[Federal Register Volume 72, Number 100 (Thursday, May 24, 2007)]
[Proposed Rules]
[Pages 29097-29100]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-10036]


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DEPARTMENT OF EDUCATION

34 CFR Part 75

[Docket ID ED-2007-OCFO-0132]
RIN 1890-AA15


Direct Grant Programs

AGENCY: Office of the Chief Financial Officer, Department of Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to amend the regulations in 34 CFR part 
75, regarding the determination and recovery of indirect costs by 
grantees. The proposed amendments would address procedural aspects 
related to the establishment of temporary indirect cost rates, specify 
the temporary rate that would apply to grants generally, and clarify 
how indirect costs are determined for a group of applicants that apply 
for a single training grant.

DATES: We must receive your comments on or before June 25, 2007.

ADDRESSES: Submit your comments through the Federal eRulemaking Portal 
or via postal mail, commercial delivery, or hand delivery. We will not 
accept comments by fax or by e-mail. Please submit your comments only 
one time, in order to ensure that we do not receive duplicate copies. 
In addition, please include the Docket ID at the top of your comments.
     Federal eRulemaking Portal: Go to http://www.regulations.gov, select ``Department of Education'' from the agency 
drop-down menu, then click ``Submit.'' In the Docket ID column, select 
ED-2007-OCFO-0132 to add or view public comments and to view supporting 
and related materials available electronically. Information on using 
Regulations.gov, including instructions for submitting comments, 
accessing documents, and viewing the docket after the close of the 
comment period, is available through the site's ``User Tips'' link.
     Postal Mail, Commercial Delivery, or Hand Delivery. If you 
mail or deliver your comments about these proposed regulations, address 
them to Richard Mueller, U.S. Department of Education, 830 First 
Street, NE., room 21C7, Washington, DC 20202-4450.

    Privacy Note: The Department's policy for comments received from 
members of the public (including those comments submitted by mail, 
commercial delivery, or hand delivery) is to make these submissions 
available for public viewing on the Federal eRulemaking Portal at 
http://www.regulations.gov All submissions will be posted to the 
Federal eRulemaking Portal without change, including personal 
identifiers and contact information.


FOR FURTHER INFORMATION CONTACT: Richard Mueller. Telephone: (202) 377-
3838 or via Internet: [email protected].
    If you use a telecommunications device for the deaf (TDD), you may 
call the Federal Relay Service (FRS) at 1-800-877-8339.
    Individuals with disabilities may obtain this document in an 
alternative format (e.g., Braille, large print, audiotape, or computer 
diskette) on request to the contact person listed under FOR FURTHER 
INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION:

Invitation To Comment

    We invite you to submit comments regarding these proposed 
regulations. To ensure that your comments have maximum effect in 
developing the final regulations, we urge you to identify clearly the 
specific section or sections of the proposed regulations that each of

[[Page 29098]]

your comments addresses and to arrange your comments in the same order 
as the proposed regulations.
    We invite you to assist us in complying with the specific 
requirements of Executive Order 12866 and its overall requirement of 
reducing regulatory burden that might result from these proposed 
regulations. Please let us know of any further opportunities we should 
provide to reduce the potential costs or increase potential benefits 
while preserving the effective and efficient administration of the 
Department's Direct Grant programs.
    During and after the comment period, you may inspect all public 
comments about these proposed regulations by accessing Regulations.gov. 
You may also inspect the comments, in person, in room 21C7, 830 First 
Street, NE., Washington, DC, between the hours of 8:30 a.m. and 4 p.m., 
Eastern Time, Monday through Friday of each week except Federal 
holidays.

Assistance to Individuals With Disabilities in Reviewing the Rulemaking 
Record

    On request, we will supply an appropriate aid to an individual with 
a disability who needs assistance to review the comments or other 
documents in the public rulemaking record for these proposed 
regulations. If you want to schedule an appointment for this type of 
aid, please contact the person listed under FOR FURTHER INFORMATION 
CONTACT.

Background

Changes to Indirect Cost Policy

    The Secretary proposes amendments to improve the Department's 
ability under 34 CFR 75.560 to provide a temporary indirect cost rate. 
The temporary rate for a grantee that does not have a federally 
recognized indirect cost rate at the time the Department awards its 
first grant to the grantee would be ten percent of the direct salaries 
and wages of the project. These changes would permit the use of a 
temporary indirect cost rate under the grant award for the first ninety 
days after the date the Department issues the Grant Award Notification. 
A grantee may continue to charge indirect costs at the temporary rate 
after the first ninety days if the grantee submits a formal indirect 
cost proposal to its cognizant agency within those ninety days. If, 
after the ninety-day period, a grantee has not submitted an indirect 
cost proposal to its cognizant agency, it must stop using the temporary 
rate. After that period, the grantee would not be allowed to charge any 
indirect costs to its grant until it obtained a federally recognized 
indirect cost rate from its cognizant agency.
    These regulations are needed to make the Department's practice 
consistent with the practice of other Federal agencies and reduce the 
number of improper payments that result when applicants budget indirect 
costs that are greater than the actual indirect costs the applicant can 
expect to recover under Federal cost principles. Currently, new 
grantees of the Department are not recovering any indirect costs until 
they negotiate an indirect cost rate with their cognizant agencies. 
These proposed regulations would help a new grantee by permitting it to 
recover indirect costs at the temporary rate until it negotiate a rate 
with its cognizant agency or for ninety days if it does not submit its 
indirect cost rate proposal to its cognizant agency within the ninety-
day period.
    The proposed regulations would also clarify how the modified total 
direct cost base is determined when a grant is subject to the eight 
percent indirect cost rate limitation for training grants and would 
specify how that rate is applied when the Department awards a grant to 
a group of applicants. These changes are necessary to correct an 
oversight in the current regulations.

Significant Proposed Regulations

34 CFR Part 75

Section 75.560 General Indirect Cost Rates; Exceptions
    The Secretary proposes to amend Sec.  75.560 (c) and (d) to specify 
the procedures used to establish temporary indirect cost rates for any 
grantee that does not have a federally recognized indirect cost rate. 
The proposed language would require such a grantee to submit an 
indirect cost rate proposal to its cognizant agency within ninety days 
after the date the Department issues the Grant Award Notification to 
the grantee. In most cases, the cognizant agency is the agency that 
provides the most federal funding to a grantee under programs that 
authorize grantees to charge indirect costs to their grants. Under the 
proposed regulations, the grantee could charge indirect costs at a 
temporary indirect cost rate of ten percent of the budgeted direct 
salaries and wages. If a grantee does not submit an indirect cost rate 
proposal to its cognizant agency by the end of the ninety-day period, 
the proposed regulations would provide that the grantee could not 
charge any more indirect costs to its grant until it negotiated a 
federally recognized rate.
    If a grantee negotiates an indirect cost rate that would recover 
more funds than the temporary rate has recovered, the proposed 
regulations would permit the grantee to recover the difference between 
the amount it would have recovered under the federally recognized rate 
and the amount it already recovered under the temporary rate after the 
date the indirect cost proposal was submitted to the cognizant agency.
    Example: The project period for a grant starts on June 1 and the 
grantee starts recovering indirect costs at ten percent of direct 
salaries and wages; the indirect cost proposal is submitted to the 
cognizant agency on July 1; and the grantee obtains a federally 
recognized indirect cost rate on September 15.
    From June 1 through June 30, the grantee expends $5,000 in direct 
salaries and wages. Using the temporary rate of ten percent of direct 
salaries and wages, the grantee recovers $500 in indirect costs for 
this period. From July 1 through September 15, the grantee charges its 
grant $12,500 in direct salaries and wages, which produces an indirect 
cost recovery of $1,250 under the temporary rate.
    The grantee negotiates an indirect cost rate with its cognizant 
agency of twenty percent of its modified total direct cost base. For 
the period July 1 through September 15, the grantee expends $15,000 in 
modified total direct costs. Thus, under the negotiated rate, the 
grantee is entitled to recover $3,000 for the period July 1 through 
September 15. Assuming sufficient funds are available within the grant 
budget, the grantee can recover an additional amount of $1,750 in un-
recovered indirect costs for the period July 1 through September 15. 
This $1,750 represents the difference between the $1,250 it already 
recovered for that period and the $3,000 that it could have recovered 
under the negotiated rate. The grantee cannot claim indirect costs at 
the negotiated rate for the period June 1 through June 30 because it 
did not submit its indirect cost proposal until July 1. However, it can 
keep the $500 in indirect costs it recovered under the temporary rate 
for that period. [End of example]
    Under the proposed regulations, the grantee would have to obtain 
prior approval from the Department to shift direct costs to indirect 
costs. This limitation is needed to ensure that the shifting of funds 
from direct costs to indirect costs does not result in a change in the 
scope or objectives of the project. To reduce the potential for adverse 
budget implications for the Department, the grantee would not be 
permitted to request additional funds in order to fully recover 
indirect costs.

[[Page 29099]]

Section 75.562 Indirect Cost Rates for Educational Training Projects
    The Secretary proposes to amend Sec.  75.562(c) to clarify that--a 
grantee cannot include the amount of a sub-award\1\ that exceeds 
$25,000 in the modified total direct cost base used to determine and 
charge its indirect cost rate. For example, if a grantee hired an 
evaluator for its grant and the sub award to the evaluator cost the 
grantee $60,000, the grantee could claim only the first $25,000 of that 
contract in its claim for indirect costs. This exclusion of costs above 
$25,000 for sub-awards recognizes the fact that the grantee is not 
responsible for most of the costs of support services that the 
contractor supplies for its own services to the grantee. That is 
because the contractor builds those costs into the cost of the contract 
to the grantee. Also, we note that if the contract is a multi-year 
contract, the grantee can only recover indirect costs against the first 
$25,000 of the contract in the first year of the contract because, 
after the year that the grantee awards the contract, the grantee has no 
special indirect costs associated with the contract.
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    \1\ The term ``sub-award'' as used in the proposed regulation 
covers both sub grants and contracts made under a grant. However, 
because virtually all of the Department's discretionary grant 
programs do not authorize grantees to award sub grants, we only 
describe in this preamble the effect of the proposed regulation on 
contracts awarded by grantees.
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    These proposed regulations would also clarify that the definition 
of the word equipment, as used in this section, is the same as the 
definition of equipment in parts 74 and 80. Under that definition, a 
grantee may choose to treat as equipment items of useful value of less 
than $5,000 but, if it does so, all equipment above the lower threshold 
must be excluded from the modified total direct cost base.
    Example: If a grantee has a policy of capitalizing equipment that 
costs $3,000 or more, then it must exclude all equipment that has a 
useful value of $3,000 or more from the modified total direct cost base 
for the project.
Section 75.564 Reimbursement of Indirect Costs
    The Secretary proposes to amend Sec.  75.564(e) to clarify the 
determination of indirect costs for a training grant in the context of 
a grant to a group of organizations that apply together for a grant 
under the procedures in 34 CFR 75.127--75.129.

Executive Order 12866

1. Potential Costs and Benefits

    Under Executive Order 12866, we have assessed the potential costs 
and benefits--both quantitative and qualitative--of this regulatory 
action.
    The potential costs associated with the proposed regulations are 
those resulting from statutory requirements and those we have 
determined to be necessary for administering the Department's Direct 
Grant programs effectively and efficiently. In assessing the potential 
costs and benefits of this regulatory action, we have determined that 
the benefits would justify the costs.
Summary of Potential Costs and Benefits
    These regulations impose no additional burdens on applicants for 
discretionary grants or recipients of grants. The regulations merely 
specify the rate at which grantees can recover indirect costs during a 
temporary period when the grantee does not have an indirect cost rate 
recognized by the Federal Government and establish procedural 
requirements regarding temporary indirect cost rates. While these 
proposed regulations would prohibit a grantee from recovering indirect 
costs if the grantee has not submitted its indirect cost proposal 
within the ninety days after the date the Department issues the grant 
award notification, the burden and timing of submitting a proposal 
under the federal cost principles does not change at all.

2. Clarity of the Regulations

    Executive Order 12866 and the Presidential memorandum on ``Plain 
Language in Government Writing'' require each agency to write 
regulations that are easy to understand.
    The Secretary invites comments on how to make these proposed 
regulations easier to understand, including answers to questions such 
as the following:
     Are the requirements in the proposed regulations clearly 
stated?
     Do the proposed regulations contain technical terms or 
other wording that interferes with their clarity?
     Does the format of the proposed regulations (grouping and 
order of sections, use of headings, paragraphing, etc.) aid or reduce 
their clarity?
     Would the proposed regulations be easier to understand if 
we divided them into more (but shorter) sections? (A ``section'' is 
preceded by the symbol ``Sec.  '' and a numbered heading; for example, 
Sec.  75.210 General selection criteria.
     Could the description of the proposed regulations in the 
SUPPLEMENTARY INFORMATION section of this preamble be more helpful in 
making the proposed regulations easier to understand? If so, how?
     What else could we do to make the proposed regulations 
easier to understand?
    To send any comments that concern how the Department could make 
these proposed regulations easier to understand, see the instructions 
in the ADDRESSES section of this preamble.

Regulatory Flexibility Act Certification

    The Secretary certifies that these proposed regulations would not 
have a significant economic impact on a substantial number of small 
entities because the proposed regulations do not impose any new burdens 
at all.

Paperwork Reduction Act of 1995

    These proposed regulations do not contain any information 
collection requirements.

Intergovernmental Review

    These proposed regulations affect Direct Grant programs of the 
Department that are subject to Executive Order 12372 and the 
regulations in 34 CFR part 79. One of the objectives of the Executive 
order is to foster an intergovernmental partnership and to strengthen 
federalism. The Executive order relies on processes developed by State 
and local governments for coordination and review of proposed Federal 
financial assistance.
    This document provides early notification of our specific plans and 
actions for these programs.

Assessment of Educational Impact

    The Secretary particularly requests comments on whether these 
proposed regulations would require transmission of information that any 
other agency or authority of the United States gathers or makes 
available.

Electronic Access to This Document

    You may view this document, as well as all other Department of 
Education documents published in the Federal Register, in text or Adobe 
Portable Document Format (PDF) on the Internet at the following site: 
http://www.ed.gov/news/fedregister.
    To use PDF you must have Adobe Acrobat Reader, which is available 
free at this site. If you have questions about using PDF, call the U.S. 
Government Printing Office (GPO), toll free, at 1-888-293-6498; or in 
the Washington, DC, area at (202) 512-1530.

    Note: The official version of this document is the document 
published in the Federal Register. Free Internet access to the 
official

[[Page 29100]]

edition of the Federal Register and the Code of Federal Regulations 
is available on GPO Access at: http://www.gpoaccess.gov/nara/index.html.


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

List of Subjects in 34 CFR Part 75

    Administrative practice and procedure, Education Department, Grant 
programs--education, Grant administration, Performance reports, 
Reporting and recordkeeping requirements, Unobligated funds.

    Dated: May 18, 2007.
Margaret Spellings,
Secretary of Education.
    For the reasons discussed in the preamble, the Secretary proposes 
to amend part 75 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 and 3474, unless otherwise noted.

    2. Section 75.560 is amended by revising paragraphs (b) and (c), 
redesignating paragraph (d) as paragraph (e) and adding a new paragraph 
(d) to read as follows:


Sec.  75.560  General indirect cost rates; exceptions.

* * * * *
    (b) A grantee must have obtained a current indirect cost rate 
agreement from its cognizant agency, 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 within ninety days after 
the date the Department issues the grant award notification.
    (c) If a grantee does not have a federally recognized indirect cost 
rate agreement, the Secretary may permit the grantee to charge its 
grant for indirect costs at a temporary rate of ten percent of budgeted 
direct salaries and wages.
    (d)(1) If a grantee fails to submit an indirect cost rate proposal 
to its cognizant agency within the required ninety days, the grantee 
may not charge indirect costs to its grant from the end of the ninety-
day period until it obtains a federally recognized indirect cost rate 
agreement applicable to the grant.
    (2) If the Secretary determines that exceptional circumstances 
warrant continuation of a temporary indirect cost rate, the Secretary 
may authorize the grantee to continue charging indirect costs to its 
grant at the temporary rate specified in paragraph (c) of this section 
even though the grantee has not submitted its indirect cost rate 
proposal within the ninety-day period.
    (3) Once a grantee obtains a federally recognized indirect cost 
rate that is applicable to the affected grant, the grantee may use that 
indirect cost rate to claim indirect cost reimbursement for 
expenditures made on or after the date the grantee submitted its 
indirect cost proposal to its cognizant agency or the start of the 
project period, whichever is later. However, this authority is subject 
to the following limitations:
    (i) The total amount of funds recovered by the grantee under the 
federally recognized indirect cost rate is reduced by the amount of 
indirect costs recovered under the temporary indirect cost rate after 
the date the indirect cost proposal was submitted to the cognizant 
agency.
    (ii) The grantee must obtain prior approval from the Secretary to 
shift direct costs to indirect costs in order to recover indirect costs 
at a higher negotiated indirect cost rate.
    (iii) The grantee may not request additional funds to recover 
indirect costs that cannot be recovered by shifting direct costs to 
indirect costs.
* * * * *
    3. Section 75.562 is amended by revising paragraph (c) to read as 
follows:


Sec.  75.562  Indirect cost rates for educational training projects.

* * * * *
    (c)(1) Indirect cost reimbursement on a training grant is limited 
to the recipient's actual indirect costs, as determined in its 
negotiated indirect cost rate agreement, or eight percent of a modified 
total direct cost base, whichever amount is less.
    (2) For the purposes of this section, a modified total direct cost 
base consists of total direct costs minus the following:
    (i) The amount of each sub-award in excess of $25,000.
    (ii) Stipends.
    (iii) Tuition and related fees.
    (iv) Equipment, as defined in 34 CFR 74.2 and 80.3, as applicable.

    Note: If the grantee has established a threshold for equipment 
that is lower than $5,000 for other purposes, it must use that 
threshold to exclude equipment under the modified total direct cost 
base for the purposes of this section.

    (3) The eight percent indirect cost reimbursement limit specified 
in paragraph (c)(1) of this section also applies to sub-awards that 
fund training, as determined by the Secretary under paragraph (b) of 
this section.
    (4) 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.
    (5) 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.
* * * * *
    4. Section 75.564 is amended by revising paragraph (e) to read as 
follows:


Sec.  75.564  Reimbursement of indirect costs.

* * * * *
    (e)(1) Indirect costs for a group of eligible parties (See 
Sec. Sec.  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 
direct cost base for the grant in keeping with the terms of the 
applicant's federally recognized indirect cost rate agreement.
    (2) If a group of eligible parties applies for a training grant 
under the group application procedures in Sec. Sec.  75.127-75.129, the 
grant funds allocated among the members of the group are not considered 
sub-awards for the purposes of applying the indirect cost rate in 34 
CFR 75.562(c).

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

[FR Doc. E7-10036 Filed 5-23-07; 8:45 am]
BILLING CODE 4000-01-P