


Sec. 75.560  General indirect cost rates; exceptions.

    (a) * * *
    (1) Institutions of higher education, at 34 CFR 74.27;
    (2) Hospitals, at 34 CFR 74.27;
    (3) Other nonprofit organizations, at 34 CFR 74.27;
    (4) Commercial (for-profit) organizations, at 34 CFR 74.27; and
    (5) State and local governments and federally-recognized Indian 
tribal organizations, at 34 CFR 80.22.
    (b) A grantee must have a current indirect cost rate agreement to 
charge indirect costs to a grant. To obtain an indirect cost rate, a 
grantee must submit an indirect cost proposal to its cognizant agency 
and negotiate an indirect cost rate agreement.
    (c) The Secretary may establish a temporary indirect cost rate for 
a grantee that does not have an indirect cost rate agreement with its 
cognizant agency.
    (d) The Secretary accepts an indirect cost rate negotiated by a 
grantee's cognizant agency, but may establish a restricted indirect 
cost rate for a grantee to satisfy the statutory requirements of 
certain programs administered by the Department.

(Authority: 20 U.S.C. 1221e-3(a)(1) and 3474)

    4. Section 75.561 is revised to read as follows:


Sec. 75.561  Approval of indirect cost rates.

    (a) If the Department of Education is the cognizant agency, the 
Secretary approves an indirect cost rate for a grantee other than a 
local educational agency. For the purposes of this section, the term 
local educational agency does not include a State agency.
    (b) Each State educational agency, on the basis of a plan approved 
by the Secretary, shall approve an indirect cost rate for each local 
educational agency that requests it to do so. These rates may be for 
periods longer than a year if rates are sufficiently stable to justify 
a longer period.
    (c) The Secretary generally approves indirect cost rate agreements 
annually. Indirect cost rate agreements may be approved for periods 
longer than a year if the Secretary determines that rates will be 
sufficiently stable to justify a longer rate period.

(Authority: 20 U.S.C. 1221e-3(a)(1) and 3474)

    5. Section 75.562 is revised to read as follows:


Sec. 75.562  Indirect cost rates for educational training projects.

    (a) Educational training grants provide funding for training or 
other educational services. Examples of the work supported by training 
grants are summer institutes, training programs for selected 
participants, the introduction of new or expanded courses, and similar 
instructional undertakings that are separately budgeted and accounted 
for by the sponsoring institution. These grants do not usually support 
activities involving research, development, and dissemination of new 
educational materials and methods. Training grants largely implement 
previously developed materials and methods and require no significant 
adaptation of techniques or instructional services to fit different 
circumstances.
    (b) The Secretary uses the definition in paragraph (a) to determine 
which grants are educational training grants.
    (c) Indirect cost reimbursement on a training grant is limited to 
the recipient's actual indirect costs, as determined by its negotiated 
indirect cost rate agreement, or eight percent of a modified total 
direct cost base, whichever amount is less. For the purposes of this 
section, a modified total direct cost base is defined as total direct 
costs less stipends, tuition and related fees, and capital expenditures 
of $5,000 or more.
    (1) The eight percent limit also applies to cost-type contracts 
under grants, if these contracts are for training as defined in this 
section.
    (2) The eight percent limit does not apply to agencies of State or 
local governments, including federally recognized Indian tribal 
governments, as defined in 34 CFR 80.3.
    (3) Indirect costs in excess of the eight percent limit may not be 
charged directly, used to satisfy matching or cost-sharing 
requirements, or charged to another Federal award.
    (d) A grantee using the training rate of eight percent is required 
to have documentation available for audit that shows that its 
negotiated indirect cost rate is at least eight percent.

(Authority: 20 U.S.C. 1221e-3(a)(1) and 3474)

    6. Section 75.563 is revised to read as follows:


Sec. 75.563  Restricted indirect cost rate--programs covered.

    If a grantee decides to charge indirect costs to a program that has 
a statutory requirement prohibiting the use of Federal funds to 
supplant non-Federal funds, the grantee shall use a restricted indirect 
cost rate computed under 34 CFR 76.564 through 76.569.

(Authority: 20 U.S.C. 1221e-3(a)(1) and 3474)

    7. Sections 75.564 through 75.568 are removed.
    8. A new Sec. 75.564 is added to read as follows:


Sec. 75.564  Reimbursement of indirect costs.

    (a) Reimbursement of indirect costs is subject to the availability 
of funds and statutory or administrative restrictions.
    (b) The application of the rates and the determination of the 
direct cost base by a grantee must be in accordance with the indirect 
cost rate agreement approved by the grantee's cognizant agency.
    (c) Indirect cost reimbursement is not allowable under grants for--
    (1) Fellowships and similar awards if Federal financing is 
exclusively in the form of fixed amounts such as scholarships, stipend 
allowances, or the tuition and fees of an institution;
    (2) Construction grants;
    (3) Grants to individuals;
    (4) Grants to organizations located outside the territorial limits 
of the United States;
    (5) Grants to Federal organizations; and
    (6) Grants made exclusively to support conferences.
    (d) Indirect cost reimbursement on grants received under programs 
with statutory restrictions or other limitations on indirect costs must 
be made in accordance with the restrictions in 34 CFR 76.564 through 
76.569.
    (e) Indirect costs for a group of eligible parties (see 
Secs. 75.127-75.129) are limited to the amount derived by applying the 
rate of the applicant, or a restricted rate when applicable, to the 
grant in keeping with the terms of the applicant's indirect cost rate 
agreement.

(Authority: 20 U.S.C. 1221e-3(a)(1) and 3474)

PART 76--STATE-ADMINISTERED PROGRAMS

    9. The authority citation for Part 76 continues to read as follows:

    Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474, 
unless otherwise noted.

    10. Section 76.560 is amended by revising paragraphs (a)(1), (2), 
(3), (4), and (5), by revising paragraph (b), by adding new paragraphs 
(c) and (d), and revising the authority citation at the end of the 
section, to read as follows:


Sec. 76.560  General indirect cost rates; exceptions.

    (a) * * *
    (1) Institutions of higher education, at 34 CFR 74.27;
    (2) Hospitals, at 34 CFR 74.27;
    (3) Other nonprofit organizations, at 34 CFR 74.27;
    (4) Commercial (for-profit) organizations, at 34 CFR 74.27; and
    (5) State and local governments and federally-recognized Indian 
tribal organizations, at 34 CFR 80.22.
    (b) A grantee must have a current indirect cost rate agreement to 
charge indirect costs to a grant. To obtain an indirect cost rate, a 
grantee must submit an indirect cost proposal to its cognizant agency 
and negotiate an indirect cost rate agreement.
    (c) The Secretary may establish a temporary indirect cost rate for 
a grantee that does not have an indirect cost rate agreement with its 
cognizant agency.
    (d) The Secretary accepts an indirect cost rate negotiated by a 
grantee's cognizant agency, but may establish a restricted indirect 
cost rate for a grantee to satisfy the statutory requirements of 
certain programs administered by the Department.

(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)

    11. Section 76.561 is revised to read as follows:


Sec. 76.561  Approval of indirect cost rates.

    (a) If the Department of Education is the cognizant agency, the 
Secretary approves an indirect cost rate for a State agency and for a 
subgrantee other than a local educational agency. For the purposes of 
this section, the term local educational agency does not include a 
State agency.
    (b) Each State educational agency, on the basis of a plan approved 
by the Secretary, shall approve an indirect cost rate for each local 
educational agency that requests it to do so. These rates may be for 
periods longer than a year if rates are sufficiently stable to justify 
a longer period.
    (c) The Secretary generally approves indirect cost rate agreements 
annually. Indirect cost rate agreements may be approved for periods 
longer than a year if the Secretary determines that rates will be 
sufficiently stable to justify a longer rate period.

(Authority: 20 U.S.C. 1221e-3(a)(1), 2381(a), and 3474)

    12. Section 76.563 is revised to read as follows:


Sec. 76.563  Restricted indirect cost rate--programs covered.

    Sections 76.564 through 76.569 apply to agencies of State and local 
governments that are grantees under programs with a statutory 
requirement prohibiting the use of Federal funds to supplant non-
Federal funds, and to their subgrantees under these programs.

(Authority: 20 U.S.C. 1221e(a)(1), 2831(a), 2974(b), and 3474)

    13. A new Sec. 76.564 is added to read as follows:


Sec. 76.564  Restricted indirect cost rate--formula.

    (a) An indirect cost rate for a grant covered by Sec. 76.563 or 34 
CFR 75.563 is determined by the following formula:

Restricted indirect cost rate = (General management costs + Fixed 
costs)  (Other expenditures)

    (b) General management costs, fixed costs, and other expenditures 
must be determined under Secs. 76.565 through 76.567.
    (c) Under the programs covered by Sec. 76.563, a subgrantee of an 
agency of a State or a local government (as those terms are defined in 
34 CFR 80.3) or a grantee subject to 34 CFR 75.563 that is not a State 
or local government agency may use--
    (1) An indirect cost rate computed under paragraph (a) of this 
section; or
    (2) An indirect cost rate of eight percent unless the Secretary 
determines that the subgrantee or grantee would have a lower rate under 
paragraph (a) of this section.
    (d) Indirect costs that are unrecovered as a result of these 
restrictions may not be charged directly, used to satisfy matching or 
cost-sharing requirements, or charged to another Federal award.

(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)

    14. A new Sec. 76.565 is added to read as follows:


Sec. 76.565  General management costs--restricted rate.

    (a) As used in Sec. 76.564, general management costs means the 
costs of activities that are for the direction and control of the 
grantee's affairs that are organization-wide. An activity is not 
organization-wide if it is limited to one activity, one component of 
the grantee, one subject, one phase of operations, or other single 
responsibility.
    (b) General management costs include the costs of performing a 
service function, such as accounting, payroll preparation, or personnel 
management, that is normally at the grantee's level even if the 
function is physically located elsewhere for convenience or better 
management. The term also includes certain occupancy and space 
maintenance costs as determined under Sec. 76.568.
    (c) The term does not include expenditures for--
    (1) Divisional administration that is limited to one component of 
the grantee;
    (2) The governing body of the grantee;
    (3) Compensation of the chief executive officer of the grantee;
    (4) Compensation of the chief executive officer of any component of 
the grantee; and
    (5) Operation of the immediate offices of these officers.
    (d) For purposes of this section--
    (1) The chief executive officer of the grantee is the individual 
who is the head of the executive office of the grantee and exercises 
overall responsibility for the operation and management of the 
organization. The chief executive officer's immediate office includes 
any deputy chief executive officer or similar officer along with 
immediate support staff of these individuals. The term does not include 
the governing body of the grantee, such as a board or a similar elected 
or appointed governing body; and
    (2) Components of the grantee are those organizational units 
supervised directly or indirectly by the chief executive officer. These 
organizational units generally exist one management level below the 
executive office of the grantee. The term does not include the office 
of the chief executive officer or a deputy chief executive officer or 
similar position.

(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)

    15. A new Sec. 76.566 is added to read as follows:


Sec. 76.566  Fixed costs--restricted rate.

    As used in Sec. 76.564, fixed costs means contributions of the 
grantee to fringe benefits and similar costs, but only those associated 
with salaries and wages that are charged as indirect costs, including--
    (a) Retirement, including State, county, or local retirement funds, 
Social Security, and pension payments;
    (b) Unemployment compensation payments; and
    (c) Property, employee, health, and liability insurance.

(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)

    16. A new Sec. 76.567 is added to read as follows:


Sec. 76.567  Other expenditures--restricted rate.

    (a) As used in Sec. 76.564, other expenditures means the grantee's 
total expenditures for its federally- and non-federally-funded 
activities in the most recent year for which data are available. The 
term also includes direct occupancy and space maintenance costs as 
determined under Sec. 76.568 and costs related to the chief executive 
officers of the grantee and components of the grantee and their offices 
(see Sec. 76.565(c) and (d)).
    (b) The term does not include--
    (1) General management costs determined under Sec. 76.565;
    (2) Fixed costs determined under Sec. 76.566;
    (3) Subgrants;
    (4) Capital outlay;
    (5) Debt service;
    (6) Fines and penalties;
    (7) Contingencies; and
    (8) Election expenses. However, the term does include election 
expenses that result from elections required by an applicable Federal 
statute.

(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)

    17. A new Sec. 76.568 is added to read as follows:


Sec. 76.568  Occupancy and space maintenance costs--restricted rate.

    (a) As used in the calculation of a restricted indirect cost rate, 
occupancy and space maintenance costs means such costs as--
    (1) Building costs whether owned or rented;
    (2) Janitorial services and supplies;
    (3) Building, grounds, and parking lot maintenance;
    (4) Guard services;
    (5) Light, heat, and power;
    (6) Depreciation, use allowances, and amortization; and
    (7) All other related space costs.
    (b) Occupancy and space maintenance costs associated with 
organization-wide service functions (accounting, payroll, personnel) 
may be included as general management costs if a space allocation or 
use study supports the allocation.
    (c) Occupancy and space maintenance costs associated with functions 
that are not organization-wide must be included with other expenditures 
in the indirect cost formula. These costs may be charged directly to 
affected programs only to the extent that statutory supplanting 
prohibitions are not violated. This reimbursement must be approved in 
advance by the Secretary.

(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)

    18. A new Sec. 76.569 is added to read as follows:


Sec. 76.569  Using the restricted indirect cost rate.

    (a) Under the programs referenced in Sec. 76.563, the maximum 
amount of indirect costs under a grant is determined by the following 
formula:

Indirect costs=(Restricted indirect cost rate) x (Total direct costs of 
the grant minus capital outlays, subgrants, and other distorting or 
unallowable items as specified in the grantee's indirect cost rate 
agreement)

    (b) If a grantee uses a restricted indirect cost rate, the general 
management and fixed costs covered by that rate must be excluded by the 
grantee from the direct costs it charges to the grant.

(Authority: 20 U.S.C. 1221e-3(a)(1), 2831(a), 2974(b), and 3474)

[FR Doc. 94-28368 Filed 11-16-94; 8:45 am]
BILLING CODE 4000-01-P