Certificate of Indirect (F&A) Costs
I declare that the foregoing is true and correct.
Institution of Higher Education:
Signature:
Name of Official:
Title:
Date of Execution:
[78 FR 78608, Dec. 26, 2013, as amended at 79 FR 75888, Dec. 19, 2014; 80 FR 54409, Sept. 10, 2015; 85 FR 49577, Aug. 13, 2020]
An indirect (F&A) cost rate is not binding upon the Federal Government if the most recent required proposal from the institution has not been certified. Where it is necessary to establish indirect (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 must unilaterally establish such rates. Such rates may be based upon audited historical data or such other data that have been furnished to the cognizant agency for indirect costs and for which it can be demonstrated that all unallowable costs have been excluded. When indirect (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. c. Certificate. The certificate required by this section must be in the following form:
This is to certify that to the best of my knowledge and belief:
(1) I have reviewed the indirect (F&A) cost proposal submitted herewith; (2) All costs included in this proposal [identify date] to establish billing or final indirect (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 subpart E of this part such as (without limitation): 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. 2 CFR Part 200 (up to date as of 6/14/2024)
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Appendix IV to Part 200—Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Nonprofit Organizations
A. General
B. Allocation of Indirect Costs and Determination of Indirect Cost Rates
1. General
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 § 200.413(d). 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 benefitting 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. “Major nonprofit organizations” are defined in paragraph (a) of § 200.414. See indirect cost rate reporting requirements in sections B.2.e and B.3.g of this Appendix. a. If a nonprofit 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 section B.2 of this Appendix. b. If 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 benefitting 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 Federal 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 section B.2 through B.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, must be so selected as to avoid inequities in the allocation of the costs.
Link to an amendment published at 89 FR 30206, Apr. 22, 2024. 2 CFR Part 200 (up to date as of 6/14/2024)
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2. Simplified Allocation Method
3. Multiple Allocation Base Method
a. Where an organization's major functions benefit from its indirect costs to approximately the same degree, the allocation of indirect costs may be accomplished by (i) separating the organization's total costs for the base period as either direct or indirect, and (ii) dividing the total allowable indirect costs (net of applicable credits) by an equitable distribution base. The result of this process is an indirect cost rate which is used to distribute indirect costs to individual 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 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 must exclude capital expenditures and unallowable costs. However, unallowable costs which represent activities must be included in the direct costs under the conditions described in § 200.413(e).
c. The distribution base may be total direct costs (excluding capital expenditures and other distorting items, such as subawards for $25,000 or more), direct salaries and wages, or other base which results in an equitable distribution. The distribution base must exclude participant support costs as defined in § 200.1.
d. Except where a special rate(s) is required in accordance with section B.5 of this Appendix, the indirect cost rate developed under the above principles is applicable to all Federal awards of the organization. If a special rate(s) is required, appropriate modifications must be made in order to develop the special rate(s).
e. For an organization that receives more than $10 million in direct Federal funding in a fiscal year, a breakout of the indirect cost component into two broad categories, Facilities and Administration as defined in paragraph (a) of § 200.414, is required. The rate in each case must 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. a. General. Where an organization's indirect costs benefit its major functions in varying degrees, indirect costs must be accumulated into separate cost groupings, as described in subparagraph b. Each grouping must then be allocated individually to benefitting functions by means of a base which best measures the relative benefits. The default allocation bases by cost pool are described in section B.3.c of this Appendix. b. Identification of indirect costs. Cost groupings must be established so as to permit the allocation of each grouping on the basis of benefits provided to the major functions. Each grouping must 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 section A.3 of this Appendix. The indirect cost pools are defined as follows:
2 CFR Part 200 (up to date as of 6/14/2024)
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(1) Depreciation. 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 § 200.436.
(2) Interest. Interest on debt associated with certain buildings, equipment and capital improvements are computed in accordance with § 200.449. (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 must also include its allocable share of fringe benefit costs, depreciation, and interest costs. (4) General administration and general expenses. 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 must also include its allocable share of fringe benefit costs, operation and maintenance expense, depreciation, 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.
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 must 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 as described in § 200.413. Items such as office supplies, postage, local telephone costs, periodicals and memberships should normally be treated as indirect costs. c. Allocation bases. Actual conditions must be taken into account in selecting the base to be used in allocating the expenses in each grouping to benefitting 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 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 benefitted, the allocation must be made in that manner. When the expenses in a cost grouping are more general in nature, the allocation must 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 must 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 2 CFR Part 200 (up to date as of 6/14/2024)
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would not increase the costs charged to Federal awards. The results of special cost studies (such as an engineering utility study) must not be used to determine and allocate the indirect costs to Federal awards.
(1) Depreciation. Depreciation expenses must be allocated in the following manner:
(a) Depreciation on buildings used exclusively in the conduct of a single function, and on capital improvements and equipment used in such buildings, must be assigned to that function.
(b) Depreciation on buildings used for more than one function, and on capital improvements and equipment used in such buildings, must 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 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) must be treated as follows. The cost of each jointly used unit of space must be allocated to the benefitting functions on the basis of:
(i) the employees and other users on a full-time equivalent (FTE) basis or salaries and wages of those individual functions benefitting from the use of that space; or
(ii) organization-wide employee FTEs or salaries and wages applicable to the benefitting functions of the organization.
(d) Depreciation on certain capital improvements to land, such as paved parking areas, fences, sidewalks, and the like, not included in the cost of buildings, must 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 must be allocated in the same manner as the depreciation on the buildings, equipment and capital equipment to which the interest relates. (3) Operation and maintenance expenses. Operation and maintenance expenses must be allocated in the same manner as the depreciation.
(4) General administration and general expenses. General administration and general expenses must be allocated to benefitting functions based on modified total costs (MTC).
The MTC is the modified total direct costs (MTDC), as described in § 200.1, plus the allocated indirect cost proportion. 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 must then be allocated to benefitting functions based on MTC.
d. Order of distribution.
(1) Indirect cost categories consisting of depreciation, interest, operation and maintenance, and general administration and general expenses must be allocated in that order to the remaining indirect cost categories as well as to the major functions of the organization. 2 CFR Part 200 (up to date as of 6/14/2024)
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4. Direct Allocation Method
Other cost categories should be allocated in the order determined to be most appropriate by the organization. This order of allocation does not apply if cross allocation of costs is made as provided in section B.3.d.2 of this Appendix.
(2) Normally, an indirect cost category will be considered closed once it has been allocated to other cost objectives, and costs must 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 section B.5 of this Appendix, the separate groupings of indirect costs allocated to each major function must be aggregated and treated as a common pool for that function. The costs in the common pool must then be distributed to individual Federal awards included in that function by use of a single indirect cost rate. f. Distribution basis. Indirect costs must be distributed to applicable Federal awards and other benefitting activities within each major function on the basis of MTDC (see definition in § 200.1).
g. Individual Rate Components. An indirect cost rate must be determined for each separate indirect cost pool developed. The rate in each case must 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 must include development of the rate for each indirect cost pool as well as the overall indirect cost rate. The indirect cost pools must be classified within two broad categories: “Facilities” and “Administration,” as described in § 200.414(a).
a. Some nonprofit organizations treat all costs as direct costs except general administration and general expenses. These organizations generally separate their costs into three basic categories:
(i) General administration and general expenses,
(ii) fundraising, and
(iii) other direct functions (including projects performed under Federal awards). Joint costs, such as depreciation, rental costs, operation and maintenance of facilities, telephone expenses, and the like are prorated individually as direct costs to each category and to each Federal 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 Federal 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 2 CFR Part 200 (up to date as of 6/14/2024)
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5. Special Indirect Cost Rates
C. Negotiation and Approval of Indirect Cost Rates
1. Definitions
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 must be computed in the same manner as that described in section B.2 of this Appendix.
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 Federal award or it may consist of work under a group of Federal awards performed in a common environment. These factors may include the physical location of the work, the level of administrative support required, the nature of the facilities or other resources employed, the scientific disciplines or technical skills involved, the organizational arrangements used, or any combination thereof. When a particular segment of work is performed in an environment which appears to generate a significantly different level of indirect costs, provisions should be made for a separate indirect cost pool applicable to such work. The separate indirect cost pool should be developed during the course of the regular allocation process, and the separate indirect cost rate resulting therefrom should be used, provided it is determined that (i) the rate differs significantly from that which would have been obtained under sections B.2, B.3, and B.4 of this Appendix, and (ii) the volume of work to which the rate would apply is material.
As used in this section, the following terms have the meanings set forth in this section:
a. Cognizant agency for indirect costs means the Federal agency responsible for negotiating and approving indirect cost rates for a nonprofit 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. 2 CFR Part 200 (up to date as of 6/14/2024)
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2. Negotiation and Approval of Rates
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 Federal 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, Federal award, 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. a. Unless different arrangements are agreed to by the Federal agencies concerned, the Federal agency with the largest dollar value of Federal awards directly funded to an organization will be designated as the cognizant agency for indirect costs 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 nonprofit organization, the assignment will not be changed unless there is a shift in the dollar volume of the Federal awards directly funded to the organization for at least three years. All concerned Federal agencies must 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 Federal awards necessitate special indirect cost rates in accordance with section B.5 of this Appendix, it will, prior to the time the rates are negotiated, notify the cognizant agency for indirect costs. (See also § 200.414.) If the nonprofit does not receive any funding from any Federal agency, the pass-through entity is responsible for the negotiation of the indirect cost rates in accordance with § 200.332(a)(4).
b. Except as otherwise provided in § 200.414(f), a nonprofit organization which has not previously established an indirect cost rate with a Federal agency must submit its initial indirect cost proposal immediately after the organization is advised that a Federal award will be made and, in no event, later than three months after the effective date of the Federal award. c. Unless approved by the cognizant agency for indirect costs in accordance with § 200.414(g), organizations that have previously established indirect cost rates must submit a new indirect cost proposal to the cognizant agency for indirect costs within six months after the close of each fiscal year.
d. A predetermined rate may be negotiated for use on Federal 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, must not be negotiated if
(i) all or a substantial portion of the organization's Federal awards are expected to expire before the carry-forward adjustment can be made;
2 CFR Part 200 (up to date as of 6/14/2024)
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D. Certification of Indirect (F&A) Costs
Certificate of Indirect (F&A) Costs
(ii) the mix of Federal and non-Federal work at the organization is too erratic to permit an equitable carry-forward adjustment; or
(iii) the organization's operations fluctuate significantly from year to year. f. Provisional and final rates must be negotiated where neither predetermined nor fixed rates are appropriate. Predetermined or fixed rates may replace provisional rates at any time prior to the close of the organization's fiscal year. If that event does not occur, 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.
g. The results of each negotiation must be formalized in a written agreement between the cognizant agency for indirect costs and the nonprofit organization. The cognizant agency for indirect costs must make available 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 for indirect costs and the nonprofit organization, the dispute must be resolved in accordance with the appeals procedures of the cognizant agency for indirect costs. 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.
(1) Required Certification. No proposal to establish indirect (F&A) cost rates must be acceptable unless such costs have been certified by the nonprofit organization using the Certificate of Indirect (F&A) Costs set forth in section j. of this appendix. The certificate must be signed on behalf of the organization by an individual at a level no lower than vice president or chief financial officer for the organization.
(2) Each indirect cost rate proposal must be accompanied by a certification in the following form:
This is to certify that to the best of my knowledge and belief:
(1) I have reviewed the indirect (F&A) cost proposal submitted herewith; (2) All costs included in this proposal [identify date] to establish billing or final indirect (F&A) costs rate for [identify period covered by rate] are allowable in accordance with the requirements of the Federal awards to which they apply and with subpart E of this part. (3) This proposal does not include any costs which are unallowable under subpart E of this part such as (without limitation): 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 awards on the basis of a beneficial or causal relationship between the expenses incurred and the Federal awards to which they are allocated in accordance with applicable requirements. 2 CFR Part 200 (up to date as of 6/14/2024)
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I declare that the foregoing is true and correct.
Nonprofit Organization:
Signature:
Name of Official:
Title:
Date of Execution:
[78 FR 78608, Dec. 26, 2013, as amended at 80 FR 54410, Sept. 10, 2015; 85 FR 49579, Aug. 13, 2020] Appendix V to Part 200—State/Local Governmentwide Central Service Cost Allocation Plans A. General
B. Definitions
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 Health and Human Services entitled “A Guide for State, Local and Indian Tribal Governments: Cost Principles and Procedures for Developing Cost Allocation Plans and Indirect Cost Rates for Agreements with the Federal Government.” A copy of this brochure may be obtained from the HHS Cost Allocation Services or at their website.
1. Agency or operating agency means an organizational unit or sub-division within a governmental unit that is responsible for the performance or administration of Federal awards or activities of the governmental unit.
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. Billed central services means central services that are billed to benefitted agencies 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.
4. Cognizant agency for indirect costs is defined in § 200.1. The determination of cognizant agency for indirect costs for states and local governments is described in section F.1. 2 CFR Part 200 (up to date as of 6/14/2024)
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C. Scope of the Central Service Cost Allocation Plans
D. Submission Requirements
E. Documentation Requirements for Submitted Plans
1. General
5. Major local government means local government that receives more than $100 million in direct Federal awards subject to this Part.
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. omitted from the plan will not be reimbursed.
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) 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 (b) 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 major local government is also required to submit a plan to its cognizant agency for indirect costs annually.
3. All other local governments claiming central service costs must develop a plan in accordance with the requirements described in this Part 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 for indirect costs. Where a local government only receives funds as a subrecipient, the pass-through entity will be responsible for monitoring the subrecipient'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 for indirect costs on a case-by-case basis.
The documentation requirements described in this section may be modified, expanded, or reduced by the cognizant agency for indirect costs 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. 2 CFR Part 200 (up to date as of 6/14/2024)
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2. Allocated Central Services
3. Billed Services
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 benefitting 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 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.
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. must also be included.
a. General. The information described in this section must be provided for all billed central 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 must 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 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 part, with an explanation of how variances will be handled. (2) Revenues must 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 must be provided. Expenses must be broken out by object cost categories (e.g., salaries, supplies, etc.).
c. Self-insurance funds. For each self-insurance fund, the plan must 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 2 CFR Part 200 (up to date as of 6/14/2024)
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4. Required Certification
CERTIFICATE OF COST ALLOCATION PLAN
Governmental Unit:
Signature:
Name of Official:
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 (1) submitted and adjudicated but not paid,
(2) submitted but not adjudicated, and
(3) incurred but not submitted must be identified and explained. d. Fringe benefits. For fringe benefit costs, the plan must 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 must 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.
Each central service cost allocation plan will be accompanied by a certification in the following form:
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 this Part 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 Federal 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.
2 CFR Part 200 (up to date as of 6/14/2024)
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Title:
Date of Execution:
F. Negotiation and Approval of Central Service Plans
1. Federal Cognizant Agency for Indirect Costs Assignments for Cost Negotiation
2. Review
In general, unless different arrangements are agreed to by the concerned Federal agencies, for central service cost allocation plans, the cognizant agency responsible for review and approval is the Federal agency with the largest dollar value of total Federal awards with a governmental unit. For indirect cost rates and departmental indirect cost allocation plans, the cognizant agency is the Federal agency with the largest dollar value of direct Federal awards with a governmental unit or component, as appropriate. Once designated as the cognizant agency for indirect costs, the Federal agency must remain so for a period of five years. In addition, the following Federal agencies continue to be responsible for the indicated governmental entities:
Department of Health and Human Services —Public assistance and state-wide cost allocation plans for all states (including the District of Columbia and Puerto Rico), state and local hospitals, libraries and health districts.
Department of the Interior —Indian tribal governments, territorial governments, and state and local park and recreational districts.
Department of Labor —State and local labor departments.
Department of Education —School districts and state and local education agencies.
Department of Agriculture —State and local agriculture departments.
Department of Transportation —State and local airport and port authorities and transit districts.
Department of Commerce —State and local economic development districts.
Department of Housing and Urban Development —State and local housing and development districts.
Environmental Protection Agency —State and local water and sewer districts.
All proposed central service cost allocation plans that are required to be submitted will be reviewed, negotiated, and approved by the cognizant agency for indirect costs on a timely basis. The cognizant agency for indirect costs 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 awarding agency has reason to believe that special operating factors affecting its Federal awards necessitate special consideration, the funding agency will, prior to the time the plans are negotiated, notify the cognizant agency for indirect costs. 2 CFR Part 200 (up to date as of 6/14/2024)
Uniform Administrative Requirements, Cost Principles, and Audit... 2 CFR Appendix-V-to-Part-200 F.1. “Department of Health and Human Services”
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3. Agreement
4. Adjustments
G. Other Policies
1. Billed Central Service Activities
2. Working Capital Reserves
3. Carry-Forward Adjustments of Allocated Central Service Costs The results of each negotiation must be formalized in a written agreement between the cognizant agency for indirect costs 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 must be made available to all Federal agencies for their use.
Negotiated cost allocation plans based on a proposal later found to have included costs that: (a) are unallowable (i) as specified by law or regulation, (ii) as identified in subpart F, General Provisions for selected Items of Cost of this Part, or (iii) by the terms and conditions of Federal awards, or (b) are unallowable because they are clearly not allocable to Federal awards, must be adjusted, or a refund must be made at the option of the cognizant agency for indirect costs, including earned or imputed interest from the date of transfer and debt interest, if applicable, chargeable in accordance with applicable Federal cognizant agency for indirect costs regulations. Adjustments or cash refunds may include, at the option of the cognizant agency for indirect costs, earned or imputed interest from the date of expenditure and delinquent debt interest, if applicable, chargeable in accordance with applicable cognizant agency claims collection regulations. These adjustments or refunds are designed to correct the plans and do not constitute a reopening of the negotiation.
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.
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 calendar days cash expenses for normal operating purposes is considered reasonable. A working capital reserve exceeding 60 calendar days may be approved by the cognizant agency for indirect costs in exceptional cases.
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 2 CFR Part 200 (up to date as of 6/14/2024)
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Protection Agency”
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4. Adjustments of Billed Central Services
5. Records Retention
6. Appeals
7. OMB Assistance
To the extent that problems are encountered among the Federal agencies 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.
[78 FR 78608, Dec. 26, 2013, as amended at 80 FR 54410, Sept. 10, 2015; 85 FR 49581, Aug. 13, 2020] 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.
Billing rates used to charge Federal awards must 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) a cash refund including earned or imputed interest from the date of transfer and debt interest, if applicable, chargeable in accordance with applicable Federal cognizant agency for indirect costs regulations to the Federal Government for the Federal share of the adjustment, (b) credits to the amounts charged to the individual programs, (c) adjustments to future billing rates, or (d) 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.
Adjustment methods may include, at the option of the cognizant agency, earned or imputed interest from the date of expenditure and delinquent debt interest, if applicable, chargeable in accordance with applicable cognizant agency claims collection regulations.
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 subpart D of this part.
If a dispute arises in the negotiation of a plan between the cognizant agency for indirect costs and the governmental unit, the dispute must be resolved in accordance with the appeals procedures of the cognizant agency for indirect costs.
2 CFR Part 200 (up to date as of 6/14/2024)
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Protection Agency”
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Appendix VI to Part 200—Public Assistance Cost Allocation Plans A. General
B. Definitions
C. Policy
D. Submission, Documentation, and Approval of Public Assistance Cost Allocation Plans Federally-financed programs administered by state public assistance agencies are funded predominately by the Department of Health and Human Services (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 awarding agencies whose programs are administered by a state public assistance agency. Major federally-financed programs typically administered by state public assistance agencies include: Temporary Aid to Needy Families (TANF), Medicaid, Food Stamps, Child Support Enforcement, Adoption Assistance and Foster Care, and Social Services Block Grant.
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 contractor payments, food stamps, and payments for services and goods provided directly to program recipients.
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.
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 section 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 calendar quarter following the event that required the amendment, unless another date is specifically approved by HHS. HHS, as the cognizant agency for indirect costs 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.
2 CFR Part 200 (up to date as of 6/14/2024)
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E. Review of Implementation of Approved Plans
F. Unallowable Costs
Claims developed under approved cost allocation plans will be based on allowable costs as identified in this Part.
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) a cash refund, (b) offset to a subsequent claim, or (c) credits to the amounts charged to individual Federal awards. Cash refunds, offsets, and credits may include at the option of the cognizant agency for indirect cost, earned or imputed interest from the date of expenditure and delinquent debt interest, if applicable, chargeable in accordance with applicable cognizant agency for indirect cost claims collection regulations.
[78 FR 78608, Dec. 26, 2013, as amended at 85 FR 49581, Aug. 13, 2020] Appendix VII to Part 200—States and Local Government and Indian Tribe Indirect Cost Proposals
A. General
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 Federal awarding agencies, single audits, or audits conducted by the cognizant agency for indirect costs.
2. Where inappropriate charges affecting more than one Federal awarding 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 Federal awarding agencies, the dispute must be resolved in accordance with the appeals procedures set out in 45 CFR Part 16. Disputes involving only one Federal awarding agency will be resolved in accordance with the Federal awarding agency's appeal process.
4. To the extent that problems are encountered among the Federal awarding agencies 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.
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.
Link to an amendment published at 89 FR 30207, Apr. 22, 2024. 2 CFR Part 200 (up to date as of 6/14/2024)
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B. Definitions
2. Indirect costs include
(a) the indirect costs originating in each department or agency of the governmental unit carrying out Federal awards and
(b) the costs of central governmental services distributed through the central service cost allocation plan (as described in Appendix V 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 States 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 HHS Cost Allocation Services or at their website.
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 non-Federal entity accounting and personnel services performed within the non-Federal entity, depreciation on buildings and equipment, the costs of operating and maintaining facilities.
5. This Appendix does not apply to state public assistance agencies. These agencies should refer instead to Appendix VI to this part.
1. 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 Federal award bearing a fair share of the indirect costs in reasonable relation to the benefits received from the costs.
2. 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, must be so selected as to avoid inequities in the allocation of costs.
3. Cognizant agency for indirect costs means the Federal agency responsible for reviewing and approving the governmental unit's indirect cost rate(s) on the behalf of the Federal Government. The cognizant agency for indirect costs assignment is described in Appendix V, section F.
4. 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.
5. 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 rate is carried forward as an adjustment to the rate computation of a subsequent period.
2 CFR Part 200 (up to date as of 6/14/2024)
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C. Allocation of Indirect Costs and Determination of Indirect Cost Rates
1. General
2. Simplified Method
6. Indirect cost pool is the accumulated costs that jointly benefit two or more programs or other cost objectives.
7. 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.
8. 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.
9. 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 for indirect costs. 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.
10. 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.
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. 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 Federal 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. a. Where a non-Federal entity's major functions benefit from its indirect costs to approximately the same degree, the allocation of indirect costs may be accomplished by 2 CFR Part 200 (up to date as of 6/14/2024)
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3. Multiple Allocation Base Method
(1) classifying the non-Federal entity's total costs for the base period as either direct or indirect, and
(2) 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 must 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
(1) total direct costs (excluding capital expenditures and other distorting items, such as passthrough funds, subcontracts in excess of $25,000, participant support costs, etc.), (2) direct salaries and wages, or
(3) another base which results in an equitable distribution. a. Where a non-Federal entity's indirect costs benefit its major functions in varying degrees, such costs must be accumulated into separate cost groupings. Each grouping must 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 must 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:
(1) 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 (2) it is common to the benefitted functions during the base period. 2 CFR Part 200 (up to date as of 6/14/2024)
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4. Special Indirect Cost Rates
D. Submission and Documentation of Proposals
1. Submission of Indirect Cost Rate Proposals
d. Except where a special indirect cost rate(s) is required in accordance with paragraph (C)(4) of this Appendix, the separate groupings of indirect costs allocated to each major function must be aggregated and treated as a common pool for that function. The costs in the common pool must 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 (1) total direct costs (excluding capital expenditures and other distorting items such as passthrough funds, subawards in excess of $25,000, participant support costs, etc.), (2) direct salaries and wages, or
(3) 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.
a. In some instances, a single indirect cost rate for all activities of a non-Federal entity 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 Federal 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 Federal 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:
(1) The rate differs significantly from the rate which would have been developed under paragraphs (C)(2) and (C)(3) of this Appendix, and
(2) the Federal award to which the rate would apply is material in amount. b. Where Federal statutes restrict the reimbursement of certain indirect costs, it may be necessary to develop a special rate for the affected Federal award. Where a “restricted rate” is required, the same 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.
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 § 200.334. 2 CFR Part 200 (up to date as of 6/14/2024)
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2. Documentation of Proposals
3. Required certification.
b. A governmental department or agency unit that receives more than $35 million in direct Federal funding must submit its indirect cost rate proposal to its cognizant agency for indirect costs.
Other governmental department or agency must develop an indirect cost proposal in accordance with the requirements of this Part and maintain the proposal and related supporting documentation for audit. These governmental departments or agencies are not required to submit their proposals unless they are specifically requested to do so by the cognizant agency for indirect costs. Where a non-Federal entity only receives funds as a subrecipient, the pass-through entity will be responsible for negotiating and/or monitoring the subrecipient's indirect costs.
c. Each Indian tribal government desiring reimbursement of indirect costs must submit its indirect cost proposal to the Department of the Interior (its cognizant agency for indirect costs). 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 agency for indirect costs. 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.
The following must 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. 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 for indirect costs and is available to the funding agency. b. A copy of the financial data (financial statements, comprehensive annual financial 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 for indirect costs 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.)
Each indirect cost rate proposal must be accompanied by a certification in the following form:
2 CFR Part 200 (up to date as of 6/14/2024)
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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:
Governmental Unit:
Signature:
Name of Official:
Title:
Date of Execution:
E. Negotiation and Approval of Rates
(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 the provisions of this Part. Unallowable costs have been adjusted for in allocating costs as indicated in the indirect cost proposal
(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.
1. Indirect cost rates will be reviewed, negotiated, and approved by the cognizant 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 awarding agency has reason to believe that special operating factors affecting its Federal awards necessitate special indirect cost rates, the funding agency will, prior to the time the rates are negotiated, notify the cognizant agency for indirect costs.
2. The use of predetermined rates, if allowed, is encouraged where the cognizant agency for indirect costs has reasonable assurance based on past experience and reliable projection of the non-Federal entity'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 must be formalized in a written agreement between the cognizant agency for indirect costs 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 must be made available to all Federal agencies for their use.
2 CFR Part 200 (up to date as of 6/14/2024)
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F. Other Policies
1. Fringe Benefit Rates
2. Billed Services Provided by the Recipient Agency
3. Indirect Cost Allocations Not Using Rates
4. Appeals
4. Refunds must be made if proposals are later found to have included costs that (a) are unallowable
(i) as specified by law or regulation,
(ii) as identified in § 200.420, or
(iii) by the terms and conditions of Federal awards, or (b) 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).
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 recipient 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 recipient agency level (i.e., the agency specifically identifies fringe benefit costs to individual employees), the governmental unit should so advise the cognizant agency for indirect costs.
In some cases, governmental departments or agencies (components of the governmental unit) provide and bill for services similar to those covered by central service cost allocation plans (e.g., computer centers). Where this occurs, the governmental departments or agencies (components of the governmental unit)should be guided by the requirements in Appendix V relating to the development of billing rates and documentation requirements, and should advise the cognizant agency for indirect costs 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.
In certain situations, governmental departments or agencies (components of the governmental unit), because of the nature of their Federal 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 indirect costs for review, negotiation, and approval. 2 CFR Part 200 (up to date as of 6/14/2024)
Uniform Administrative Requirements, Cost Principles, and Audit... 2 CFR Appendix-VII-to-Part-200 4. 2 CFR Appendix-VII-to-Part-200 4.(b) (enhanced display) page 208 of 212
5. Collection of Unallowable Costs and Erroneous Payments
6. OMB Assistance
To the extent that problems are encountered among the Federal agencies 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.
[78 FR 78608, Dec. 26, 2013, as amended at 79 FR 75889, Dec. 19, 2014; 85 FR 49581, Aug. 13, 2020] Appendix VIII to Part 200—Nonprofit Organizations Exempted From Subpart E of Part 200 If a dispute arises in a negotiation of an indirect cost rate (or other rate) between the cognizant agency for indirect costs and the governmental unit, the dispute must be resolved in accordance with the appeals procedures of the cognizant agency for indirect costs.
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 cognizant agency for indirect costs regulations).
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
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. Noblis, Inc., Falls Church, Virginia
19. National Radiological Astronomy Observatory, Green Bank, West Virginia
20. National Renewable Energy Laboratory, Golden, Colorado 2 CFR Part 200 (up to date as of 6/14/2024)
Uniform Administrative Requirements, Cost Principles, and Audit... 2 CFR Appendix-VIII-to-Part-200 1. 2 CFR Appendix-VIII-to-Part-200 20. (enhanced display) page 209 of 212
[78 FR 78608, Dec. 26, 2013, as amended at 85 FR 49582, Aug. 13, 2020] Appendix IX to Part 200—Hospital Cost Principles
Until such time as revised guidance is proposed and implemented for hospitals, the existing principles located at 45 CFR part 75 Appendix IX, entitled “Principles for Determining Cost Applicable to Research and Development Under Grants and Contracts with Hospitals,” remain in effect. [86 FR 10440, Feb. 22, 2021]
Appendix X to Part 200—Data Collection Form (Form SF-SAC) The Data Collection Form SF-SAC is available on the FAC Web site.
Appendix XI to Part 200—Compliance Supplement
The compliance supplement is available on the OMB website. [85 FR 49582, Aug. 13, 2020]
Appendix XII to Part 200—Award Term and Condition for Recipient Integrity and Performance Matters
A. Reporting of Matters Related to Recipient Integrity and Performance
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. Nonprofit insurance companies, such as Blue Cross and Blue Shield Organizations
33. Other nonprofit organizations as negotiated with Federal awarding agencies Link to an amendment published at 89 FR 30207, Apr. 22, 2024.
Link to an amendment published at 89 FR 30207, Apr. 22, 2024. 2 CFR Part 200 (up to date as of 6/14/2024)
Uniform Administrative Requirements, Cost Principles, and Audit... 2 CFR Appendix-VIII-to-Part-200 21. 2 CFR Appendix-VIII-to-Part-200 33. (enhanced display) page 210 of 212
1. General Reporting Requirement
2. Proceedings About Which You Must Report
3. Reporting Procedures
If the total value of your currently active grants, cooperative agreements, and procurement contracts from all Federal awarding agencies exceeds $10,000,000 for any period of time during the period of performance of this Federal award, then you as the recipient during that period of time must maintain the currency of information reported to the System for Award Management (SAM) that is made available in the designated integrity and performance system (currently the Federal Awardee Performance and Integrity Information System (FAPIIS)) about civil, criminal, or administrative proceedings described in paragraph 2 of this award term and condition. This is a statutory requirement under section 872 of Public Law 110-417, as amended (41 U.S.C. 2313). As required by section 3010 of Public Law 111-212, all information posted in the designated integrity and performance system on or after April 15, 2011, except past performance reviews required for Federal procurement contracts, will be publicly available.
Submit the information required about each proceeding that:
a. Is in connection with the award or performance of a grant, cooperative agreement, or procurement contract from the Federal Government;
b. Reached its final disposition during the most recent five-year period; and c. Is one of the following:
(1) A criminal proceeding that resulted in a conviction, as defined in paragraph 5 of this award term and condition;
(2) A civil proceeding that resulted in a finding of fault and liability and payment of a monetary fine, penalty, reimbursement, restitution, or damages of $5,000 or more; (3) An administrative proceeding, as defined in paragraph 5. of this award term and condition, that resulted in a finding of fault and liability and your payment of either a monetary fine or penalty of $5,000 or more or reimbursement, restitution, or damages in excess of $100,000; or
(4) Any other criminal, civil, or administrative proceeding if:
(i) It could have led to an outcome described in paragraph 2.c.(1), (2), or (3) of this award term and condition;
(ii) It had a different disposition arrived at by consent or compromise with an acknowledgment of fault on your part; and
(iii) The requirement in this award term and condition to disclose information about the proceeding does not conflict with applicable laws and regulations. 2 CFR Part 200 (up to date as of 6/14/2024)
Uniform Administrative Requirements, Cost Principles, and Audit... 2 CFR Appendix-XII-to-Part-200 A.2.a. 2 CFR Appendix-XII-to-Part-200 A.2.c.(4)(iii) (enhanced display) page 211 of 212
4. Reporting Frequency
5. Definitions
[80 FR 43310, July 22, 2015, as amended at 85 FR 49582, Aug. 13, 2020] Enter in the SAM Entity Management area the information that SAM requires about each proceeding described in paragraph 2 of this award term and condition. You do not need to submit the information a second time under assistance awards that you received if you already provided the information through SAM because you were required to do so under Federal procurement contracts that you were awarded.
During any period of time when you are subject to the requirement in paragraph 1 of this award term and condition, you must report proceedings information through SAM for the most recent five year period, either to report new information about any proceeding(s) that you have not reported previously or affirm that there is no new information to report. Recipients that have Federal contract, grant, and cooperative agreement awards with a cumulative total value greater than $10,000,000 must disclose semiannually any information about the criminal, civil, and administrative proceedings.
For purposes of this award term and condition:
a. Administrative proceeding means a non-judicial process that is adjudicatory in nature in order to make a determination of fault or liability (e.g., Securities and Exchange Commission Administrative proceedings, Civilian Board of Contract Appeals proceedings, and Armed Services Board of Contract Appeals proceedings). This includes proceedings at the Federal and State level but only in connection with performance of a Federal contract or grant. It does not include audits, site visits, corrective plans, or inspection of deliverables. b. Conviction, for purposes of this award term and condition, means a judgment or conviction of a criminal offense by any court of competent jurisdiction, whether entered upon a verdict or a plea, and includes a conviction entered upon a plea of nolo contendere. c. Total value of currently active grants, cooperative agreements, and procurement contracts includes—
(1) Only the Federal share of the funding under any Federal award with a recipient cost share or match; and
(2) The value of all expected funding increments under a Federal award and options, even if not yet exercised.
B. [Reserved]
2 CFR Part 200 (up to date as of 6/14/2024)
Uniform Administrative Requirements, Cost Principles, and Audit... 2 CFR Appendix-XII-to-Part-200 A.5.a. 2 CFR Appendix-XII-to-Part-200 B. (enhanced display) page 212 of 212
Title 24 —Housing and Urban Development
Subtitle A —Office of the Secretary, Department of Housing and Urban Development Part 85 Administrative Requirements for Grants and Cooperative Agreements to State, Local and Federally Recognized Indian Tribal Governments § 85.1 Applicability of and cross reference to 2 CFR part 200.
PART 85—ADMINISTRATIVE REQUIREMENTS FOR GRANTS AND
COOPERATIVE AGREEMENTS TO STATE, LOCAL AND FEDERALLY
RECOGNIZED INDIAN TRIBAL GOVERNMENTS
Authority: 42 U.S.C. 3535(d).
Source: 53 FR 8068, 8087, Mar. 11, 1988, unless otherwise noted. § 85.1 Applicability of and cross reference to 2 CFR part 200. [79 FR 76079, Dec. 19, 2014]
This content is from the eCFR and is authoritative but unofficial. (a) Federal awards with State, local and Indian tribal governments are subject to the Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards at 2 CFR part 200. (b) Federal awards made prior to December 26, 2014 will continue to be governed by the regulations in effect and codified in 24 CFR part 85 (2013 edition) or as provided by the terms of the Federal award. Where the terms of a Federal award made prior to December 26, 2014, state that the award will be subject to regulations as may be amended, the Federal award shall be subject to 2 CFR part 200. 24 CFR Part 85 (up to date as of 6/14/2024)
Administrative Requirements for Grants and Cooperative Agreements to... 24 CFR Part 85 (June 14, 2024)
24 CFR 85.1(b) (enhanced display) page 1 of 1
19 Exhibit D
Subpart K of Title 24 of the Code of Federal Regulations relating to CDBG Program Regulations
Title 24 —Housing and Urban Development
Subtitle B —Regulations Relating to Housing and Urban Development Chapter V —Office of Assistant Secretary for Community Planning and Development, Department of Housing and Urban Development
Subchapter C —Community Facilities
Part 570 —Community Development Block Grants
Authority: 12 U.S.C. 1701x, 1701 x-1; 42 U.S.C. 3535(d) and 5301-5320.
Source: 40 FR 24693, June 9, 1975, unless otherwise noted.
Subpart K Other Program Requirements
§ 570.600 General.
§ 570.601 Public Law 88-352 and Public Law 90-284; affirmatively furthering fair housing; Executive Order 11063.
§ 570.602 Section 109 of the Act.
§ 570.603 Labor standards.
§ 570.604 Environmental standards.
§ 570.605 National Flood Insurance Program.
§ 570.606 Displacement, relocation, acquisition, and replacement of housing. § 570.607 Employment and contracting opportunities.
§ 570.608 Lead-based paint.
§ 570.609 Use of debarred, suspended or ineligible contractors or subrecipients. § 570.610 Uniform administrative requirements, cost principles, and audit requirements for Federal awards.
§ 570.611 Conflict of interest.
§ 570.612 Executive Order 12372.
§ 570.613 Eligibility restrictions for certain resident aliens. § 570.614 Architectural Barriers Act and the Americans with Disabilities Act. § 570.615 Housing counseling.
Subpart K—Other Program Requirements
Source: 53 FR 34456, Sept. 6, 1988, unless otherwise noted. § 570.600 General.
This content is from the eCFR and is authoritative but unofficial. (a) This subpart K enumerates laws that the Secretary will treat as applicable to grants made under section 106 of the Act, other than grants to states made pursuant to section 106(d) of the Act, for purposes of the Secretary's determinations under section 104(e)(1) of the Act, including statutes expressly made applicable by the Act and certain other statutes and Executive Orders for which the Secretary has 24 CFR Part 570 Subpart K (up to date as of 6/14/2024)
Other Program Requirements
24 CFR Part 570 Subpart K (June 14, 2024)
24 CFR 570.600(a) (enhanced display) page 1 of 9
[53 FR 34456, Sept. 6, 1988, as amended at 61 FR 11477, Mar. 20, 1996; 72 FR 12536, Mar. 15, 2007] § 570.601 Public Law 88-352 and Public Law 90-284; affirmatively furthering fair housing; Executive Order 11063.
[61 FR 11477, Mar. 20, 1996, as amended at 80 FR 42368, July 16, 2015; 85 FR 47911, Aug. 7, 2020; 86 FR 30792, June 10, 2021] § 570.602 Section 109 of the Act.
Section 109 of the Act requires that no person in the United States shall on the grounds of race, color, national origin, religion, or sex be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance made available pursuant to the Act. Section 109 also directs that the prohibitions against discrimination on the basis of age under the Age Discrimination Act and the prohibitions against discrimination on the basis of disability under Section 504 shall apply to programs or activities receiving Federal financial assistance under Title I programs. The policies and procedures necessary to ensure enforcement of section 109 are codified in 24 CFR part 6. [64 FR 3802, Jan. 25, 1999]
enforcement responsibility. This subpart K applies to grants made under the Insular Areas Program in § 570.405 and § 570.440 with the exception of § 570.612. The absence of mention herein of any other statute for which the Secretary does not have direct enforcement responsibility is not intended to be taken as an indication that, in the Secretary's opinion, such statute or Executive Order is not applicable to activities assisted under the Act. For laws that the Secretary will treat as applicable to grants made to states under section 106(d) of the Act for purposes of the determination required to be made by the Secretary pursuant to section 104(e)(2) of the Act, see § 570.487. (b) This subpart also sets forth certain additional program requirements which the Secretary has determined to be applicable to grants provided under the Act as a matter of administrative discretion. (c) In addition to grants made pursuant to section 106(b) and 106(d)(2)(B) of the Act (subparts D and F, respectively), the requirements of this subpart K are applicable to grants made pursuant to sections 107 and 119 of the Act (subparts E and G, respectively), and to loans guaranteed pursuant to subpart M. (a) The following requirements apply according to sections 104(b) and 107 of the Act:
(1) Public Law 88-352, which is title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d et seq.), and implementing regulations in 24 CFR part 1.
(2) Public Law 90-284, which is the Fair Housing Act (42 U.S.C. 3601-3620). In accordance with the Fair Housing Act, the Secretary requires that grantees administer all programs and activities related to housing and community development in a manner to affirmatively further the policies of the Fair Housing Act.
(b) Executive Order 11063, as amended by Executive Order 12259 (3 CFR, 1959-1963 Comp., p. 652; 3 CFR, 1980 Comp., p. 307) (Equal Opportunity in Housing), and implementing regulations in 24 CFR part 107, also apply.
24 CFR Part 570 Subpart K (up to date as of 6/14/2024)
Other Program Requirements
24 CFR 570.600(b)
24 CFR 570.602 (enhanced display) page 2 of 9
§ 570.603 Labor standards.
[61 FR 11477, Mar. 20, 1996]
§ 570.604 Environmental standards.
For purposes of section 104(g) of the Act, the regulations in 24 CFR part 58 specify the other provisions of law which further the purposes of the National Environmental Policy Act of 1969, and the procedures by which grantees must fulfill their environmental responsibilities. In certain cases, grantees assume these environmental review, decisionmaking, and action responsibilities by execution of grant agreements with the Secretary. [61 FR 11477, Mar. 20, 1996]
§ 570.605 National Flood Insurance Program.
Notwithstanding the date of HUD approval of the recipient's application (or, in the case of grants made under subpart D of this part or HUD-administered small cities recipients in Hawaii, the date of submission of the grantee's consolidated plan, in accordance with 24 CFR part 91), section 202(a) of the Flood Disaster Protection Act of 1973 (42 U.S.C. 4106) and the regulations in 44 CFR parts 59 through 79 apply to funds provided under this part 570. [61 FR 11477, Mar. 20, 1996]
§ 570.606 Displacement, relocation, acquisition, and replacement of housing. (a) Section 110(a) of the Act contains labor standards that apply to nonvolunteer labor financed in whole or in part with assistance received under the Act. In accordance with section 110(a) of the Act, the Contract Work Hours and Safety Standards Act (40 U.S.C. 327 et seq.) also applies. However, these requirements apply to the rehabilitation of residential property only if such property contains not less than 8 units. (b) The regulations in 24 CFR part 70 apply to the use of volunteers. (a) General policy for minimizing displacement. Consistent with the other goals and objectives of this part, grantees (or States or state recipients, as applicable) shall assure that they have taken all reasonable steps to minimize the displacement of persons (families, individuals, businesses, nonprofit organizations, and farms) as a result of activities assisted under this part. (b) Relocation assistance for displaced persons at URA levels. (1) A displaced person shall be provided with relocation assistance at the levels described in, and in accordance with the requirements of 49 CFR part 24, which contains the government-wide regulations implementing the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (URA) (42 U.S.C. 4601-4655).
(2) Displaced person.
(i) For purposes of paragraph (b) of this section, the term “displaced person” means any person (family, individual, business, nonprofit organization, or farm) that moves from real property, or moves his or her personal property from real property, permanently and involuntarily, as a direct result of rehabilitation, demolition, or acquisition for an activity assisted under this part. A permanent, involuntary move for an assisted activity includes a permanent move from real property that is made:
24 CFR Part 570 Subpart K (up to date as of 6/14/2024)
Other Program Requirements
24 CFR 570.603
24 CFR 570.606(b)(2)(i) (enhanced display) page 3 of 9
(A) After notice by the grantee (or the state recipient, if applicable) to move permanently from the property, if the move occurs after the initial official submission to HUD (or the State, as applicable) for grant, loan, or loan guarantee funds under this part that are later provided or granted.
(B) After notice by the property owner to move permanently from the property, if the move occurs after the date of the submission of a request for financial assistance by the property owner (or person in control of the site) that is later approved for the requested activity.
(C) Before the date described in paragraph (b)(2)(i)(A) or (B) of this section, if either HUD or the grantee (or State, as applicable) determines that the displacement directly resulted from acquisition, rehabilitation, or demolition for the requested activity. (D) After the “initiation of negotiations” if the person is the tenant-occupant of a dwelling unit and any one of the following three situations occurs:
(1) The tenant has not been provided with a reasonable opportunity to lease and occupy a suitable decent, safe, and sanitary dwelling in the same building/complex upon the completion of the project, including a monthly rent that does not exceed the greater of the tenant's monthly rent and estimated average utility costs before the initiation of negotiations or 30 percent of the household's average monthly gross income; or (2) The tenant is required to relocate temporarily for the activity but the tenant is not offered payment for all reasonable out-of-pocket expenses incurred in connection with the temporary relocation, including the cost of moving to and from the temporary location and any increased housing costs, or other conditions of the temporary relocation are not reasonable; and the tenant does not return to the building/complex; or
(3) The tenant is required to move to another unit in the building/complex, but is not offered reimbursement for all reasonable out-of-pocket expenses incurred in connection with the move.
(ii) Notwithstanding the provisions of paragraph (b)(2)(i) of this section, the term “displaced person-” does not include:
(A) A person who is evicted for cause based upon serious or repeated violations of material terms of the lease or occupancy agreement. To exclude a person on this basis, the grantee (or State or state recipient, as applicable) must determine that the eviction was not undertaken for the purpose of evading the obligation to provide relocation assistance under this section;
(B) A person who moves into the property after the date of the notice described in paragraph (b)(2)(i)(A) or (B) of this section, but who received a written notice of the expected displacement before occupancy.
(C) A person who is not displaced as described in 49 CFR 24.2(g)(2). (D) A person who the grantee (or State, as applicable) determines is not displaced as a direct result of the acquisition, rehabilitation, or demolition for an assisted activity. To exclude a person on this basis, HUD must concur in that determination. 24 CFR Part 570 Subpart K (up to date as of 6/14/2024)
Other Program Requirements
24 CFR 570.606(b)(2)(i)(A)
24 CFR 570.606(b)(2)(ii)(D) (enhanced display) page 4 of 9
(Approved by the Office of Management and Budget under OMB control number 2506-0102) [61 FR 11477, Mar. 20, 1996, as amended at 61 FR 51760, Oct. 3, 1996] (iii) A grantee (or State or state recipient, as applicable) may, at any time, request HUD to determine whether a person is a displaced person under this section. (3) Initiation of negotiations. For purposes of determining the type of replacement housing assistance to be provided under paragraph (b) of this section, if the displacement is the direct result of privately undertaken rehabilitation, demolition, or acquisition of real property, the term “initiation of negotiations” means the execution of the grant or loan agreement between the grantee (or State or state recipient, as applicable) and the person owning or controlling the real property. (c) Residential antidisplacement and relocation assistance plan. The grantee shall comply with the requirements of 24 CFR part 42, subpart B.
(d) Optional relocation assistance. Under section 105(a)(11) of the Act, the grantee may provide (or the State may permit the state recipient to provide, as applicable) relocation payments and other relocation assistance to persons displaced by activities that are not subject to paragraph (b) or (c) of this section.
The grantee may also provide (or the State may also permit the state recipient to provide, as applicable) relocation assistance to persons receiving assistance under paragraphs (b) or (c) of this section at levels in excess of those required by these paragraphs. Unless such assistance is provided under State or local law, the grantee (or state recipient, as applicable) shall provide such assistance only upon the basis of a written determination that the assistance is appropriate (see, e.g., 24 CFR 570.201(i), as applicable). The grantee (or state recipient, as applicable) must adopt a written policy available to the public that describes the relocation assistance that the grantee (or state recipient, as applicable) has elected to provide and that provides for equal relocation assistance within each class of displaced persons. (e) Acquisition of real property. The acquisition of real property for an assisted activity is subject to 49 CFR part 24, subpart B.
(f) Appeals. If a person disagrees with the determination of the grantee (or the state recipient, as applicable) concerning the person's eligibility for, or the amount of, a relocation payment under this section, the person may file a written appeal of that determination with the grantee (or state recipient, as applicable).
The appeal procedures to be followed are described in 49 CFR 24.10. In addition, a low- or moderateincome household that has been displaced from a dwelling may file a written request for review of the grantee's decision to the HUD Field Office. For purposes of the State CDBG program, a low- or moderateincome household may file a written request for review of the state recipient's decision with the State. (g) Responsibility of grantee or State.
(1) The grantee (or State, if applicable) is responsible for ensuring compliance with the requirements of this section, notwithstanding any third party's contractual obligation to the grantee to comply with the provisions of this section. For purposes of the State CDBG program, the State shall require state recipients to certify that they will comply with the requirements of this section. (2) The cost of assistance required under this section may be paid from local public funds, funds provided under this part, or funds available from other sources. (3) The grantee (or State and state recipient, as applicable) must maintain records in sufficient detail to demonstrate compliance with the provisions of this section. 24 CFR Part 570 Subpart K (up to date as of 6/14/2024)
Other Program Requirements
24 CFR 570.606(b)(2)(iii)
24 CFR 570.606(g)(3) (enhanced display) page 5 of 9
§ 570.607 Employment and contracting opportunities.
To the extent that they are otherwise applicable, grantees shall comply with:
[68 FR 56405, Sept. 30, 2003, as amended at 85 FR 61567, Sept. 29, 2020] § 570.608 Lead-based paint.
The Lead-Based Paint Poisoning Prevention Act (42 U.S.C. 4821-4846), the Residential Lead-Based Paint Hazard Reduction Act of 1992 (42 U.S.C. 4851-4856), and implementing regulations at part 35, subparts A, B, J, K, and R of this part apply to activities under this program.
[64 FR 50226, Sept. 15, 1999]
§ 570.609 Use of debarred, suspended or ineligible contractors or subrecipients.
The requirements set forth in 24 CFR part 5 apply to this program. [61 FR 5209, Feb. 9, 1996]
§ 570.610 Uniform administrative requirements, cost principles, and audit requirements for Federal awards.
The recipient, its agencies or instrumentalities, and subrecipients shall comply with 2 CFR part 200, “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards”, as set forth at § 570.502.
[80 FR 75938, Dec. 7, 2015]
§ 570.611 Conflict of interest.
(a) Executive Order 11246, as amended by Executive Orders 11375, 11478, 12086, and 12107 (3 CFR 1964-1965 Comp. p. 339; 3 CFR, 1966-1970 Comp., p. 684; 3 CFR, 1966-1970., p. 803; 3 CFR, 1978 Comp., p. 230; 3 CFR, 1978 Comp., p. 264 (Equal Employment Opportunity), and Executive Order 13279 (Equal Protection of the Laws for Faith-Based and Community Organizations), 67 FR 77141, 3 CFR, 2002 Comp., p. 258; and the implementing regulations at 41 CFR chapter 60; and (b) Section 3 of the Housing and Urban Development Act of 1968 (12 U.S.C. 1701u) and implementing regulations at 24 CFR part 75.
(a) Applicability.
(1) In the procurement of supplies, equipment, construction, and services by recipients and by subrecipients, the conflict of interest provisions in 2 CFR 200.317 and 200.318 shall apply. (2) In all cases not governed by 2 CFR 200.317 and 200.318, the provisions of this section shall apply.
Such cases include the acquisition and disposition of real property and the provision of assistance by the recipient or by its subrecipients to individuals, businesses, and other private entities under eligible activities that authorize such assistance (e.g., rehabilitation, preservation, and other 24 CFR Part 570 Subpart K (up to date as of 6/14/2024)
Other Program Requirements
24 CFR 570.607
24 CFR 570.611(a)(2) (enhanced display) page 6 of 9
improvements of private properties or facilities pursuant to § 570.202; or grants, loans, and other assistance to businesses, individuals, and other private entities pursuant to § 570.203, 570.204, 570.455, or 570.703(i)).
(b) Conflicts prohibited. The general rule is that no persons described in paragraph (c) of this section who exercise or have exercised any functions or responsibilities with respect to CDBG activities assisted under this part, or who are in a position to participate in a decisionmaking process or gain inside information with regard to such activities, may obtain a financial interest or benefit from a CDBG-assisted activity, or have a financial interest in any contract, subcontract, or agreement with respect to a CDBG-assisted activity, or with respect to the proceeds of the CDBG-assisted activity, either for themselves or those with whom they have business or immediate family ties, during their tenure or for one year thereafter. For the UDAG program, the above restrictions shall apply to all activities that are a part of the UDAG project, and shall cover any such financial interest or benefit during, or at any time after, such person's tenure. (c) Persons covered. The conflict of interest provisions of paragraph (b) of this section apply to any person who is an employee, agent, consultant, officer, or elected official or appointed official of the recipient, or of any designated public agencies, or of subrecipients that are receiving funds under this part. (d) Exceptions. Upon the written request of the recipient, HUD may grant an exception to the provisions of paragraph (b) of this section on a case-by-case basis when it has satisfactorily met the threshold requirements of (d)(1) of this section, taking into account the cumulative effects of paragraph (d)(2) of this section.
(1) Threshold requirements. HUD will consider an exception only after the recipient has provided the following documentation:
(i) A disclosure of the nature of the conflict, accompanied by an assurance that there has been public disclosure of the conflict and a description of how the public disclosure was made; and (ii) An opinion of the recipient's attorney that the interest for which the exception is sought would not violate State or local law.
(2) Factors to be considered for exceptions. In determining whether to grant a requested exception after the recipient has satisfactorily met the requirements of paragraph (d)(1) of this section, HUD shall conclude that such an exception will serve to further the purposes of the Act and the effective and efficient administration of the recipient's program or project, taking into account the cumulative effect of the following factors, as applicable:
(i) Whether the exception would provide a significant cost benefit or an essential degree of expertise to the program or project that would otherwise not be available; (ii) Whether an opportunity was provided for open competitive bidding or negotiation; (iii) Whether the person affected is a member of a group or class of low- or moderate-income persons intended to be the beneficiaries of the assisted activity, and the exception will permit such person to receive generally the same interests or benefits as are being made available or provided to the group or class;
(iv) Whether the affected person has withdrawn from his or her functions or responsibilities, or the decisionmaking process with respect to the specific assisted activity in question; (v) Whether the interest or benefit was present before the affected person was in a position as described in paragraph (b) of this section;
24 CFR Part 570 Subpart K (up to date as of 6/14/2024)
Other Program Requirements
24 CFR 570.611(b)
24 CFR 570.611(d)(2)(v) (enhanced display) page 7 of 9
[60 FR 56916, Nov. 9, 1995, as amended at 80 FR 75938, Dec. 7, 2015] § 570.612 Executive Order 12372.
§ 570.613 Eligibility restrictions for certain resident aliens. (vi) Whether undue hardship will result either to the recipient or the person affected when weighed against the public interest served by avoiding the prohibited conflict; and (vii) Any other relevant considerations.
(a) General. Executive Order 12372, Intergovernmental Review of Federal Programs, and the Department's implementing regulations at 24 CFR part 52, allow each State to establish its own process for review and comment on proposed Federal financial assistance programs. (b) Applicability. Executive Order 12372 applies to the CDBG Entitlement program and the UDAG program. The Executive Order applies to all activities proposed to be assisted under UDAG, but it applies to the Entitlement program only where a grantee proposes to use funds for the planning or construction (reconstruction or installation) of water or sewer facilities. Such facilities include storm sewers as well as all sanitary sewers, but do not include water and sewer lines connecting a structure to the lines in the public right-of-way or easement. It is the responsibility of the grantee to initiate the Executive Order review process if it proposes to use its CDBG or UDAG funds for activities subject to review. (a) Restriction. Certain newly legalized aliens, as described in 24 CFR part 49, are not eligible to apply for benefits under covered activities funded by the programs listed in paragraph (e) of this section. “Benefits” under this section means financial assistance, public services, jobs and access to new or rehabilitated housing and other facilities made available under covered activities funded by programs listed in paragraph (e) of this section. “Benefits” do not include relocation services and payments to which displacees are entitled by law.
(b) Covered activities. “Covered activities” under this section means activities meeting the requirements of § 570.208(a) that either:
(1) Have income eligibility requirements limiting the benefits exclusively to low and moderate income persons; or
(2) Are targeted geographically or otherwise to primarily benefit low and moderate income persons (excluding activities serving the public at large, such as sewers, roads, sidewalks, and parks), and that provide benefits to persons on the basis of an application. (c) Limitation on coverage. The restrictions under this section apply only to applicants for new benefits not being received by covered resident aliens as of the effective date of this section. (d) Compliance. Compliance can be accomplished by obtaining certification as provided in 24 CFR 49.20. (e) Programs affected.
(1) The Community Development Block Grant program for small cities, administered under subpart F of part 570 of this title until closeout of the recipient's grant. (2) The Community Development Block Grant program for entitlement grants, administered under subpart D of part 570 of this title.
24 CFR Part 570 Subpart K (up to date as of 6/14/2024)
Other Program Requirements
24 CFR 570.611(d)(2)(vi)
24 CFR 570.613(e)(2) (enhanced display) page 8 of 9
[55 FR 18494, May 2, 1990]
§ 570.614 Architectural Barriers Act and the Americans with Disabilities Act. [60 FR 56917, Nov. 9, 1995]
§ 570.615 Housing counseling.
Housing counseling, as defined in 24 CFR 5.100, that is funded with or provided in connection with CDBG funds must be carried out in accordance with 24 CFR 5.111.
[81 FR 90659, Dec. 14, 2016]
(3) The Community Development Block Grant program for States, administered under subpart I of part 570 of this title until closeout of the unit of general local government's grant by the State. (4) The Urban Development Action Grants program, administered under subpart G of part 570 of this title until closeout of the recipient's grant.
(a) The Architectural Barriers Act of 1968 (42 U.S.C. 4151-4157) requires certain Federal and Federally funded buildings and other facilities to be designed, constructed, or altered in accordance with standards that insure accessibility to, and use by, physically handicapped people. A building or facility designed, constructed, or altered with funds allocated or reallocated under this part after December 11, 1995, and that meets the definition of “residential structure” as defined in 24 CFR 40.2 or the definition of “building” as defined in 41 CFR 101-19.602(a) is subject to the requirements of the Architectural Barriers Act of 1968 (42 U.S.C. 4151-4157) and shall comply with the Uniform Federal Accessibility Standards (appendix A to 24 CFR part 40 for residential structures, and appendix A to 41 CFR part 101-19, subpart 101-19.6, for general type buildings).
(b) The Americans with Disabilities Act (42 U.S.C. 12131; 47 U.S.C. 155, 201, 218 and 225) (ADA) provides comprehensive civil rights to individuals with disabilities in the areas of employment, public accommodations, State and local government services, and telecommunications. It further provides that discrimination includes a failure to design and construct facilities for first occupancy no later than January 26, 1993, that are readily accessible to and usable by individuals with disabilities. Further, the ADA requires the removal of architectural barriers and communication barriers that are structural in nature in existing facilities, where such removal is readily achievable—that is, easily accomplishable and able to be carried out without much difficulty or expense. 24 CFR Part 570 Subpart K (up to date as of 6/14/2024)
Other Program Requirements
24 CFR 570.613(e)(3)
24 CFR 570.615 (enhanced display) page 9 of 9
20 Exhibit E
Financial Records Requirements as required by 24 CFR 570.502 and OMB Circular A-87
VerDate Aug<18>2005 16:43 Aug 30, 2005 Jkt 205001 PO 00000 Frm 00050 Fmt 4701 Sfmt 4700 E:\FR\FM\31AUR2.SGM 31AUR2 51910 Federal Register / Vol. 70, No. 168 / Wednesday, August 31, 2005 / Rules and Regulations
OFFICE OF MANAGEMENT AND
BUDGET
2 CFR Part 225
Cost Principles for State, Local, and
Indian Tribal Governments (OMB
Circular A–87)
AGENCY: Office of Management and
Budget
ACTION: Relocation of policy guidance to
2 CFR chapter II.
SUMMARY: The Office of Management
and Budget (OMB) is relocating Circular
A–87, ‘‘Cost Principles for State, Local,
and Indian Tribal Governments,’’ to
Title 2 in the Code of Federal
Regulations (2 CFR), Subtitle A, Chapter
II, part 225 as part of an initiative to
provide the public with a central
location for Federal government policies
on grants and other financial assistance
and nonprocurement agreements.
Consolidating the OMB guidance and
co-locating the agency regulations
provides a good foundation for
streamlining and simplifying the policy
framework for grants and agreements as
part of the efforts to implement the
Federal Financial Assistance
Management Improvement Act of 1999
(Pub. L. 106–107).
DATES: This document is effective
August 31, 2005. This document
republishes the existing OMB Circular
A–87, which already is in effect.
FOR FURTHER INFORMATION CONTACT: Gil
Tran, Office of Federal Financial
Management, Office of Management and
Budget, telephone 202–395–3052
(direct) or 202–395–3993 (main office)
and e-mail: [email protected].
SUPPLEMENTARY INFORMATION: On May
10, 2004 [69 FR 25970], we revised the
three OMB circulars containing Federal
cost principles. The purpose of those
revisions was to simplify the cost
principles by making the descriptions of
similar cost items consistent across the
circulars where possible, thereby
reducing the possibility of
misinterpretation. Those revisions, a
result of OMB and Federal agency
efforts to implement Public Law 106–
107, were effective on June 9, 2004.
In this document, we relocate OMB
Circular A–87 to the CFR, in Title 2
which was established on May 11, 2004
[69 FR 26276] as a central location for
OMB and Federal agency policies on
grants and agreements.
Our relocation of OMB Circular A–87
does not change the substance of the
circular. Other than adjustments needed
to conform to the formatting
requirements of the CFR, this notice
relocates in 2 CFR the version of OMB
Circular A–87 as revised by the May 10,
2004 notice.
List of Subjects in 2 CFR Part 225
Accounting, Grant administration,
Grant programs, Reporting and
recordkeeping requirements, State,
local, and Indian tribal governments.
Dated: August 8, 2005.
Joshua B. Bolten,
Director.
Authority and Issuance
■ For the reasons set forth above, the
Office of Management and Budget
amends 2 CFR Subtitle A, Chapter II, by
adding a part 225 as set forth below.
PART 225—COST PRINCIPLES FOR
STATE, LOCAL, AND INDIAN TRIBAL
GOVERNMENTS (OMB CIRCULAR
A–87)
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.
§ 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 federallyrecognized Indian tribal governments (governmental units).
§ 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’’).
§ 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.
§ 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.
§ 225.25 Definitions.
Definitions of key terms used in this
part are contained in Appendix A to this
part, Section B.
§ 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.
§ 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.
§ 225.40 Effective date of changes.
This part is effective August 31, 2005.
§ 225.45 Relationship to previous
issuance.
(a) The guidance in this part
previously was issued as OMB Circular
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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.
§ 225.50 Policy review date.
This part will have a policy review
three years from the date of issuance.
§ 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 federallyrecognized 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-forservice 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 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 nonentitlement 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 nonFederal sources, Federal agencies may exempt these covered State-administered,
non-entitlement grant programs from certain
OMB grants management requirements. The
VerDate Aug<18>2005 16:43 Aug 30, 2005 Jkt 205001 PO 00000 Frm 00052 Fmt 4701 Sfmt 4700 E:\FR\FM\31AUR2.SGM 31AUR2 51912 Federal Register / Vol. 70, No. 168 / Wednesday, August 31, 2005 / Rules and Regulations 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.
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 federallyrecognized 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 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.
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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.
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
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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
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
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
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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 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 payas-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. Postretirement 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.
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.
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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 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 selfinsurance 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 sidewalks) will be computed at
an annual rate not exceeding two percent of
acquisition costs.
VerDate Aug<18>2005 16:43 Aug 30, 2005 Jkt 205001 PO 00000 Frm 00057 Fmt 4701 Sfmt 4700 E:\FR\FM\31AUR2.SGM 31AUR2 Federal Register / Vol. 70, No. 168 / Wednesday, August 31, 2005 / Rules and Regulations 51917 (2) The use allowance for equipment will
be computed at an annual rate not exceeding
62⁄3 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 62⁄3 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,
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
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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 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.
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
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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 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 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 royaltyfree license to the Federal Government (but see section 38, Royalties and other costs for
use of patents and copyrights, of this
appendix).
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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 nonFederal 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.
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’slength’’ 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 selfPage 359 of 590 VerDate Aug<18>2005 16:43 Aug 30, 2005 Jkt 205001 PO 00000 Frm 00061 Fmt 4701 Sfmt 4700 E:\FR\FM\31AUR2.SGM 31AUR2 Federal Register / Vol. 70, No. 168 / Wednesday, August 31, 2005 / Rules and Regulations 51921 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 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 l.44 of the Grants Management
Common Rule (see § 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 l.31 and l.32 of the Grants
Management Common Rule (see § 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-federallysponsored activities. Notwithstanding the provisions of section 19 of this appendix,
General government expenses, travel costs of
officials covered by that section are allowable
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 unitowned, -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
VerDate Aug<18>2005 16:43 Aug 30, 2005 Jkt 205001 PO 00000 Frm 00062 Fmt 4701 Sfmt 4700 E:\FR\FM\31AUR2.SGM 31AUR2 51922 Federal Register / Vol. 70, No. 168 / Wednesday, August 31, 2005 / Rules and Regulations 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/LocalWide 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
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-forservice 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 subrecipient, 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 caseby-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
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.
VerDate Aug<18>2005 16:43 Aug 30, 2005 Jkt 205001 PO 00000 Frm 00063 Fmt 4701 Sfmt 4700 E:\FR\FM\31AUR2.SGM 31AUR2 Federal Register / Vol. 70, No. 168 / Wednesday, August 31, 2005 / Rules and Regulations 51923 (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 selfinsurance 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 Statemandated 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.
Governmental Unit: lllllllllll
Signature: llllllllllllllll
Name of Official: llllllllllll
Title: llllllllllllllllll
Date of Execution: llllllllllll
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 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 reopening 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.
VerDate Aug<18>2005 16:43 Aug 30, 2005 Jkt 205001 PO 00000 Frm 00064 Fmt 4701 Sfmt 4700 E:\FR\FM\31AUR2.SGM 31AUR2 51924 Federal Register / Vol. 70, No. 168 / Wednesday, August 31, 2005 / Rules and Regulations 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
(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
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
VerDate Aug<18>2005 16:43 Aug 30, 2005 Jkt 205001 PO 00000 Frm 00065 Fmt 4701 Sfmt 4700 E:\FR\FM\31AUR2.SGM 31AUR2 Federal Register / Vol. 70, No. 168 / Wednesday, August 31, 2005 / Rules and Regulations 51925 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
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 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
VerDate Aug<18>2005 16:43 Aug 30, 2005 Jkt 205001 PO 00000 Frm 00066 Fmt 4701 Sfmt 4700 E:\FR\FM\31AUR2.SGM 31AUR2 51926 Federal Register / Vol. 70, No. 168 / Wednesday, August 31, 2005 / Rules and Regulations 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 nonrestricted 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 subrecipient’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
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.
Governmental Unit: lllllllllll
Signature: llllllllllllllll
Name of Official: llllllllllll
Title: llllllllllllllllll
Date of Execution: llllllllllll
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 reopening 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
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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 caseby-case basis as warranted by the circumstances involved.
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.
[FR Doc. 05–16649 Filed 8–30–05; 8:45 am]
BILLING CODE 3110–01–P
OFFICE OF MANAGEMENT AND
BUDGET
2 CFR Part 230
Cost Principles for Non-Profit
Organizations (OMB Circular A–122)
AGENCY: Office of Management and
Budget.
ACTION: Relocation of policy guidance to
2 CFR chapter II.
SUMMARY: The Office of Management
and Budget (OMB) is relocating Circular
A–122, ‘‘Cost Principles for Non-Profit
Organizations,’’ to Title 2 in the Code of
Federal Regulations (CFR), subtitle A,
chapter II, part 230. This relocation is
part of our broader initiative to create 2
CFR as a single location where the
public can find both OMB guidance for
grants and agreements and the
associated Federal agency implementing
regulations. The broader initiative
provides a good foundation for
streamlining and simplifying the policy
framework for grants and agreements,
one objective of OMB and Federal
agency efforts to implement the Federal
Financial Assistance Management
Improvement Act of 1999 (Pub. L. 106–
107).
DATES: Part 230 is effective August 31,
2005. This document republishes the
existing OMB Circular A–122, which
already is in effect.
FOR FURTHER INFORMATION CONTACT: Gil
Tran, Office of Federal Financial
Management, Office of Management and
Budget, telephone 202–395–3052
(direct) or 202–395–3993 (main office)
and e-mail: [email protected].
SUPPLEMENTARY INFORMATION: On May
10, 2004 [69 FR 25970], we revised the
three OMB circulars containing Federal
cost principles. The purpose of those
revisions was to simplify the cost
principles by making the descriptions of
similar cost items consistent across the
circulars where possible, thereby
reducing the possibility of
misinterpretation. Those revisions, a
result of OMB and Federal agency
efforts to implement Public Law 106–
107, were effective on June 9, 2004.
In this document, we relocate OMB
Circular A–122 to the CFR, in Title 2
which was established on May 11, 2004
[69 FR 26276] as a central location for
OMB and Federal agency policies on
grants and agreements. Our relocation of OMB Circular A– 122 does not change the substance of
the circular. Other than adjustments
needed to conform to the formatting
requirements of the CFR, this document
relocates in 2 CFR the version of OMB
Circular A–122 as revised by the May
10, 2004 notice.
List of Subjects in 2 CFR Part 230
Accounting, Grant programs, Grants
administration, Non-profit
organizations, Reporting and
recordkeeping requirements.
Dated: August 8, 2005.
Joshua B. Bolten,
Director.
Authority and Issuance
■ For the reasons set forth above, the
Office of Management and Budget
amends 2 CFR Subtitle A, chapter II, by
adding a part 230 as set forth below.
PART 230—COST PRINCIPLES FOR
NON-PROFIT ORGANIZATIONS (OMB
CIRCULAR A–122)
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
§ 230.5 Purpose.
This part establishes principles for
determining costs of grants, contracts
and other agreements with non-profit
organizations.
§ 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 nonprofit organization participation in the financing of a particular project.
Provision for profit or other increment
above cost is outside the scope of this
part.
§ 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.
§ 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.
21 Exhibit F
City Insurance Requirements
COMMUNITY DEVELOPMENT BLOCK GRANT
PROGRAM YEAR 2024/2025
INSURANCE REQUIREMENTS
INSURANCE REQUIREMENTS
Sub-recipient shall procure and maintain insurance for the duration for this Agreement against claims for injuries to persons or damages to property, which may arise from or in connection with the performance of the work hereunder by Subrecipient, its agents, representatives, subcontractors, or employees. If Sub-recipient fails to maintain insurance acceptable to the City for the full term of this Agreement, the City may terminate this Agreement. Prior to the commencement of work under this Agreement, Sub-recipient will file with the City (who shall forward to County) an original Certificate of Insurance and all required endorsements evidencing that coverage required by this Agreement and necessary to satisfy the insurance provisions of Contract No. 12-24011200 PF&I have been complied with and are in effect. Such insurance and the certificates will be kept on deposit with the City and County during the entire term of this Agreement.
In addition, all construction subcontractors performing work on behalf of Subrecipient pursuant to this Agreement shall be covered under Sub-recipient's insurance or shall obtain insurance subject to the same terms and conditions as set forth herein.
Sub-recipient shall require that any subcontractor working for Sub-recipient have the insurance required by this section and not allow subcontractors to work if the subcontractors have less than the level of coverage required by the City under this Agreement. Sub-recipient shall provide notice of the insurance requirements to every subcontractor and must receive proof of insurance prior to allowing any subcontractor to begin work. Such proof of insurance must be maintained by Sub-recipient or subcontractor through the entirety of this Agreement for inspection by City and County representatives at any reasonable time.
A. Minimum Limits of Insurance
The policy or policies of insurance maintained by Sub-recipient shall provide the minimum limits and coverage as set forth herein below:
The City and County are to be added as an additional insured except for Workers' Compensation/Employers' Liability. (Endorsement must be attached to Certificate of Insurance).
B. Deductibles and Self-Insured Retentions
Any deductibles or self-insured retentions must be declared and approved by the City.
Any deductible or self-insured retention (SIR) amount in excess of $50,000 shall specifically be approved by the County's Executive Office/Office of Risk Management.
Subrecipient shall be responsible for reimbursement of any deductible to the insurer.
C. Acceptability of Insurers
The policy or policies of insurance must be issued by an insurer licensed to do business in the State of California (California Admitted Carrier).
Insurance is to be placed with insurers with a minimum insurance company rating as determined by the most current edition of the Best's Key Rating Guide/PropertyCasualty/United States or ambest.com of A- (Secure A.M. Best's Rating) and VIII (Finance Size Category as determined by the most current edition of the Best's Key Rating Guide/Property-Casualty/United States or ambest.com).
If the carrier is a non- admitted carrier in the State of California, the City and County retain the right to approve or reject carrier after a review of the company's performance and financial ratings.
D. Changes to Insurance
1. Insurance policy or policies shall not be changed, canceled, limited in scope of coverage or non-renewed until 30-days written notice had been given to the City and County of Orange/OC Community Resources (Endorsement must be attached to Certificate of Insurance).
2. Any of the above insurance types may be increased or waived due to current insurance marketplace conditions, at the sole discretion of the City and County. In addition, the City and County retain the right to require additional insurance coverage as may be deemed appropriate to adequately protect the City and County. The requirements shall be reasonable and shall be designed to assure protection from and against the kind and extent of risks, which exist at the time a change in insurance is required.
3. The City shall notify Sub-recipient in writing of changes required in the insurance requirements. If Sub-recipient does not deposit copies of acceptable Certificates of Insurance and endorsements with the City within thirty (30) days of receipt of such notice, this Agreement may be in default without further notice to Sub-recipient, and City shall be entitled to all legal remedies.
E. Other Requirements
Each insurance policy required by this Agreement shall be endorsed to contain the following provisions:
All rights of subrogation are hereby waived against City and County, their respective elective and appointed officials, officers and employees when acting within the scope of their employment or appointment, and County and their Board or Commissions, which are governed by County Board of Supervisors. (Endorsement must be attached to Certificate of Insurance).
F. Verification of Coverage
Sub-recipient shall furnish the City with original certificates and amendatory endorsements affecting coverage. Said policies and endorsements shall conform to the