[Federal Register Volume 79, Number 244 (Friday, December 19, 2014)]
[Rules and Regulations]
[Pages 75867-76106]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-28697]



[[Page 75867]]

Vol. 79

Friday,

No. 244

December 19, 2014

Part II





EXECUTIVE OFFICE OF THE PRESIDENT





Office of Management and Budget





2 CFR Parts 1, 25, 170, et al.





DEPARTMENT OF HEALTH AND HUMAN SERVICES

2 CFR Part 300

45 CFR Parts 74, 75, and 92





DEPARTMENT OF AGRICULTURE

2 CFR Parts 400, 415, 416, et al.





Office of the Chief Financial Officer

7 CFR Parts 3015, 3016, 3018, et al.





Farm Service Agency

7 CFR Parts 761 and 785





Commodity Credit Corporation

7 CFR Parts 1407 and 1485





National Institute of Food and Agriculture

7 CFR Parts 3400, 3401, 3402, et al.

[[Page 75868]]

Rural Utilities Service

7 CFR Parts 1703, 1709, 1710, et al.





Rural Business-Cooperative Service





Rural Housing Service





Rural Utilities Service





Farm Service Agency

7 CFR Parts 1942, 1944, 1951, et al.





Rural Housing Service

7 CFR Parts 3570 and 3575





Rural Business-Cooperative Service





Rural Utilities Service

7 CFR Parts 4274, 4279, 4280, et al.





DEPARTMENT OF STATE

2 CFR Part 600

22 CFR Parts 135 and 145





AGENCY FOR INTERNATIONAL DEVELOPMENT

2 CFR Part 700

22 CFR Part 226





DEPARTMENT OF VETERANS AFFAIRS

2 CFR Part 802

38 CFR Parts 41 and 43





DEPARTMENT OF ENERGY

2 CFR Part 910

10 CFR Parts 602, 605, and 733





DEPARTMENT OF TREASURY

2 CFR Part 1000





DEPARTMENT OF DEFENSE

2 CFR Part 1103





DEPARTMENT OF TRANSPORTATION

2 CFR Part 1201

49 CFR Parts 18 and 19





DEPARTMENT OF COMMERCE

2 CFR Part 1327

15 CFR Parts 14 and 24





DEPARTMENT OF THE INTERIOR

2 CFR Part 1402

43 CFR Part 12

[[Page 75869]]

ENVIRONMENTAL PROTECTION AGENCY

2 CFR Part 1500

40 CFR Parts 30, 31, 33, et al.





NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

2 CFR Part 1800

14 CFR Parts 1260 and 1273





CORPORATION FOR NATIONAL AND COMMUNITY SERVICE

2 CFR Part 2205

45 CFR Parts 1235, 2510, 2520, et al.





SOCIAL SECURITY ADMINISTRATION

2 CFR Part 2300

20 CFR Parts 435 and 437





DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

2 CFR Part 2400

24 CFR Parts 84 and 85





NATIONAL SCIENCE FOUNDATION

2 CFR Part 2500

45 CFR Part 602





NATIONAL ARCHIVES AND RECORDS ADMINISTRATION

2 CFR Part 2600

36 CFR Parts 1206, 1207, and 1210





SMALL BUSINESS ADMINISTRATION

2 CFR Part 2701

13 CFR Part 143





DEPARTMENT OF JUSTICE

2 CFR Part 2800

28 CFR Parts 66 and 70





DEPARTMENT OF LABOR

2 CFR Part 2900





DEPARTMENT OF HOMELAND SECURITY

2 CFR Part 3002

[[Page 75870]]

Federal Emergency Management Agency

44 CFR Parts 13, 78, 79, et al.





INSTITUTE OF MUSEUM AND LIBRARY SERVICES

2 CFR Part 3187

45 CFR Parts 1180 and 1183





NATIONAL ENDOWMENT FOR THE ARTS

2 CFR Part 3255

45 CFR Part 1157





NATIONAL ENDOWMENT FOR THE HUMANITIES

2 CFR Part 3374

45 CFR Part 1174





DEPARTMENT OF EDUCATION

2 CFR Part 3474

34 CFR Parts 74, 75, 76, et al.





EXECUTIVE OFFICE OF THE PRESIDENT





Office of National Drug Control Policy

2 CFR Part 3603

21 CFR Parts 1403, 1404, and 1405





GULF COAST ECOSYSTEM RESTORATION COUNCIL

2 CFR Part 5900





Federal Awarding Agency Regulatory Implementation of Office of 
Management and Budget's Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards; Final Rule

Federal Register / Vol. 79 , No. 244 / Friday, December 19, 2014 / 
Rules and Regulations

[[Page 75871]]


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EXECUTIVE OFFICE OF THE PRESIDENT

Office of Management and Budget

2 CFR Parts 1, 25, 170, 180, and 200

DEPARTMENT OF HEALTH AND HUMAN SERVICES

2 CFR Part 300

45 CFR Parts 74, 75, and 92

RIN 0991-ZA46

DEPARTMENT OF AGRICULTURE

2 CFR Parts 400, 415, 416, 418, and 422

Office of the Chief Financial Officer

7 CFR Parts 3015, 3016, 3018, 3019, 3022, and 3052

Farm Service Agency

7 CFR Parts 761 and 785

Commodity Credit Corporation

7 CFR Parts 1407 and 1485

National Institute of Food and Agriculture

7 CFR Parts 3400, 3401, 3402, 3403, 3405, 3406, 3407, 3415, 3430, 
and 3431

Rural Utilities Service

7 CFR Parts 1703, 1709, 1710, 1717, 1724, 1726, 1737, 1738, 1739, 
1740, 1773, 1774, 1775, 1776, 1778, 1779, 1780, 1782, and 1783

Rural Business-Cooperative Service

Rural Housing Service

Rural Utilities Service

Farm Service Agency

7 CFR Parts 1942, 1944, 1951, and 1980

Rural Housing Service

7 CFR Parts 3570 and 3575

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Parts 4274, 4279, 4280, 4284, 4285, and 4290

RIN 0505-AA15

DEPARTMENT OF STATE

2 CFR Part 600

22 CFR Parts 135 and 145

RIN 1400-AD57

AGENCY FOR INTERNATIONAL DEVELOPMENT

2 CFR Part 700

22 CFR Part 226

RIN 0412-AA73

DEPARTMENT OF VETERANS AFFAIRS

2 CFR Part 802

38 CFR Parts 41 and 43

RIN 2900-AP03

DEPARTMENT OF ENERGY

2 CFR Part 910

10 CFR Parts 602, 605, and 733

RIN 1991-AB94

DEPARTMENT OF TREASURY

2 CFR Part 1000

RIN 1505-AC48

DEPARTMENT OF DEFENSE

2 CFR Part 1103

RIN 0790-AJ25

DEPARTMENT OF TRANSPORTATION

2 CFR Part 1201

49 CFR Parts 18 and 19

RIN 2105-AE33

DEPARTMENT OF COMMERCE

2 CFR Part 1327

15 CFR Parts 14 and 24

RIN 0605-AA34

DEPARTMENT OF THE INTERIOR

2 CFR Part 1402

43 CFR Part 12

RIN 1090-AB08

ENVIRONMENTAL PROTECTION AGENCY

2 CFR Part 1500

40 CFR Parts 30, 31, 33, 35, 40, 45, 46, and 47

RIN 2030-AA99

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

2 CFR Part 1800

14 CFR Parts 1260 and 1273

RIN 2700-AE94

CORPORATION FOR NATIONAL AND COMMUNITY SERVICE

2 CFR Part 2205

45 CFR Parts 1235, 2510, 2520, 2541, 2543, 2551, 2552, and 2553

RIN 3045-AA61

SOCIAL SECURITY ADMINISTRATION

2 CFR Part 2300

20 CFR Parts 435 and 437

RIN 0960-0960-AH73

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

2 CFR Part 2400

24 CFR Parts 84 and 85

RIN 2501-AD54

NATIONAL SCIENCE FOUNDATION

2 CFR Part 2500

45 CFR Part 602

RIN 3145-AA57

[[Page 75872]]

NATIONAL ARCHIVES AND RECORDS ADMINISTRATION

2 CFR Part 2600

36 CFR Parts 1206, 1207, and 1210

RIN 3095-AB83

SMALL BUSINESS ADMINISTRATION

2 CFR Part 2701

13 CFR Part 143

RIN 3245-AG62

DEPARTMENT OF JUSTICE

2 CFR Part 2800

28 CFR Parts 66 and 70

RIN 1121-AA81

DEPARTMENT OF LABOR

2 CFR Part 2900

RIN 1205-AB71

DEPARTMENT OF HOMELAND SECURITY

2 CFR Part 3002

Federal Emergency Management Agency

44 CFR Parts 13, 78, 79, 152, 201, 204, 206, 207, 208, 304, 360, 
and 361

RIN 1601-AA70

INSTITUTE OF MUSEUM AND LIBRARY SERVICES

2 CFR Part 3187

45 CFR Parts 1180 and 1183

RIN 3137-AA24

NATIONAL ENDOWMENT FOR THE ARTS

2 CFR Part 3255

45 CFR Part 1157

RIN 3135-AA32

NATIONAL ENDOWMENT FOR THE HUMANITIES

2 CFR Part 3374

45 CFR Part 1174

RIN 3136-AA35

DEPARTMENT OF EDUCATION

2 CFR Part 3474

34 CFR Parts 74, 75, 76, 77, 80, 101, 206, 222, 225, 226, 270, 280, 
299, 300, 303, 350, 361, 363, 364, 365, 367, 369, 370, 373, 377, 
380, 381, 385, 396, 400, 426, 460, 464, 491, 535, 606, 607, 608, 
609, 611, 614, 628, 636, 637, 642, 643, 644, 645, 646, 647, 648, 
650, 654, 655, 661, 662, 663, 664, 682, 692, 694, and 1100

RIN 1890-AA19

EXECUTIVE OFFICE OF THE PRESIDENT

Office of National Drug Control Policy

2 CFR Part 3603

21 CFR Parts 1403, 1404, and 1405

RIN 3201-AA00




GULF COAST ECOSYSTEM RESTORATION COUNCIL

2 CFR Part 5900

RIN 3600-AA03


Federal Awarding Agency Regulatory Implementation of Office of 
Management and Budget's Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards

AGENCY: Office of Management and Budget, Executive Office of the 
President; Department of Health And Human Services; Farm Service 
Agency, Commodity Credit Corporation, National Institute of Food and 
Agriculture, Rural Utilities Service, Rural Business-Cooperative 
Service, Rural Housing Service, Rural Utilities Service, Farm Service 
Agency, Department of Agriculture; Department of State; Agency for 
International Development; Department of Veterans Affairs; Department 
of Energy; Department of Treasury; Department of Defense; Department of 
Transportation; Department of Commerce; Department of the Interior; 
Environmental Protection Agency; National Aeronautics and Space 
Administration; Corporation for National and Community Service; Social 
Security Administration; Department of Housing And Urban Development; 
National Science Foundation; National Archives and Records 
Administration; Small Business Administration; Department of Justice; 
Department of Labor; Federal Emergency Management Agency, Department of 
Homeland Security; Institute of Museum and Library Services; National 
Endowment for the Arts; National Endowment for the Humanities; 
Department of Education;, Office of National Drug Control Policy, 
Executive Office of the President; Gulf Coast Ecosystem Restoration 
Council.

ACTION: Interim final rule.

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SUMMARY:  This joint interim final rule implements for all Federal 
award-making agencies the final guidance Uniform Administrative 
Requirements, Cost Principles, and Audit Requirements for Federal 
Awards (Uniform Guidance) published by the Office of Management and 
Budget (OMB) on December 26, 2013. This rule is necessary in order to 
incorporate into regulation and thus bring into effect the Uniform 
Guidance as required by OMB. Implementation of this guidance will 
reduce administrative burden and risk of waste, fraud, and abuse for 
the approximately $600 billion per year awarded in Federal financial 
assistance. The result will be more Federal dollars reprogrammed to 
support the mission, new entities able to compete and win awards, and 
ultimately a stronger framework to provide key services to American 
citizens and support the basic research that underpins the United 
States economy.

DATES: Effective date: This interim final rule is effective on December 
26, 2014. The incorporation by reference of certain publications listed 
in the rule is approved by the Director of the Federal Register as of 
December 26, 2014.
    Implementation dates: For grants authorized under the Robert T. 
Stafford Disaster Relief and Emergency Assistance Act, this rule is 
applicable for emergency or major disaster declarations issued on or 
after December 26, 2014. For non-Federal entities that are nonprofit 
organizations or institutions of higher education (IHEs), there is a 
one-year grace period for implementation of the procurement standards 
in 2 CFR 200.317 through 200.326. As will be detailed in the 2015 OMB 
Compliance Supplement, non-Federal entities choosing to delay 
implementation for the procurement standards will need to specify in 
their documented policies and procedures that they continue to comply 
with OMB circular A-110 for one additional fiscal year which begins 
after December 26, 2014.
    Comment date: To be assured of consideration, comments must be 
received by OMB electronically through

[[Page 75873]]

www.regulations.gov no later than midnight Eastern Standard Time 
(E.S.T.) on February 17, 2015.

ADDRESSES: Comments should be submitted to www.regulations.gov.

FOR FURTHER INFORMATION CONTACT:  For general information, please 
contact Victoria Collin or Gil Tran at the OMB Office of Federal 
Financial Management, 175 17th St. NW., Washington, DC 20500, or via 
telephone at (202) 395-3993. You may submit comments via the Federal 
eRulemaking Portal at www.regulations.gov, Docket Number OMB-2014-0006. 
Follow the instructions for submitting comments.

SUPPLEMENTARY INFORMATION: 

Background

    This joint interim final rule implements for all Federal award-
making agencies the final guidance Uniform Administrative Requirements, 
Cost Principles, and Audit Requirements for Federal Awards published by 
the Office of Management and Budget (OMB) on December 26, 2013 in 2 CFR 
part 200 (Uniform Guidance--available at 78 FR 78589). The Uniform 
Guidance followed on a Notice of Proposed Guidance issued February 1, 
2013 (available at 78 FR 7282), and an Advanced Notice of Proposed 
Guidance issued February 28, 2012 (available at 77 FR 11778). The final 
guidance incorporated feedback received from the public in response to 
those earlier issuances. Additional supporting resources are available 
from the Council on Financial Assistance Reform at www.cfo.gov/COFAR.
    The Uniform Guidance delivered on two presidential directives; 
Executive Order 13520 on Reducing Improper Payments (74 FR 62201; 
November 15, 20019), and February 28, 2011 Presidential Memorandum on 
Administrative Flexibility, Lower Costs, and Better Results for State, 
Local, and Tribal Governments, (Daily Comp. Pres. Docs.; http://www.gpo.gov/fdsys/pkg/DCPD-201100123/pdf/DCPD-201100123.pdf). It 
reflected more than two years of work by the Council on Financial 
Assistance Reform to improve the efficiency and effectiveness of 
Federal financial assistance. For a detailed discussion of the reform 
and its impacts, please see the Federal Register notice for the 
issuance of the final guidance (78 FR 78589).
    With this interim final rule, OMB is amending the uniform guidance 
to make technical corrections where needed, and Federal awarding 
agencies are joining together to implement the Uniform Guidance in 
their respective chapters of title 2 of the CFR. With respect to the 
technical corrections that OMB is issuing, these corrections are 
included only where it has come to the attention of the COFAR that 
particular language in the final guidance did not match with the 
COFAR's intent and would result in an erroneous implementation of the 
guidance. These technical corrections will go into effect at the time 
of the effective date of this interim final rule.
    Among these technical corrections, please note in particular, parts 
25, 170, and 180 are amended to reflect that the Central Contractor 
Registration (CCR) and Excluded Parties List System (EPLS) no longer 
exist as stand-alone systems; their functionalities are now available 
in the System of Award Management (SAM).
    2 CFR parts 25, 180 and, 200 are revised to remove references to 
the Dun and Bradstreet (D&B) Data Universal Numbering System (DUNS) and 
replace them with the term `unique entity identifier'. This change is 
consistent with Administration priorities to technically refine 
existing regulations. The specific standard for this unique entity 
identifier will be in accordance with the requirements of SAM. This 
revision does not indicate a change in current policy.
    References to the Federal Awardee Performance and Integrity 
Information System (FAPIIS) remain in 2 CFR part 200 reflecting that 
final guidance for Federal grants and cooperative agreements will be 
published following the issuance of this interim final rule.
    2 CFR 200.110 Effective/applicability date is revised to allow a 
grace period of one fiscal year for non-Federal entities to implement 
changes to their procurement policies and procedures in accordance with 
sections 200.317 through 200.336 Procurement Standards.
    Finally, 2 CFR 200.320 Methods of Procurement paragraph (c), the 
requirement for sealed bids to be advertised and opened ``publicly'' is 
limited as was originally intended to state, local and tribal entities. 
Other requirements in the section remain as originally published.
    In addition, throughout the guidance, the COFAR changed the word 
``should'' to ``must'' to reflect longstanding policies that have been 
requirements in practice, but which may have been misinterpreted as 
optional with the usage of the word ``should''. Other technical 
corrections are made to eliminate conflicting or unclear language and 
grammatical inconsistencies or citation errors throughout.
    With respect to the implementing regulations that Federal awarding 
agencies are issuing, any agencies that have received OMB approval for 
an exception to the Uniform Guidance have included the resulting 
language in their regulations. OMB has only approved exceptions to the 
Uniform Guidance where they are consistent with existing policy. 
Further, agencies are providing additional language beyond that 
included in 2 CFR part 200, consistent with their existing policy, to 
provide more detail with respect to how they intend to implement the 
policy, where appropriate. Agencies are not making new policy with this 
interim final rule; all regulatory language included here should be 
consistent with either the policies in the Uniform Guidance or the 
agencies' existing policies and practices. Three agencies have 
requested special accommodation with respect to the format of their 
implementing language. The National Science Foundation, the Department 
of Education, and the Department of Health and Human Services have 
included agency-specific preamble language as follows:

National Science Foundation

    The National Science Foundation (NSF) has received approval from 
OMB to implement 2 CFR part 200 via use of a policy, rather than a 
regulation. In the interest of establishing a single location for each 
of the Departments' and Agencies' implementation of the Uniform 
Guidance, per OMB's request, NSF has provided a link to its policy 
implementation of OMB's Uniform Guidance in 2 CFR part 2500 for 
inclusion in this issuance.

Department of Education

    The Secretary of the Department of Education takes one exception 
from the Uniform Guidance and makes one clarification regarding another 
section of the Uniform Guidance (discussed more fully later in this 
section of the preamble). The Secretary also describes the technical 
amendments needed to conform to the guidance in 2 CFR part 200. The 
Secretary publishes this special section of the joint preamble to 
provide the basis and purpose for the exception and clarification.
    The Secretary also seeks comments on whether any of the 
requirements imposed under our adoption of the Uniform Guidance 
conflict with any of the requirements in the Department's statutes and 
regulations.

Exception and Clarification

    An exception to the Uniform Guidance is required because the 
Secretary lacks authority to delegate functions to the Office of 
Management and Budget (OMB), as contemplated by

[[Page 75874]]

the Uniform Guidance. In particular, 2 CFR 200.102(a) would effectively 
delegate one of the Secretary's functions--granting exceptions to the 
regulations as promulgated by the Department--to employees of OMB. 
Section 412 of the Department of Education Organization Act (20 U.S.C. 
3472) permits the Secretary to delegate functions of the Department to 
officers and employees of the Department, but neither that section or 
any other statute permits the Secretary to delegate to OMB the 
authority to grant exceptions to the Department's regulations. The 
Secretary is therefore modifying the regulation in 2 CFR 200.102(a) to 
authorize the Secretary to grant exceptions to the regulations after 
consultation with appropriate officials at OMB. This exception is 
stated in 2 CFR 3474.5.
    The Secretary also clarifies that the Department's authority under 
2 CFR 200.207, Specific conditions, also permits the Department to 
designate grants and grantees as high risk. The Department has long 
used the authority under 34 CFR 74.14, Special award conditions, and 
80.12, Special grant or subgrant conditions for ``high-risk'' grantees, 
to impose high-risk conditions on both individual grants and individual 
grantees. While these two sections did not both use the term ``high-
risk,'' they established identical standards for imposing special 
conditions on grantees. Under these regulations, the Department has 
imposed high-risk conditions on specific grants and grantees in 
appropriate circumstances regardless of whether the grantee was subject 
to part 74 or part 80. The guidance in 2 CFR 200.205 and 200.207 
replaces the requirements in 34 CFR 74.14 and 80.12 and authorizes 
specific conditions under virtually identical standards to those 
formerly in parts 74 and 80. Because the standards in 2 CFR 200.207 are 
virtually identical to those in former 34 CFR parts 74 and 80, the 
Secretary clarifies that the Department will now use the standards in 2 
CFR 200.205 and the procedures in 2 CFR 200.207 to impose specific or 
high risk conditions on grants and grantees, depending on the 
circumstances in each case.
    The current regulations in parts 74 and 80 contain provisions that 
authorize the Department to impose conditions on grants or grantees if 
an applicant or grantee (1) Has a history of poor performance; (2) Is 
not financially stable; (3) Has a management system that does not meet 
the standards prescribed in this part; (4) Has not conformed to the 
terms and conditions of a previous award; or (5) Is not otherwise 
responsible.
    The guidance in 2 CFR 200.205 requires agencies to conduct a risk 
evaluation whenever making new awards, authorizing agencies to use a 
risk-based approach, and may consider any items such as the following: 
(1) Financial stability; (2) Quality of management systems and ability 
to meet the management standards prescribed in Part 200; (3) History of 
performance. The applicant's record in managing Federal awards, if it 
is a prior recipient of Federal awards, including timeliness of 
compliance with applicable reporting requirements, conformance to the 
terms and conditions of previous Federal awards and, if applicable, the 
extent to which any previously awarded amounts will be expended prior 
to future awards; (4) Reports and findings from audits performed under 
Subpart F--Audit Requirements of Part 200 or the reports and findings 
of any other available audits; and (5) The applicant's ability to 
effectively implement statutory, regulatory, or other requirements 
imposed on non-Federal entities.
    The standards identified in 2 CFR 200.205 may be used both at the 
time of the award or after an award is made if the Department discovers 
new risks posed under a particular grant or by a particular grantee. 
While the standards in 2 CFR 200.205 provide more detail and are stated 
in neutral terms, the same underlying reasons apply to the standards 
used by the Department to impose high-risk conditions under 34 CFR 
74.14 and 80.12. Therefore, the Secretary clarifies that the standards 
in 2 CFR 200.205, which do not mention ``high-risk'' conditions, can be 
used in appropriate cases by Department officials to impose high-risk 
conditions on individual grants or on specific grantees.

Technical Amendments and Removal of Obsolete Parts

    These interim final regulations also make technical changes: (1) To 
the Department's regulations in the Education Department General 
Administrative Regulations (EDGAR), 34 CFR parts 75, 76, and 77, to 
conform to the Uniform Guidance in part 2 CFR part 200; and (2) to 
update program regulations that currently reference 34 CFR parts 74 and 
80 or specific sections in those parts. In addition, the Department is 
removing, rather than updating, the following parts of title 34 of the 
CFR that reference parts 74 and 80 but that are no longer authorized by 
statute:
    Part 380, Special Projects and Demonstrations for Providing 
Supported Employment Services to Individuals with the Most Severe 
Disabilities and Technical Assistance Projects: previously authorized 
by section 311(c) of the Rehabilitation Act of 1973 (former 29 U.S.C. 
777a(c)); the authority for this program was not retained when Congress 
reauthorized the Act in 1998 (P.L. 105-220).
    Part 426, Cooperative Demonstration Program: previously authorized 
by section 420A of the Carl D. Perkins Vocational and Applied 
Technology Act (former 20 U.S.C. 2420a); the authority for this program 
was not retained when Congress reauthorized the Perkins Act in 1998 
(Pub. L. 105-332).
    Part 460, Adult Education--General Provisions: previously 
authorized by the Adult Education Act (former 20 U.S.C. 1201 et seq.), 
which was repealed by section 251(a)(1) of Pub. L. 105-220 (1998).
    Part 464, State Literacy Resource Centers Program: previously 
authorized by section 356 of the Adult Education Act (former 20 U.S.C. 
1208aa), which was repealed by section 251(a)(1) of Pub. L. 105-220 
(1998).
    Part 491, Adult Education for the Homeless Program: previously 
authorized by section 701 of the McKinney-Vento Homeless Assistance Act 
(former 42 U.S.C. 11421), which was repealed by section 199(b)(1) of 
P.L. 105-220 (1998).
    Part 535, Bilingual Education: Graduate Fellowship Program: 
previously authorized by section 7145 of the Elementary and Secondary 
Education Act of 1965 (ESEA) (former 20 U.S.C. 7475), which was not 
retained in the 2002 reauthorization of the ESEA (P.L. 107-110).
    Part 636, Urban Community Service Program: previously authorized by 
title XI, part A of the Higher Education Act of 1965 (HEA) (former 20 
U.S.C. 1136-1136h), which was repealed by section 202 of P.L. 105-244 
(1998).
    Part 1100, National Institute for Literacy: Literacy Leader 
Fellowship Program: previously authorized by section 384(e) of the 
Adult Education Act (former 20 U.S.C. 1213c(e)), which was repealed by 
section 251(a)(1) of Pub. L. 105-220 (1998).

Definition of ``Grant''

    Two of the technical amendments relate to the definitions of 
``grant'' and ``award.'' These terms are defined in 34 CFR parts 74 and 
80, as equivalent terms for financial assistance awarded by the 
Department. The guidance in 2 CFR 200.24 and 200.51 defines 
``cooperative agreement'' and ``grant agreement'', respectively, and 
these definitions follow the Federal Grant and

[[Page 75875]]

Cooperative Agreement Act (31 U.S.C. 6303-6305) language closely for 
the treatment of grants and cooperative agreements. However, because 
Department regulations use the terms ``grant'' and ``award'' to refer 
generally to both grants and cooperative agreements, the Department 
cannot rely on the definition of ``grant agreement'' in part 200. 
Instead, we establish definitions of ``grant'' and ``award'' in 34 CFR 
77.1(c) to include within their scope cooperative agreements as well as 
grants. Because part 77 defines terms applicable to all programs of the 
Department, program regulations can continue to use these terms to 
refer to both types of awards.

General Education Provisions Act Requirements

    Section 437(b) of the General Education Provisions Act (GEPA), 20 
U.S.C. 1232(b), provides that, immediately following each substantive 
provision of the Department's regulations, the Department must provide 
the citations to the particular section or sections of statutory law or 
other legal authority on which that provision is based. The substantive 
provision in these interim final regulations that adopts the guidance 
in 2 CFR part 200 is 2 CFR 3474.1. Because the authority citations for 
all of the sections adopted by the Department are the same (unless 
noted otherwise), the Department provides the authority citation for 
all of the adopted guidance in paragraph (b) of 3474.1. For other 
sections in Part 3474, the authority citations are provided at the end 
of each of those sections.

Rulemaking Considerations

    The Department is generally required, under the General Education 
Provisions Act (GEPA), section 437 (20 U.S.C. 1232) and the APA to take 
comment on proposed rules before they become effective. Also, under the 
Higher Education Act of 1965 (HEA), section 492, (20 U.S.C. 1098a), all 
Department regulations for programs authorized under title IV of the 
HEA are subject to negotiated rulemaking requirements and, under 
section 482 of the HEA, any title IV regulations that have not been 
published in final form by November 1 prior to the start of an award 
year cannot become effective until the beginning of the second award 
year following the November 1 date. The joint preamble includes waivers 
of proposed rulemaking and delayed effective date with respect to the 
APA.
    For the same reasons included in the joint preamble, the Secretary 
has determined that there is good cause to waive proposed rulemaking 
and delayed effective date under both GEPA and the HEA.

Assessment of Educational Impact

    In accordance with section 411 of the General Education Provisions 
Act, 20 U.S.C. 1221e-4, the Secretary particularly requests comments on 
whether these interim final regulations would require transmission of 
information that any other agency or authority of the United States 
gathers or makes available.

Department of Health and Human Services

    The Department of Health and Human Services (HHS) is adapting OMB's 
final guidance with certain amendments, based on existing HHS 
regulations, to supplement the guidance as needed for the Department. 
HHS' amendments are described below, and incorporated into HHS' 
implementing regulations at 45 CFR part 75. As with NSF, HHS has, in 
the interest of establishing a single location for each Department's 
implementation of the uniform guidance, provided a link to its policy 
implementation of OMB's uniform guidance in 2 CFR part 300. The changes 
described below are categorized as regulation-wide formatting changes, 
additions, or revisions. The items described as formatting changes have 
been made throughout the text of the HHS regulation to accommodate the 
structure and content of the HHS guidance. All other changes are listed 
in order by section.
    As indicated in the common preamble, OMB has afforded ample 
opportunity for notice and an opportunity for comment on the provisions 
contained therein. In addition, HHS finds that there is good cause 
under 5 U.S.C. 553(b)(B) and (d)(3) to dispense with the opportunity 
for advance notice and opportunity for public comment and good cause to 
publish this rule with an effective date of December 26, 2014. All of 
the additions and modifications listed below already exist in codified 
regulations (45 CFR part 74 or part 92), and thus are currently 
applicable to HHS grantees. As such, all HHS grantees should already be 
in compliance with these provisions. Consequently, no changes on the 
part of grantees are expected. In order to comport with OMB's timeframe 
for Federal agency adoption of these regulations, it is impracticable 
and contrary to the public interest to delay this rule for the purpose 
of soliciting advance public comment or to have a delayed effective 
date for these minor changes that reflect current HHS rules and 
practice.
    HHS is making the rule effective on December 26, 2014, in order to 
comport with all other Federal agency adoption, and to ensure 
consistency in all grant-making procedures. Failure to do so could have 
unpredictable negative effects on grants implementation.
    For the above reasons, the Secretary issues this rule as an interim 
final rule. However, HHS will consider and address comments that are 
received within 60 days of the date this interim final rule is 
published in the Federal Register.
    In 45 CFR part 75, HHS incorporates the guidance in 2 CFR part 200 
with the following adjustments:
    1. Changes ``Federal Awarding Agency'' to ``HHS Awarding Agency'' 
where applicable.
    2. Removes titles of sections within the regulatory text to improve 
readability.
    3. Revises the numbering schema to facilitate the inclusion of 
additional definitions and to facilitate the inclusion of material 
specific to HHS awards. All such numbering changes are updated 
throughout the document, including internal references.
    4. Includes Appendix IX, ``Principles for Determining Costs 
Applicable to Research and Development Under Grants and Contracts with 
Hospitals,'' with appropriate numbering schema.
    5. Renumber sections, especially Subpart D, to facilitate the 
inclusion of material specific to HHS awards.
    6. Changes citations to reflect location in 45 CFR part 75.
    7. Inserts reserved sections throughout the regulation to 
accommodate future changes.
    (a) HHS adopts 2 CFR 200.0 in 45 CFR 75.1, with the following 
additional acronyms, added to existing list in appropriate alphabetical 
order:

(1) HHS U.S. Department of Health and Human Services
(2) SF 424 Standard Form 424 series and Form Families Application for 
Federal Assistance

    (b) HHS adopts the definitions found in 2 CFR 200.2-200.99 in 45 
CFR 75.2 with the following changes.
    (1) Adds the following new definitions:
    (i) ``Awardee.''
    (ii) ``Commercial organization.''
    (iii) ``Departmental Appeals Board.''
    (iv) ``Excess property.''
    (v) ``Expenditure report.''
    (vi) ``Grantee.''
    (vii) ``HHS awarding agency.''
    (viii) ``Principal Investigator/Program Director/(PI/PD).''

[[Page 75876]]

    (ix) ``Prior approval.''
    (x) ``Project period.''
    (xi) ``Surplus property.''
    (xii) ``Suspension of award activities.''
    (xiii) ``Total Costs.''
    (2) Revises the following specific definitions as described below:
    (i) Cost sharing or matching to add ``This may include the value of 
allowable third party in-kind contributions, as well as expenditures by 
the recipient.'' after the first sentence.
    (ii) Indirect cost rate proposal to add ``and Appendix IX'' after 
``Appendix VII''.
    (iii) Personal property to add ``such as copyrights, patents, or 
securities'' at the end of the definition.
    (iv) Recipient to add ``usually but not limited to non-Federal 
entities,'' in the first sentence, after ``entity,''.
    (v) Research and Development to replace ``non-Federal entities'' 
with ``HHS award recipients''.
    (3) All definitions, including the HHS additions, are in 
alphabetical order.
    (c) HHS adopts 2 CFR 200.104 in 45 CFR 75.104 by adding a new 
subsection to note the supersession of 45 CFR parts 74 and 92 and 
renumbers accordingly.
    (d) HHS adopts 2 CFR 200.106 in 45 CFR 75.106 and articulates HHS 
implementation of 2 CFR part 200.
    (e) HHS adopts 2 CFR 200.108 in 45 CFR 75.108 and articulates to 
whom changes for HHS regulations should be addressed.
    (f) HHS adopts 2 CFR 200.109 in 45 CFR 75.109 to articulate HHS' 
review period for its regulations.
    (h) HHS adopts 2 CFR 200.112 in 45 CFR 75.112 and articulates HHS' 
establishment of conflict of interest policies and disclosure criteria.
    (i) HHS adopts 2 CFR 200.205 in 45 CFR 75.205 and adds text at the 
end of subsection (a) to reference suspension and debarment 
regulations.
    (j) HHS adopts 2 CFR 200.206 in 45 CFR 75.206 and amends the 
section heading and adds new subsections (c) and (d) to specify the 
forms required.
    (k) HHS adopts 2 CFR 200.208 in 45 CFR 75.208 and adds after the 
introductory language new subsections (a) and (b) to reference 45 CFR 
part 87 and Sec.  75.206(d)(2).
    (l) HHS adopts 2 CFR 200.212 in 45 CFR 75.212 and changes ``2 CFR 
part 180'' to read ``2 CFR parts 180 and 376''.
    (m) HHS adds new 45 CFR 75.213 to reference The Metric Conversion 
Act and HHS' use of Executive Order 12770.
    (n) HHS adds new 45 CFR 75.214 to reference lobbying restrictions 
in 45 CFR part 93.
    (o) HHS adds new 45 CFR 75.215 to reference provisions for awards 
to Commercial Organizations.
    (p) HHS adds new 45 CFR 75.216 to reference provisions for awards 
to Federal Agencies.
    (q) HHS adds new 45 CFR 75.217 to reference standards for faith-
based organizations in 45 CFR part 87.
    (r) HHS adopts 2 CFR 200.305 in 45 CFR 75.305 and adds at the end 
of subsection (b)(5)(ii) ``(See 45 CFR part 30).''.
    (s) HHS adopts 2 CFR 200.307 in 45 CFR 75.307 with the following 
changes:
    (1) revise subsection (c) to include details concerning the Patent 
and Trademark Laws Amendments, 34 U.S.C. 200-212, and conditions 
described under Sec.  75.207 or Sec.  75.215.''.
    (t) HHS adopts 2 CFR 200.308 in 45 CFR 75.308 with the following 
changes:
    (1) Add subsections (c)(9) through (11) to include research patient 
care costs, subaward relations to Simplified Acquisition Threshold, and 
the disposition of property and equipment.
    (2) add at the end, new subsection (j) to detail the appropriate 
authorizing personnel for revisions.
    (u) HHS adopts 2 CFR 200.309 in 45 CFR 75.309 to articulate the use 
of funds within the period of performance.
    (v) HHS adds 45 CFR 75.316 to articulate HHS' policy on property 
management standards and procedures.
    (w) HHS adopts 2 CFR 200.310 in 45 CFR 75.317 with the insertion of 
``other'' preceding ``property owned'' in the first sentence.
    (x) HHS adopts 2 CFR 200.311 in 45 CFR 75.318 by revising 
subsection (b):
    (1) in subparagraph (b), by inserting subparagraph (1) following 
``Use.'';
    (2) by adding subparagraph (b)(2) to articulate the use of real 
property in other federally-sponsored projects.
    (3) in subparagraph (c), after ``is no longer needed'', adding the 
phrase ``as provided in subsection (b).''.
    (y) HHS adopts 2 CFR 200.313 in 45 CFR 75.320, by adding, at the 
end of subsection (c)(4), ``subject to the approval of the HHS awarding 
agency.''.
    (z) HHS adopts 2 CFR 200.315 in 45 CFR 75.322 with the following 
changes:
    (1) The title is amended to read ``Intangible property and 
copyrights.'';
    (2) Add new subsection (f) to exclude commercial organizations from 
paragraph (e)(1).
    (aa) HHS adopts 2 CFR 200.318 in 45 CFR 75.327, with the following 
changes:
    (1) Add, ``In certain circumstances, contracts with certain parties 
are restricted by agencies' implementation of Executive Orders 12549 
and 12689. (See 2 CFR part 376.)'' at the end of subparagraph (h).
    (2) Add, new subparagraph (l) to articulate the appropriateness of 
the procurement instrument.
    (bb) HHS adopts 2 CFR 200.320 in 45 CFR 75.329 and changes the 
title.
    (cc) HHS adopts 2 CFR 200.325 in 45 CFR 75.334, and adds new 
subparagraph (d) to reference certificates of authority pursuant to 31 
CFR part 223.
    (dd) HHS adopts 2 CFR 200.338 in 45 CFR 75.371, with the following 
changes:
    (1) in subparagraph (c), add ``(suspension of award activities)'' 
after ``suspend''.
    (2) in subparagraph (d) add ``at 2 CFR part 376'' after 
``regulations''.
    (ee) HHS adopts 2 CFR 200.341 in 45 CFR 75.374, with an additional 
subparagraph (b) to reference additional appeals procedures.
    (ff) HHS adopts 2 CFR 200.343 in 45 CFR 75.381, and, in 
subparagraph (g), changes ``one year'' to ``180 calendar days''.
    (gg) HHS adopts 2 CFR 200.345 in 45 CFR 75.391, and adds, at the 
end of subparagraph (b), ``(See also HHS Claims Collection regulations 
at 45 CFR part 30.)''.
    (hh) HHS adopts 2 CFR 200.407 in 45 CFR 75.407, with the additional 
subparagraphs (b) and (c) to articulate additional prior approval 
conditions.
    (ii) HHS adopts 2 CFR200.439 in 45 CFR 75.439, and amend subsection 
(a) to remove definition numbers.
    (jj) HHS adds new 45 CFR 75.476 to articulate independent research 
and development costs.
    (kk) HHS adopts 2 CFR 200.501 in 45 CFR 75.501, by adding new 
subparagraphs (i) and (j) to articulate the audit options and 
exemptions for commercial organizations.

Additional Outreach and Training

    Since the issuance of the Uniform Guidance on December 26, 2013, 
the COFAR has developed and provided numerous additional resources to 
assist stakeholders in learning about the guidance. For a complete list 
and access to these resources, please visit the COFAR Web site at 
cfo.gov/COFAR. Resources available include a Frequently Asked Questions 
document, as well as several training webcasts. Please note that the 
Frequently Asked Questions document will be referenced as additional 
guidance in the 2015 issuance of Appendix XI to Part 200--Compliance 
Supplement.

Regulatory Analysis

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Ch. 3506; 5 CFR 1320 Appendix A.1) (PRA), each agency reviewed its 
final rule and determined that there are no new

[[Page 75877]]

collections of information contained therein. However, the OMB uniform 
guidance in 2 CFR 200 may have a negligible effect on burden estimates 
for existing information collections, including recordkeeping 
requirements for non-Federal entities that receive Federal awards.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires an agency that is 
issuing a final rule to provide a final regulatory flexibility analysis 
or to certify that the rule will not have a significant economic impact 
on a substantial number of small entities. This common interim final 
rule implements OMB final guidance issued on December 26, 2013, and 
will not have a significant economic impact beyond the impact of the 
December 2013 guidance.

Executive Order 12866 Determination

    Pursuant to Executive Order 12866, OMB's Office of Information and 
Regulatory Affairs (OIRA) has designated this joint interim final rule 
to be not significant.

Administrative Procedure Act (5 U.S.C. 553)

Waiver of Proposed Rulemaking

In General

    Under the Administrative Procedure Act (APA), some of the agencies 
joining in this issuance are generally required to publish a notice of 
proposed rulemaking and provide the public with an opportunity to 
comment on proposed regulations prior to establishing a final rule. 
However, as noted earlier in the joint preamble, OMB offered the public 
two opportunities to comment on the Uniform Guidance, first through an 
advanced notice of proposed guidance and, second, through a notice of 
proposed guidance. OMB considered over 300 comments submitted in 
response to each of these notices. OMB has directed agencies to adopt 
the uniform guidance in part 200 without change, except to the extent 
that an agency can demonstrate that any conflicting agency requirements 
are required by statute or regulations, or consistent with longstanding 
practice and approved by OMB. Finally, OMB made clear that the 
requirements in 2 CFR part 200, including the audit requirements in 
subpart F, will apply, starting on December 26, 2014, giving recipients 
of all types of financial assistance advance notice of when the 
regulations would become effective. Therefore, under 5 U.S.C. 
553(b)(B), there is good cause for waiving proposed rulemaking as 
unnecessary.

Department of Justice

    The rule issued by the Department of Justice concerns matters 
relating to ``grants, benefits, or contracts,'' 5 U.S.C. 553(a)(2), and 
is therefore exempt from the requirement of prior notice and comment.

Waiver of Delayed Effective Date

In General

    Generally, those agencies that are subject to the APA are required 
to delay the effective date of their final regulations by 30 days after 
publication, as required under 5 U.S.C. 553(d), unless an exception 
under subsection (d) applies.
    Under 5 U.S.C. 553(d), these agencies may waive the delayed 
effective date requirement if the they find good cause and explain the 
basis for the waiver in the final rulemaking document or if the 
regulations grant or recognize an exemption or relieve a restriction. 
In the present case, there is good cause to waive the delayed effective 
date for two reasons.
    First, OMB informed the public on December 26, 2013, that agencies 
would be required to adopt the Uniform Guidance and make it effective 
by December 26, 2014. The public has had significant time to prepare 
for the promulgation of these interim final regulations.
    Second, while these interim final regulations are based on a new, 
more effective method for establishing government-wide requirements, 
the substance of the regulations are, in most cases, virtually 
identical to the requirements that exist in current agency regulations. 
In virtually all cases where the new regulations depart from prior OMB 
guidance to agencies, the new regulations reduce burdens on the public, 
for example, by increasing the threshold for single audits from 
$500,000 to $750,000.
    Based on these considerations, those agencies subject to the APA 
have determined that there is good cause to waive the delayed effective 
date for these interim final regulations.

Department of Justice

    The rule issued by the Department of Justice concerns matters 
relating to ``grants, benefits, or contracts,'' 5 U.S.C. 553(a)(2), and 
is therefore exempt from the requirement of a 30-day delay in the 
effective date of this rule.

Unfunded Mandates Reform Act of 1995 Determination

    Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded 
Mandates Act) (2 U.S.C. 1532) requires that covered agencies prepare a 
budgetary impact statement before promulgating a rule that includes any 
Federal mandate that may result in the expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. If a budgetary impact statement is 
required, section 205 of the Unfunded Mandates Act also requires 
covered agencies to identify and consider a reasonable number of 
regulatory alternatives before promulgating a rule. OMB has determined 
that this joint interim final rule will not result in expenditures by 
State, local, and tribal governments, or by the private sector, of $100 
million or more in any one year. Accordingly, the Federal agencies 
participating in this joint interim final rule have not prepared a 
budgetary impact statement or specifically addressed the regulatory 
alternatives considered.

Executive Order 13132 Determination

    OMB has determined that this joint interim final rule does not have 
any Federalism implications, as required by Executive Order 13132.

[[Page 75878]]

List of Subjects

2 CFR Parts 1, 25, 170, 180, 200, 300, 400, 415, 416, 418, 422, 600, 
700, 802, 910, 1000, 1103, 1201, 1327, 1402, 1800, 2205, 2300, 2400, 
2500, 2600, 2701, 2800, 2900, 3002, 3187, 3255, 3374, 3474, 3603, and 
5900; CFR Parts 761, 785, 1407, 1485, 1703, 1709, 1710, 1717, 1724, 
1726, 1737, 1738, 1739, 1740, 1773, 1774, 1775, 1776, 1778, 1779, 1780, 
1782, 1783, 1942, 1944, 1951, 1980, 3015, 3016, 3018, 3019, 3022, 3052, 
3400, 3401, 3402, 3403, 3405, 3406, 3407, 3415, 3430, 3431, 3570, 3575, 
4274, 4279, 4280, 4284, 4285, and 4290; 10 CFR Parts 600, 602, 605, and 
733; 13 CFR Part 143; 14 CFR Parts 1260 and 1273; 15 CFR Parts 14 and 
24; 20 CFR Parts 435 and 437; 21 CFR Parts 1403-1405; 22 CFR Parts 135, 
145, and 226; 24 CFR Parts 84 and 85; 28 CFR Parts 66 and 70; 34 CFR 
Parts 74, 75, 76, 77, 80, 101, 206, 222, 225, 226, 270, 280, 299, 300, 
303, 350, 361, 363, 364, 365, 367, 369, 370, 373, 377, 380, 381, 385, 
396, 400, 426, 460, 464, 491, 535, 606, 607, 608, 609, 611, 614, 628, 
636, 637, 642, 643, 644, 645, 646, 647, 648, 650, 654, 655, 661, 662, 
663, 664, 682, 692, 694, and 1100; 36 CFR Parts 1206, 1207, and 1210; 
38 CFR Parts 41 and 43; 40 CFR Parts 30, 31, 33, 35, 40, 45, 46, and 
47; 43 CFR Part 12; 44 CFR Parts 13, 78, 79, 152, 201, 204, 206, 207, 
208, 304, 360, and 361; 45 CFR Parts 74, 75, 92, 1235, 2510, 2520, 
2541, 2543, 2551, 2552, and 2553; 45 CFR Parts 75, 602, 1157, 1174, 
1180, and 1183; 49 CFR Parts 18 and 19

    Accounting, Administrative practice and procedure, Adult education, 
Aged, Agriculture, Appeal procedures, American Samoa, Auditing, Audit 
requirements, Bilingual education, Blind, Business and Industry, 
Broadband, Charter schools, Civil rights, Colleges and universities, 
Community development, Community facilities, Communications, Copyright, 
Cost principles, Cooperative agreements, Credit, Credit enhancement, 
Cultural exchange programs, Direct loan programs, Economic development, 
Education, Education of disadvantaged, Education of individuals with 
disabilities, Educational facilities, Educational research, Educational 
study programs, Elementary and secondary education, Employment, Equal 
educational opportunity, Electric power, Electric power rates, Electric 
utilities, Energy efficiency improvements, Federally affected areas, 
Farmers, Federal aid programs, Government contracts, Guam, Home 
improvement, Homeless, Human research subjects, Hospitals, Indians, 
Industrial park, Indians--education, Infants and children, Insurance, 
Intergovernmental relations, International organizations, Manpower 
training programs, Nonprofit organizations, State and local 
governments, Grant programs, Grant programs--digital televisions, Grant 
programs--education, Grant programs--health, Grant programs housing and 
community development, Grant programs--social programs, Grants 
administration, Guaranteed loans, Homeless, Intergovernmental 
relations, Inventions and patents, Loan programs, Loan programs--
agriculture, Loan program--business and industry, Loan programs--
communications, Loan programs--energy, Loan programs--housing and 
community development, Loan security, Migrant labor, Mortgage 
insurance, Mortgages, Nonprofit organizations, Northern Mariana 
Islands, Pacific Islands Trust Territory, Privacy, Private schools, 
Renewable energy systems, Reporting and recordkeeping requirements, 
Research misconduct, Rural areas, Rural housing, Scholarships and 
fellowships, School construction, Schools, Science and technology, 
Securities, Small business, State and local governments, Student aid, 
Subsidies, Telecommunications, Teachers, Urban areas, Veterans, Virgin 
Islands, Vocational education, Vocational rehabilitation, Telephone, 
Waste treatment and disposal, Waste treatment and disposal--domestic, 
Water pollution control, Water resources, Water supply, Water supply--
domestic, Watersheds, Women.

2 CFR Part 1500

    Accounting, Administrative practice and procedure, Adult education, 
Aged, Agriculture, Appeal procedures, American Samoa, Auditing, Audit 
requirements, Bilingual education, Blind, Business and Industry, 
Broadband, Charter schools, Civil rights, Colleges and universities, 
Community development, Community facilities, Communications, Copyright, 
Cost principles, Cooperative agreements, Credit, Credit enhancement, 
Cultural exchange programs, Direct loan programs, Economic development, 
Education, Education of disadvantaged, Education of individuals with 
disabilities, Educational facilities, Educational research, Educational 
study programs, Elementary and secondary education, Employment, Equal 
educational opportunity, Electric power, Electric power rates, Electric 
utilities, Energy efficiency improvements, Federally affected areas, 
Farmers, Federal aid programs, Government contracts, Guam, Home 
improvement, Homeless, Human research subjects, Hospitals, Indians, 
Industrial park, Indians--education, Infants and children, Insurance, 
Intergovernmental relations, International organizations, Manpower 
training programs, Nonprofit organizations, State and local 
governments, Grant programs, Grant programs---digital televisions, 
Grant programs--education, Grant programs--health, Grant programs 
housing and community development, Grant programs--social programs, 
Grants administration, Guaranteed loans, Homeless, Incorporation by 
reference, Intergovernmental relations, Inventions and patents, Loan 
programs, Loan programs--agriculture, Loan programs--business and 
industry, Loan programs--communications, Loan programs--energy, Loan 
programs--housing and community development, Loan security, Migrant 
labor, Mortgage insurance, Mortgages, Nonprofit organizations, Northern 
Mariana Islands, Pacific Islands Trust Territory, Privacy, Private 
schools, Renewable energy systems, Reporting and recordkeeping 
requirements, Research misconduct, Rural areas, Rural housing, 
Scholarships and fellowships, School construction, Schools, Science and 
technology, Securities, Small business, State and local governments, 
Student aid, Subsidies, Telecommunications, Teachers, Urban areas, 
Veterans, Virgin Islands, Vocational education, Vocational 
rehabilitation, Telephone, Waste treatment and disposal, Waste 
treatment and disposal--domestic, Water pollution control, Water 
resources, Water supply, Water supply--domestic, Watersheds, Women.

Executive Office of the President, Office of Management and Budget

    Under the authority of the Chief Financial Officer Act of 1990 (31 
U.S.C. 503), the Office of Management and Budget amends 2 CFR parts 1, 
25, 170, 180, and 200 by making the following correcting amendments:

TITLE 2 --GRANTS AND AGREEMENTS

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

PART 1--ABOUT TITLE 2 OF THE CODE OF FEDERAL REGULATIONS AND 
SUBTITLE A

0
1. The authority citation for part 1 continues to read as follows:

    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.

0
2. Revise Sec.  1.215 to read as follows:

[[Page 75879]]

Sec.  1.215  Relationship to previous issuances.

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

------------------------------------------------------------------------
                                                      Previously  was in
       Guidance  in * * *              On  * * *             * * *
------------------------------------------------------------------------
(a) Chapter I, part 180.........  Nonprocurement      OMB guidance that
                                   debarment and       conforms with the
                                   suspension.         government-wide
                                                       common rule (see
                                                       60 FR 33036, June
                                                       26, 1995).
(b) Chapter I, part 182.........  Drug-free           OMB guidance (54
                                   workplace           FR 4946, January
                                   requirements.       31, 1989) and a
                                                       government-wide
                                                       common rule (as
                                                       amended at 68 FR
                                                       66534, November
                                                       26, 2003).
(c) Chapter II, part 200........  Uniform             OMB Circulars A-
                                   administrative      21, ``Cost
                                   requirements,       Principles for
                                   cost principles,    Educational
                                   and audit           Institutions''
                                   requirements for    (Chapter II, part
                                   federal awards.     225); A-87,
                                                       ``Cost Principles
                                                       for State, Local
                                                       and Indian Tribal
                                                       Governments''
                                                       (Chapter II, part
                                                       225); A-89,
                                                       ``Federal
                                                       Domestic
                                                       Assistance
                                                       Program
                                                       Information'';
                                                       ''; A-102 and a
                                                       government-wide
                                                       common rule (53
                                                       FR 8034, March
                                                       11, 1988); A-110,
                                                       ``Uniform
                                                       Administrative
                                                       Requirements for
                                                       Awards and Other
                                                       Agreements with
                                                       Institutions of
                                                       Higher Education,
                                                       Hospitals, and
                                                       Other Nonprofit
                                                       Organizations''
                                                       (Chapter II, part
                                                       215); A-122,
                                                       ``Cost Principles
                                                       for Non-Profit
                                                       Organizations''
                                                       (Chapter II, part
                                                       230); and A-133
                                                       ``Audits of
                                                       States, Local
                                                       Governments and
                                                       Non-Profit
                                                       Organizations''.
------------------------------------------------------------------------

PART 25--UNIVERSAL IDENTIFIER AND SYSTEM OF AWARD MANAGEMENT

0
3. The authority citation for part 25 continues to read as follows:

    Authority: Pub. L. 109-282; 31 U.S.C. 6102.

0
4. Revise the heading of 2 CFR part 25 to read as set forth above.


Sec. Sec.  25.100 and 25.310  [Amended]

0
5. Amend Sec. Sec.  25.100 and 25.310 and Appendix A to Part 25 by 
removing references to ``Central Contractor Registration'' wherever 
they appear, and adding, in their place, ``System of Award 
Management''.


Sec. Sec.  25.100, 25.110, 25.200, 25.205, 25.310, and Appendix A to 
Part 25  [Amended]

0
6. Amend Sec. Sec.  25.100, 25.110, 25.200, 25.205, 25.310, and 
Appendix A to Part 25 by removing references to ``CCR'' wherever they 
appear, and adding, in their place, ``SAM''.


Sec. Sec.  25.100, 25.110, 25.200, 25.205, 25.210, 25.215, 25.315, and 
Appendix A to Part 25  [Amended]

0
7. Amend Sec. Sec.  25.100, 25.110, 25.200, 25.205, 25.210, 25.215, 
25.315, and Appendix A to Part 25 by removing references to ``Dun and 
Bradstreet (D&B) Data Universal Numbering System (DUNS) number'', 
``Data Universal Numbering System (DUNS) Number'', ``DUNS'' or ``DUNS 
number'' wherever they appear, and adding, in their place, ``unique 
entity identifier''.

Appendix A to Part 25 [Amended]

0
8. Revise Appendix A to Part 25, section I, paragraph c.2. and c.4.b. 
as follows:

Appendix A to Part 25--Award Term

    I. * * *
    C. * * *
    2. Unique entity identifier means the identifier required for 
SAM registration to uniquely identify business entities.
* * * * *
    4. * * *
    4.b. The term does not include your procurement of property and 
services needed to carry out the project or program (for further 
explanation, see 2 CFR 200.330).

PART 170--REPORTING SUBAWARD AND EXECUTIVE COMPENSATION INFORMATION

0
9. The authority citation for part 170 continues to read as follows:

    Authority: Pub. L. 109-282; 31 U.S.C. 6102.

Appendix A to Part 170--[Amended]

0
10. Amend Appendix A to Part 170--Award Term, section I, paragraph 
b.2.i. by removing ``http://www.ccr.gov'' and add, in its place, 
``https://www.sam.gov''.

PART 180--OMB GUIDELINES TO AGENCIES ON GOVERNMENTWIDE DEBARMENT 
AND SUSPENSION (NONPROCUREMENT)

0
11. The authority citation for part 180 continues to read as follows:

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


Sec.  180.25  [Amended]

0
12. Amend Sec.  180.25 paragraph (a), second sentence by removing 
``has'' and adding, in its place ``have''.


Sec. Sec.  180.45, 180.100, 180.155, 180.300, 180.320, 180.430, 
180.500, 180.505, 180.510, 180.515, 180.520, 180.525, and 
180.645  [Amended]

0
13. Amend Sec. Sec.  180.45, 180.100, 180.155, 180.300, 180.320, 
180.430, 180.500, 180.505, 180.510, 180.515, 180.520, 180.525, and 
180.645 by removing references to ``the EPLS'', wherever they appear, 
and adding, in their place ``SAM Exclusions''.


Sec.  180.155 and 180.500  [Amended]

0
14. Amend Sec. Sec.  180.155 and 180.500 by removing, wherever they 
appear ``EPLS'' and adding, in their place ``SAM Exclusions''.
0
15. Amend Sec. Sec.  180.155 and 180.500 by removing, wherever they 
appear ``Excluded Parties List System'' and adding, in their place, 
``System for Award Management Exclusions''.
0
16. Revise the heading of Subpart E to read as follows:

Subpart E--System for Award Management Exclusions


Sec.  180.505  [Amended]

0
17. Amend Sec.  180.505 paragraph (c) by removing ``is'' and adding, in 
its place ``are''.


Sec.  180.515  [Amended]

0
18. Amend Sec.  180.515 paragraph (a)(7) by removing ``Dun and 
Bradstreet Number (DUNS), or other similar code'' and adding, in its 
place, ``unique entity identifier''.
0
19. Revise Sec.  180.530 to read as follows:

[[Page 75880]]

Sec.  180.530  Where can I find SAM Exclusions?

    You may access SAM Exclusions through the Internet, currently at 
https://www.sam.gov.


0
20. Revise Sec.  180.945 to read as follows:


Sec.  180.945  System for Award Management Exclusions (SAM Exclusions).

    System for Award Management Exclusions (SAM Exclusions) means the 
list maintained and disseminated by the General Services Administration 
(GSA) containing the names and other information about persons who are 
ineligible.

CHAPTER II--OFFICE OF MANAGEMENT AND BUDGET GUIDANCE

PART 200--UNIFORM ADMINISTRATIVE REQUIREMENTS, COST PRINCIPLES, AND 
AUDIT REQUIREMENTS FOR FEDERAL AWARDS

0
21. The authority citation for part 200 continues to read as follows:

    Authority: 31 U.S.C. 503.


Sec.  200.0  [Amended]

0
22. Amend Sec.  200.0 as follows:
    (a) Remove the acronyms, ``D&B Dun and Bradstreet'' and ``DUNS Data 
Universal Numbering System''.
    (b) Correct the text ``Generally Accepted Government Accounting 
Standards'' to read ``Generally Accepted Government Auditing 
Standards''.
    (c) Correct the text ``General Accounting Office'' to read 
``Government Accountability Office''.
    (d) Add the acronym, ``PMS Payment Management System'' after the 
acronym ``PII Personally Identifiable Information''.

0
23. Revise Sec.  200.7 to read as follows:


Sec.  200.7  Auditor.

    Auditor means an auditor who is a public accountant or a Federal, 
state, local government, or Indian tribe audit organization, which 
meets the general standards specified for external auditors in 
generally accepted government auditing standards (GAGAS). The term 
auditor does not include internal auditors of nonprofit organizations.
0
24. Revise Sec.  200.19 paragraphs (a), (b), (c) and add a new 
paragraph (d) to read as follows:


Sec.  200.19  Cognizant agency for indirect costs.

* * * * *
    (a) For IHEs: Appendix III to Part 200--Indirect (F&A) Costs 
Identification and Assignment, and Rate Determination for Institutions 
of Higher Education (IHEs), paragraph C.11.
    (b) For nonprofit organizations: Appendix IV to Part 200--Indirect 
(F&A) Costs Identification and Assignment, and Rate Determination for 
Nonprofit Organizations, paragraph C.12.
    (c) For state and local governments: Appendix V to Part 200--State/
Local Governmentwide Central Service Cost Allocation Plans, paragraph 
F.1.
    (d) For Indian tribes: Appendix VII to Part 200--States and Local 
Government and Indian Tribe Indirect Cost Proposal, paragraph D.1.


Sec.  200.32  [Removed and Reserved]

0
25. Remove and reserve Sec.  200.32.


Sec.  200.42  [Amended]

0
26. In Sec.  200.42, paragraph (b), remove ``should'' and add, in its 
place, ``must''.


Sec.  200.47  [Amended]

0
27. In Sec.  200.47, paragraph (a), remove ``are'' and add, in its 
place, ``is''.


Sec.  200.50  [Amended]

0
28. In Sec.  200.50, add ``, also known as the Yellow Book,'' after 
``GAGAS''.


Sec.  200.56  [Amended]

0
29. In Sec.  200.56, third sentence, remove ``should'' and add, in its 
place, ``must''.


Sec.  200.57  [Amended]

0
30. Amend Sec.  200.57 by adding ``, and Appendix IX to Part 200--
Hospital Cost Principles'' after ``this part'' at the end of the 
paragraph.

0
31. Revise Sec.  200.68 to read as follows:


Sec.  200.68  Modified Total Direct Cost (MTDC).

    MTDC means all direct salaries and wages, applicable fringe 
benefits, materials and supplies, services, travel, and up to the first 
$25,000 of each subaward (regardless of the period of performance of 
the subawards under the award). MTDC excludes equipment, capital 
expenditures, charges for patient care, rental costs, tuition 
remission, scholarships and fellowships, participant support costs and 
the portion of each subaward in excess of $25,000. Other items may only 
be excluded when necessary to avoid a serious inequity in the 
distribution of indirect costs, and with the approval of the cognizant 
agency for indirect costs.

0
32. In Sec.  200.80, revise the first sentence to read as follows:


Sec.  200.80  Program income.

    Program income means gross income earned by the non-Federal entity 
that is directly generated by a supported activity or earned as a 
result of the Federal award during the period of performance except as 
provided in Sec.  200.307 paragraph (f).***


Sec.  200.90  [Amended]

0
33. In Sec.  200.90, correct the text ``Virgin Islands'' to read ``U.S. 
Virgin Islands''.

0
34. In Sec.  200.101, revise the table in paragraph (b)(1), paragraph 
(c), the first sentence of paragraph (d)(1), and paragraphs (e)(1)(iv) 
through (v); and add paragraph (e)(1)(vi) to read as follows:


Sec.  200.101  Applicability.

* * * * *
    (b) ***
    (1) ***

[[Page 75881]]

[GRAPHIC] [TIFF OMITTED] TR19DE14.000

    (c) Federal awarding agencies may apply subparts A through E of 
this part to for-profit entities, foreign public entities, or foreign 
organizations, except where the Federal awarding agency determines that 
the application of these subparts would be inconsistent with the 
international obligations of the United States or the statutes or 
regulations of a foreign government.
    (d) * * *
    (1) The block grant awards authorized by the Omnibus Budget 
Reconciliation Act of 1981 (including Community Services, except to the 
extent that the cost and accounting standards of OMB apply to 
subrecipients of Community Services Block Grant funds pursuant to 42 
U.S.C. 9916(a)(1)(B); * * *
* * * * *
    (e) * * *
    (1) * * *
    (iv) Aid to the Aged, Blind, and Disabled (titles I, X, XIV, and 
XVI-AABD of the Act, as amended);
    (v) Medical Assistance (Medicaid) (title XIX of the Act, 42 U.S.C. 
1396-1396w-5) not including the State Medicaid Fraud Control program 
authorized by section 1903(a)(6)(B) of the Social Security Act (42 
U.S.C. 1396b(a)(6)(B)); and
    (vi) Children's Health Insurance Program (title XXI of the Act, 42 
U.S.C. 1397aa-1397mm).
* * * * *

0
35. In Sec.  200.102, revise paragraph (b) and the first sentence of 
paragraph (c) to read as follows:


Sec.  200.102  Exceptions.

* * * * *

[[Page 75882]]

    (b) Exceptions on a case-by-case basis for individual non-Federal 
entities may be authorized by the Federal awarding agency or cognizant 
agency for indirect costs, except where otherwise required by law or 
where OMB or other approval is expressly required by this part.
    (c) The Federal awarding agency may apply more restrictive 
requirements to a class of Federal awards or non-Federal entities when 
approved by OMB, or when, required by Federal statutes or regulations, 
except for the requirements in Subpart F--Audit Requirements of this 
part. * * *
* * * * *


Sec.  200.104  [Amended]

0
36. Amend Sec.  200.104 paragraph (g) by removing ``,'' after 
``Organizations''.

0
37. In Sec.  200.110, revise paragraph (a) to read as follows:


Sec.  200.110  Effective/applicability date.

    (a) The standards set forth in this part which affect 
administration of Federal awards issued by Federal awarding agencies 
become effective once implemented by Federal awarding agencies or when 
any future amendment to this part becomes final. Federal awarding 
agencies must implement the policies and procedures applicable to 
Federal awards by promulgating a regulation to be effective by December 
26, 2014 unless different provisions are required by statute or 
approved by OMB. For the procurement standards in Sec. Sec.  200.317-
200.326, non-Federal entities may continue to comply with the 
procurement standards in previous OMB guidance (superseded by this part 
as described in Sec.  200.104) for one additional fiscal year after 
this part goes into effect. If a non-Federal entity chooses to use the 
previous procurement standards for an additional fiscal year before 
adopting the procurement standards in this part, the non-Federal entity 
must document this decision in their internal procurement policies.
* * * * *

0
38. In Sec.  200.200, revise paragraph (a) to read as follows:


Sec.  200.200  Purpose.

    (a) Sections 200.201 Use of grant agreements (including fixed 
amount awards), cooperative agreements, and contracts through 200.208 
Certifications and representations prescribe instructions and other 
pre-award matters to be used in the announcement and application 
process.
* * * * *

0
39. In Sec.  200.201, revise paragraph (b)(1) to read as follows:


Sec.  200.201  Use of grant agreements (including fixed amount awards), 
cooperative agreements, and contracts.

* * * * *
    (b) * * *
    (1) The Federal award amount is negotiated using the cost 
principles (or other pricing information) as a guide. The Federal 
awarding agency or pass-through entity may use fixed amount awards if 
the project scope is specific and if adequate cost, historical, or unit 
pricing data is available to establish a fixed amount award based on a 
reasonable estimate of actual cost. Payments are based on meeting 
specific requirements of the Federal award. Accountability is based on 
performance and results. Except in the case of termination before 
completion of the Federal award, there is no governmental review of the 
actual costs incurred by the non-Federal entity in performance of the 
award. Some of the ways in which the Federal award may be paid include, 
but are not limited to:
* * * * *

0
40. In Sec.  200.203, amend paragraph (c)(2) by removing the reference 
to ``paragraph (b)'' and adding in its place ``paragraph (c)(4)'', and 
revise paragraph (c)(5) to read as follows:


Sec.  200.203  Notices of funding opportunities.

* * * * *
    (c) * * *
    (5) Application Review Information including the criteria and 
process to be used to evaluate applications. See also Sec. Sec.  
200.204 Federal awarding agency review of merit proposals and 200.205 
Federal awarding agency review of risk posed by applicants. See also 2 
CFR part 27 (forthcoming at time of publication).

0
41. In Sec.  200.205, revise paragraph (a) to read as follows:


Sec.  200.205  Federal awarding agency review of risk posed by 
applicants.

    (a) Prior to making a Federal award, the Federal awarding agency is 
required by 31 U.S.C. 3321 and 41 U.S.C. 2313 note to review 
information available through any OMB-designated repositories of 
governmentwide eligibility qualification or financial integrity 
information, such as SAM Exclusions and ``Do Not Pay''. See also 
suspension and debarment requirements at 2 CFR part 180 as well as 
individual Federal agency suspension and debarment regulations in title 
2 of the Code of Federal Regulations.
* * * * *

0
42. Revise Sec.  200.207 to read as follows:


Sec.  200.207  Specific conditions.

    (a) The Federal awarding agency or pass-through entity may impose 
additional specific award conditions as needed, in accordance with 
paragraphs (b) and (c) of this section, under the following 
circumstances:
    (1) Based on the criteria set forth in Sec.  200.205 Federal 
awarding agency review of risk posed by applicants;
    (2) When an applicant or recipient has a history of failure to 
comply with the general or specific terms and conditions of a Federal 
award;
    (3) When an applicant or recipient fails to meet expected 
performance goals as described in Sec.  200.210 Information contained 
in a Federal award; or
    (4) When an applicant or recipient is not otherwise responsible.
    (b) These additional Federal award conditions may include items 
such as the following:
    (1) Requiring payments as reimbursements rather than advance 
payments;
    (2) Withholding authority to proceed to the next phase until 
receipt of evidence of acceptable performance within a given period of 
performance;
    (3) Requiring additional, more detailed financial reports;
    (4) Requiring additional project monitoring;
    (5) Requiring the non-Federal entity to obtain technical or 
management assistance; or
    (6) Establishing additional prior approvals.
    (c) The Federal awarding agency or pass-through entity must notify 
the applicant or non-Federal entity as to:
    (1) The nature of the additional requirements;
    (2) The reason why the additional requirements are being imposed;
    (3) The nature of the action needed to remove the additional 
requirement, if applicable;
    (4) The time allowed for completing the actions if applicable, and
    (5) The method for requesting reconsideration of the additional 
requirements imposed.
    (d) Any specific conditions must be promptly removed once the 
conditions that prompted them have been corrected.

0
43. In Sec.  200.210. revise paragraphs (a)(1) and (a)(2) to read as 
follows:


Sec.  200.210  Information contained in a federal award.

* * * * *
    (a) * * *
    (1) Recipient name (which must match the name associated with its 
unique entity identifier as defined at 2 CFR 25.315);

[[Page 75883]]

    (2) Recipient's unique entity identifier;
* * * * *

0
44. Add Sec.  200.212 to subpart C to read as follows:


Sec.  200.212  Suspension and debarment.

    Non-federal entities and contractors are subject to the non-
procurement debarment and suspension regulations implementing Executive 
Orders 12549 and 12689, 2 CFR part 180. These regulations restrict 
awards, subawards, and contracts with certain parties that are 
debarred, suspended, or otherwise excluded from or ineligible for 
participation in Federal assistance programs or activities.

0
45. Amend Sec.  200.301, the first and third sentence, by removing 
``governmentwide''.

0
46. In Sec.  200.303, revise the second sentence of paragraph (a) and 
revise paragraphs (c) and (e) to read as follows:


Sec.  200.303  Internal controls.

* * * * *
    (a) * * * These internal controls should be in compliance with 
guidance in ``Standards for Internal Control in the Federal 
Government'' issued by the Comptroller General of the United States or 
the ``Internal Control Integrated Framework'', issued by the Committee 
of Sponsoring Organizations of the Treadway Commission (COSO).
* * * * *
    (c) Evaluate and monitor the non-Federal entity's compliance with 
statutes, regulations and the terms and conditions of Federal awards.
* * * * *
    (e) Take reasonable measures to safeguard protected personally 
identifiable information and other information the Federal awarding 
agency or pass-through entity designates as sensitive or the non-
Federal entity considers sensitive consistent with applicable Federal, 
state, local, and tribal laws regarding privacy and obligations of 
confidentiality.

0
47. In Sec.  200.305, revise paragraphs (b) introductory text, 
(b)(2)(i), (b)(2)(ii), (b)(6), and (b)(9) to read as follows:


Sec.  200.305  Payment.

* * * * *
    (b) For non-Federal entities other than states, payments methods 
must minimize the time elapsing between the transfer of funds from the 
United States Treasury or the pass-through entity and the disbursement 
by the non-Federal entity whether the payment is made by electronic 
funds transfer, or issuance or redemption of checks, warrants, or 
payment by other means. See also Sec.  200.302 Financial management 
paragraph (b)(6). Except as noted elsewhere in this part, Federal 
agencies must require recipients to use only OMB-approved standard 
governmentwide information collection requests to request payment.
    (2) * * *
    (i) Advance payment mechanisms include, but are not limited to, 
Treasury check and electronic funds transfer and must comply with 
applicable guidance in 31 CFR part 208.
    (ii) Non-Federal entities must be authorized to submit requests for 
advance payments and reimbursements at least monthly when electronic 
fund transfers are not used, and as often as they like when electronic 
transfers are used, in accordance with the provisions of the Electronic 
Fund Transfer Act (15 U.S.C. 1693-1693r).
* * * * *
    (6) Unless otherwise required by Federal statutes, payments for 
allowable costs by non-Federal entities must not be withheld at any 
time during the period of performance unless the conditions of 
Sec. Sec.  200.207 Specific conditions, Subpart D--Post Federal Award 
Requirements of this part, 200.338 Remedies for Noncompliance, or one 
or more of the following applies:
* * * * *
    (9) Interest earned amounts up to $500 per year may be retained by 
the non-Federal entity for administrative expense. Any additional 
interest earned on Federal advance payments deposited in interest-
bearing accounts must be remitted annually to the Department of Health 
and Human Services Payment Management System (PMS) through an 
electronic medium using either Automated Clearing House (ACH) network 
or a Fedwire Funds Service payment. Remittances must include pertinent 
information of the payee and nature of payment in the memo area (often 
referred to as ``addenda records'' by Financial Institutions) as that 
will assist in the timely posting of interested earned on federal 
funds. Pertinent details include the Payee Account Number (PAN) if the 
payment originated from PMS, or Agency information if the payment 
originated from ASAP, NSF or another federal agency payment system. The 
remittance must be submitted as follows:
    (i) For ACH Returns:

Routing Number: 051036706
Account number: 303000
Bank Name and Location: Credit Gateway--ACH Receiver St. Paul, MN
    (ii) For Fedwire Returns*:
Routing Number: 021030004
Account number: 75010501
Bank Name and Location: Federal Reserve Bank Treas NYC/Funds Transfer 
Division New York, NY

(* Please note organization initiating payment is likely to incur a 
charge from your Financial Institution for this type of payment)

    (iii) For International ACH Returns:
Beneficiary Account: Federal Reserve Bank of New York/ITS (FRBNY/ITS)
Bank: Citibank N.A. (New York)
Swift Code: CITIUS33
Account Number: 36838868
Bank Address: 388 Greenwich Street, New York, NY 10013 USA
Payment Details (Line 70): Agency
Name (abbreviated when possible) and ALC Agency POC: Michelle Haney, 
(301) 492-5065
    (iv) For recipients that do not have electronic remittance 
capability, please make check** payable to: ``The Department of Health 
and Human Services.''
    Mail Check to Treasury approved lockbox:

HHS Program Support Center, P.O. Box 530231, Atlanta, GA 30353-0231

(** Please allow 4-6 weeks for processing of a payment by check to be 
applied to the appropriate PMS account)

    (v) Any additional information/instructions may be found on the PMS 
Web site at http://www.dpm.psc.gov/.

0
48. In Sec.  200.306, revise paragraphs (a), (c), and (d) and add 
paragraph (k) to read as follows:


Sec.  200.306  Cost sharing or matching.

    (a) Under Federal research proposals, voluntary committed cost 
sharing is not expected. It cannot be used as a factor during the merit 
review of applications or proposals, but may be considered if it is 
both in accordance with Federal awarding agency regulations and 
specified in a notice of funding opportunity. Criteria for considering 
voluntary committed cost sharing and any other program policy factors 
that may be used to determine who may receive a Federal award must be 
explicitly described in the notice of funding opportunity. See also 
Sec. Sec.  200.414 Indirect (F&A) costs, 200.203 Notices of funding 
opportunities, and Appendix I to Part 200--Full Text of Notice of 
Funding Opportunity.
* * * * *
    (c) Unrecovered indirect costs, including indirect costs on cost 
sharing or matching may be included as part of cost sharing or matching 
only with the prior approval of the Federal awarding agency. 
Unrecovered indirect cost means the difference between the amount 
charged to the Federal award and the amount which could have been

[[Page 75884]]

charged to the Federal award under the non-Federal entity's approved 
negotiated indirect cost rate.
    (d) Values for non-Federal entity contributions of services and 
property must be established in accordance with the cost principles in 
Subpart E--Cost Principles. If a Federal awarding agency authorizes the 
non-Federal entity to donate buildings or land for construction/
facilities acquisition projects or long-term use, the value of the 
donated property for cost sharing or matching must be the lesser of 
paragraphs (d)(1) or (2) of this section.
* * * * *
    (k) For IHEs, see also OMB memorandum M-01-06, dated January 5, 
2001, Clarification of OMB A-21 Treatment of Voluntary Uncommitted Cost 
Sharing and Tuition Remission Costs.

0
49. In Sec.  200.307, revise paragraphs (d) and (e)(2) and add 
paragraph (g) to read as follows:


Sec.  200.307  Program income.

* * * * *
    (d) Property. Proceeds from the sale of real property, equipment, 
or supplies are not program income; such proceeds will be handled in 
accordance with the requirements of Subpart D--Post Federal Award 
Requirements of this part, Property Standards Sec. Sec.  200.311 Real 
property, 200.313 Equipment, and 200.314 Supplies, or as specifically 
identified in Federal statutes, regulations, or the terms and 
conditions of the Federal award.
    (e) * * *
    (2) Addition. With prior approval of the Federal awarding agency 
(except for IHEs and nonprofit research institutions, as described in 
paragraph (e) of this section) program income may be added to the 
Federal award by the Federal agency and the non-Federal entity. The 
program income must be used for the purposes and under the conditions 
of the Federal award.
* * * * *
    (g) Unless the Federal statute, regulations, or terms and 
conditions for the Federal award provide otherwise, the non-Federal 
entity has no obligation to the Federal awarding agency with respect to 
program income earned from license fees and royalties for copyrighted 
material, patents, patent applications, trademarks, and inventions made 
under a Federal award to which 37 CFR part 401,''Rights to Inventions 
Made by Nonprofit Organizations and Small Business Firms Under 
Government Awards, Contracts and Cooperative Agreements'' is 
applicable.

0
50. In Sec.  200.308, revise paragraphs (c)(4), (c)(6), and (c)(7); add 
paragraph (c)(8); and revise paragraphs (d) and (g)(4) to read as 
follows:


Sec.  200.308  Revision of budget and program plans.

* * * * *
    (c) * * *
    (4) The inclusion, unless waived by the Federal awarding agency, of 
costs that require prior approval in accordance with Subpart E--Cost 
Principles of this part or 45 CFR part 75 Appendix IX, ``Principles for 
Determining Costs Applicable to Research and Development under Awards 
and Contracts with Hospitals,'' or 48 CFR part 31, ``Contract Cost 
Principles and Procedures,'' as applicable.
* * * * *
    (6) Unless described in the application and funded in the approved 
Federal awards, the subawarding, transferring or contracting out of any 
work under a Federal award, including fixed amount subawards as 
described in Sec.  200.332 Fixed amount subawards. This provision does 
not apply to the acquisition of supplies, material, equipment or 
general support services.
    (7) Changes in the approved cost-sharing or matching provided by 
the non-Federal entity. No other prior approval requirements for 
specific items may be imposed unless an exception has been approved by 
OMB. See also Sec. Sec.  200.102 Exceptions and 200.407 Prior written 
approval (prior approval).
    (8) The need arises for additional Federal funds to complete the 
project.
    (d) Except for requirements listed in paragraph (c)(1) of this 
section, the Federal awarding agency is authorized, at its option, to 
waive prior written approvals required by paragraph (c) this section. 
Such waivers may include authorizing recipients to do any one or more 
of the following:
* * * * *
    (g) * * *
    (4) No other prior approval requirements for budget revisions may 
be imposed unless an exception has been approved by OMB.


Sec.  200.309  [Amended]

0
51. Amend Sec.  200.309, by adding ``(except as described in Sec.  
200.461 Publication and printing costs)'' after ``performance''.


Sec.  200.311   [Amended]

0
52. Amend Sec.  200.311, paragraphs (c)(1) and (c)(2) by adding ``the'' 
before ``non-Federal entity''.

0
53. In Sec.  200.312, revise the first sentence of paragraph (c) to 
read as follows:


Sec.  200.312  Federally-owned and exempt property.

* * * * *
    (c) Exempt federally-owned property means property acquired under a 
Federal award where the Federal awarding agency has chosen to vest 
title to the property to the non-Federal entity without further 
obligation to the Federal Government, based upon the explicit terms and 
conditions of the Federal award.* * *


Sec.  200.313  [Amended]

0
54. Amend Sec.  200.313, paragraph (a)(1) by removing ``until funding 
for the project ceases'' and adding, in its place, ``during the period 
of performance''.


Sec.  200.315  [Amended]

0
55. Amend Sec.  200.315, paragraph (e)(1), first sentence by removing 
``addition, in''.

0
56. Revise Sec.  200.318, paragraphs (a), (c)(1), (h), and (j)(1) to 
read as follows:


Sec.  200.318  General procurement standards.

* * * * *
    (a) The non-Federal entity must use its own documented procurement 
procedures which reflect applicable State, local, and tribal laws and 
regulations, provided that the procurements conform to applicable 
Federal law and the standards identified in this part.
* * * * *
    (c) * * *
    (1) The non-Federal entity must maintain written standards of 
conduct covering conflicts of interest and governing the actions of its 
employees engaged in the selection, award and administration of 
contracts. No employee, officer, or agent may participate in the 
selection, award, or administration of a contract supported by a 
Federal award if he or she has a real or apparent conflict of interest. 
Such a conflict of interest would arise when the employee, officer, or 
agent, any member of his or her immediate family, his or her partner, 
or an organization which employs or is about to employ any of the 
parties indicated herein, has a financial or other interest in or a 
tangible personal benefit from a firm considered for a contract. The 
officers, employees, and agents of the non-Federal entity may neither 
solicit nor accept gratuities, favors, or anything of monetary value 
from contractors or parties to subcontracts. However, non-Federal 
entities may set standards for situations in which the financial 
interest

[[Page 75885]]

is not substantial or the gift is an unsolicited item of nominal value. 
The standards of conduct must provide for disciplinary actions to be 
applied for violations of such standards by officers, employees, or 
agents of the non-Federal entity.
* * * * *
    (h) The non-Federal entity must award contracts only to responsible 
contractors possessing the ability to perform successfully under the 
terms and conditions of a proposed procurement. Consideration will be 
given to such matters as contractor integrity, compliance with public 
policy, record of past performance, and financial and technical 
resources. See also Sec.  200.212 Suspension and debarment.
* * * * *
    (j) * * *
    (1) The non-Federal entity may use a time and materials type 
contract only after a determination that no other contract is suitable 
and if the contract includes a ceiling price that the contractor 
exceeds at its own risk. Time and materials type contract means a 
contract whose cost to a non-Federal entity is the sum of:
* * * * *


Sec.  200.319  [Amended]

0
57. Amend Sec.  200.319, paragraph (a) by removing ``and invitations'' 
and adding, in its place ``or invitations''; and paragraph (b) by 
removing ``state or local'' and adding, in its place ``state, local, or 
tribal''.

0
58. Revise Sec.  200.320, paragraphs (a), (c)(2)(i), and (c)(2)(iii) to 
read as follows:


Sec.  200.320  Methods of procurement to be followed.

* * * * *
    (a) Procurement by micro-purchases. Procurement by micro-purchase 
is the acquisition of supplies or services, the aggregate dollar amount 
of which does not exceed the micro-purchase threshold (Sec.  200.67 
Micro-purchase). To the extent practicable, the non-Federal entity must 
distribute micro-purchases equitably among qualified suppliers. Micro-
purchases may be awarded without soliciting competitive quotations if 
the non-Federal entity considers the price to be reasonable.
* * * * *
    (c) * * *
    (2) * * *
    (i) Bids must be solicited from an adequate number of known 
suppliers, providing them sufficient response time prior to the date 
set for opening the bids, for state, local, and tribal governments, the 
invitation for bids must be publically advertised;
* * * * *
    (iii) All bids will be opened at the time and place prescribed in 
the invitation for bids, and for local and tribal governments, the bids 
must be opened publicly;
* * * * *


Sec.  200.322  [Amended]

0
59. Amend Sec.  200.322, by removing ``acquired by'' and adding, in its 
place ``acquired during''.

0
60. In Sec.  200.331, revise paragraphs (a)(1)(i), (a)(1)(ii), (a)(4), 
(a)(5), (b), and (d)(1) to read as follows:


Sec.  200.331  Requirements for pass-through entities.

* * * * *
    (a) * * *
    (1) * * *
    (i) Subrecipient name (which must match the name associated with 
its unique entity identifier);
    (ii) Subrecipient's unique entity identifier;
* * * * *
    (4) An approved federally recognized indirect cost rate negotiated 
between the subrecipient and the Federal government or, if no such rate 
exists, either a rate negotiated between the pass-through entity and 
the subrecipient (in compliance with this part), or a de minimis 
indirect cost rate as defined in Sec.  200.414 Indirect (F&A) costs, 
paragraph (f) of this part.
    (5) A requirement that the subrecipient permit the pass-through 
entity and auditors to have access to the subrecipient's records and 
financial statements as necessary for the pass-through entity to meet 
the requirements of this part; and
* * * * *
    (b) Evaluate each subrecipient's risk of noncompliance with Federal 
statutes, regulations, and the terms and conditions of the subaward for 
purposes of determining the appropriate subrecipient monitoring 
described in paragraphs (d) and (e) of this section, which may include 
consideration of such factors as:
* * * * *
    (d) * * *
    (1) Reviewing financial and performance reports required by the 
pass-through entity.
* * * * *


Sec.  200.337  [Amended]

0
61. Amend Sec.  200.337 by removing ``state or local'' and adding, in 
its place ``state, local, and tribal''.


Sec.  200.340  [Amended]

0
62. Amend Sec.  200.340(c) by adding '' (forthcoming at time of 
publication)'' after ``2 CFR part 77''.


Sec.  200.341  [Amended]

0
63. Amend Sec.  200.341 by removing ``proceedings which'' and adding, 
in its place ``proceedings to which''.


Sec.  200.343  [Amended]

0
64. Amend Sec.  200.343 by removing ``Federal agency'' from the 
introductory text and adding, in its place ``Federal awarding agency''; 
in paragraph (a) by removing ``by or the'' and adding, in its place 
``by the''; and paragraph (d) by removing ``that is'' and adding, in 
its place ``that are'', and adding ``,'' after due.


Sec.  200.344  [Amended]

0
65. Amend Sec.  200.344, paragraph (a) introductory text by removing 
``.'' and adding, in its place ``;'' and paragraph (b) by adding ``,'' 
after section.


Sec.  200.400  [Amended]

0
66. Amend Sec.  200.400, paragraph (f) by adding ``(including pre- and 
post-doctoral staff)'' after ``employees'' and paragraph (g) by 
removing ``expressly'' and adding, in its place ``explicitly''.


Sec.  200.404  [Amended]

0
67. Amend Sec.  200.404, paragraph (b) by adding ``, local, tribal,'' 
after ``state''.


Sec.  200.405  [Amended]

0
68. Amend Sec.  200.405, paragraph (d) by removing ``should'' and 
adding, in its place ``must''.


Sec.  200.406  [Amended]

0
69. Amend Sec.  200.406, paragraph (b) second sentence by removing 
``should'' and adding, in its place ``must''.

0
70. In Sec.  200.407, revise paragraphs (e) through (v) and add 
paragraphs (w), (x) and (y) to read as follows:


Sec.  200.407  Prior written approval (prior approval).

* * * * *
    (e) Sec.  200.311 Real property;
    (f) Sec.  200.313 Equipment;
    (g) Sec.  200.332 Fixed amount subawards;
    (h) Sec.  200.413 Direct costs, paragraph (c);
    (i) Sec.  200.430 Compensation--personal services, paragraph (h);
    (j) Sec.  200.431 Compensation--fringe benefits;
    (k) Sec.  200.438 Entertainment costs;
    (l) Sec.  200.439 Equipment and other capital expenditures;
    (m) Sec.  200.440 Exchange rates;
    (n) Sec.  200.441 Fines, penalties, damages and other settlements;

[[Page 75886]]

    (o) Sec.  200.442 Fund raising and investment management costs;
    (p) Sec.  200.445 Goods or services for personal use;
    (q) Sec.  200.447 Insurance and indemnification;
    (r) Sec.  200.454 Memberships, subscriptions, and professional 
activity costs, paragraph (c);
    (s) Sec.  200.455 Organization costs;
    (t) Sec.  200.456 Participant support costs;
    (u) Sec.  200.458 Pre-award costs;
    (v) Sec.  200.462 Rearrangement and reconversion costs;
    (w) Sec.  200.467 Selling and marketing costs;
    (x) Sec.  200.470 Taxes (including Value Added Tax); and
    (y) Sec.  200.474 Travel costs.


Sec.  200.413  [Amended]

0
71. Amend Sec.  200.413, paragraph (f)(5) by adding ``See also Sec.  
200.442 Fund raising and investment management costs.'' after the first 
sentence.

0
72. In Sec.  200.414, revise paragraphs (e) introductory text, (e)(1), 
(e)(3), (e)(4), (e)(5); add new paragraph (e)(6); revise the first 
sentence of paragraph (f); and revise paragraph (g) to read as follows:


Sec.  200.414  Indirect (F&A) costs.

* * * * *
    (e) Requirements for development and submission of indirect (F&A) 
cost rate proposals and cost allocation plans are contained in 
Appendices III-VII and Appendix IX as follows:
    (1) Appendix III to Part 200--Indirect (F&A) Costs Identification 
and Assignment, and Rate Determination for Institutions of Higher 
Education (IHEs);
* * * * *
    (3) Appendix V to Part 200--State/Local Governmentwide Central 
Service Cost Allocation Plans;
    (4) Appendix VI to Part 200--Public Assistance Cost Allocation 
Plans;
    (5) Appendix VII to Part 200--States and Local Government and 
Indian Tribe Indirect Cost Proposals; and
    (6) Appendix IX to Part 200--Hospital Cost Principles.
    (f) In addition to the procedures outlined in the appendices in 
paragraph (e) of this section, any non-Federal entity that has never 
received a negotiated indirect cost rate, except for those non-Federal 
entities described in Appendix VII to Part 200--States and Local 
Government and Indian Tribe Indirect Cost Proposals, paragraph D.1.b, 
may elect to charge a de minimis rate of 10% of modified total direct 
costs (MTDC) which may be used indefinitely.***
    (g) Any non-Federal entity that has a current federally negotiated 
indirect cost rate may apply for a one-time extension of the rates in 
that agreement for a period of up to four years. This extension will be 
subject to the review and approval of the cognizant agency for indirect 
costs. If an extension is granted the non-Federal entity may not 
request a rate review until the extension period ends. At the end of 
the 4-year extension, the non-Federal entity must re-apply to negotiate 
a rate. Subsequent one-time extensions (up to four years) are permitted 
if a renegotiation is completed between each extension request.


Sec.  200.415  [Amended]

0
73. Amend Sec.  200.415, paragraph (b)(1) by adding ``, and Appendix 
IX'' after ``Appendices III through VII''; and paragraph (c) by 
removing ``corporation'' and adding, in its place ``nonprofit 
organization''.

0
74. In Sec.  200.419, revise the second sentence of paragraph (b)(2) to 
read as follows:


Sec.  200.419  Cost accounting standards and disclosure statement.

* * * * *
    (b) * * *
    (2) * * * An IHE must file amendments to the DS-2 to the cognizant 
agency for indirect costs six months in advance of a disclosed practice 
being changed to comply with a new or modified standard, or when a 
practice is changed for other reasons.* * *
* * * * *


Sec.  200.430  [Amended]

0
75. Amend Sec.  200.430, paragraph (g) by removing ``should'' and 
adding, in its place ``must''; and paragraph (h)(1)(ii) by removing 
``(h)(9)'' and adding, in its place ``(i)''.


Sec.  200.431  [Amended]

0
76. Amend Sec.  200.431, paragraph (b)(3)(i) by removing ``as indirect 
costs''; paragraph (e)(3) by removing ``and they are allocated as 
indirect costs''; and paragraph (h)(6) by adding ``non-Federal'' before 
``entity''.


Sec.  200.433  [Amended]

0
77. Amend Sec.  200.433, paragraph (b) by removing ``(b)(1)'' and 
adding, in its place ``(a)''.


Sec.  200.434  [Amended]

0
78. Amend Sec.  200.434, paragraph (c) by removing ``is no allowable'' 
and adding, in its place ``may not be charged to the Federal award''; 
and paragraph (g)(1) by removing ``is not reimbursable'' and adding, in 
its place ``may not be charged to the Federal award''.


Sec.  200.435  [Amended]

0
79. Amend Sec.  200.435, paragraph (b)(1)(ii)(D) by removing ``for 
default''.


Sec.  200.436  [Amended]

0
80. Amend Sec.  200.436, paragraph (b) by removing ``Appendices IV 
through VIII'' and adding, in its place ``Appendices III through IX''; 
paragraph (c) introductory text by removing ``For this purpose'' and 
adding, in its place ``For the purpose of computing depreciation''; and 
paragraph (c)(3) by removing ``entity, or where'' and adding, in its 
place ``entity where''.

0
81. In Sec.  200.439, add a new paragraph (b)(7) to read as follows:


Sec.  200.439  Equipment and other capital expenditures.

* * * * *
    (b) * * *
    (7) Equipment and other capital expenditures are unallowable as 
indirect costs. See Sec.  200.436 Depreciation.

0
82. In Sec.  200.440, revise paragraph (a) to read as follows:


Sec.  200.440  Exchange rates.

    (a) Cost increases for fluctuations in exchange rates are allowable 
costs subject to the availability of funding. Prior approval of 
exchange rate fluctuations is required only when the change results in 
the need for additional Federal funding, or the increased costs result 
in the need to significantly reduce the scope of the project. The 
Federal awarding agency must however ensure that adequate funds are 
available to cover currency fluctuations in order to avoid a violation 
of the Anti-Deficiency Act.
* * * * *


Sec.  200.443  [Amended]

0
83. Amend Sec.  200.443, paragraph (b)(3) by removing ``46*''.

0
84. In Sec.  200.444, revise paragraph (b) to read as follows:


Sec.  200.444  General costs of government.

* * * * *
    (b) For Indian tribes and Councils of Governments (COGs) (see Sec.  
200.64 Local government), up to 50% of salaries and expenses directly 
attributable to managing and operating Federal programs by the chief 
executive and his or her staff can be included in the indirect cost 
calculation without documentation.


Sec.  200.448  [Amended]

0
85. In Sec.  200.448, amend paragraph (b)(3) by removing the word 
``should'' and adding in its place ``must''.

[[Page 75887]]

Sec.  200.453  [Amended]

0
86. In Sec.  200.453, amend paragraph (b) by removing the word 
``should'' and adding in its place ``must''.


Sec.  200.457  [Amended]

0
87. Amend the first sentence of Sec.  200.457 by removing the text 
``routine and security to protect'' and adding, in its place 
``protection and security of''.


Sec.  200.463  [Amended]

0
88. Amend Sec.  200.463, paragraph (c), the first sentence by removing 
``as a direct cost''.


Sec.  200.464  [Amended]

0
89. Amend Sec.  200.464, paragraph (c), the second sentence by removing 
``allowed either as a direct or indirect cost'' and adding, in its 
place ``charged to a Federal award''.

0
90. In Sec.  200.474, remove paragraph (c)(3), revise paragraphs (d) 
and (e), and add paragraph (f) to read as follows:


Sec.  200.474  Travel costs.

* * * * *
    (d) In the absence of an acceptable, written non-Federal entity 
policy regarding travel costs, the rates and amounts established under 
5 U.S.C. 5701-11, (``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 must apply to travel under Federal awards (48 CFR 31.205-
46(a)).
    (e) Commercial air travel. (1) Airfare costs in excess of the basic 
least expensive unrestricted accommodations class offered by commercial 
airlines are unallowable except when such accommodations would:
    (i) Require circuitous routing;
    (ii) Require travel during unreasonable hours;
    (iii) Excessively prolong travel;
    (iv) Result in additional costs that would offset the 
transportation savings; or
    (v) Offer accommodations not reasonably adequate for the traveler's 
medical needs. The non-Federal entity must justify and document these 
conditions on a case-by-case basis in order for the use of first-class 
or business-class airfare to be allowable in such cases.
    (2) Unless a pattern of avoidance is detected, the Federal 
government will generally not question a non-Federal entity's 
determinations that customary standard airfare or other discount 
airfare is unavailable for specific trips if the non-Federal entity can 
demonstrate that such airfare was not available in the specific case.
    (f) Air travel by other than commercial carrier. Costs of travel by 
non-Federal entity-owned, -leased, or -chartered aircraft include the 
cost of lease, charter, operation (including personnel costs), 
maintenance, depreciation, insurance, and other related costs. The 
portion of such costs that exceeds the cost of airfare as provided for 
in paragraph (d) of this section, is unallowable.


Sec.  200.501  [Amended]

0
91. Amend Sec.  200.501, paragraph (f), by removing ``should be 
considered'' and adding, in its place ``sets forth the 
considerations''; and paragraph (h), by removing ``should describe'' 
with ``must describe''.


Sec.  200.502  [Amended]

0
92. Amend Sec.  200.502, paragraph (a), by removing ``should be based'' 
and adding, in its place ``must be based.''


Sec.  200.507  [Amended]

0
93. Amend Sec.  200.507, paragraph (b)(1), by adding ``current '' 
before ``program-specific audit guide''.


Sec.  200.510  [Amended]

0
94. Amend Sec.  200.510, paragraph (b)(6), by removing ``non-Federal 
entity'' and adding, in its place ``auditee.''

0
95. In Sec.  200.512, revise the heading and first sentence of 
paragraph (b)(2) to read as follows:


Sec.  200.512  Report submission.

* * * * *
    (b) * * *
    (2) Exception for Indian Tribes and Tribal Organizations. An 
auditee that is an Indian tribe or a tribal organization (as defined in 
the Indian Self-Determination, Education and Assistance Act (ISDEAA), 
25 U.S.C. 450b(l)) may opt not to authorize the FAC to make the 
reporting package publicly available on a Web site, by excluding the 
authorization for the FAC publication in the statement described in 
paragraph (b)(1) of this section.***
* * * * *


Sec.  200.513  [Amended]

0
96. Amend Sec.  200.513, paragraph (c)(5)(i), by removing ``requirement 
of Sec.  200.513 Responsibilities'' and adding, in its place 
``requirements of paragraph (c) of this section''.


Sec.  200.514  [Amended]

0
97. Amend Sec.  200.514, paragraph (d)(3), by removing ``the auditor 
should'' and adding, in its place ``the auditor must''.


Sec.  200.515  [Amended]

0
98. Amend Sec.  200.515 as follows:
0
(a) In paragraph (b), remove ``Federal statutes, regulations, and the 
terms and conditions of the Federal award'' and add, in its place 
``provisions of laws, regulations, contracts, and award agreements''.
0
(b) In paragraph (c), remove ``report and internal control'' and add, 
in its place ``a report on internal control'' in the first sentence; 
and remove ``modified opinion'' and add, in its place ``disclaimer of 
opinion'' in the second sentence.
0
(c) In paragraph (d) (3) (i), remove ``should be presented'' and add, 
in its place ``must be presented''.
0
(d) In paragraph (d) (3) (ii), remove ``should be reported'' and add, 
in its place ``must be reported''.


Sec.  200.518  [Amended]

0
99. Amend Sec.  200.518 as follows:
0
(a) In paragraph (a), remove ``paragraphs (b) through (i)'' and add, in 
its place ``paragraphs (b) through (h)''.
0
(b) In paragraph (b)(1), in the table, remove ``Equal to $750,000'' and 
add, in its place ``Equal to or exceed $750,000''.
0
(c) In paragraph (b)(3), remove ``loan guarantees (loans) should not 
result'' with ``loan guarantees (loans) must not result''.

Appendix I to Part 200 [Amended]

0
100. Amend Appendix I to Part 200--Full Text of Notice of Funding 
Opportunity as follows:
0
(a) In the general discussion section, amend the second sentence of the 
third paragraph by removing ``to include in Section I information'' and 
adding, in its place ``to include Section A information''.
0
(b) In the general discussion section, amend the last sentence of third 
paragraph by removing ``The format specifies a standard location for 
that information in Section III.1 but that does not preclude repeating 
the information in Section I or creating a cross reference between 
Sections I and III.1'' and adding, in its place ``The format specifies 
a standard location for that information in Section C.1 but does not 
preclude repeating the information in Section A or creating a cross 
reference between Section A and C.1''.
0
(c) In Section B, second paragraph, remove ``section D'' and add, in 
its place ``Section D''.
0
(d) In Section C.1, fifth sentence, remove ``Section IV'' and add, in 
its place ``Section D''.
0
(e) In Section C.1, last sentence, remove references, wherever they 
appear to ``Section IV.5'' and add, in their place ``Section D.6''.
0
(f) In Section D.2.i, remove ``Section IV.3'' and add, in its place 
``Section D.4''.

[[Page 75888]]

0
(g) In the heading of Section D.3, remove ``Dun and Bradstreet 
Universal Numbering System (DUNS) number'' and add, in its place 
``Unique entity identifier''.
0
(h) In Section D.3, item (ii), remove ``a valid DUNS number'' and add, 
in its place ``a valid unique entity identifier''.
0
(i) In Section D.3, item (iii), remove ``all applicable DUNS'' and add, 
in its place ``all applicable unique entity identifier''.
0
(j) In Section E.1, second paragraph, remove ``Section III.2'' and add, 
in its place ``Section C.2''.

0
101. In Appendix II to Part 200--Contract Provisions for Non-Federal 
Entity Contracts Under Federal Awards, revise paragraphs (H), (I) and 
(J); and remove paragraph (K) to read as follows:

Appendix II to Part 200--Contract Provisions for Non-Federal Entity 
Contracts Under Federal Awards

* * * * *
    (H) Debarment and Suspension (Executive Orders 12549 and 
12689)--A contract award (see 2 CFR 180.220) must not be made to 
parties listed on the governmentwide exclusions in the System for 
Award Management (SAM), in accordance with the OMB guidelines at 2 
CFR 180 that implement Executive Orders 12549 (3 CFR part 1986 
Comp., p. 189) and 12689 (3 CFR part 1989 Comp., p. 235), 
``Debarment and Suspension.'' SAM Exclusions contains the names of 
parties debarred, suspended, or otherwise excluded by agencies, as 
well as parties declared ineligible under statutory or regulatory 
authority other than Executive Order 12549.
    (I) Byrd Anti-Lobbying Amendment (31 U.S.C. 1352)--Contractors 
that apply or bid for an award exceeding $100,000 must file the 
required certification. Each tier certifies to the tier above that 
it will not and has not used Federal appropriated funds to pay any 
person or organization for influencing or attempting to influence an 
officer or employee of any agency, a member of Congress, officer or 
employee of Congress, or an employee of a member of Congress in 
connection with obtaining any Federal contract, grant or any other 
award covered by 31 U.S.C. 1352. Each tier must also disclose any 
lobbying with non-Federal funds that takes place in connection with 
obtaining any Federal award. Such disclosures are forwarded from 
tier to tier up to the non-Federal award.
    (J) See Sec.  200.322 Procurement of recovered materials.


0
102. Amend Appendix III to Part 200--Indirect (F&A) Costs 
Identification and Assignment, and Rate Determination for Institutions 
of Higher Education (IHEs) as follows:
0
(a) In Section A.1.a, add paragraph (3) as set forth below.
0
(b) In Section B.1., remove ``this indirect cost requirements'' and 
add, in its place ``these indirect cost requirements''.
0
(c) In Section C.2., remove ``subgrants and subcontracts''.
0
(d) In Section C.7.a, first sentence, remove ``Federal agencies must 
use the negotiated rates except as provided in paragraph (e) of Sec.  
200.414 Indirect (F&A) costs, must paragraph (b) (1) for indirect (F&A) 
costs'' and add, in its place ``Except as provided in paragraph (c)(1) 
of Sec.  200.414 Indirect (F&A) costs, Federal agencies must use the 
negotiated rates''
0
(e) In Section C.9.a, remove ``subsection 1.a'' and add, in its place 
``subsection C.1.a''
0
(f) In Section C.10, remove ``shall include'' and add, in its place 
``must include''.
0
(g) In Section C.11.a.(1), add ``Where a non-Federal entity only 
receives funds as a subrecipient, Sec.  200.331 Requirements for pass-
through entities.'' after the last sentence.
0
(h) In Section C.11.f(1), second sentence, remove ``Non-cognizant 
Federal agencies for indirect costs, which make Federal awards to an 
educational institution,'' and add, in its place ``Federal awarding 
agencies that do not have cognizance for indirect costs''.
0
(i) In Section C.12, second paragraph, remove ``In order to provide 
mutually agreed upon information for management purposes'' and add, in 
its place ``As provided in section C.10 of this appendix''.
0
(j) In Section F.2.a, remove ``must'' after ``a proposed indirect cost 
rate''.
0
(k) Revise F.2.b as set forth below.

Appendix III to Part 200--Indirect (F&A) Costs Identification and 
Assignment, and Rate Determination for Institutions of Higher Education 
(IHEs)

* * * * *
    A. * * *
    1. * * *
    a. * * *
    (3) Only mandatory cost sharing or cost sharing specifically 
committed in the project budget must be included in the organized 
research base for computing the indirect (F&A) cost rate or 
reflected in any allocation of indirect costs. Salary costs above 
statutory limits are not considered cost sharing.
* * * * *
    F. * * *
    2. * * *
    b. The certificate must be signed on behalf of the institution 
by the chief financial officer or an individual designated by an 
individual at a level no lower than vice president or chief 
financial officer.
    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.
* * * * *

Appendix IV to Part 200 [Amended]

0
103. Amend Appendix IV to Part 200--Indirect (F&A) Costs Identification 
and Assignment, and Rate Determination for Nonprofit Organizations as 
follows:
0
(a) In Section B.2.c, remove ``such contracts or subawards'' and add, 
in its place ``such as subawards''.
0
(b) In Section B.3.b.(4), sentence prior to last sentence, remove '' 
where a major project or activity explicitly requires and budgets for 
administrative or clerical services and other individuals involved can 
be identified with the program or activity'' and add, in its place ``as 
described in Sec.  200.413 Direct Costs''.
0
(c) In Section C.2.a., add ``Where a non-Federal entity only receives 
funds as a subrecipient, see the requirements of Sec.  200.331 
Requirements for pass-through entities.'' after the last sentence.
0
(d) In Section D, add section number ``1.'' before ``Required 
Certification.'' and remove ``j'' in front of ``Each indirect cost 
rate'' and add, in its place ``2.''.

0
104. In Appendix V to Part 200--State/Local Government and Indian 
Tribe-Wide Central Service Cost Allocation Plans, revise the heading to 
read as follows:

Appendix V to Part 200--State/Local Governmentwide Central Service Cost 
Allocation Plans

* * * * *

0
105. Amend Appendix V to Part 200--State/Local Governmentwide Central 
Service Cost Allocation Plans as follows:
0
(a) In Section A.2, the last sentence remove ``the Superintendent of 
Documents, U.S. Government Printing Office'' and add, in its place 
``HHS Cost Allocation Services or at their Web site at https://rates.psc.gov''.
0
(b) In Section E.2, the first sentence, remove ``allocated central 
service'' and add, in its place ``allocation central service*''.

[[Page 75889]]


0
106. Amend Appendix VI to Part 200--Public Assistance Cost Allocation 
Plans as follows:
0
(a) In Section A, third sentence, remove ``Federal agencies'' and add, 
in its place ``Federal awarding agencies''.
0
(b) In Section E.1, remove ``the funding agencies'' and add, in its 
place ``Federal awarding agencies''; and remove ``the cognizant audit 
agency'' and add, in its place ``the cognizant agency for indirect 
costs''.
0
(c) In Section E.2, remove ``one funding agency'' and add, in its place 
``one Federal awarding agency''.
0
(d) In Section E.3, remove ``two or more funding agencies'' and add, in 
its place ``two or more Federal awarding agencies''; and remove ``one 
funding agency'' and add, in its place ``one Federal awarding agency''.
0
(e) In Section E.4, remove ``the Federal agencies'' and add, in its 
place ``the Federal awarding agencies''.

Appendix VII to Part 200 [Amended]

0
107. Amend Appendix VII to Part 200--States and Local Government and 
Indian Tribe Indirect Cost Proposals as follows:
0
(a) In Section A.3, remove ``the Superintendent of Documents, U.S. 
Government Printing Office'' and add, in its place ``HHS Cost 
Allocation Services or at their Web site at https://rates.psc.gov''.
0
(b) In Section A.5, remove ``Appendix VII to Part 200--States and Local 
Government and Indian Tribe Indirect Cost Proposals'' and add, in its 
place ``Appendix VI to Part 200--Public Assistance Cost Allocation 
Plans''.
0
(c) In Section B.3, second sentence, remove ``Appendix VI'' add, in its 
place ``Appendix V.''
0
(d) In Section C.3.e, remove ``subcontracts'' and add, in its place 
``subawards''.
0
(e) In Section D.1.a, last sentence, remove ``the Common Rule'' and 
add, in its place ``Sec.  200.333 Retention Requirements for Records''.
0
(f) In Section F.2, second sentence, remove ``Appendix VI'' and add, in 
its place ``Appendix V''.

Appendix IX to Part 200 [Amended]

0
108. Amend Appendix IX to Part 200--Hospital Cost Principles by 
removing ``Part 74'' and adding, in its place ``Part 75''.

David Mader,
Controller.

Department of Health and Human Services

    For the reasons set forth in the common preamble, under the 
authority of 5 U.S.C. 301 and the authorities listed below, Part 200 of 
Title 2, Chapter III is added and 45 CFR subtitle A is amended as 
follows:

TITLE 2--GRANTS AND AGREEMENTS

CHAPTER III--DEPARTMENT OF HEALTH AND HUMAN SERVICES

0
1. Add part 300 to read as follows:

PART 300--UNIFORM ADMINISTRATIVE REQUIREMENTS, COST PRINCIPLES, AND 
AUDIT REQUIREMENTS FOR FEDERAL AWARDS

    Authority:  5 U.S.C. 301, 2 CFR part 200.


Sec.  300.1  Adoption of 2 CFR Part 200.

    Under the authority listed above, the Department of Health and 
Human Services adopts the Office of Management and Budget (OMB) 
Guidance in 2 CFR part 200, and has codified the text, with HHS-
specific amendments in 45 CFR part 75. Thus, this part gives regulatory 
effect to the OMB guidance and supplements the guidance as needed for 
the Department.

TITLE 45--PUBLIC WELFARE

0
Subtitle A--Department of Health and Human Services

PART 74 [REMOVED AND RESERVED]

0
2. Remove and reserve 45 CFR part 74.

0
3. Part 75 is added to title 45 to read as follows:

PART 75--UNIFORM ADMINISTRATIVE REQUIREMENTS, COST PRINCIPLES, AND 
AUDIT REQUIREMENTS FOR HHS AWARDS

Subpart A--Acronyms and Definitions
Sec.
75.1 Acronyms.
75.2 Definitions.
Subpart B--General Provisions
75.100 Purpose.
75.101 Applicability.
75.102 Exceptions.
75.103 Authorities.
75.104 Supersession.
75.105 Effects on other issuances.
75.106 Agency implementation.
75.107 OMB responsibilities.
75.108 Inquiries.
75.109 Review date.
75.110 Effective/Applicability date.
75.111 English language.
75.112 Conflict of interest.
75.113 Mandatory disclosures.
Subpart C--Pre-Federal Award Requirements and Contents of Federal 
Awards.
75.200 Purpose.
75.201 Use of grant agreements (including fixed amount awards), 
cooperative agreements, and contracts.
75.202 Requirement to provide public notice of Federal financial 
assistance programs.
75.203 Notices of funding opportunities.
75.204 HHS funding agency review of merit of proposals.
75.205 HHS awarding agency review of risk posed by applicants.
75.206 Standard application requirements, including forms for 
applying for HHS financial assistance, and state plans.
75.207 Specific award conditions.
75.208 Certifications and Representations.
75.209 Pre-award costs.
75.210 Information contained in a Federal award.
75.211 Public access to Federal award information.
75.212 Suspension and Debarment.
75.213 Metric system of measurement.
75.214 Disclosure of Lobbying Activities.
75.215 Special Provisions for Awards to Commercial Organizations.
75.216 Special Provisions for Awards to Federal Agencies.
75.217 Participation by faith-based organizations.
Subpart D--Post Federal Award Requirements

Standards for Financial and Program Management

75.300 Statutory and national policy requirements.
75.301 Performance measurement.
75.302 Financial management and standards for financial management 
systems.
75.303 Internal controls.
75.304 Bonds.
75.305 Payment.
75.306 Cost sharing or matching.
75.307 Program income.
75.308 Revision of budget and program plans.
75.309 Period of performance and availability of funds.
75.310-75.315 [Reserved]

Property Standards

75.316 Purpose of property standards.
75.317 Insurance coverage.
75.318 Real property.
75.319 Federally-owned and exempt property.
75.320 Equipment.
75.321 Supplies.
75.322 Intangible property and copyrights.
75.323 Property trust relationship.
75.324-75.325 [Reserved]

Procurement Standards

75.326 Procurements by states.
75.327 General procurement standards.
75.328 Competition.
75.329 Procurement procedures.
75.330 Contracting with small and minority businesses, women's 
business enterprises, and labor surplus area firms.
75.331 Procurement of recovered materials.
75.332 Contract cost and price.
75.333 HHS awarding agency or pass-through entity review.

[[Page 75890]]

75.334 Bonding requirements.
75.335 Contract provisions.
75.336-75.340 [Reserved]

Performance and Financial Monitoring and Reporting

75.341 Financial reporting.
75.342 Monitoring and reporting program performance.
75.343 Reporting on real property.
75.344-75.350 [Reserved]

Subrecipient Monitoring and Management

75.351 Subrecipient and contractor determinations.
75.352 Requirements for pass-through entities.
75.353 Fixed amount subawards.
75.354-75.360 [Reserved]

Record Retention and Access

75.361 Retention requirements for records.
75.362 Requests for transfer or records.
75.363 Methods for collection, transmission and storage of 
information.
75.364 Access to records.
75.365 Restrictions on public access to records.
75.366-75.370 [Reserved]

Remedies for Noncompliance

75.371 Remedies for noncompliance.
75.372 Termination.
75.373 Notification of termination requirement.
75.374 Opportunities to object, hearings, and appeals.
75.375 Effects of suspension and termination.
75.376-75.380 [Reserved]

Closeout

75.381 Closeout.
75.382-75.385 [Reserved]

Post-Closeout Adjustments and Continuing Responsibilities

75.386 Post-Closeout Adjustments and Continuing Responsibilities.
75.387-75.390 [Reserved]

Collection of Amounts Due

75.391 Collection of amounts due.
Subpart E--Cost Principles

General Provisions

75.400 Policy guide
75.401 Application

Basic Considerations

75.402 Composition of Costs.
75.403 Factors affecting allowability of costs.
75.404 Reasonable costs.
75.405 Allocable costs.
75.406 Applicable credits.
75.407 Prior written approval (prior approval).
75.408 Limitation on allowance of costs.
75.409 Special considerations.
75.410 Collection of unallowable costs.
75.411 Adjustment of previously negotiated indirect (F&A) cost rates 
containing unallowable costs.

Direct and Indirect (F&A) Costs

75.412 Classification of costs.
75.413 Direct costs.
75.414 Indirect (F&A) costs.
75.415 Required certifications.

Special Considerations for States, Local Governments and Indian Tribes

75.416 Cost allocation plans and indirect cost proposals.
75.417 Interagency service.

Special Considerations for Institutions of Higher Education

75.418 Costs incurred by states and local governments.
75.419 Cost accounting standards and disclosure statement.

General Provisions for Selected Items of Cost

75.420 Considerations for selected items of cost.
75.421 Advertising and public relations.
75.422 Advisory councils.
75.423 Alcoholic beverages.
75.424 Alumni/ae activities.
75.425 Audit services.
75.426 Bad debts.
75.427 Bonding costs.
75.428 Collections of improper payments.
75.429 Commencement and convocation costs.
75.430 Compensation--personal services.
75.431 Compensation--fringe benefits.
75.432 Conferences.
75.433 Contingency provisions.
75.434 Contributions and donations.
75.435 Defense and prosecution of criminal and civil proceedings, 
claims, appeals, and patent infringements.
75.436 Depreciation.
75.437 Employee health and welfare costs.
75.438 Entertainment costs.
75.439 Equipment and other capital expenditures.
75.440 Exchange rates.
75.441 Fines, penalties, damages and other settlements.
75.442 Fund raising and investment management costs.
75.443 Gains and losses on disposition of depreciable assets.
75.444 General costs of government.
75.445 Goods or services for personal use.
75.446 Idle facilities and idle capacity.
75.447 Insurance and indemnification.
75.448 Intellectual Property.
75.449 Interest.
75.450 Lobbying.
75.451 Losses on other awards or contracts.
75.452 Maintenance and repair costs.
75.453 Materials and supplies costs, including costs of computing 
devices.
75.454 Memberships, subscriptions, and professional activity costs.
75.455 Organization costs.
75.456 Participant support costs.
75.457 Plant and security costs.
75.458 Pre-award costs.
75.459 Professional services costs.
75.460 Proposal costs.
75.461 Publication and printing costs.
75.462 Rearrangement and reconversion costs.
75.463 Recruiting costs.
75.464 Relocation costs of employees.
75.465 Rental costs of real property and equipment.
75.466 Scholarships and student aid costs.
75.467 Selling and marketing costs.
75.468 Specialized service facilities.
75.469 Student activity costs.
75.470 Taxes (including Value Added Tax).
75.471 Termination costs.
75.472 Training and education costs.
75.473 Transportation costs.
75.474 Travel costs.
75.475 Trustees.

HHS Specific Selected Items of Cost

75.476 Independent research and development costs.
Subpart F--Audit Requirements

General

75.500 Purpose.

Audits

75.501 Audit requirements.
75.502 Basis for determining Federal awards expended.
75.503 Relation to other audit requirements.
75.504 Frequency of audits.
75.505 Sanctions.
75.506 Audit costs.
75.507 Program-specific audits.

Auditees

75.508 Auditee responsibilities.
75.509 Auditor selection.
75.510 Financial statements.
75.511 Audit findings follow-up.
75.512 Report submission.

Federal Agencies

75.513 Responsibilities.

Auditors

75.514 Scope of audit.
75.515 Audit reporting.
75.516 Audit findings.
75.517 Audit documentation.
75.518 Major program determination.
75.519 Criteria for Federal program risk.
75.520 Criteria for a low-risk auditee.

Management Decisions

75.521 Management Decision.
Appendix I to Part 75--Full Text of Notice of Funding Opportunity
Appendix II to Part 75--Contract Provisions for Non-Federal Entity 
Contracts Under Federal Awards
Appendix III to Part 75--Indirect (F&A) Costs Identification and 
Assignment, and Rate Determination for Institutions of Higher 
Education
Appendix IV to Part 75--Indirect (F&A) Costs Identification and 
Assignment, and Rate Determination for Nonprofit Organizations
Appendix V to Part 75--State/Local Governments-Wide Central Service 
Cost Allocation Plans
Appendix VI to Part 75--Public Assistance Cost Allocation Plans
Appendix VII to Part 75--States and Local Government and Indian 
Tribe Indirect Cost Proposals
Appendix VIII to Part 75--Nonprofit Organizations Exempted from 
Subpart E of Part 75
Appendix IX to Part 75--Principles for Determining Costs Applicable 
to

[[Page 75891]]

Research and Development Under Grants and Contracts with Hospitals
Appendix X to Part 75--Data Collection Form (SF-SAC)
Appendix XI to Part 75--Compliance Supplement

    Authority: 5 U.S.C. 301.

Subpart A--Acronyms and Definitions


Sec.  75.1  Acronyms.

    The following acronyms apply to this part:

CAS Cost Accounting Standards
CFDA Catalog of Federal Domestic Assistance
CFR Code of Federal Regulations
CMIA Cash Management Improvement Act
COG Councils of Governments
COSO Committee of Sponsoring Organizations of the Treadway 
Commission
EPA Environmental Protection Agency
ERISA Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1301-1461)
EUI Energy Usage Index
F&A Facilities and Administration
FAC Federal Audit Clearinghouse
FAIN Federal Award Identification Number
FAR Federal Acquisition Regulation
FFATA Federal Funding Accountability and Transparency Act of 2006 or 
Transparency Act--Public Law 109-282, as amended by Sec.  6202(a) of 
Public Law 110-252 (31 U.S.C. 6101)
FICA Federal Insurance Contributions Act
FOIA Freedom of Information Act
FR Federal Register
FTE Full-time equivalent
GAAP Generally Accepted Accounting Principles
GAGAS Generally Accepted Government Auditing Standards
GAO Government Accountability Office
GOCO Government owned, contractor operated
GSA General Services Administration
HHS U.S. Department of Health and Human Services
IBS Institutional Base Salary
IHE Institutions of Higher Education
IRC Internal Revenue Code
ISDEAA Indian Self-Determination and Education and Assistance Act
MTC Modified Total Cost
MTDC Modified Total Direct Cost
OMB Office of Management and Budget
PII Personally Identifiable Information
PMS Payment Management System
PRHP Post-retirement Health Plans
PTE Pass-through Entity
REUI Relative Energy Usage Index
SAM System for Award Management
SF 424 Standard Form 424 series and Form Families Application for 
Federal Assistance
SFA Student Financial Aid
SNAP Supplemental Nutrition Assistance Program
SPOC Single Point of Contact
TANF Temporary Assistance for Needy Families
TFM Treasury Financial Manual
U.S.C. United States Code
VAT Value Added Tax


Sec.  75.2  Definitions.

    These are the definitions for terms used in this part. Different 
definitions may be found in Federal statutes or regulations that apply 
more specifically to particular program or activities. These 
definitions could be supplemented by additional instructional 
information provided in in governmentwide standard information 
collections.
    Acquisition cost means the cost of the asset including the cost to 
ready the asset for its intended use. 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. Acquisition costs for software includes those development 
costs capitalized in accordance with generally accepted accounting 
principles (GAAP). Ancillary charges, such as taxes, duty, protective 
in transit insurance, freight, and installation may be included in or 
excluded from the acquisition cost in accordance with the non-Federal 
entity's regular accounting practices.
    Advance payment means a payment that a Federal awarding agency or 
pass-through entity makes by any appropriate payment mechanism, 
including a predetermined payment schedule, before the non-Federal 
entity disburses the funds for program purposes.
    Allocation means the process of assigning a cost, or a group of 
costs, to one or more cost objective(s), in reasonable proportion to 
the benefit provided or other equitable relationship. The process may 
entail assigning a cost(s) directly to a final cost objective or 
through one or more intermediate cost objectives.
    Audit finding means deficiencies which the auditor is required by 
Sec.  75.516(a) to report in the schedule of findings and questioned 
costs.
    Auditee means any non-Federal entity that expends Federal awards 
which must be audited under Subpart F-of this part.
    Auditor means an auditor who is a public accountant, or a Federal, 
state, local government, or Indian Tribe audit organization, which 
meets the general standards specified for external auditors in 
generally accepted government auditing standards (GAGAS). The term 
auditor does not include internal auditors of nonprofit organizations.
    Awardee (see Non-Federal entity).
    Budget means the financial plan for the project or program that the 
Federal awarding agency or pass-through entity approves during the 
Federal award process or in subsequent amendments to the Federal award. 
It may include the Federal and non-Federal share or only the Federal 
share, as determined by the Federal awarding agency or pass-through 
entity.
    Capital assets means tangible or intangible assets used in 
operations having a useful life of more than one year which are 
capitalized in accordance with GAAP. Capital assets include:
    (1) Land, buildings (facilities), equipment, and intellectual 
property (including software) whether acquired by purchase, 
construction, manufacture, lease-purchase, exchange, or through capital 
leases; and
    (2) Additions, improvements, modifications, replacements, 
rearrangements, reinstallations, renovations or alterations to capital 
assets that materially increase their value or useful life (not 
ordinary repairs and maintenance).
    Capital expenditures means expenditures to acquire capital assets 
or expenditures to make additions, improvements, modifications, 
replacements, rearrangements, reinstallations, renovations, or 
alterations to capital assets that materially increase their value or 
useful life.
    Catalog of Federal Domestic Assistance (CFDA) number means the 
number assigned to a Federal program in the CFDA.
    CFDA program title means the title of the program under which the 
Federal award was funded in the CFDA.
    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 state, local 
government, or Indian tribe on a centralized basis to its departments 
and agencies. The costs of these services may be allocated or billed to 
users.
    Claim means, depending on the context, either:
    (1) A written demand or written assertion by one of the parties to 
a Federal award seeking as a matter of right:
    (i) The payment of money in a sum certain;
    (ii) The adjustment or interpretation of the terms and conditions 
of the Federal award; or
    (iii) Other relief arising under or relating to a Federal award.
    (2) A request for payment that is not in dispute when submitted.
    Class of Federal awards means a group of Federal awards either 
awarded under a specific program or group of programs or to a specific 
type of non-Federal entity or group of non-Federal

[[Page 75892]]

entities to which specific provisions or exceptions may apply.
    Closeout means the process by which the Federal awarding agency or 
pass-through entity determines that all applicable administrative 
actions and all required work of the Federal award have been completed 
and takes actions as described in Sec.  75.381.
    Cluster of programs means a grouping of closely related programs 
that share common compliance requirements. The types of clusters of 
programs are research and development (R&D), student financial aid 
(SFA), and other clusters. ``Other clusters'' are as defined by OMB in 
the compliance supplement or as designated by a state for Federal 
awards the state provides to its subrecipients that meet the definition 
of a cluster of programs. When designating an ``other cluster,'' a 
state must identify the Federal awards included in the cluster and 
advise the subrecipients of compliance requirements applicable to the 
cluster, consistent with Sec.  75.352(a). A cluster of programs must be 
considered as one program for determining major programs, as described 
in Sec.  75.518, and, with the exception of R&D as described in Sec.  
75.501(c), whether a program-specific audit may be elected.
    Cognizant agency for audit means the Federal agency designated to 
carry out the responsibilities described in Sec.  75.513(a). The 
cognizant agency for audit is not necessarily the same as the cognizant 
agency for indirect costs. A list of cognizant agencies for audit may 
be found at the FAC Web site.
    Cognizant agency for indirect costs means the Federal agency 
responsible for reviewing, negotiating, and approving cost allocation 
plans or indirect cost proposals developed under this part on behalf of 
all Federal agencies. The cognizant agency for indirect cost is not 
necessarily the same as the cognizant agency for audit. For assignments 
of cognizant agencies see the following:
    (1) For IHEs: Appendix III to Part 75 C.11.
    (2) For nonprofit organizations: Appendix IV to Part 75 C.1.
    (3) For state and local governments: Appendix V to Part 75 F.1.
    (4) For Indian tribes: Appendix VII to Part 75 D.1.
    Commercial organization means an organization, institution, 
corporation, or other legal entity, including, but not limited to, 
partnerships, sole proprietorships, and limited liability companies, 
that is organized or operated for the profit or benefit of its 
shareholders or other owners. The term includes small and large 
businesses and is used interchangeably with ``for-profit 
organization.''
    Compliance supplement means Appendix XI to Part 75 (previously 
known as the Circular A-133 Compliance Supplement).
    Computing devices means machines used to acquire, store, analyze, 
process, and publish data and other information electronically, 
including accessories (or ``peripherals'') for printing, transmitting 
and receiving, or storing electronic information. See also Supplies and 
Information technology systems.
    Contract means a legal instrument by which a non-Federal entity 
purchases property or services needed to carry out the project or 
program under a Federal award. The term as used in this part does not 
include a legal instrument, even if the non-Federal entity considers it 
a contract, when the substance of the transaction meets the definition 
of a Federal award or subaward (see Subaward).
    Contractor means an entity that receives a contract as defined in 
Contract.
    Cooperative agreement means a legal instrument of financial 
assistance between a Federal awarding agency or pass-through entity and 
a non-Federal entity that, consistent with 31 U.S.C. 6302-6305:
    (1) Is used to enter into a relationship the principal purpose of 
which is to transfer anything of value from the Federal awarding agency 
or pass-through entity to the non-Federal entity to carry out a public 
purpose authorized by a law of the United States (see 31 U.S.C. 
6101(3)); and not to acquire property or services for the Federal 
Government or pass-through entity's direct benefit or use;
    (2) Is distinguished from a grant in that it provides for 
substantial involvement between the Federal awarding agency or pass-
through entity and the non-Federal entity in carrying out the activity 
contemplated by the Federal award.
    (3) The term does not include:
    (i) A cooperative research and development agreement as defined in 
15 U.S.C. 3710a; or
    (ii) An agreement that provides only:
    (a) Direct United States Government cash assistance to an 
individual;
    (B) A subsidy;
    (C) A loan;
    (D) A loan guarantee; or
    (E) Insurance
    Cooperative audit resolution means the use of audit follow-up 
techniques which promote prompt corrective action by improving 
communication, fostering collaboration, promoting trust, and developing 
an understanding between the Federal agency and the non-Federal entity. 
This approach is based upon:
    (1) A strong commitment by Federal agency and non-Federal entity 
leadership to program integrity;
    (2) Federal agencies strengthening partnerships and working 
cooperatively with non-Federal entities and their auditors; and non-
Federal entities and their auditors working cooperatively with Federal 
agencies;
    (3) A focus on current conditions and corrective action going 
forward;
    (4) Federal agencies offering appropriate relief for past 
noncompliance when audits show prompt corrective action has occurred; 
and
    (5) Federal agency leadership sending a clear message that 
continued failure to correct conditions identified by audits which are 
likely to cause improper payments, fraud, waste, or abuse is 
unacceptable and will result in sanctions.
    Corrective action means action taken by the auditee that:
    (1) Corrects identified deficiencies;
    (2) Produces recommended improvements; or
    (3) Demonstrates that audit findings are either invalid or do not 
warrant auditee action.
    Cost allocation plan means central service cost allocation plan or 
public assistance cost allocation plan.
    Cost objective means a program, function, activity, award, 
organizational subdivision, contract, or work unit for which cost data 
are desired and for which provision is made to accumulate and measure 
the cost of processes, products, jobs, capital projects, etc. A cost 
objective may be a major function of the non-Federal entity, a 
particular service or project, a Federal award, or an indirect 
(Facilities & Administrative (F&A)) cost activity, as described in 
Subpart E of this part. See also Final cost objective and Intermediate 
cost objective.
    Cost sharing or matching means the portion of project costs not 
paid by Federal funds (unless otherwise authorized by Federal statute). 
This may include the value of allowable third party in-kind 
contributions, as well as expenditures by the recipient. See also Sec.  
75.306.
    Cross-cutting audit finding means an audit finding where the same 
underlying condition or issue affects Federal awards of more than one 
Federal awarding agency or pass-through entity.
    Departmental Appeals Board means the independent office established 
in the Office of the Secretary with delegated authority from the 
Secretary

[[Page 75893]]

to review and decide certain disputes between recipients of HHS funds 
and HHS awarding agencies under 45 CFR part 16 and to perform other 
review, adjudication and mediation services as assigned.
    Disallowed costs means those charges to a Federal award that the 
Federal awarding agency or pass-through entity determines to be 
unallowable, in accordance with the applicable Federal statutes, 
regulations, or the terms and conditions of the Federal award.
    Equipment means tangible personal property (including information 
technology systems) having a useful life of more than one year and a 
per-unit acquisition cost which equals or exceeds the lesser of the 
capitalization level established by the non-Federal entity for 
financial statement purposes, or $5,000. See also Capital assets, 
Computing devices, General purpose equipment, Information technology 
systems, Special purpose equipment, and Supplies.
    Excess property means property acquired in whole or in part under 
the control of any Federal awarding agency that, as determined by the 
head of the awarding agency or his/her delegate, is no longer required 
for the agency's needs or the discharge of its responsibilities.
    Expenditure report means:
    (1) For non-construction awards, the SF-425 Federal Financial 
Report (FFR) (or other OMB-approved equivalent report);
    (2) For construction awards, the SF-271 ``Outlay Report and Request 
for Reimbursement'' (or other OMB-approved equivalent report).
    Expenditures means charges made by a non-Federal entity to a 
project or program for which a Federal award was received.
    (1) The charges may be reported on a cash or accrual basis, as long 
as the methodology is disclosed and is consistently applied.
    (2) For reports prepared on a cash basis, expenditures are the sum 
of:
    (i) Cash disbursements for direct charges for property and 
services;
    (ii) The amount of indirect expense charged;
    (iii) The value of third-party in-kind contributions applied; and
    (iv) The amount of cash advance payments and payments made to 
subrecipients.
    (3) For reports prepared on an accrual basis, expenditures are the 
sum of:
    (i) Cash disbursements for direct charges for property and 
services;
    (ii) The amount of indirect expense incurred;
    (iii) The value of third-party in-kind contributions applied; and
    (iv) The net increase or decrease in the amounts owed by the non-
Federal entity for:
    (A) Goods and other property received;
    (B) Services performed by employees, contractors, subrecipients, 
and other payees;
    (C) Programs for which no current services or performance are 
required such as annuities, insurance claims, or other benefit 
payments.
    Federal agency means an ``agency'' as defined at 5 U.S.C. 551(1) 
and further clarified by 5 U.S.C. 552(f).
    Federal Audit Clearinghouse FAC means the clearinghouse designated 
by OMB as the repository of record where non-Federal entities are 
required to transmit the reporting packages required by Subpart F of 
this part. The mailing address of the FAC is Federal Audit 
Clearinghouse, Bureau of the Census, 1201 E. 10th Street, 
Jeffersonville, IN 47132 and the web address is: http://harvester.census.gov/sac/. Any future updates to the location of the 
FAC may be found at the OMB Web site.
    Federal award has the meaning, depending on the context, in either 
paragraph (1) or (2) of this definition:
    (1)(i) The Federal financial assistance that a non-Federal entity 
receives directly from a Federal awarding agency or indirectly from a 
pass-through entity, as described in Sec.  75.101; or
    (ii) The cost-reimbursement contract under the Federal Acquisition 
Regulations that a non-Federal entity receives directly from a Federal 
awarding agency or indirectly from a pass-through entity, as described 
in Sec.  75.101.
    (2) The instrument setting forth the terms and conditions. The 
instrument is the grant agreement, cooperative agreement, other 
agreement for assistance covered in paragraph (2) of Federal financial 
assistance, or the cost-reimbursement contract awarded under the 
Federal Acquisition Regulations.
    (3) Federal award does not include other contracts that a Federal 
agency uses to buy goods or services from a contractor or a contract to 
operate Federal Government owned, contractor operated facilities 
(GOCOs).
    (4) See also definitions of Federal financial assistance, grant 
agreement, and cooperative agreement.
    Federal award date means the date when the Federal award is signed 
by the authorized official of the Federal awarding agency.
    Federal awarding agency means the Federal agency that provides a 
Federal award directly to a non-Federal entity.
    Federal financial assistance:
    (1) For grants and cooperative agreements, Federal financial 
assistance means assistance that non-Federal entities receive or 
administer in the form of:
    (1) Grants;
    (ii) Cooperative agreements;
    (iii) Non-cash contributions or donations of property (including 
donated surplus property);
    (iv) Direct appropriations;
    (v) Food commodities; and
    (vi) Other financial assistance (except assistance listed in 
paragraph (b) of this section).
    (2) For Subpart F of this part, Federal financial assistance also 
includes assistance that non-Federal entities receive or administer in 
the form of:
    (i) Loans;
    (ii) Loan Guarantees;
    (iii) Interest subsidies; and
    (iv) Insurance.
    (c) Federal financial assistance does not include amounts received 
as reimbursement for services rendered to individuals as described in 
Sec.  75.502(h) and (i).
    Federal interest means, for purposes of Sec.  75.343 or when used 
in connection with the acquisition or improvement of real property, 
equipment, or supplies under a Federal award, the dollar amount that is 
the product of the:
    (1) Federal share of total project costs; and
    (2) Current fair market value of the property, improvements, or 
both, to the extent the costs of acquiring or improving the property 
were included as project costs.
    Federal program means:
    (1) All Federal awards which are assigned a single number in the 
CFDA.
    (2) When no CFDA number is assigned, all Federal awards to non-
Federal entities from the same agency made for the same purpose must be 
combined and considered one program.
    (3) Notwithstanding paragraphs (1) and (2) of this definition, a 
cluster of programs. The types of clusters of programs are:
    (i) Research and development (R&D);
    (ii) Student financial aid (SFA); and
    (iii) ``Other clusters,'' as described in the definition of Cluster 
of Programs
    Federal share means the portion of total project costs that are 
paid by Federal funds.
    Final cost objective means a cost objective which has allocated to 
it both direct and indirect costs and, in the non-Federal entity's 
accumulation system, is one of the final accumulation points, such as a 
particular award, internal project, or other direct activity of a non-
Federal entity. See also Cost objective and Intermediate cost 
objective.

[[Page 75894]]

    Fixed amount awards means a type of grant agreement under which the 
Federal awarding agency or pass-through entity provides a specific 
level of support without regard to actual costs incurred under the 
Federal award. This type of Federal award reduces some of the 
administrative burden and record-keeping requirements for both the non-
Federal entity and Federal awarding agency or pass-through entity. 
Accountability is based primarily on performance and results. See 
Sec. Sec.  75.201(b) and 75.353.
    Foreign organization means an entity that is:
    (1) A public or private organization located in a country other 
than the United States and its territories that is subject to the laws 
of the country in which it is located, irrespective of the citizenship 
of project staff or place of performance;
    (2) A private nongovernmental organization located in a country 
other than the United States that solicits and receives cash 
contributions from the general public;
    (3) A charitable organization located in a country other than the 
United States that is nonprofit and tax exempt under the laws of its 
country of domicile and operation, and is not a university, college, 
accredited degree-granting institution of education, private 
foundation, hospital, organization engaged exclusively in research or 
scientific activities, church, synagogue, mosque or other similar 
entities organized primarily for religious purposes; or
    (4) An organization located in a country other than the United 
States not recognized as a Foreign Public Entity.
    Foreign public entity means:
    (1) A foreign government or foreign governmental entity;
    (2) A public international organization, which is an organization 
entitled to enjoy privileges, exemptions, and immunities as an 
international organization under the International Organizations 
Immunities Act (22 U.S.C. 288-288f);
    (3) An entity owned (in whole or in part) or controlled by a 
foreign government; or
    (4) Any other entity consisting wholly or partially of one or more 
foreign governments or foreign governmental entities.
    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. See also Equipment and Special Purpose Equipment.
    GAAP has the meaning specified in accounting standards issued by 
the Government Accounting Standards Board (GASB) and the Financial 
Accounting Standards Board (FASB).
    GAGAS, also known as the Yellow Book, means generally accepted 
government auditing standards issued by the Comptroller General of the 
United States, which are applicable to financial audits.
    Grant agreement means a legal instrument of financial assistance 
between a Federal awarding agency or pass-through entity and a non-
Federal entity that, consistent with 31 U.S.C. 6302, 6304:
    (1) Is used to enter into a relationship the principal purpose of 
which is to transfer anything of value from the Federal awarding agency 
or pass-through entity to the non-Federal entity to carry out a public 
purpose authorized by a law of the United States (see 31 U.S.C. 
6101(3)); and not to acquire property or services for the Federal 
awarding agency or pass-through entity's direct benefit or use;
    (2) Is distinguished from a cooperative agreement in that it does 
not provide for substantial involvement between the Federal awarding 
agency or pass-through entity and the non-Federal entity in carrying 
out the activity contemplated by the Federal award.
    (3) Does not include an agreement that provides only:
    (i) Direct United States Government cash assistance to an 
individual;
    (ii) A subsidy;
    (iii) A loan;
    (iv) A loan guarantee; or
    (v) Insurance.
    Grantee (see Recipient)
    HHS awarding agency means any organization component of HHS that is 
authorized to make and administer awards.
    Hospital means a facility licensed as a hospital under the law of 
any state or a facility operated as a hospital by the United States, a 
state, or a subdivision of a state.
    Improper payment:
    (1) Means any payment that should not have been made or that was 
made in an incorrect amount (including overpayments and underpayments) 
under statutory, contractual, administrative, or other legally 
applicable requirements; and
    (b) Includes any payment to an ineligible party, any payment for an 
ineligible good or service, any duplicate payment, any payment for a 
good or service not received (except for such payments where authorized 
by law), any payment that does not account for credit for applicable 
discounts, and any payment where insufficient or lack of documentation 
prevents a reviewer from discerning whether a payment was proper.
    Indian tribe means any Indian tribe, band, nation, or other 
organized group or community, including any Alaska Native village or 
regional or village corporation as defined in or established pursuant 
to the Alaska Native Claims Settlement Act (43 U.S.C. Chapter 33), 
which is recognized as eligible for the special programs and services 
provided by the United States to Indians because of their status as 
Indians (25 U.S.C. 450b(e)). See annually published Bureau of Indian 
Affairs list of Indian Entities Recognized and Eligible to Receive 
Services.
    Indirect (Facilities and Administration or F&A) costs means costs 
incurred for a common or joint purpose benefitting more than one cost 
objective, and not readily assignable to the cost objectives 
specifically benefitted, without effort disproportionate to the results 
achieved. To facilitate equitable distribution of indirect expenses to 
the cost objectives served, it may be necessary to establish a number 
of pools of indirect (F&A) costs. Indirect (F&A) cost pools must be 
distributed to benefitted cost objectives on bases that will produce an 
equitable result in consideration of relative benefits derived.
    Indirect cost rate proposal means the documentation prepared by a 
non-Federal entity to substantiate its request for the establishment of 
an indirect cost rate as described in Appendix III through Appendix 
VII, and Appendix IX of this part.
    Information technology systems means computing devices, ancillary 
equipment, software, firmware, and similar procedures, services 
(including support services), and related resources. See also Computing 
devices and Equipment.
    Institution of Higher Education (IHE) is defined at 20 U.S.C. 1001.
    Intangible property means property having no physical existence, 
such as trademarks, copyrights, patents and patent applications and 
property, such as loans, notes and other debt instruments, lease 
agreements, stock and other instruments of property ownership (whether 
the property is tangible or intangible).
    Intermediate cost objective means a cost objective that is used to 
accumulate indirect costs or service center costs that are subsequently 
allocated to one or more indirect cost pools or final cost

[[Page 75895]]

objectives. See also Cost objective and Final cost objective.
    Internal controls means a process, implemented by a non-Federal 
entity, designed to provide reasonable assurance regarding the 
achievement of objectives in the following categories:
    (1) Effectiveness and efficiency of operations;
    (2) Reliability of reporting for internal and external use; and
    (3) Compliance with applicable laws and regulations.
    Internal control over compliance requirements for Federal awards 
means a process implemented by a non-Federal entity designed to provide 
reasonable assurance regarding the achievement of the following 
objectives for Federal awards:
    (1) Transactions are properly recorded and accounted for, in order 
to:
    (i) Permit the preparation of reliable financial statements and 
Federal reports;
    (ii) Maintain accountability over assets; and
    (iii) Demonstrate compliance with Federal statutes, regulations, 
and the terms and conditions of the Federal award;
    (2) Transactions are executed in compliance with:
    (i) Federal statutes, regulations, and the terms and conditions of 
the Federal award that could have a direct and material effect on a 
Federal program; and
    (ii) Any other Federal statutes and regulations that are identified 
in the Compliance Supplement; and
    (3) Funds, property, and other assets are safeguarded against loss 
from unauthorized use or disposition.
    Loan means a Federal loan or loan guarantee received or 
administered by a non-Federal entity, except as used in the definition 
of Program income.
    (1) The term ``direct loan'' means a disbursement of funds by the 
Federal Government to a non-Federal borrower under a contract that 
requires the repayment of such funds with or without interest. The term 
includes the purchase of, or participation in, a loan made by another 
lender and financing arrangements that defer payment for more than 90 
days, including the sale of a Federal Government asset on credit terms. 
The term does not include the acquisition of a federally guaranteed 
loan in satisfaction of default claims or the price support loans of 
the Commodity Credit Corporation.
    (2) The term ``direct loan obligation'' means a binding agreement 
by a Federal awarding agency to make a direct loan when specified 
conditions are fulfilled by the borrower.
    (3) The term ``loan guarantee'' means any Federal Government 
guarantee, insurance, or other pledge with respect to the payment of 
all or a part of the principal or interest on any debt obligation of a 
non-Federal borrower to a non-Federal lender, but does not include the 
insurance of deposits, shares, or other withdrawable accounts in 
financial institutions.
    (4) The term ``loan guarantee commitment'' means a binding 
agreement by a Federal awarding agency to make a loan guarantee when 
specified conditions are fulfilled by the borrower, the lender, or any 
other party to the guarantee agreement.
    Local government means any unit of government within a state, 
including a:
    (1) County;
    (2) Borough;
    (3) Municipality;
    (4) City;
    (5) Town;
    (6) Township;
    (7) Parish;
    (8) Local public authority, including any public housing agency 
under the United States Housing Act of 1937;
    (9) Special district;
    (10) School district;
    (11) Intrastate district;
    (12) Council of governments, whether or not incorporated as a 
nonprofit corporation under state law; and
    (13) Any other agency or instrumentality of a multi-, regional, or 
intra-state or local government.
    Major program means a Federal program determined by the auditor to 
be a major program in accordance with Sec.  75.518 or a program 
identified as a major program by a Federal awarding agency or pass-
through entity in accordance with Sec.  75.503(e).
    Management decision means the evaluation by the Federal awarding 
agency or pass-through entity of the audit findings and corrective 
action plan and the issuance of a written decision to the auditee as to 
what corrective action is necessary.
    Micro-purchase means a purchase of supplies or services using 
simplified acquisition procedures, the aggregate amount of which does 
not exceed the micro-purchase threshold. Micro-purchase procedures 
comprise a subset of a non-Federal entity's small purchase procedures. 
The non-Federal entity uses such procedures in order to expedite the 
completion of its lowest-dollar small purchase transactions and 
minimize the associated administrative burden and cost. The micro-
purchase threshold is set by the Federal Acquisition Regulation at 48 
CFR Subpart 2.1 (Definitions). It is $3,000 except as otherwise 
discussed in Subpart 2.1 of that regulation, but this threshold is 
periodically adjusted for inflation.
    Modified Total Direct Cost (MTDC) means all direct salaries and 
wages, applicable fringe benefits, materials and supplies, services, 
travel, and up to the first $25,000 of each subaward (regardless of the 
period of performance of the subawards under the award). MTDC excludes 
equipment, capital expenditures, charges for patient care, rental 
costs, tuition remission, scholarships and fellowships, participant 
support costs and the portion of each subaward in excess of $25,000. 
Other items may only be excluded when necessary to avoid a serious 
inequity in the distribution of indirect costs, and with the approval 
of the cognizant agency for indirect costs.
    Non-Federal entity means a state, local government, Indian tribe, 
institution of higher education (IHE), or nonprofit organization that 
carries out a Federal award as a recipient or subrecipient.
    Nonprofit organization means any corporation, trust, association, 
cooperative, or other organization, not including IHEs, that:
    (1) Is operated primarily for scientific, educational, service, 
charitable, or similar purposes in the public interest;
    (2) Is not organized primarily for profit; and
    (3) Uses net proceeds to maintain, improve, or expand the 
operations of the organization.
    Obligations means orders placed for property and services, 
contracts and subawards made, and similar transactions during a given 
period that require payment by the non-Federal entity during the same 
or a future period.
    Office of Management and Budget (OMB) means the Executive Office of 
the President, Office of Management and Budget.
    Oversight agency for audit means the Federal awarding agency that 
provides the predominant amount of funding directly to a non-Federal 
entity not assigned a cognizant agency for audit. When there is no 
direct funding, the Federal awarding agency which is the predominant 
source of pass-through funding must assume the oversight 
responsibilities. The duties of the oversight agency for audit and the 
process for any reassignments are described in Sec.  75.513(b).
    Participant support costs means direct costs for items such as 
stipends or subsistence allowances, travel allowances, and registration 
fees paid to or on behalf of participants or trainees (but not 
employees) in connection with conferences, or training projects.

[[Page 75896]]

    Pass-through entity means a non-Federal entity that provides a 
subaward to a subrecipient to carry out part of a Federal program.
    Performance goal means a target level of performance expressed as a 
tangible, measurable objective, against which actual achievement can be 
compared, including a goal expressed as a quantitative standard, value, 
or rate. In some instances (e.g., discretionary research awards), this 
may be limited to the requirement to submit technical performance 
reports (to be evaluated in accordance with agency policy).
    Period of performance means the time during which the non-Federal 
entity may incur new obligations to carry out the work authorized under 
the Federal award. The Federal awarding agency or pass-through entity 
must include start and end dates of the period of performance in the 
Federal award (see Sec. Sec.  75.210(a)(5) and 75.352(a)(1)(v)).
    Personal property means property of any kind except real property. 
It may be tangible, having physical existence, or intangible, such as 
copyrights, patents, or securities.
    Personally Identifiable Information (PII) means information that 
can be used to distinguish or trace an individual's identity, either 
alone or when combined with other personal or identifying information 
that is linked or linkable to a specific individual. Some information 
that is considered to be PII is available in public sources such as 
telephone books, public Web sites, and university listings. This type 
of information is considered to be Public PII and includes, for 
example, first and last name, address, work telephone number, email 
address, home telephone number, and general educational credentials. 
The definition of PII is not anchored to any single category of 
information or technology. Rather, it requires a case-by-case 
assessment of the specific risk that an individual can be identified. 
Non-PII can become PII whenever additional information is made publicly 
available, in any medium and from any source, that, when combined with 
other available information, could be used to identify an individual.
    Principal Investigator/Program Director (PI/PD) means the 
individual (s) designated by the recipient to direct the project or 
program being supported by the grant. The PI/PD is responsible and 
accountable to officials of the recipient organization for the proper 
conduct of the project, program, or activity.
    Prior approval means written approval by an authorized HHS official 
evidencing prior consent before a recipient undertakes certain 
activities or incurs specific costs.
    Program income means gross income earned by the non-Federal entity 
that is directly generated by a supported activity or earned as a 
result of the Federal award during the period of performance except as 
provided in Sec.  75.307(f). (See Period of performance.) Program 
income includes but is not limited to income from fees for services 
performed, the use or rental or real or personal property acquired 
under Federal awards, the sale of commodities or items fabricated under 
a Federal award, license fees and royalties on patents and copyrights, 
and principal and interest on loans made with Federal award funds. 
Interest earned on advances of Federal funds is not program income. 
Except as otherwise provided in Federal statutes, regulations, or the 
terms and conditions of the Federal award, program income does not 
include rebates, credits, discounts, and interest earned on any of 
them. See also Sec.  75.307, Sec.  75.407 and 35 U.S.C. 200-212 
(applies to inventions made under Federal awards).
    Project costs means total allowable costs incurred under a Federal 
award and all required cost sharing and voluntary committed cost 
sharing, including third-party contributions.
    Project period (see Period of performance).
    Property means real property or personal property.
    Protected Personally Identifiable Information (Protected PII) 
Protected PII means an individual's first name or first initial and 
last name in combination with any one or more of types of information, 
including, but not limited to, social security number, passport number, 
credit card numbers, clearances, bank numbers, biometrics, date and 
place of birth, mother's maiden name, criminal, medical and financial 
records, educational transcripts. This does not include PII that is 
required by law to be disclosed. (See also Personally Identifiable 
Information (PII)).
    Questioned cost means a cost that is questioned by the auditor 
because of an audit finding:
    (1) Which resulted from a violation or possible violation of a 
statute, regulation, or the terms and conditions of a Federal award, 
including for funds used to match Federal funds;
    (2) Where the costs, at the time of the audit, are not supported by 
adequate documentation; or
    (3) Where the costs incurred appear unreasonable and do not reflect 
the actions a prudent person would take in the circumstances.
    Real property means land, including land improvements, structures 
and appurtenances thereto, but excludes moveable machinery and 
equipment.
    Recipient means an entity, usually but not limited to non-Federal 
entities, that receives a Federal award directly from a Federal 
awarding agency to carry out an activity under a Federal program. The 
term recipient does not include subrecipients. See also Non-Federal 
entity.
    Research is defined as a systematic study directed toward fuller 
scientific knowledge or understanding of the subject studied. 
``Development'' is the systematic use of knowledge and understanding 
gained from research directed toward the production of useful 
materials, devices, systems, or methods, including design and 
development of prototypes and processes.
    Research and Development (R&D) means all research activities, both 
basic and applied, and all development activities that are performed by 
HHS award recipients. The term research also includes activities 
involving the training of individuals in research techniques where such 
activities utilize the same facilities as other research and 
development activities and where such activities are not included in 
the instruction function.
    Simplified acquisition threshold means the dollar amount below 
which a non-Federal entity may purchase property or services using 
small purchase methods. Non-Federal entities adopt small purchase 
procedures in order to expedite the purchase of items costing less than 
the simplified acquisition threshold. The simplified acquisition 
threshold is set by the Federal Acquisition Regulation at 48 CFR 
Subpart 2.1 and in accordance with 41 U.S.C. 1908. See also Micro-
purchase
    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. See also Equipment and General 
purpose equipment.
    State means any state of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, 
Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, 
and any agency or instrumentality thereof exclusive of local 
governments.
    Student Financial Aid (SFA) means Federal awards under those 
programs of general student assistance, such as those authorized by 
Title IV of the Higher Education Act of 1965, as amended, (20

[[Page 75897]]

U.S.C. 1070-1099d), which are administered by the U.S. Department of 
Education, and similar programs provided by other Federal agencies. It 
does not include Federal awards under programs that provide fellowships 
or similar Federal awards to students on a competitive basis, or for 
specified studies or research.
    Subaward means an award provided by a pass-through entity to a 
subrecipient for the subrecipient to carry out part of a Federal award 
received by the pass-through entity. It does not include payments to a 
contractor or payments to an individual that is a beneficiary of a 
Federal program. A subaward may be provided through any form of legal 
agreement, including an agreement that the pass-through entity 
considers a contract.
    Subrecipient means a non-Federal entity that receives a subaward 
from a pass-through entity to carry out part of a Federal program; but 
does not include an individual that is a beneficiary of such program. A 
subrecipient may also be a recipient of other Federal awards directly 
from a Federal awarding agency.
    Supplies means all tangible personal property other than those 
described in Equipment. A computing device is a supply if the 
acquisition cost is less than the lesser of the capitalization level 
established by the non-Federal entity for financial statement purposes 
or $5,000, regardless of the length of its useful life. See also 
Computing devices and Equipment.
    Surplus property (see Excess property)
    Suspension of award activities means an action by the HHS awarding 
agency requiring the recipient to cease all activities on the award 
pending corrective action by the recipient. It is a separate action 
from suspension under HHS regulations (2 CFR part 376) implementing 
Executive Orders 12549 and 12689.
    Termination means the ending of a Federal award, in whole or in 
part at any time prior to the planned end of period of performance.
    Third-party in-kind contributions means the value of non-cash 
contributions (i.e., property or services) that:
    (1) Benefit a federally assisted project or program; and
    (2) Are contributed by non-Federal third parties, without charge, 
to a non-Federal entity under a Federal award.
    Total Costs (see Sec.  75.402).
    Unliquidated obligations means, for financial reports prepared on a 
cash basis, obligations incurred by the non-Federal entity that have 
not been paid (liquidated). For reports prepared on an accrual 
expenditure basis, these are obligations incurred by the non-Federal 
entity for which an expenditure has not been recorded.
    Unobligated balance means the amount of funds authorized under a 
Federal award that the non-Federal entity has not obligated. The amount 
is computed by subtracting the cumulative amount of the non-Federal 
entity's unliquidated obligations and expenditures of funds under the 
Federal award from the cumulative amount of the funds that the Federal 
awarding agency or pass-through entity authorized the non-Federal 
entity to obligate.
    Voluntary committed cost sharing means cost sharing specifically 
pledged on a voluntary basis in the proposal's budget or the Federal 
award on the part of the non-Federal entity and that becomes a binding 
requirement of Federal award.

Subpart B--General Provisions


Sec.  75.100  Purpose.

    (a)(1) This part establishes uniform administrative requirements, 
cost principles, and audit requirements for Federal awards to non-
Federal entities, as described in Sec.  75.101. HHS awarding agencies 
must not impose additional or inconsistent requirements, except as 
provided in Sec. Sec.  75.102 and 75.210, or unless specifically 
required by Federal statute, regulation, or Executive Order.
    (2) This part provides the basis for a systematic and periodic 
collection and uniform submission by Federal agencies of information on 
all Federal financial assistance programs to the Office of Management 
and Budget (OMB). It also establishes Federal policies related to the 
delivery of this information to the public, including through the use 
of electronic media. It prescribes the manner in which General Services 
Administration (GSA), OMB, and Federal agencies that administer Federal 
financial assistance programs are to carry out their statutory 
responsibilities under the Federal Program Information Act (31 U.S.C. 
6101-6106).
    (b) Administrative requirements. Subparts B through D of this part 
set forth the uniform administrative requirements for grant and 
cooperative agreements, including the requirements for HHS awarding 
agency management of Federal grant programs before the Federal award 
has been made, and the requirements HHS awarding agencies may impose on 
non-Federal entities in the Federal award.
    (c) Cost Principles. Subpart E of this part establishes principles 
for determining the allowable costs incurred by non-Federal entities 
under 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 Government 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 
statute.
    (d) Single Audit Requirements and Audit Follow-up. Subpart F of 
this part is issued pursuant to the Single Audit Act Amendments of 
1996, (31 U.S.C. 7501-7507). It sets forth standards for obtaining 
consistency and uniformity among Federal agencies for the audit of non-
Federal entities expending Federal awards. These provisions also 
provide the policies and procedures for HHS awarding agencies and pass-
through entities when using the results of these audits.
    (e) For OMB guidance to Federal awarding agencies on Challenges and 
Prizes, please see M-10-11 Guidance on the Use of Challenges and Prizes 
to Promote Open Government, issued March 8, 2010, or its successor.


Sec.  75.101  Applicability.

    (a) General applicability to Federal agencies. The requirements 
established in this part apply to Federal agencies that make Federal 
awards to non-Federal entities. These requirements are applicable to 
all costs related to Federal awards.
    (b)(1) Applicability to different types of Federal awards. The 
following table describes what portions of this part apply to which 
types of Federal awards. The terms and conditions of Federal-awards 
(including this part) flow down to subawards to subrecipients unless a 
particular section of this part or the terms and conditions of the 
Federal award specifically indicate otherwise. This means that non-
Federal entities must comply with requirements in this part regardless 
of whether the non-Federal entity is a recipient or subrecipient of a 
Federal award. Pass-through entities must comply with the requirements 
described in Subpart D of this part, Sec. Sec.  75.351 through 75.353, 
but not any requirements in this part directed towards Federal awarding 
agencies unless the requirements of this part or the terms and 
conditions of the Federal award indicate otherwise.
    This table must be read along with the other provisions in this 
section

[[Page 75898]]



------------------------------------------------------------------------
                                Are applicable to
                               the following types   Are NOT applicable
  The following portions of     of Federal Awards     to the following
          the Part:            (except as noted in    types of Federal
                               paragraphs (d) and          Awards:
                                   (e)) below:
------------------------------------------------------------------------
Subpart A_Acronyms and        _All................  ....................
 Definitions.
Subpart B_General             _All................  ....................
 Provisions, except for Sec.
  Sec.   75.111, 75.112. and
 75.113..
Sections 75.111, 75.112, and  _Grant agreements     _Agreements for:
 75.113.                       and cooperative       loans, loan
                               agreements.           guarantees,
                                                     interest subsidies
                                                     and insurance
                                                    _Cost-reimbursement
                                                     contracts awarded
                                                     under the Federal
                                                     Acquisition
                                                     Regulations and
                                                     cost-reimbursement
                                                     and subcontracts
                                                     under these
                                                     contracts
                                                    _Fixed-price
                                                     contracts and
                                                     subcontracts
                                                     awarded under the
                                                     Federal Acquisition
                                                     Regulation whenever
                                                     cost analysis is
                                                     performed or the
                                                     contract requires
                                                     the determination
                                                     or negotiation of
                                                     costs
Subparts C-D, except for      _Grant agreements     _Agreements for:
 Subrecipient Monitoring and   and cooperative       loans, loan
 Management.                   agreements.           guarantees,
                                                     interest subsidies
                                                     and insurance
                                                    _Cost-reimbursement
                                                     contracts awarded
                                                     under the Federal
                                                     Acquisition
                                                     Regulations and
                                                     cost-reimbursement
                                                     and subcontracts
                                                     under these
                                                     contracts
                                                    _Fixed-price
                                                     contracts and
                                                     subcontracts
                                                     awarded under the
                                                     Federal Acquisition
                                                     Regulation whenever
                                                     cost analysis is
                                                     performed or the
                                                     contract requires
                                                     the determination
                                                     or negotiation of
                                                     costs
Subpart D_Post Federal Award  _All................  ....................
 Requirements, Subrecipient
 Monitoring and Management.
Subpart E_Cost Principles...  _Grant agreements     _Grant agreements
                               and cooperative       and cooperative
                               agreements, except    agreements
                               those providing       providing food
                               food commodities.     commodities
                              _Cost-reimbursement   _Fixed amount awards
                               contracts awarded    _Agreements for:
                               under the Federal     loans, loan
                               Acquisition           guarantees,
                               Regulations and       interest subsidies
                               cost-reimbursement    and insurance
                               and subcontracts     _Federal awards to
                               under these           hospitals (See
                               contracts in          Appendix IX)
                               accordance with the
                               FAR.
                              _Fixed-price
                               contracts and
                               subcontracts
                               awarded under the
                               Federal Acquisition
                               Regulation whenever
                               cost analysis is
                               performed or the
                               contract requires
                               the determination
                               or negotiation of
                               costs.
Subpart F_Audit Requirements  _All................  ....................
------------------------------------------------------------------------

    (2) Federal award of cost-reimbursement contract under the FAR to a 
non-Federal entity. When a non-Federal entity is awarded a cost-
reimbursement contract, only Subpart D of this part, Sec. Sec.  75.351 
through 75.353 (in addition to any FAR related requirements for 
monitoring Subpart E of this part and Subpart F of this part are 
incorporated by reference into the contract. However, when the Cost 
Accounting Standards (CAS) are applicable to the contract, they take 
precedence over the requirements of this part except for Subpart F of 
this part when they are in conflict. In addition, costs that are made 
unallowable under 10 U.S.C. 2324(e) and 41 U.S.C. 4304(a) as described 
in the FAR subpart 31.2 and subpart 31.603 are always unallowable. For 
requirements other than those covered in Subpart D of this part, 
Sec. Sec.  75.351 through 75.353, Subpart E of this part-and Subpart F 
of this part, the terms of the contract and the FAR apply.
    (3) With the exception of Subpart F of this part, which is required 
by the Single Audit Act, in any circumstances where the provisions of 
Federal statutes or regulations differ from the provisions of this 
part, the provision of the Federal statutes or regulations govern. This 
includes, for agreements with Indian tribes, the provisions of the 
Indian Self-Determination and Education and Assistance Act (ISDEAA), as 
amended, 25 U.S.C. 450-458ddd-2.
    (c) HHS awarding agencies may apply subparts A through E of this 
part to Federal agencies (see Sec.  75.215), for-profit entities, 
foreign public entities, or foreign organizations, except where the HHS 
awarding agency determines that the application of these subparts would 
be inconsistent with the international obligations of the United States 
or the statutes or regulations of a foreign government.
    (d) Except for Sec.  75.202 and Sec. Sec.  75.351 through 75.353 of 
Subpart D of this part, the requirements in Subpart C of this part, 
Subpart D of this part, and Subpart E of this part do not apply to the 
following programs:
    (1) The block grant awards authorized by the Omnibus Budget 
Reconciliation Act of 1981 (including Community Services, except to the 
extent that the cost and accounting standards of OMB apply to 
subrecipients of Community Services Block Grant funds pursuant to 42 
U.S.C. 9916(a)(1)(B); Preventive Health and Health Services; Alcohol, 
Drug Abuse, and Mental Health Services; Maternal and Child Health 
Services; Social Services; Low-Income Home Energy Assistance; States' 
Program of Community Development Block Grant Awards for Small Cities; 
and Elementary and Secondary Education other than programs administered 
by the Secretary of Education under title V, subtitle D, chapter 2, 
section 583--the Secretary's discretionary award program) and both the 
Alcohol and Drug Abuse Treatment and Rehabilitation Block Grant Award 
(42 U.S.C. 300x-21 to 300x-35 and 42 U.S.C. 300x-51 to 300x64) and the

[[Page 75899]]

Mental Health Service for the Homeless Block Grant Award (42 U.S.C. 
300x to 300x-9) under the Public Health Service Act.
    (2) Federal awards to local education agencies under 20 U.S.C. 
7702-7703b, (portions of the Impact Aid program);
    (3) Payments under the Department of Veterans Affairs' State Home 
Per Diem Program (38 U.S.C. 1741); and
    (4) Federal awards authorized under the Child Care and Development 
Block Grant Act of 1990, as amended:
    (i) Child Care and Development Block Grant (42 U.S.C. 9858)
    (ii) Child Care Mandatory and Matching Funds of the Child Care and 
Development Fund (42 U.S.C. 9858)
    (e) Except for Sec.  75.202, the guidance in Subpart C of this part 
does not apply to the following programs:
    (1) Federal awards to carry out the following programs of the 
Social Security Act:
    (i) Temporary Assistance for Needy Families (title IV-A of the 
Social Security Act, 42 U.S.C. 601-619);
    (ii) Child Support Enforcement and Establishment of Paternity 
(title IV-D of the Social Security Act, 42 U.S.C. 651-669b);
    (iii) Foster Care and Adoption Assistance (title IV-E of the Act, 
42 U.S.C. 670-679c);
    (iv) Aid to the Aged, Blind, and Disabled (titles I, X, XIV, and 
XVI-AABD of the Act, as amended);
    (v) Medical Assistance (Medicaid) (title XIX of the Act, 42 U.S.C. 
1396-1396w-5) not including the State Medicaid Fraud Control program 
authorized by Sec.  1903(a)(6)(B) of the Social Security Act (42 U.S.C. 
1396b(a)(6)(B)); and
    (vi) Children's Health Insurance Program (title XXI of the Act, 42 
U.S.C. 1397aa-1397mm).
    (2) A Federal award for an experimental, pilot, or demonstration 
project that is also supported by a Federal award listed in paragraph 
(e)(1) of this section;
    (3) Federal awards under subsection 412(e) of the Immigration and 
Nationality Act and subsection 501(a) of the Refugee Education 
Assistance Act of 1980 (Pub. L. 96-422, 94 Stat. 1809), for cash 
assistance, medical assistance, and supplemental security income 
benefits to refugees and entrants and the administrative costs of 
providing the assistance and benefits (8 U.S.C. 1522(e));
    (4) Entitlement awards under the following programs of The National 
School Lunch Act:
    (i) National School Lunch Program (section 4 of the Act, 42 U.S.C. 
1753),
    (ii) Commodity Assistance (section 6 of the Act, 42 U.S.C. 1755),
    (iii) Special Meal Assistance (section 11 of the Act, 42 U.S.C. 
1759a),
    (iv) Summer Food Service Program for Children (section 13 of the 
Act, 42 U.S.C. 1761), and
    (v) Child and Adult Care Food Program (section 17 of the Act, 42 
U.S.C. 1766).
    (5) Entitlement awards under the following programs of The Child 
Nutrition Act of 1966:
    (i) Special Milk Program (section 3 of the Act, 42 U.S.C. 1772),
    (ii) School Breakfast Program (section 4 of the Act, 42 U.S.C. 
1773), and
    (iii) State Administrative Expenses (section 7 of the Act, 42 
U.S.C. 1776).
    (6) Entitlement awards for State Administrative Expenses under The 
Food and Nutrition Act of 2008 (section 16 of the Act, 7 U.S.C. 2025).
    (7) Non-discretionary Federal awards under the following non-
entitlement programs:
    (i) Special Supplemental Nutrition Program for Women, Infants and 
Children (section 17 of the Child Nutrition Act of 1966) 42 U.S.C. 
1786;
    (ii) The Emergency Food Assistance Programs (Emergency Food 
Assistance Act of 1983) 7 U.S.C. 7501 note; and
    (iii) Commodity Supplemental Food Program (section 5 of the 
Agriculture and Consumer Protection Act of 1973) 7 U.S.C. 612c note.


Sec.  75.102  Exceptions.

    (a) With the exception of Subpart F of this part, OMB may allow 
exceptions for classes of Federal awards or non-Federal entities 
subject to the requirements of this part when exceptions are not 
prohibited by statute. However, in the interest of maximum uniformity, 
exceptions from the requirements of this part will be permitted only in 
unusual circumstances. Exceptions for classes of Federal awards or non-
Federal entities will be published on the OMB Web site at 
www.whitehouse.gov/omb.
    (b) Exceptions on a case-by-case basis for individual non-Federal 
entities may be authorized by the HHS awarding agency or cognizant 
agency for indirect costs except where otherwise required by law or 
where OMB or other approval is expressly required by this part. No 
case-by-case exceptions may be granted to the provisions of Subpart F 
of this part.
    (c) The HHS awarding agency may apply more restrictive requirements 
to a class of Federal awards or non-Federal entities when approved by 
OMB, or when required by Federal statutes or regulations, except for 
the requirements in Subpart F of this part. An HHS awarding agency may 
apply less restrictive requirements when making fixed amount awards as 
defined in Subpart A of this part, except for those requirements 
imposed by statute or in Subpart F of this part.
    (d) On a case-by-case basis, OMB will approve new strategies for 
Federal awards when proposed by the HHS awarding agency in accordance 
with OMB guidance (such as M-13-17) to develop additional evidence 
relevant to addressing important policy challenges or to promote cost-
effectiveness in and across Federal programs. Proposals may draw on the 
innovative program designs discussed in M-13-17 to expand or improve 
the use of effective practices in delivering Federal financial 
assistance while also encouraging innovation in service delivery. 
Proposals submitted to OMB in accordance with M-13-17 may include 
requests to waive requirements other than those in Subpart F of this 
part.


Sec.  75.103  Authorities.

    This part is issued under the following authorities.
    (a) Subpart B of this part through Subpart D of this part are 
authorized under 31 U.S.C. 503 (the Chief Financial Officers Act, 
Functions of the Deputy Director for Management), 31 U.S.C. 1111 
(Improving Economy and Efficiency of the United States Government), 41 
U.S.C. 1101-1131 (the Office of Federal Procurement Policy Act), 
Reorganization Plan No. 2 of 1970, and Executive Order 11541, the 
Single Audit Act Amendments of 1996, (31 U.S.C. 7501-7507), as well as 
The Federal Program Information Act (Public Law 95-220 and Public Law 
98-169, as amended, codified at 31 U.S.C. 6101-6106).
    (b) Subpart E of this part is authorized under the Budget and 
Accounting Act of 1921, as amended; the Budget and Accounting 
Procedures Act of 1950, as amended (31 U.S.C. 1101-1125); the Chief 
Financial Officers Act of 1990 (31 U.S.C. 503-504); Reorganization Plan 
No. 2 of 1970; and Executive Order No. 11541.
    (c) Subpart F of this part is authorized under the Single Audit Act 
Amendments of 1996, (31 U.S.C. 7501-7507).


Sec.  75.104  Supersession.

    As described in Sec.  75.110, this part supersedes:
    (a) The following OMB guidance documents and regulations under 
Title 2 of the Code of Federal Regulations:
    (1) A-21, ``Cost Principles for Educational Institutions'' (2 CFR 
part 220);
    (2) A-87, ``Cost Principles for State, Local and Indian Tribal 
Governments''

[[Page 75900]]

(2 CFR part 225) and also Federal Register notice 51 FR 552 (January 6, 
1986);
    (3) A-89, ``Federal Domestic Assistance Program Information'';
    (4) A-102, ``Grant Awards and Cooperative Agreements with State and 
Local Governments'';
    (5) A-110, ``Uniform Administrative Requirements for Awards and 
Other Agreements with Institutions of Higher Education, Hospitals, and 
Other Nonprofit Organizations'' (codified at 2 CFR 215);
    (6) A-122, ``Cost Principles for Non-Profit Organizations'' (2 CFR 
part 230);
    (7) A-133, ``Audits of States, Local Governments and Non-Profit 
Organizations, and
    (8) Those sections of A-50 related to audits performed under 
Subpart F of this part.
    (b) This part also supersedes HHS' regulations at 45 CFR parts 74 
and 92.


Sec.  75.105  Effect on other issuances.

    For Federal awards subject to this part, all administrative 
requirements, program manuals, handbooks and other non-regulatory 
materials that are inconsistent with the requirements of this part are 
superseded upon implementation of this part by the HHS awarding agency, 
except to the extent they are required by statute or authorized in 
accordance with the provisions in Sec.  75.102.


Sec.  75.106  Agency implementation.

    HHS is implementing the language in 2 CFR part 200 in these 
codified regulations.


Sec.  75.107  OMB responsibilities.

    OMB will review HHS agency regulations and implementation of 2 CFR 
part 200, and will provide interpretations of policy requirements and 
assistance to ensure effective and efficient implementation. Any 
exceptions will be subject to approval by OMB. Exceptions will only be 
made in particular cases where adequate justification is presented.


Sec.  75.108  Inquiries.

    Inquiries concerning 2 CFR part 200 may be directed to the Office 
of Federal Financial Management, Office of Management and Budget, in 
Washington, DC. Inquiries concerning 45 CFR part 75 should be addressed 
to the HHS awarding agency, cognizant agency for indirect costs, 
cognizant or oversight agency for audit, or pass-through entity as 
appropriate.


Sec.  75.109  Review date.

    OMB will review 2 CFR part 200 and HHS will review 45 Part 75 at 
least every five years after December 26, 2013.


Sec.  75.110  Effective/Applicability date.

    (a) The standards set forth in this part which affect 
administration of Federal awards issued by Federal agencies become 
effective December 26, 2014. For the procurement standards in 2 CFR 
200.317-200.326, non-Federal entities previously subject to OMB 
Circular A-110 may continue to comply with the procurement standards in 
previous OMB guidance (superseded by this part as described in 2 CFR 
200.104) for one additional fiscal year after this part goes into 
effect. If an entity chooses to remain with the previous procurement 
standards for an additional fiscal year before adopting the procurement 
standards in this part, they must document this decision in their 
internal procurement policies, in accordance with the guidance in 
Appendix XI to this part.
    (b) The standards set forth in Subpart F of this part and any other 
standards which apply directly to HHS agencies will be effective 
December 26, 2013, and will apply to audits of fiscal years beginning 
on or after December 26, 2014.


Sec.  75.111  English language.

    (a) All Federal financial assistance announcements and Federal 
award information must be in the English language. Applications must be 
submitted in the English language and must be in the terms of U.S. 
dollars. If the HHS awarding agency receives applications in another 
currency, the HHS awarding agency will evaluate the application by 
converting the foreign currency to United States currency using the 
date specified for receipt of the application.
    (b) Non-Federal entities may translate the Federal award and other 
documents into another language. In the event of inconsistency between 
any terms and conditions of the Federal award and any translation into 
another language, the English language meaning will control. Where a 
significant portion of the non-Federal entity's employees who are 
working on the Federal award are not fluent in English, the non-Federal 
entity must provide the Federal award in English and the language(s) 
with which employees are more familiar.


Sec.  75.112  Conflict of interest.

    (a) HHS awarding agencies must establish conflict of interest 
policies for Federal awards. The non-Federal entity must disclose in 
writing any potential conflict of interest to the respective HHS 
awarding agency or pass-through entity in accordance with applicable 
HHS awarding agency's policy. As a general matter, HHS awarding 
agencies' conflict of interest policies must:
    (1) Address conditions under which outside activities, 
relationships, or financial interests are proper or improper;
    (2) Provide for advance notification of outside activities, 
relationships, or financial interests, and a process of review as 
appropriate; and
    (3) Outline how financial conflicts of interest may be addressed.
    (b) Agencies with Public Health Service (PHS) funded research will 
ensure that any conflict of interest policies are aligned with the 
requirements of 42 CFR part 50, subpart F.


Sec.  75.113  Mandatory disclosures.

    The non-Federal entity or applicant for a Federal award must 
disclose, in a timely manner, in writing to the HHS awarding agency or 
pass-through entity all violations of Federal criminal law involving 
fraud, bribery, or gratuity violations potentially affecting the 
Federal award. Failure to make required disclosures can result in any 
of the remedies described in Sec.  75.371, including suspension or 
debarment. (See also 2 CFR parts 180 and 376, and 31 U.S.C. 3321).

Subpart C--Pre-Federal Award Requirements and Contents of Federal 
Awards


Sec.  75.200  Purpose.

    (a) Sections 75.201 through 75.208 prescribe instructions and other 
pre-award matters to be used in the announcement and application 
process.
    (b) Use of Sec. Sec.  75.203, 75.204, 75.205, and 75.207, is 
required only for competitive Federal awards, but may also be used by 
the HHS awarding agency for non-competitive awards where appropriate or 
where required by Federal statute.


Sec.  75.201  Use of grant agreements (including fixed amount awards), 
cooperative agreements, and contracts.

    (a) The HHS awarding agency or pass-through entity must decide on 
the appropriate instrument for the Federal award (i.e., grant 
agreement, cooperative agreement, or contract) in accordance with the 
Federal Grant and Cooperative Agreement Act (31 U.S.C. 6301-08).
    (b) Fixed Amount Awards. In addition to the options described in 
paragraph (a) of this section, HHS awarding agencies, or pass-through 
entities as permitted in Sec.  75.353, may use fixed amount awards (see 
Sec.  75.2 Fixed amount awards) to which the following conditions 
apply:

[[Page 75901]]

    (1) The Federal award amount is negotiated using the cost 
principles (or other pricing information) as a guide. The HHS awarding 
agency or pass-through entity may use fixed amount awards if the 
project scope is specific and if adequate cost, historical, or unit 
pricing data is available to establish a fixed amount award based on a 
reasonable estimate of actual cost. Payments are based on meeting 
specific requirements of the Federal award. Accountability is based on 
performance and results. Except in the case of termination before 
completion of the Federal award, there is no governmental review of the 
actual costs incurred by the non-Federal entity in performance of the 
award. Some of the ways in which the Federal award may be paid include, 
but are not limited to:
    (i) In several partial payments, the amount of each agreed upon in 
advance, and the ``milestone'' or event triggering the payment also 
agreed upon in advance, and set forth in the Federal award;
    (ii) On a unit price basis, for a defined unit or units, at a 
defined price or prices, agreed to in advance of performance of the 
Federal award and set forth in the Federal award; or,
    (iii) In one payment at Federal award completion.
    (2) A fixed amount award cannot be used in programs which require 
mandatory cost sharing or match.
    (3) The non-Federal entity must certify in writing to the HHS 
awarding agency or pass-through entity at the end of the Federal award 
that the project or activity was completed or the level of effort was 
expended. If the required level of activity or effort was not carried 
out, the amount of the Federal award must be adjusted.
    (4) Periodic reports may be established for each Federal award.
    (5) Changes in principal investigator, project leader, project 
partner, or scope of effort must receive the prior written approval of 
the HHS awarding agency or pass-through entity.


Sec.  75.202  Requirement to provide public notice of Federal financial 
assistance programs.

    (a) The HHS awarding agency must notify the public of Federal 
programs in the Catalog of Federal Domestic Assistance (CFDA), 
maintained by the General Services Administration (GSA).
    (1) The CFDA, or any OMB-designated replacement, is the single, 
authoritative, government-wide comprehensive source of Federal 
financial assistance program information produced by the executive 
branch of the Federal Government.
    (2) The information that the HHS awarding agency must submit to GSA 
for approval by OMB is listed in paragraph (b) of this section. GSA 
must prescribe the format for the submission.
    (3) The HHS awarding agency may not award Federal financial 
assistance without assigning it to a program that has been included in 
the CFDA as required in this section unless there are exigent 
circumstances requiring otherwise, such as timing requirements imposed 
by statute.
    (b) For each program that awards discretionary Federal awards, non-
discretionary Federal awards, loans, insurance, or any other type of 
Federal financial assistance, the HHS awarding agency must submit the 
following information to GSA:
    (1) Program Description, Purpose, Goals and Measurement. A brief 
summary of the statutory or regulatory requirements of the program and 
its intended outcome. Where appropriate, the Program Description, 
Purpose, Goals, and Measurement should align with the strategic goals 
and objectives within the HHS awarding agency's performance plan and 
should support the HHS awarding agency's performance measurement, 
management, and reporting as required by Part 6 of OMB Circular A-11;
    (2) Identification of whether the program makes Federal awards on a 
discretionary basis or the Federal awards are prescribed by Federal 
statute, such as in the case of formula grants.
    (3) Projected total amount of funds available for the program. 
Estimates based on previous year funding are acceptable if current 
appropriations are not available at the time of the submission;
    (4) Anticipated Source of Available Funds: The statutory authority 
for funding the program and, to the extent possible, agency, sub-
agency, or, if known, the specific program unit that will issue the 
Federal awards, and associated funding identifier (e.g., Treasury 
Account Symbol(s));
    (5) General Eligibility Requirements: The statutory, regulatory or 
other eligibility factors or considerations that determine the 
applicant's qualification for Federal awards under the program (e.g., 
type of non-Federal entity); and
    (6) Applicability of Single Audit Requirements as required by 
Subpart F of this part.


Sec.  75.203  Notices of funding opportunities.

    For competitive grants and cooperative agreements, the HHS awarding 
agency must announce specific funding opportunities by providing the 
following information in a public notice:
    (a) Summary Information in Notices of Funding Opportunities. The 
HHS awarding agency must display the following information posted on 
the OMB-designated government-wide Web site for finding and applying 
for Federal financial assistance, in a location preceding the full text 
of the announcement:
    (1) HHS Awarding Agency Name;
    (2) Funding Opportunity Title;
    (3) Announcement Type (whether the funding opportunity is the 
initial announcement of this funding opportunity or a modification of a 
previously announced opportunity);
    (4) Funding Opportunity Number (required, if applicable). If the 
HHS awarding agency has assigned or will assign a number to the funding 
opportunity announcement, this number must be provided;
    (5) Catalog of Federal Domestic Assistance (CFDA) Number(s);
    (6) Key Dates. Key dates include due dates for applications or 
Executive Order 12372 submissions, as well as for any letters of intent 
or pre-applications. For any announcement issued before a program's 
application materials are available, key dates also include the date on 
which those materials will be released; and any other additional 
information, as deemed applicable by the relevant HHS awarding agency.
    (b) The HHS awarding agency must generally make all funding 
opportunities available for application for at least 60 calendar days. 
The HHS awarding agency may make a determination to have a less than 60 
calendar day availability period but no funding opportunity should be 
available for less than 30 calendar days unless exigent circumstances 
require as determined by the HHS awarding agency head or delegate.
    (c) Full Text of Funding Opportunities. The HHS awarding agency 
must include the following information in the full text of each funding 
opportunity. For specific instructions on the content required in this 
section, refer to Appendix I of this part.
    (1) Full programmatic description of the funding opportunity.
    (2) Federal award information, including sufficient information to 
help an applicant make an informed decision about whether to submit an 
application. (See also Sec.  75.414(c)(4)).
    (3) Specific eligibility information, including any factors or 
priorities that affect an applicant's or its application's eligibility 
for selection.

[[Page 75902]]

    (4) Application Preparation and Submission Information, including 
the applicable submission dates and time.
    (5) Application Review Information including the criteria and 
process to be used to evaluate applications. See also Sec. Sec.  75.204 
and 75.205. See also 2 CFR part 27 (forthcoming at time of 
publication).
    (6) Federal Award Administration Information. See also Sec.  
75.210.


Sec.  75.204  HHS funding agency review of merit of proposals.

    For competitive grants or cooperative agreements, unless prohibited 
by Federal statute, the HHS awarding agency must design and execute a 
merit review process for applications. This process must be described 
or incorporated by reference in the applicable funding opportunity (see 
Appendix I to this part.) See also Sec.  75.203.


Sec.  75.205  HHS awarding agency review of risk posed by applicants.

    (a) Prior to making a Federal award, the HHS awarding agency is 
required by 31 U.S.C. 3321 and 41 U.S.C. 2313 note to review 
information available through any OMB-designated repositories of 
government-wide eligibility qualification or financial integrity 
information, such as SAM Exclusions, and ``Do Not Pay.'' See also 
suspension and debarment requirements at 2 CFR part 180 as well as HHS 
suspension and debarment regulations at 2 CFR part 376.
    (b) In addition, for competitive grants or cooperative agreements, 
the HHS awarding agency must have in place a framework for evaluating 
the risks posed by applicants before they receive Federal awards. This 
evaluation may incorporate results of the evaluation of the applicant's 
eligibility or the quality of its application. If the HHS awarding 
agency determines that a Federal award will be made, special conditions 
that correspond to the degree of risk assessed may be applied to the 
Federal award. Criteria to be evaluated must be described in the 
announcement of funding opportunity described in Sec.  75.203.
    (c) In evaluating risks posed by applicants, the HHS awarding 
agency may use a risk-based approach and may consider any items such as 
the following:
    (1) Financial stability;
    (2) Quality of management systems and ability to meet the 
management standards prescribed in this part;
    (3) History of performance. The applicant's record in managing 
Federal awards, if it is a prior recipient of Federal awards, including 
timeliness of compliance with applicable reporting requirements, 
conformance to the terms and conditions of previous Federal awards, and 
if applicable, the extent to which any previously awarded amounts will 
be expended prior to future awards;
    (4) Reports and findings from audits performed under Subpart F of 
this part or the reports and findings of any other available audits; 
and
    (5) The applicant's ability to effectively implement statutory, 
regulatory, or other requirements imposed on non-Federal entities.
    (d) In addition to this review, the HHS awarding agency must comply 
with the guidelines on government-wide suspension and debarment in 2 
CFR part 180, and must require non-Federal entities to comply with 
these provisions. These provisions restrict Federal awards, subawards 
and contracts with certain parties that are debarred, suspended or 
otherwise excluded from or ineligible for participation in Federal 
programs or activities.


Sec.  75.206  Standard application requirements, including forms for 
applying for HHS financial assistance, and state plans.

    (a) Paperwork clearances. The HHS awarding agency may only use 
application information collections approved by OMB under the Paperwork 
Reduction Act of 1995 and OMB's implementing regulations in 5 CFR part 
1320. Consistent with these requirements, OMB will authorize additional 
information collections only on a limited basis.
    (b) If applicable, the HHS awarding agency may inform applicants 
and recipients that they do not need to provide certain information 
otherwise required by the relevant information collection.
    (c) Forms for applying for HHS financial assistance. HHS awarding 
agencies should use the Standard Form 424 (SF-424 Application for 
Federal Assistance) series (or its successor) and its program narrative 
whenever possible. Alternative mechanisms may be used for formula grant 
programs which do not require applicants to apply for funds on a 
project basis.
    (1) Applicants shall use the SF-424 series or those forms and 
instructions prescribed by the HHS awarding agency.
    (2) For Federal programs covered by Executive Order 12372, as 
amended by Executive Order 12416, the applicant shall complete the 
appropriate sections of the SF-424 indicating whether the application 
was subject to review by the State Single Point of Contact (SPOC). The 
name and address of the SPOC for a particular State can be obtained 
from the HHS awarding agency or the Catalog of Federal Domestic 
Assistance. The SPOC shall advise the applicant whether the program for 
which application is made has been selected by that State for review. 
(See also 45 CFR part 100.)
    (3) HHS awarding agencies that do not use the SF-424 series will 
indicate on the application form they prescribe whether the application 
is subject to review by the State under Executive Order 12372.
    (4) This section does not apply to applications for subawards.
    (5) Except where otherwise noted, or granted by HHS deviation, HHS 
awarding agencies shall direct applicants to apply for HHS financial 
assistance through Grants.gov, an OMB-designated Web site for Find and 
Apply.
    (d) State plans. The statutes for some programs require States to 
submit plans before receiving grants. Under regulations implementing 
Executive Order 12372, States are allowed to simplify, consolidate and 
substitute plans. This section contains additional provisions for plans 
that are subject to regulations implementing Executive Order 12372.
    (1) Requirements. A State need meet only Federal administrative or 
programmatic requirements for a plan that are in statutes or codified 
regulations.
    (2) Assurances. In each plan, the State will include an assurance 
that the State will comply with all applicable Federal statutes and 
regulations in effect with respect to the periods for which it receives 
grant funding. For this assurance and other assurances required in this 
plan, the State may:
    (i) Cite by number the statutory or regulatory provisions requiring 
the assurances and affirm that it gives the assurances required by 
those provisions,
    (ii) Repeat the assurance language in the statutes or regulations, 
or
    (iii) Develop its own language to the extent permitted by law.
    (3) Amendments. A State will amend a plan whenever necessary to 
reflect:
    (i) New or revised Federal statutes or regulations, or
    (ii) A material change in any State law, organization, policy, or 
State agency operation. The State will obtain approval for the 
amendment and its effective date but need submit for approval only the 
amended portions of the plan.


Sec.  75.207  Specific award conditions.

    (a) The HHS awarding agency or pass-through entity may impose 
additional

[[Page 75903]]

specific award conditions as needed in accordance with paragraphs (b) 
and (c) of this section, under the following circumstances:
    (1) Based on the criteria set forth in Sec.  75.205;
    (2) When an applicant or recipient has a history of failure to 
comply with the general or specific terms and conditions of a Federal 
award;
    (3) When an applicant or recipient fails to meet expected 
performance goals as described in Sec.  75.210, or;
    (4) When the applicant or recipient is not otherwise responsible.
    (b) These additional Federal award conditions may include items 
such as the following:
    (1) Requiring payments as reimbursements rather than advance 
payments;
    (2) Withholding authority to proceed to the next phase until 
receipt of evidence of acceptable performance within a given period of 
performance;
    (3) Requiring additional, more detailed financial reports;
    (4) Requiring additional project monitoring;
    (5) Requiring the non-Federal entity to obtain technical or 
management assistance; or
    (6) Establishing additional prior approvals.
    (c) The HHS awarding agency or pass-through entity must notify the 
applicant or non-Federal entity as to:
    (1) The nature of the additional requirements;
    (2) The reason why the additional requirements are being imposed;
    (3) The nature of the action needed to remove the additional 
requirement, if applicable;
    (4) The time allowed for completing the actions if applicable, and
    (5) The method for requesting reconsideration of the additional 
requirements imposed.
    (d) Any specific conditions must be promptly removed once the 
conditions that prompted them have been corrected.


Sec.  75.208  Certifications and Representations.

    Unless prohibited by Federal statutes or regulations, each HHS 
awarding agency or pass-through entity is authorized to require the 
non-Federal entity to submit certifications and representations 
required by Federal statutes, or regulations on an annual basis. 
Submission may be required more frequently if the non-Federal entity 
fails to meet a requirement of a Federal award.
    (a) The funds governed under this part shall be administered in 
compliance with the standards set forth in 45 CFR part 87.
    (b) For assurances under State plans, see Sec.  75.206(d)(2).


Sec.  75.209  Pre-award costs.

    For requirements on costs incurred by the applicant prior to the 
start date of the period of performance of the Federal award, see Sec.  
75.458.


Sec.  75.210  Information contained in a Federal award.

    A Federal award must include the following information:
    (a) General Federal Award Information. The HHS awarding agency must 
include the following general Federal award information in each Federal 
award:
    (1) Recipient name (which must match the name associated with their 
unique entity identifier as defined in 2 CFR 25.315);
    (2) Recipient's unique entity identifier;
    (3) Unique Federal Award Identification Number (FAIN);
    (4) Federal Award Date (see Sec.  75.2 Federal award date);
    (5) Period of Performance Start and End Date;
    (6) Amount of Federal Funds Obligated by this action,
    (7) Total Amount of Federal Funds Obligated;
    (8) Total Amount of the Federal Award;
    (9) Budget Approved by the HHS Awarding Agency;
    (10) Total Approved Cost Sharing or Matching, where applicable;
    (11) Federal award project description (to comply with statutory 
requirements (e.g., FFATA));
    (12) Name of HHS awarding agency and contact information for 
awarding official,
    (13) CFDA Number and Program Name;
    (14) Identification of whether the award is R&D; and
    (15) Indirect cost rate for the Federal award (including if the de 
minimis rate is charged per Sec.  75.414).
    (b) General Terms and Conditions (1) HHS awarding agencies must 
incorporate the following general terms and conditions either in the 
Federal award or by reference, as applicable:
    (i) Administrative requirements implemented by the HHS awarding 
agency as specified in this part.
    (ii) National policy requirements. These include statutory, 
executive order, other Presidential directive, or regulatory 
requirements that apply by specific reference and are not program-
specific. See Sec.  75.300.
    (2) The Federal award must include wording to incorporate, by 
reference, the applicable set of general terms and conditions, The 
reference must be to the Web site at which the HHS awarding agency 
maintains the general terms and conditions.
    (3) If a non-Federal entity requests a copy of the full text of the 
general terms and conditions, the HHS awarding agency must provide it.
    (4) Wherever the general terms and conditions are publicly 
available, the HHS awarding agency must maintain an archive of previous 
versions of the general terms and conditions, with effective dates, for 
use by the non-Federal entity, auditors, or others.
    (c) HHS Awarding Agency, Program, or Federal Award Specific Terms 
and Conditions. The HHS awarding agency may include with each Federal 
award any terms and conditions necessary to communicate requirements 
that are in addition to the requirements outlined in the HHS awarding 
agency's general terms and conditions. Whenever practicable, these 
specific terms and conditions also should be shared on a public Web 
site and in notices of funding opportunities (as outlined in Sec.  
75.203) in addition to being included in a Federal award. See also 
Sec.  75.206.
    (d) Federal Award Performance Goals. The HHS awarding agency must 
include in the Federal award an indication of the timing and scope of 
expected performance by the non-Federal entity as related to the 
outcomes intended to be achieved by the program. In some instances 
(e.g., discretionary research awards), this may be limited to the 
requirement to submit technical performance reports (to be evaluated in 
accordance with HHS awarding agency policy). Where appropriate, the 
Federal award may include specific performance goals, indicators, 
milestones, or expected outcomes (such as outputs, or services 
performed or public impacts of any of these) with an expected timeline 
for accomplishment. Reporting requirements must be clearly articulated 
such that, where appropriate, performance during the execution of the 
Federal award has a standard against which non-Federal entity 
performance can be measured. The HHS awarding agency may include 
program-specific requirements, as applicable. These requirements should 
be aligned with agency strategic goals, strategic objectives or 
performance goals that are relevant to the program. See also OMB 
Circular A-11, Part 6 for definitions of strategic objectives and 
performance goals.
    (e) Any other information required by the HHS awarding agency.

[[Page 75904]]

Sec.  75.211  Public access to Federal award information.

    (a) In accordance with statutory requirements for Federal spending 
transparency (e.g., FFATA), except as noted in this section, for 
applicable Federal awards the HHS awarding agency must announce all 
Federal awards publicly and publish the required information on a 
publicly available OMB-designated government-wide Web site (at time of 
publication, www.USAspending.gov).
    (b) Nothing in this section may be construed as requiring the 
publication of information otherwise exempt under the Freedom of 
Information Act (5 U.S.C. 552), or controlled unclassified information 
pursuant to Executive Order 13556.


Sec.  75.212  Suspension and Debarment.

    Non-federal entities and contractors are subject to the non-
procurement debarment and suspension regulations implementing Executive 
Orders 12549 and 12689, 2 CFR parts 180 and 376. These regulations 
restrict awards, subawards and contracts with certain parties that are 
debarred, suspended or otherwise excluded from or ineligible for 
participation in Federal assistance programs or activities.


Sec.  75.213  Metric system of measurement.

    The Metric Conversion Act, as amended by the Omnibus Trade and 
Competitiveness Act, 15 U.S.C. 205, declares that the metric system is 
the preferred measurement system for United States trade and commerce. 
HHS awarding agencies will follow the provisions of Executive Order 
12770.


Sec.  75.214  Disclosure of Lobbying Activities.

    Recipients are subject to the restrictions on lobbying as set forth 
in 45 CFR part 93.


Sec.  75.215  Special Provisions for Awards to Commercial Organizations 
as Recipients.

    (a) This section contains provisions that apply to awards to 
commercial organizations. These provisions are in addition to other 
applicable provisions of this part, or they make exceptions from other 
provisions of this part for awards to commercial organizations.
    (b) Prohibition against profit. Except for awards under the Small 
Business Innovation Research (SBIR) and Small Business Technology 
Transfer Research (STTR) programs (15 U.S.C. 638), no HHS funds may be 
paid as profit to any recipient even if the recipient is a commercial 
organization. Profit is any amount in excess of allowable direct and 
indirect costs.
    (c) Program Income. Except for grants for research, program income 
earned by a commercial organization may not be used to further eligible 
project or program objectives except in the SBIR and STTR programs.
    (d)(1) Commercial organizations that receive awards (including for-
profit hospitals) have two options regarding audits:
    (i) A financial related audit of a particular award in accordance 
with Generally Accepted Government Auditing Standards issued by the 
Comptroller General of the United States, in those cases where the 
commercial organization receives awards under only one HHS program; or, 
if awards are received under multiple HHS programs, a financial related 
audit of all awards in accordance with Generally Accepted Government 
Auditing Standards issued by the Comptroller General of the United 
States; or
    (ii) An audit that meets the requirements contained in subpart F.
    (2) Commercial organizations that receive annual awards totaling 
less than the audit requirement threshold in subpart F are exempt from 
HHS audit requirements for that year, but records must be available for 
review by appropriate officials of Federal agencies or the Government 
Accountability Office. (See Sec.  75.501).


Sec.  75.216  Special Provisions for Awards to Federal Agencies.

    (a) In order for an HHS awarding agency to make a Federal award to 
a Federal agency, the HHS awarding agency must have statutory authority 
that makes such Federal agency explicitly eligible for a Federal award.
    (b) All provisions of this part and other HHS regulations apply to 
Federal entities receiving Federal awards, except for the following:
    (1) Except for grants for research, any program income earned by a 
Federal institution must be used under the deduction alternative. Any 
program income earned after the end of grant support should be returned 
to the United States Treasury.
    (2) No salary or fringe benefit payments may be made from HHS 
awarding agency grant funds to support career, career-conditional, or 
other Federal employees (civilian or uniformed services) without 
permanent appointments at a Federal institution receiving a grant. 
While the level of effort required for the project must be allowed by 
the recipient as part of each individual's official duties, salary 
costs associated with an individual participating in an official 
capacity as a Federal employee under a grant to that Federal 
institution are not allowable costs under an HHS awarding agency grant.
    (3) Federal agencies may not be reimbursed for indirect costs under 
Federal awards.


Sec.  75.217  Participation by faith-based organizations.

    The funds provided under this part must be administered in 
compliance with the standards set forth in 45 CFR part 87.

Subpart D--Post Federal Award Requirements

Standards for Financial and Program Management


Sec.  75.300  Statutory and national policy requirements.

    (a) The Federal awarding agency must manage and administer the 
Federal award in a manner so as to ensure that Federal funding is 
expended and associated programs are implemented in full accordance 
with U.S. statutory and public policy requirements: Including, but not 
limited to, those protecting public welfare, the environment, and 
prohibiting discrimination. The Federal awarding agency must 
communicate to the non-Federal entity all relevant public policy 
requirements, including those in general appropriations provisions, and 
incorporate them either directly or by reference in the terms and 
conditions of the Federal award.
    (b) The non-Federal entity is responsible for complying with all 
requirements of the Federal award. For all Federal awards, this 
includes the provisions of FFATA, which includes requirements on 
executive compensation, and also requirements implementing the Act for 
the non-Federal entity at 2 CFR part 25 and 2 CFR part 170. See also 
statutory requirements for whistleblower protections at 10 U.S.C. 2324 
and 2409, and 41 U.S.C. 4304, 4310, and 4712.


Sec.  75.301  Performance measurement.

    The HHS awarding agency must require the recipient to use OMB 
approved standard information collections when providing financial and 
performance information. As appropriate and in accordance with above 
mentioned information collections, the HHS awarding agency must require 
the recipient to relate financial data to performance accomplishments 
of the Federal award. Also, in accordance with above mentioned standard 
information collections, and when applicable, recipients must also 
provide cost information to demonstrate cost effective practices (e.g., 
through unit

[[Page 75905]]

cost data). The recipient's performance should be measured in a way 
that will help the HHS awarding agency and other non-Federal entities 
to improve program outcomes, share lessons learned, and spread the 
adoption of promising practices. The HHS awarding agency should provide 
recipients with clear performance goals, indicators, and milestones as 
described in Sec.  75.210. Performance reporting frequency and content 
should be established to not only allow the HHS awarding agency to 
understand the recipient progress but also to facilitate identification 
of promising practices among recipients and build the evidence upon 
which the HHS awarding agency's program and performance decisions are 
made.


Sec.  75.302  Financial management and standards for financial 
management systems.

    (a) Each state must expend and account for the Federal award in 
accordance with state laws and procedures for expending and accounting 
for the state's own funds. In addition, the state's and the other non- 
Federal entity's financial management systems, including records 
documenting compliance with Federal statutes, regulations, and the 
terms and conditions of the Federal award, must be sufficient to permit 
the preparation of reports required by general and program-specific 
terms and conditions; and the tracing of funds to a level of 
expenditures adequate to establish that such funds have been used 
according to the Federal statutes, regulations, and the terms and 
conditions of the Federal award. See also Sec.  75.450.
    (b) The financial management system of each non-Federal entity must 
provide for the following (see also Sec. Sec.  75.361, 75.362, 75.363, 
75.364, and 75.365):
    (1) Identification, in its accounts, of all Federal awards received 
and expended and the Federal programs under which they were received. 
Federal program and Federal award identification must include, as 
applicable, the CFDA title and number, Federal award identification 
number and year, name of the HHS awarding agency, and name of the pass-
through entity, if any.
    (2) Accurate, current, and complete disclosure of the financial 
results of each Federal award or program in accordance with the 
reporting requirements set forth in Sec. Sec.  75.341 and 75.342. If an 
HHS awarding agency requires reporting on an accrual basis from a 
recipient that maintains its records on other than an accrual basis, 
the recipient must not be required to establish an accrual accounting 
system. This recipient may develop accrual data for its reports on the 
basis of an analysis of the documentation on hand. Similarly, a pass-
through entity must not require a subrecipient to establish an accrual 
accounting system and must allow the subrecipient to develop accrual 
data for its reports on the basis of an analysis of the documentation 
on hand.
    (3) Records that identify adequately the source and application of 
funds for federally-funded activities. These records must contain 
information pertaining to Federal awards, authorizations, obligations, 
unobligated balances, assets, expenditures, income and interest and be 
supported by source documentation.
    (4) Effective control over, and accountability for, all funds, 
property, and other assets. The non-Federal entity must adequately 
safeguard all assets and assure that they are used solely for 
authorized purposes. See Sec.  75.303.
    (5) Comparison of expenditures with budget amounts for each Federal 
award.
    (6) Written procedures to implement the requirements of Sec.  
75.305.
    (7) Written procedures for determining the allowability of costs in 
accordance with Subpart E of this part and the terms and conditions of 
the Federal award.


Sec.  75.303  Internal controls.

    The non-Federal entity must:
    (a) Establish and maintain effective internal control over the 
Federal award that provides reasonable assurance that the non-Federal 
entity is managing the Federal award in compliance with Federal 
statutes, regulations, and the terms and conditions of the Federal 
award. These internal controls should be in compliance with guidance in 
``Standards for Internal Control in the Federal Government,'' issued by 
the Comptroller General of the United States or the ``Internal Control 
Integrated Framework,'' issued by the Committee of Sponsoring 
Organizations of the Treadway Commission (COSO).
    (b) Comply with Federal statutes, regulations, and the terms and 
conditions of the Federal awards.
    (c) Evaluate and monitor the non-Federal entity's compliance with 
statutes, regulations and the terms and conditions of Federal awards.
    (d) Take prompt action when instances of noncompliance are 
identified including noncompliance identified in audit findings.
    (e) Take reasonable measures to safeguard protected personally 
identifiable information and other information the HHS awarding agency 
or pass-through entity designates as sensitive or the non-Federal 
entity considers sensitive consistent with applicable Federal, state, 
local, and tribal laws regarding privacy and obligations of 
confidentiality.


Sec.  75.304  Bonds.

    The HHS awarding agency may include a provision on bonding, 
insurance, or both in the following circumstances:
    (a) Where the Federal Government guarantees or insures the 
repayment of money borrowed by the recipient, the HHS awarding agency, 
at its discretion, may require adequate bonding and insurance if the 
bonding and insurance requirements of the non-Federal entity are not 
deemed adequate to protect the interest of the Federal Government.
    (b) The HHS awarding agency may require adequate fidelity bond 
coverage where the non-Federal entity lacks sufficient coverage to 
protect the Federal Government's interest.
    (c) Where bonds are required in the situations described above, the 
bonds must be obtained from companies holding certificates of authority 
as acceptable sureties, as prescribed in 31 CFR part 223.


Sec.  75.305  Payment.

    (a) For states, payments are governed by Treasury-State CMIA 
agreements and default procedures codified at 31 CFR part 205 and TFM 
4A-2000 Overall Disbursing Rules for All Federal Agencies.
    (b) For non-Federal entities other than states, payments methods 
must minimize the time elapsing between the transfer of funds from the 
United States Treasury or the pass-through entity and the disbursement 
by the non-Federal entity whether the payment is made by electronic 
funds transfer, or issuance or redemption of checks, warrants, or 
payment by other means. See also Sec.  75.302(b)(6). Except as noted 
elsewhere in these part, Federal agencies must require recipients to 
use only OMB-approved standard government-wide information collection 
requests to request payment.
    (1) The non-Federal entity must be paid in advance, provided it 
maintains or demonstrates the willingness to maintain both written 
procedures that minimize the time elapsing between the transfer of 
funds and disbursement by the non-Federal entity, and financial 
management systems that meet the standards for fund control and 
accountability as established in this part. Advance payments to a non-
Federal entity must be limited to the minimum amounts needed and be 
timed to be in accordance with the actual,

[[Page 75906]]

immediate cash requirements of the non-Federal entity in carrying out 
the purpose of the approved program or project. The timing and amount 
of advance payments must be as close as is administratively feasible to 
the actual disbursements by the non-Federal entity for direct program 
or project costs and the proportionate share of any allowable indirect 
costs. The non-Federal entity must make timely payment to contractors 
in accordance with the contract provisions.
    (2) Whenever possible, advance payments must be consolidated to 
cover anticipated cash needs for all Federal awards made by the HHS 
awarding agency to the recipient.
    (i) Advance payment mechanisms include, but are not limited to, 
Treasury check and electronic funds transfer and must comply with 
applicable guidance in 31 CFR part 208.
    (ii) Non-Federal entities must be authorized to submit requests for 
advance payments and reimbursements at least monthly when electronic 
fund transfers are not used, and as often as they like when electronic 
transfers are used, in accordance with the provisions of the Electronic 
Fund Transfer Act (15 U.S.C. 1693-1693r).
    (3) Reimbursement is the preferred method when the requirements in 
paragraph (b) cannot be met, when the HHS awarding agency sets a 
specific condition per Sec.  75.207, or when the non-Federal entity 
requests payment by reimbursement. This method may be used on any 
Federal award for construction, or if the major portion of the 
construction project is accomplished through private market financing 
or Federal loans, and the Federal award constitutes a minor portion of 
the project. When the reimbursement method is used, the HHS awarding 
agency or pass-through entity must make payment within 30 calendar days 
after receipt of the billing, unless the HHS awarding agency or pass-
through entity reasonably believes the request to be improper.
    (4) If the non-Federal entity cannot meet the criteria for advance 
payments and the HHS awarding agency or pass-through entity has 
determined that reimbursement is not feasible because the non-Federal 
entity lacks sufficient working capital, the HHS awarding agency or 
pass-through entity may provide cash on a working capital advance 
basis. Under this procedure, the HHS awarding agency or pass-through 
entity must advance cash payments to the non-Federal entity to cover 
its estimated disbursement needs for an initial period generally geared 
to the non-Federal entity's disbursing cycle. Thereafter, the HHS 
awarding agency or pass-through entity must reimburse the non-Federal 
entity for its actual cash disbursements. Use of the working capital 
advance method of payment requires that the pass-through entity provide 
timely advance payments to any subrecipients in order to meet the 
subrecipient's actual cash disbursements. The working capital advance 
method of payment must not be used by the pass-through entity if the 
reason for using this method is the unwillingness or inability of the 
pass-through entity to provide timely advance payments to the 
subrecipient to meet the subrecipient's actual cash disbursements.
    (5) Use of resources before requesting cash advance payments. To 
the extent available, the non-Federal entity must disburse funds 
available from program income (including repayments to a revolving 
fund), rebates, refunds, contract settlements, audit recoveries, and 
interest earned on such funds before requesting additional cash 
payments.
    (6) Unless otherwise required by Federal statutes, payments for 
allowable costs by non-Federal entities must not be withheld at any 
time during the period of performance unless the conditions of 
Sec. Sec.  75.207, Subpart D of this part, 75.371, or one or more of 
the following applies:
    (i) The non-Federal entity has failed to comply with the project 
objectives, Federal statutes, regulations, or the terms and conditions 
of the Federal award.
    (ii) The non-Federal entity is delinquent in a debt to the United 
States as defined in OMB Guidance A-129. Under such conditions, the HHS 
awarding agency or pass-through entity may, upon reasonable notice, 
inform the non-Federal entity that payments must not be made for 
obligations incurred after a specified date until the conditions are 
corrected or the indebtedness to the Federal Government is liquidated. 
(See 45 CFR part 30).
    (iii) A payment withheld for failure to comply with Federal award 
conditions, but without suspension of the Federal award, must be 
released to the non-Federal entity upon subsequent compliance. When a 
Federal award is suspended, payment adjustments will be made in 
accordance with Sec.  75.375.
    (iv) A payment must not be made to a non-Federal entity for amounts 
that are withheld by the non-Federal entity from payment to contractors 
to assure satisfactory completion of work. A payment must be made when 
the non-Federal entity actually disburses the withheld funds to the 
contractors or to escrow accounts established to assure satisfactory 
completion of work.
    (7) Standards governing the use of banks and other institutions as 
depositories of advance payments under Federal awards are as follows:
    (i) The HHS awarding agency and pass-through entity must not 
require separate depository accounts for funds provided to a non-
Federal entity or establish any eligibility requirements for 
depositories for funds provided to the non-Federal entity. However, the 
non-Federal entity must be able to account for the receipt, obligation 
and expenditure of funds.
    (ii) Advance payments of Federal funds must be deposited and 
maintained in insured accounts whenever possible.
    (8) The non-Federal entity must maintain advance payments of 
Federal awards in interest-bearing accounts, unless the following 
apply:
    (i) The non-Federal entity receives less than $120,000 in Federal 
awards per year.
    (ii) The best reasonably available interest-bearing account would 
not be expected to earn interest in excess of $500 per year on Federal 
cash balances.
    (iii) The depository would require an average or minimum balance so 
high that it would not be feasible within the expected Federal and non-
Federal cash resources.
    (iv) A foreign government or banking system prohibits or precludes 
interest bearing accounts.
    (9) Interest earned amounts up to $500 per year may be retained by 
the non-Federal entity for administrative expense. Any additional 
interest earned on Federal advance payments deposited in interest-
bearing accounts must be remitted annually to the Department of Health 
and Human Services Payment Management System through an electronic 
medium using either Automated Clearing House (ACH) network or a Fedwire 
Funds Service payment. Remittances must include pertinent information 
of the payee and nature of payment in the memo area (often referred to 
as ``addenda records'' by Financial Institutions) as that will assist 
in the timely posting of interest earned on federal funds. Pertinent 
details include the Payee Account Number (PAN) if the payment 
originated from PMS, or Agency information if the payment originated 
from ASAP, NSF or another federal agency payment system. The remittance 
must be submitted as follows:

For ACH Returns:
Routing Number: 051036706
Account number: 303000

[[Page 75907]]

Bank Name and Location: Credit Gateway--ACH Receiver St. Paul, MN

For Fedwire Returns*:
Routing Number: 021030004
Account number: 75010501
Bank Name and Location: Federal Reserve Bank Treas NYC/Funds Transfer 
Division New York, NY
(* Please note organization initiating payment is likely to incur a 
charge from your Financial Institution for this type of payment)

For International ACH Returns:
Beneficiary Account: Federal Reserve Bank of New York/ITS (FRBNY/ITS)
Bank: Citibank N.A. (New York)
Swift Code: CITIUS33
Account Number: 36838868
Bank Address: 388 Greenwich Street, New York, NY 10013 USA
Payment Details (Line 70): Agency Name (abbreviated when possible) and 
ALC Agency POC: Michelle Haney, (301) 492-5065

    For recipients that do not have electronic remittance capability, 
please make check** payable to:

``The Department of Health and Human Services''

Mail Check to Treasury approved lockbox:
HHS Program Support Center
P.O. Box 530231
Atlanta, GA 30353-0231
(** Please allow 4-6 weeks for processing of a payment by check to be 
applied to the appropriate PMS account)

Any additional information/instructions may be found on the PMS Web 
site at http://www.dpm.psc.gov/.


Sec.  75.306  Cost sharing or matching.

    (a) Under Federal research proposals, voluntary committed cost 
sharing is not expected. It cannot be used as a factor during the merit 
review of applications or proposals, but may be considered if it is 
both in accordance with HHS awarding agency regulations and specified 
in a notice of funding opportunity. Criteria for considering voluntary 
committed cost sharing and any other program policy factors that may be 
used to determine who may receive a Federal award must be explicitly 
described in the notice of funding opportunity. Furthermore, only 
mandatory cost sharing or cost sharing specifically committed in the 
project budget must be included in the organized research base for 
computing the indirect (F&A) cost rate or reflected in any allocation 
of indirect costs. See also Sec. Sec.  75.414, 75.203, and Appendix I 
to this part.
    (b) For all Federal awards, any shared costs or matching funds and 
all contributions, including cash and third party in-kind 
contributions, must be accepted as part of the non-Federal entity's 
cost sharing or matching when such contributions meet all of the 
following criteria:
    (1) Are verifiable from the non-Federal entity's records;
    (2) Are not included as contributions for any other Federal award;
    (3) Are necessary and reasonable for accomplishment of project or 
program objectives;
    (4) Are allowable under Subpart E of this part;
    (5) Are not paid by the Federal Government under another Federal 
award, except where the Federal statute authorizing a program 
specifically provides that Federal funds made available for such 
program can be applied to matching or cost sharing requirements of 
other Federal programs;
    (6) Are provided for in the approved budget when required by the 
HHS awarding agency; and
    (7) Conform to other provisions of this part, as applicable.
    (c) Unrecovered indirect costs, including indirect costs on cost 
sharing or matching may be included as part of cost sharing or 
matching. Unrecovered indirect cost means the difference between the 
amount charged to the Federal award and the amount which could have 
been charged to the Federal award under the non-Federal entity's 
approved negotiated indirect cost rate.
    (d) Values for non-Federal entity contributions of services and 
property must be established in accordance with the cost principles in 
Subpart E. If an HHS awarding agency authorizes the non-Federal entity 
to donate buildings or land for construction/facilities acquisition 
projects or long-term use, the value of the donated property for cost 
sharing or matching must be the lesser of paragraphs (d)(1) or (2) of 
this section.
    (1) The value of the remaining life of the property recorded in the 
non-Federal entity's accounting records at the time of donation.
    (2) The current fair market value. However, when there is 
sufficient justification, the HHS awarding agency may approve the use 
of the current fair market value of the donated property, even if it 
exceeds the value described in paragraph (1) of this section at the 
time of donation.
    (e) Volunteer services furnished by third-party professional and 
technical personnel, consultants, and other skilled and unskilled labor 
may be counted as cost sharing or matching if the service is an 
integral and necessary part of an approved project or program. Rates 
for third-party volunteer services must be consistent with those paid 
for similar work by the non-Federal entity. In those instances in which 
the required skills are not found in the non-Federal entity, rates must 
be consistent with those paid for similar work in the labor market in 
which the non-Federal entity competes for the kind of services 
involved. In either case, paid fringe benefits that are reasonable, 
necessary, allocable, and otherwise allowable may be included in the 
valuation.
    (f) When a third-party organization furnishes the services of an 
employee, these services must be valued at the employee's regular rate 
of pay plus an amount of fringe benefits that is reasonable, necessary, 
allocable, and otherwise allowable, and indirect costs at either the 
third-party organization's approved federally negotiated indirect cost 
rate or, a rate in accordance with Sec.  75.414(f), provided these 
services employ the same skill(s) for which the employee is normally 
paid. Where donated services are treated as indirect costs, indirect 
cost rates will separate the value of the donated services so that 
reimbursement for the donated services will not be made.
    (g) Donated property from third parties may include such items as 
equipment, office supplies, laboratory supplies, or workshop and 
classroom supplies. Value assessed to donated property included in the 
cost sharing or matching share must not exceed the fair market value of 
the property at the time of the donation.
    (h) The method used for determining cost sharing or matching for 
third-party-donated equipment, buildings and land for which title 
passes to the non-Federal entity may differ according to the purpose of 
the Federal award, if paragraph (h)(1) or (2) of this section applies.
    (1) If the purpose of the Federal award is to assist the non-
Federal entity in the acquisition of equipment, buildings or land, the 
aggregate value of the donated property may be claimed as cost sharing 
or matching.
    (2) If the purpose of the Federal award is to support activities 
that require the use of equipment, buildings or land, normally only 
depreciation charges for equipment and buildings may be made. However, 
the fair market value of equipment or other capital assets and fair 
rental charges for land may be allowed, provided that the HHS awarding 
agency has approved the charges. See also Sec.  75.420.
    (i) The value of donated property must be determined in accordance 
with the usual accounting policies of the

[[Page 75908]]

non-Federal entity, with the following qualifications:
    (1) The value of donated land and buildings must not exceed its 
fair market value at the time of donation to the non-Federal entity as 
established by an independent appraiser (e.g., certified real property 
appraiser or General Services Administration representative) and 
certified by a responsible official of the non-Federal entity as 
required by the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970, as amended, (42 U.S.C. 4601-4655) 
(Uniform Act) except as provided in the implementing regulations at 49 
CFR part 24.
    (2) The value of donated equipment must not exceed the fair market 
value of equipment of the same age and condition at the time of 
donation.
    (3) The value of donated space must not exceed the fair rental 
value of comparable space as established by an independent appraisal of 
comparable space and facilities in a privately-owned building in the 
same locality.
    (4) The value of loaned equipment must not exceed its fair rental 
value.
    (j) For third-party in-kind contributions, the fair market value of 
goods and services must be documented and to the extent feasible 
supported by the same methods used internally by the non-Federal 
entity.
    (k) For IHEs, see also OMB memorandum M-01-06, dated January 5, 
2001, Clarification of OMB A-21 Treatment of Voluntary Uncommitted Cost 
Sharing and Tuition Remission Costs.


Sec.  75.307  Program income.

    (a) General. Non-Federal entities are encouraged to earn income to 
defray program costs where appropriate.
    (b) Cost of generating program income. If authorized by Federal 
regulations or the Federal award, costs incidental to the generation of 
program income may be deducted from gross income to determine program 
income, provided these costs have not been charged to the Federal 
award.
    (c) Governmental revenues. Taxes, special assessments, levies, 
fines, and other such revenues raised by a non-Federal entity are not 
program income unless the revenues are specifically identified in the 
Federal award or HHS awarding agency regulations as program income.
    (1) The Patent and Trademark Laws Amendments, 34 U.S.C. 200-212, 
apply to inventions made under an award for performance of 
experimental, developmental, or research work.
    (2) Unless the terms and conditions for the Federal award provide 
otherwise, recipients shall have no obligation to HHS with respect to 
program income earned from license fees and royalties for copyrighted 
material, patents, patent applications, trademarks, and inventions made 
under a Federal award. However, no scholarship, fellowship, training 
grant, or other funding agreement made primarily to a recipient for 
educational purposes will contain any provision giving the HHS awarding 
agency rights to inventions made by the recipient.
    (d) Property. Proceeds from the sale of real property, equipment, 
or supplies, are not program income; such proceeds will be handled in 
accordance with the requirements of Subpart D of this part, Sec. Sec.  
75.318, 75.320, and 75.321, or as specifically identified in Federal 
statutes, regulations, or the terms and conditions of the Federal 
award.
    (e) Use of program income. If the HHS awarding agency does not 
specify in its regulations or the terms and conditions of the Federal 
award, or give prior approval for how program income is to be used, 
paragraph (e)(1) of this section must apply. For Federal awards made to 
IHEs and nonprofit research institutions, if the HHS awarding agency 
does not specify in its regulations or the terms and conditions of the 
Federal award how program income is to be used, paragraph (e)(2) of 
this section must apply unless the recipient is subject to conditions 
under Sec.  75.207 or Sec.  75.215. In specifying alternatives to 
paragraphs (e)(1) and (2) of this section, the HHS awarding agency may 
distinguish between income earned by the recipient and income earned by 
subrecipients and between the sources, kinds, or amounts of income. 
When the HHS awarding agency authorizes the approaches in paragraphs 
(e)(2) and (3) of this section, program income in excess of any amounts 
specified must also be deducted from expenditures.
    (1) Deduction. Ordinarily program income must be deducted from 
total allowable costs to determine the net allowable costs. Program 
income must be used for current costs unless the HHS awarding agency 
authorizes otherwise. Program income that the non-Federal entity did 
not anticipate at the time of the Federal award must be used to reduce 
the Federal award and non-Federal entity contributions rather than to 
increase the funds committed to the project.
    (2) Addition. With prior approval of the HHS awarding agency 
(except for IHEs and nonprofit research institutions, as described in 
paragraph (e) of this section), program income may be added to the 
Federal award by the Federal agency and the non-Federal entity. The 
program income must be used for the purposes and under the conditions 
of the Federal award.
    (3) Cost sharing or matching. With prior approval of the HHS 
awarding agency, program income may be used to meet the cost sharing or 
matching requirement of the Federal award. The amount of the Federal 
award remains the same.
    (f) Income after the period of performance. There are no Federal 
requirements governing the disposition of income earned after the end 
of the period of performance for the Federal award, unless the HHS 
awarding agency regulations or the terms and conditions of the award 
provide otherwise. The HHS awarding agency may negotiate agreements 
with recipients regarding appropriate uses of income earned after the 
period of performance as part of the grant closeout process. See also 
Sec.  75.381.
    (g) Unless the Federal statute, regulations, or terms and 
conditions for the Federal award provide otherwise, the non-Federal 
entity has no obligation to the HHS awarding agency with respect to 
program income earned from license fees and royalties for copyrighted 
material, patents, patent applications, trademarks, and inventions made 
under a Federal award to which 37 CFR part 401, ``Rights to Inventions 
Made by Nonprofit Organizations and Small Business Firms under 
Government Awards, Contracts and Cooperative Agreements'' is 
applicable.


Sec.  75.308  Revision of budget and program plans.

    (a) The approved budget for the Federal award summarizes the 
financial aspects of the project or program as approved during the 
Federal award process. It may include either the Federal and non-
Federal share (see Sec.  75.2 Federal share) or only the Federal share, 
depending upon HHS awarding agency requirements. It must be related to 
performance for program evaluation purposes whenever appropriate.
    (b) Recipients are required to report deviations from budget or 
project scope or objective, and request prior approvals from HHS 
awarding agencies for budget and program plan revisions, in accordance 
with this section.
    (c) For non-construction Federal awards, recipients must request 
prior approvals from HHS awarding agencies for one or more of the 
following program or budget-related reasons:
    (1) Change in the scope or the objective of the project or program 
(even if there is no associated budget revision requiring prior written 
approval).

[[Page 75909]]

    (2) Change in a key person specified in the application or the 
Federal award.
    (3) The disengagement from the project for more than three months, 
or a 25 percent reduction in time devoted to the project, by the 
approved project director or principal investigator.
    (4) The inclusion, unless waived by the HHS awarding agency, of 
costs that require prior approval in accordance with Subpart E of this 
part or Appendix IX of this part, or 48 CFR part 31, as applicable.
    (5) The transfer of funds budgeted for participant support costs as 
defined in Sec.  75.2 Participant support costs to other categories of 
expense.
    (6) Unless described in the application and funded in the approved 
Federal awards, the subawarding, transferring or contracting out of any 
work under a Federal award. This provision does not apply to the 
acquisition of supplies, material, equipment or general support 
services.
    (7) Changes in the approved cost-sharing or matching provided by 
the non-Federal entity. No other prior approval requirements for 
specific items may be imposed unless an exception has been approved by 
OMB. See also Sec. Sec.  75.102 and 75.407.
    (8) A fixed amount subaward as described in Sec.  75.353.
    (9) The inclusion of research patient care costs in research awards 
made for the performance of research work.
    (10) The provision of subawards by a pass-through entity on fixed 
amounts up to the Simplified Acquisition Threshold, provided that the 
subawards meet the requirements for fixed amount awards in Sec.  
75.201. See Sec.  75.353.
    (11) The recipient wishes to dispose of, replace, or encumber title 
to real property, equipment, or intangible property that are acquired 
or improved with a Federal award. See Sec. Sec.  75.318, 75.320, 
75.322, and 75.323.
    (12) The need arises for additional Federal funds to complete the 
project.
    (d) Except for requirements listed in paragraph (c)(1) of this 
section, the HHS awarding agencies are authorized, at their option, to 
waive prior written approvals required by paragraph (c) this section. 
Such waivers may include authorizing recipients to do any one or more 
of the following:
    (1) Incur project costs 90 calendar days before the HHS awarding 
agency makes the Federal award. Expenses more than 90 calendar days 
pre-award require prior approval of the HHS awarding agency. All costs 
incurred before the HHS awarding agency makes the Federal award are at 
the recipient's risk (i.e., the HHS awarding agency is under no 
obligation to reimburse such costs if for any reason the recipient does 
not receive a Federal award or if the Federal award is less than 
anticipated and inadequate to cover such costs). See also Sec.  75.458.
    (2) Initiate a one-time extension of the period of performance by 
up to 12 months unless one or more of the conditions outlined in 
paragraphs (d)(2)(i) through (iii) of this section apply. For one-time 
extensions, the recipient must notify the HHS awarding agency in 
writing with the supporting reasons and revised period of performance 
at least 10 calendar days before the end of the period of performance 
specified in the Federal award. This one-time extension may not be 
exercised merely for the purpose of using unobligated balances. 
Extensions require explicit prior HHS awarding agency approval when:
    (i) The terms and conditions of the Federal award prohibit the 
extension.
    (ii) The extension requires additional Federal funds.
    (iii) The extension involves any change in the approved objectives 
or scope of the project.
    (3) Carry forward unobligated balances to subsequent periods of 
performance.
    (4) For Federal awards that support research, unless the HHS 
awarding agency provides otherwise in the Federal award or in the HHS 
awarding agency's regulations, the prior approval requirements 
described in paragraph (d) are automatically waived (i.e., recipients 
need not obtain such prior approvals) unless one of the conditions 
included in paragraph (d)(2) applies.
    (e) The HHS awarding agency may, at its option, restrict the 
transfer of funds among direct cost categories or programs, functions 
and activities for Federal awards in which the Federal share of the 
project exceeds the Simplified Acquisition Threshold and the cumulative 
amount of such transfers exceeds or is expected to exceed 10 percent of 
the total budget as last approved by the HHS awarding agency. The HHS 
awarding agency cannot permit a transfer that would cause any Federal 
appropriation to be used for purposes other than those consistent with 
the appropriation.
    (f) All other changes to non-construction budgets, except for the 
changes described in paragraph (c) of this section, do not require 
prior approval (see also Sec.  75.407).
    (g) For construction Federal awards, the recipient must request 
prior written approval promptly from the HHS awarding agency for budget 
revisions whenever paragraph (g)(1), (2), or (3) of this section 
applies.
    (1) The revision results from changes in the scope or the objective 
of the project or program.
    (2) The need arises for additional Federal funds to complete the 
project.
    (3) A revision is desired which involves specific costs for which 
prior written approval requirements may be imposed consistent with 
applicable OMB cost principles listed in Subpart E of this part.
    (4) No other prior approval requirements for budget revisions may 
be imposed unless an exception has been approved by OMB.
    (5) When an HHS awarding agency makes a Federal award that provides 
support for construction and non-construction work, the HHS awarding 
agency may require the recipient to obtain prior approval from the HHS 
awarding agency before making any fund or budget transfers between the 
two types of work supported.
    (h) When requesting approval for budget revisions, the recipient 
must use the same format for budget information that was used in the 
application, unless the HHS awarding agency indicates a letter of 
request suffices.
    (i) Within 30 calendar days from the date of receipt of the request 
for budget revisions, the HHS awarding agency must review the request 
and notify the recipient whether the budget revisions have been 
approved. If the revision is still under consideration at the end of 30 
calendar days, the HHS awarding agency must inform the recipient in 
writing of the date when the recipient may expect the decision.
    (j) All approvals granted in keeping with the provisions of this 
section shall not be valid unless they are in writing, and signed by at 
least one of the following HHS officials:
    (1) The Head of the HHS awarding agency that made the award or 
subordinate official with proper delegated authority from the Head, 
including the Head of the Regional Office of the HHS awarding agency 
that made the award; or
    (2) The responsible Grants Officer of the HHS awarding agency that 
made the award or an individual duly authorized by the Grants Officer.


Sec.  75.309  Period of performance and availability of funds.

    (a) A non-Federal entity may charge to the Federal award only 
allowable costs incurred during the period of performance (except as 
described in Sec.  75.461) and any costs incurred before the HHS 
awarding agency or pass-through entity made the Federal award that were 
authorized by the Federal awarding agency or pass-through entity.

[[Page 75910]]

Funds available to pay allowable costs during the period of performance 
include both Federal funds awarded and carryover balances.
    (b) A non-Federal entity must liquidate all obligations incurred 
under the award not later than 90 days after the end of the funding 
period (or as specified in a program regulation) to coincide with the 
submission of the final Federal Financial Report (FFR). This deadline 
may be extended with prior written approval from the HHS awarding 
agency.


Sec.  75.310-Sec.  75.315  [Reserved]

Property Standards


Sec.  75.316  Purpose of property standards.

    Sections 75.317 through 75.323 set forth uniform standards 
governing management and disposition of property furnished by HHS or 
whose cost was charged directly to a project supported by an HHS award. 
The HHS awarding agency may not impose additional requirements, unless 
specifically required to do so by Federal statute. The recipient may 
use its own property management standards and procedures provided they 
meet the provisions of these sections.


Sec.  75.317  Insurance coverage.

    The non-Federal entity must, at a minimum, provide the equivalent 
insurance coverage for real property and equipment acquired or improved 
with Federal funds as provided to other property owned by the non-
Federal entity. Federally-owned property need not be insured unless 
required by the terms and conditions of the Federal award.


Sec.  75.318  Real property.

    (a) Title. Subject to the obligations and conditions set forth in 
this section, title to real property acquired or improved under a 
Federal award will vest upon acquisition in the non-Federal entity.
    (b) Use. (1) Except as otherwise provided by Federal statutes or by 
the HHS awarding agency, real property will be used for the originally 
authorized purpose as long as needed for that purpose, during which 
time the non-Federal entity must not dispose of or encumber its title 
or other interests.
    (2) The non-Federal entity shall obtain written approval from the 
HHS awarding agency for the use of real property in other federally-
sponsored projects when the recipient determines that the property is 
no longer needed for the purpose of the original project. Use in other 
projects shall be limited to those under federally-sponsored projects 
(i.e., awards) or programs that have purpose consistent with those 
authorized for support by the HHS awarding agency.
    (c) Disposition. When real property is no longer needed as provided 
in subsection (b), the non-Federal entity must obtain disposition 
instructions from the HHS awarding agency or pass-through entity. The 
instructions must provide for one of the following alternatives:
    (1) Retain title after compensating the HHS awarding agency. The 
amount paid to the HHS awarding agency will be computed by applying the 
HHS awarding agency's percentage of participation in the cost of the 
original purchase (and costs of any improvements) to the fair market 
value of the property. However, in those situations where the non-
Federal entity is disposing of real property acquired or improved with 
a Federal award and acquiring replacement real property under the same 
Federal award, the net proceeds from the disposition may be used as an 
offset to the cost of the replacement property.
    (2) Sell the property and compensate the HHS awarding agency. The 
amount due to the HHS awarding agency will be calculated by applying 
the HHS awarding agency's percentage of participation in the cost of 
the original purchase (and cost of any improvements) to the proceeds of 
the sale after deduction of any actual and reasonable selling and 
fixing-up expenses. If the Federal award has not been closed out, the 
net proceeds from sale may be offset against the original cost of the 
property. When the non-Federal entity is directed to sell property, 
sales procedures must be followed that provide for competition to the 
extent practicable and result in the highest possible return.
    (3) Transfer title to the HHS awarding agency or to a third party 
designated/approved by the HHS awarding agency. The non-Federal entity 
is entitled to be paid an amount calculated by applying the non-Federal 
entity's percentage of participation in the purchase of the real 
property (and cost of any improvements) to the current fair market 
value of the property.


Sec.  75.319  Federally-owned and exempt property.

    (a) Title to Federally-owned property remains vested in the Federal 
Government. The non-Federal entity must submit annually an inventory 
listing of Federally-owned property in its custody to the HHS awarding 
agency. Upon completion of the Federal award or when the property is no 
longer needed, the non-Federal entity must report the property to the 
HHS awarding agency for further Federal agency utilization.
    (b) If the HHS awarding agency has no further need for the 
property, it must declare the property excess and report it for 
disposal to the appropriate Federal disposal authority, unless the HHS 
awarding agency has statutory authority to dispose of the property by 
alternative methods (e.g., the authority provided by the Federal 
Technology Transfer Act (15 U.S.C. 3710 (i)) to donate research 
equipment to educational and non-profit organizations in accordance 
with Executive Order 12999). The HHS awarding agency must issue 
appropriate instructions to the non-Federal entity.
    (c) Exempt Federally-owned property means property acquired under a 
Federal award where the HHS awarding agency has chosen to vest title to 
the property to the non-Federal entity without further obligation to 
the Federal Government, based upon the explicit terms and conditions of 
the Federal award. The HHS awarding agency may exercise this option 
when statutory authority exists. Absent statutory authority and 
specific terms and conditions of the Federal award, title to exempt 
Federally-owned property acquired under the Federal award remains with 
the Federal Government.


Sec.  75.320  Equipment.

    See also Sec.  75.439.
    (a) Title. Subject to the obligations and conditions set forth in 
this section, title to equipment acquired under a Federal award will 
vest upon acquisition in the non-Federal entity. Unless a statute 
specifically authorizes the Federal agency to vest title in the non-
Federal entity without further obligation to the Federal Government, 
and the Federal agency elects to do so, the title must be a conditional 
title. Title must vest in the non-Federal entity subject to the 
following conditions:
    (1) Use the equipment for the authorized purposes of the project 
during the period of performance, or until the property is no longer 
needed for the purposes of the project.
    (2) Not encumber the property without approval of the HHS awarding 
agency or pass-through entity.
    (3) Use and dispose of the property in accordance with paragraphs 
(b), (c) and (e) of this section.
    (b) A state must use, manage and dispose of equipment acquired 
under a Federal award by the state in accordance with state laws and 
procedures. Other non-Federal entities must follow paragraphs (c) 
through (e) of this section.

[[Page 75911]]

    (c) Use. (1) Equipment must be used by the non-Federal entity in 
the program or project for which it was acquired as long as needed, 
whether or not the project or program continues to be supported by the 
Federal award, and the non-Federal entity must not encumber the 
property without prior approval of the HHS awarding agency. When no 
longer needed for the original program or project, the equipment may be 
used in other activities supported by the HHS awarding agency, in the 
following order of priority:
    (i) Activities under a Federal award from the HHS awarding agency 
which funded the original program or project, then
    (ii) Activities under Federal awards from other HHS awarding 
agencies. This includes consolidated equipment for information 
technology systems.
    (2) During the time that equipment is used on the project or 
program for which it was acquired, the non-Federal entity must also 
make the equipment available for use on other projects or programs 
currently or previously supported by the Federal Government, provided 
that such use will not interfere with the work on the projects or 
program for which it was originally acquired. First preference for 
other use must be given to other programs or projects supported by the 
HHS awarding agency that financed the equipment and second preference 
must be given to programs or projects under Federal awards from other 
Federal awarding agencies. Use for non-federally-funded programs or 
projects is also permissible. User fees should be considered if 
appropriate.
    (3) Notwithstanding the encouragement in Sec.  75.307 to earn 
program income, the non-Federal entity must not use equipment acquired 
with the Federal award to provide services for a fee that is less than 
private companies charge for equivalent services unless specifically 
authorized by Federal statute for as long as the Federal Government 
retains an interest in the equipment.
    (4) When acquiring replacement equipment, the non-Federal entity 
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 
subject to the approval of the HHS awarding agency.
    (d) Management requirements. Procedures for managing equipment 
(including replacement equipment), whether acquired in whole or in part 
under a Federal award, until disposition takes place will, as a 
minimum, meet the following requirements:
    (1) Property records must be maintained that include a description 
of the property, a serial number or other identification number, the 
source of funding for the property (including the FAIN), who holds 
title, the acquisition date, and cost of the property, percentage of 
Federal participation in the project costs for the Federal award under 
which the property was acquired, the location, use and condition of the 
property, and any ultimate disposition data including the date of 
disposal and sale price of the property.
    (2) A physical inventory of the property must be taken and the 
results reconciled with the property records at least once every two 
years.
    (3) A control system must be developed to ensure adequate 
safeguards to prevent loss, damage, or theft of the property. Any loss, 
damage, or theft must be investigated.
    (4) Adequate maintenance procedures must be developed to keep the 
property in good condition.
    (5) If the non-Federal entity is authorized or required to sell the 
property, proper sales procedures must be established to ensure the 
highest possible return.
    (e) Disposition. When original or replacement equipment acquired 
under a Federal award is no longer needed for the original project or 
program or for other activities currently or previously supported by a 
HHS awarding agency, except as otherwise provided in Federal statutes, 
regulations, or HHS awarding agency disposition instructions, the non-
Federal entity must request disposition instructions from the HHS 
awarding agency if required by the terms and conditions of the Federal 
award. Disposition of the equipment will be made as follows, in 
accordance with HHS awarding agency disposition instructions:
    (1) Items of equipment with a current per unit fair market value of 
$5,000 or less may be retained, sold or otherwise disposed of with no 
further obligation to the HHS awarding agency.
    (2) Except as provided in Sec.  75.319(b), or if the HHS awarding 
agency fails to provide requested disposition instructions within 120 
days, items of equipment with a current per-unit fair-market value in 
excess of $5,000 may be retained by the non-Federal entity or sold. The 
HHS awarding agency is entitled to an amount calculated by multiplying 
the current market value or proceeds from sale by the HHS awarding 
agency's percentage of participation in the cost of the original 
purchase. If the equipment is sold, the HHS awarding agency may permit 
the non-Federal entity to deduct and retain from the Federal share $500 
or ten percent of the proceeds, whichever is less, for its selling and 
handling expenses.
    (3) The non-Federal entity may transfer title to the property to 
the Federal Government or to an eligible third party provided that, in 
such cases, the non-Federal entity must be entitled to compensation for 
its attributable percentage of the current fair market value of the 
property.
    (4) In cases where a non-Federal entity fails to take appropriate 
disposition actions, the HHS awarding agency may direct the non-Federal 
entity to take disposition actions.


Sec.  75.321  Supplies.

    See also Sec.  75.453.
    (a) Title to supplies will vest in the non-Federal entity upon 
acquisition. If there is a residual inventory of unused supplies 
exceeding $5,000 in total aggregate value upon termination or 
completion of the project or program and the supplies are not needed 
for any other Federal award, the non-Federal entity must retain the 
supplies for use on other activities or sell them, but must, in either 
case, compensate the Federal Government for its share. The amount of 
compensation must be computed in the same manner as for equipment. See 
Sec.  75.320(e)(2) for the calculation methodology.
    (b) As long as the Federal Government retains an interest in the 
supplies, the non-Federal entity must not use supplies acquired under a 
Federal award to provide services to other organizations for a fee that 
is less than private companies charge for equivalent services, unless 
specifically authorized by Federal statute.


Sec.  75.322  Intangible property and copyrights.

    (a) Title to intangible property (see Sec.  75.2 Intangible 
property) acquired under a Federal award vests upon acquisition in the 
non-Federal entity. The non-Federal entity must use that property for 
the originally-authorized purpose, and must not encumber the property 
without approval of the HHS awarding agency. When no longer needed for 
the originally authorized purpose, disposition of the intangible 
property must occur in accordance with the provisions in Sec.  
75.320(e).
    (b) The non-Federal entity may copyright any work that is subject 
to copyright and was developed, or for which ownership was acquired, 
under a Federal award. The HHS awarding agency reserves a royalty-free, 
nonexclusive and irrevocable right to reproduce, publish, or otherwise 
use the

[[Page 75912]]

work for Federal purposes, and to authorize others to do so.
    (c) The non-Federal entity is subject to applicable regulations 
governing patents and inventions, including government-wide regulations 
issued by the Department of Commerce at 37 CFR part 401.
    (d) The Federal Government has the right to:
    (1) Obtain, reproduce, publish, or otherwise use the data produced 
under a Federal award; and
    (2) Authorize others to receive, reproduce, publish, or otherwise 
use such data
    (e) Freedom of Information Act (FOIA).
    (1) In response to a Freedom of Information Act (FOIA) request for 
research data relating to published research findings produced under a 
Federal award that were used by the Federal Government in developing an 
agency action that has the force and effect of law, the HHS awarding 
agency must request, and the non-Federal entity must provide, within a 
reasonable time, the research data so that they can be made available 
to the public through the procedures established under the FOIA. If the 
HHS awarding agency obtains the research data solely in response to a 
FOIA request, the HHS awarding agency may charge the requester a 
reasonable fee equaling the full incremental cost of obtaining the 
research data. This fee should reflect costs incurred by the Federal 
agency and the non-Federal entity. This fee is in addition to any fees 
the HHS awarding agency may assess under the FOIA (5 U.S.C. 
552(a)(4)(A)).
    (2) Published research findings means when:
    (i) Research findings are published in a peer-reviewed scientific 
or technical journal; or
    (ii) A Federal agency publicly and officially cites the research 
findings in support of an agency action that has the force and effect 
of law. ``Used by the Federal Government in developing an agency action 
that has the force and effect of law'' is defined as when an agency 
publicly and officially cites the research findings in support of an 
agency action that has the force and effect of law.
    (3) Research data means the recorded factual material commonly 
accepted in the scientific community as necessary to validate research 
findings, but not any of the following: Preliminary analyses, drafts of 
scientific papers, plans for future research, peer reviews, or 
communications with colleagues. This ``recorded'' material excludes 
physical objects (e.g., laboratory samples). Research data also do not 
include:
    (i) Trade secrets, commercial information, materials necessary to 
be held confidential by a researcher until they are published, or 
similar information which is protected under law; and
    (ii) Personnel and medical information and similar information the 
disclosure of which would constitute a clearly unwarranted invasion of 
personal privacy, such as information that could be used to identify a 
particular person in a research study.
    (f) The requirements set forth in paragraph (e)(1) of this section 
do not apply to commercial organizations


Sec.  75.323  Property trust relationship.

    Real property, equipment, and intangible property, that are 
acquired or improved with a Federal award must be held in trust by the 
non-Federal entity as trustee for the beneficiaries of the project or 
program under which the property was acquired or improved. The HHS 
awarding agency may require the non-Federal entity to record liens or 
other appropriate notices of record to indicate that personal or real 
property has been acquired or improved with a Federal award and that 
use and disposition conditions apply to the property.


Sec.  75.324--Sec.  75.325  [Reserved]

Procurement Standards


Sec.  75.326  Procurements by states.

    When procuring property and services under a Federal award, a state 
must follow the same policies and procedures it uses for procurements 
from its non-Federal funds. The state will comply with Sec.  75.331 and 
ensure that every purchase order or other contract includes any clauses 
required by Sec.  75.335. All other non-Federal entities, including 
subrecipients of a state, will follow Sec. Sec.  75.327 through 75.335.


Sec.  75.327  General procurement standards.

    (a) The non-Federal entity must use its own documented procurement 
procedures which reflect applicable State, local, and tribal laws and 
regulations, provided that the procurements conform to applicable 
Federal law and the standards identified in this part.
    (b) Non-Federal entities must maintain oversight to ensure that 
contractors perform in accordance with the terms, conditions, and 
specifications of their contracts or purchase orders.
    (c)(1) The non-Federal entity must maintain written standards of 
conduct covering conflicts of interest and governing the actions of its 
employees engaged in the selection, award and administration of 
contracts. No employee, officer, or agent may participate in the 
selection, award, or administration of a contract supported by a 
Federal award if he or she has a real or apparent conflict of interest. 
Such a conflict of interest would arise when the employee, officer, or 
agent, any member of his or her immediate family, his or her partner, 
or an organization which employs or is about to employ any of the 
parties indicated herein, has a financial or other interest in or a 
tangible personal benefit from a firm considered for a contract. The 
officers, employees, and agents of the non-Federal entity may neither 
solicit nor accept gratuities, favors, or anything of monetary value 
from contractors or parties to subcontracts. However, non-Federal 
entities may set standards for situations in which the financial 
interest is not substantial or the gift is an unsolicited item of 
nominal value. The standards of conduct must provide for disciplinary 
actions to be applied for violations of such standards by officers, 
employees, or agents of the non-Federal entity.
    (2) If the non-Federal entity has a parent, affiliate, or 
subsidiary organization that is not a state, local government, or 
Indian tribe, the non-Federal entity must also maintain written 
standards of conduct covering organizational conflicts of interest. 
Organizational conflicts of interest means that because of 
relationships with a parent company, affiliate, or subsidiary 
organization, the non-Federal entity is unable or appears to be unable 
to be impartial in conducting a procurement action involving a related 
organization.
    (d) The non-Federal entity's procedures must avoid acquisition of 
unnecessary or duplicative items. Consideration should be given to 
consolidating or breaking out procurements to obtain a more economical 
purchase. Where appropriate, an analysis will be made of lease versus 
purchase alternatives, and any other appropriate analysis to determine 
the most economical approach.
    (e) To foster greater economy and efficiency, and in accordance 
with efforts to promote cost-effective use of shared services across 
the Federal Government, the non-Federal entity is encouraged to enter 
into state and local intergovernmental agreements or inter-entity 
agreements where appropriate for procurement or use of common or shared 
goods and services.
    (f) The non-Federal entity is encouraged to use Federal excess and 
surplus property in lieu of purchasing

[[Page 75913]]

new equipment and property whenever such use is feasible and reduces 
project costs.
    (g) The non-Federal entity is encouraged to use value engineering 
clauses in contracts for construction projects of sufficient size to 
offer reasonable opportunities for cost reductions. Value engineering 
is a systematic and creative analysis of each contract item or task to 
ensure that its essential function is provided at the overall lower 
cost.
    (h) The non-Federal entity must award contracts only to responsible 
contractors possessing the ability to perform successfully under the 
terms and conditions of a proposed procurement. Consideration will be 
given to such matters as contractor integrity, compliance with public 
policy, record of past performance, and financial and technical 
resources. In certain circumstances, contracts with certain parties are 
restricted by agencies' implementation of Executive Orders 12549 and 
12689. (See 2 CFR part 376.)
    (i) The non-Federal entity must maintain records sufficient to 
detail the history of procurement. These records will include, but are 
not necessarily limited to the following: rationale for the method of 
procurement, selection of contract type, contractor selection or 
rejection, and the basis for the contract price.
    (j)(1) The non-Federal entity may use a time and materials type 
contract only after a determination that no other contract is suitable 
and if the contract includes a ceiling price that the contractor 
exceeds at its own risk. Time and materials type contract means a 
contract whose cost to a non-Federal entity is the sum of:
    (i) The actual cost of materials; and
    (ii) Direct labor hours charged at fixed hourly rates that reflect 
wages, general and administrative expenses, and profit.
    (2) Since this formula generates an open-ended contract price, a 
time-and-materials contract provides no positive profit incentive to 
the contractor for cost control or labor efficiency. Therefore, each 
contract must set a ceiling price that the contractor exceeds at its 
own risk. Further, the non-Federal entity awarding such a contract must 
assert a high degree of oversight in order to obtain reasonable 
assurance that the contractor is using efficient methods and effective 
cost controls.
    (k) The non-Federal entity alone must be responsible, in accordance 
with good administrative practice and sound business judgment, for the 
settlement of all contractual and administrative issues arising out of 
procurements. These issues include, but are not limited to, source 
evaluation, protests, disputes, and claims. These standards do not 
relieve the non-Federal entity of any contractual responsibilities 
under its contracts. The HHS awarding agency will not substitute its 
judgment for that of the non-Federal entity unless the matter is 
primarily a Federal concern. Violations of law will be referred to the 
local, tribal, state, or Federal authority having proper jurisdiction.
    (l) The type of procuring instruments used must be determined by 
the recipient but shall be appropriate for the particular procurement 
and for promoting the best interest of the program or project involved.


Sec.  75.328  Competition.

    (a) All procurement transactions must be conducted in a manner 
providing full and open competition consistent with the standards of 
this section. In order to ensure objective contractor performance and 
eliminate unfair competitive advantage, contractors that develop or 
draft specifications, requirements, statements of work, or invitations 
for bids or requests for proposals must be excluded from competing for 
such procurements. Some of the situations considered to be restrictive 
of competition include but are not limited to:
    (1) Placing unreasonable requirements on firms in order for them to 
qualify to do business;
    (2) Requiring unnecessary experience and excessive bonding;
    (3) Noncompetitive pricing practices between firms or between 
affiliated companies;
    (4) Noncompetitive contracts to consultants that are on retainer 
contracts;
    (5) Organizational conflicts of interest;
    (6) Specifying only a ``brand name'' product instead of allowing 
``an equal'' product to be offered and describing the performance or 
other relevant requirements of the procurement; and
    (7) Any arbitrary action in the procurement process.
    (b) The non-Federal entity must conduct procurements in a manner 
that prohibits the use of statutorily or administratively imposed 
state, local, or tribal geographical preferences in the evaluation of 
bids or proposals, except in those cases where applicable Federal 
statutes expressly mandate or encourage geographic preference. Nothing 
in this section preempts state licensing laws. When contracting for 
architectural and engineering (A/E) services, geographic location may 
be a selection criterion provided its application leaves an appropriate 
number of qualified firms, given the nature and size of the project, to 
compete for the contract.
    (c) The non-Federal entity must have written procedures for 
procurement transactions. These procedures must ensure that all 
solicitations:
    (1) Incorporate a clear and accurate description of the technical 
requirements for the material, product, or service to be procured. Such 
description must not, in competitive procurements, contain features 
which unduly restrict competition. The description may include a 
statement of the qualitative nature of the material, product or service 
to be procured and, when necessary, must set forth those minimum 
essential characteristics and standards to which it must conform if it 
is to satisfy its intended use. Detailed product specifications should 
be avoided if at all possible. When it is impractical or uneconomical 
to make a clear and accurate description of the technical requirements, 
a ``brand name or equivalent'' description may be used as a means to 
define the performance or other salient requirements of procurement. 
The specific features of the named brand which must be met by offers 
must be clearly stated; and
    (2) Identify all requirements which the offerors must fulfill and 
all other factors to be used in evaluating bids or proposals.
    (d) The non-Federal entity must ensure that all prequalified lists 
of persons, firms, or products which are used in acquiring goods and 
services are current and include enough qualified sources to ensure 
maximum open and free competition. Also, the non-Federal entity must 
not preclude potential bidders from qualifying during the solicitation 
period.


Sec.  75.329  Procurement procedures.

    The non-Federal entity must use one of the following methods of 
procurement.
    (a) Procurement by micro-purchases. Procurement by micro-purchase 
is the acquisition of supplies or services, the aggregate dollar amount 
of which does not exceed the micro-purchase threshold (See micro-
purchase). To the extent practicable, the non-Federal entity must 
distribute micro-purchases equitably among qualified suppliers. Micro-
purchases may be awarded without soliciting competitive quotations if 
the non-Federal entity considers the price to be reasonable.
    (b) Procurement by small purchase procedures. Small purchase 
procedures are those relatively simple and informal procurement methods 
for securing services, supplies, or other property that do not cost 
more than the Simplified

[[Page 75914]]

Acquisition Threshold. If small purchase procedures are used, price or 
rate quotations must be obtained from an adequate number of qualified 
sources.
    (c) Procurement by sealed bids (formal advertising). Bids are 
publicly solicited and a firm fixed price contract (lump sum or unit 
price) is awarded to the responsible bidder whose bid, conforming with 
all the material terms and conditions of the invitation for bids, is 
the lowest in price. The sealed bid method is the preferred method for 
procuring construction, if the conditions in paragraph (c)(1) of this 
section apply.
    (1) In order for sealed bidding to be feasible, the following 
conditions should be present:
    (i) A complete, adequate, and realistic specification or purchase 
description is available;
    (ii) Two or more responsible bidders are willing and able to 
compete effectively for the business; and
    (iii) The procurement lends itself to a firm fixed price contract 
and the selection of the successful bidder can be made principally on 
the basis of price.
    (2) If sealed bids are used, the following requirements apply:
    (i) Bids must be solicited from an adequate number of known 
suppliers, providing them sufficient response time prior to the date 
set for opening the bids, for state, local, and tribal governments, the 
invitation for bids must be publically advertised;
    (ii) The invitation for bids, which will include any specifications 
and pertinent attachments, must define the items or services in order 
for the bidder to properly respond;
    (iii) All bids will be opened at the time and place prescribed in 
the invitation for bids, for state, local, and tribal governments, the 
bids must be opened publically;
    (iv) A firm fixed price contract award will be made in writing to 
the lowest responsive and responsible bidder. Where specified in 
bidding documents, factors such as discounts, transportation cost, and 
life cycle costs must be considered in determining which bid is lowest. 
Payment discounts will only be used to determine the low bid when prior 
experience indicates that such discounts are usually taken advantage 
of; and
    (v) Any or all bids may be rejected if there is a sound documented 
reason.
    (d) Procurement by competitive proposals. The technique of 
competitive proposals is normally conducted with more than one source 
submitting an offer, and either a fixed price or cost-reimbursement 
type contract is awarded. It is generally used when conditions are not 
appropriate for the use of sealed bids. If this method is used, the 
following requirements apply:
    (1) Requests for proposals must be publicized and identify all 
evaluation factors and their relative importance. Any response to 
publicized requests for proposals must be considered to the maximum 
extent practical;
    (2) Proposals must be solicited from an adequate number of 
qualified sources;
    (3) The non-Federal entity must have a written method for 
conducting technical evaluations of the proposals received and for 
selecting recipients;
    (4) Contracts must be awarded to the responsible firm whose 
proposal is most advantageous to the program, with price and other 
factors considered; and
    (5) The non-Federal entity may use competitive proposal procedures 
for qualifications-based procurement of architectural/engineering (A/E) 
professional services whereby competitors' qualifications are evaluated 
and the most qualified competitor is selected, subject to negotiation 
of fair and reasonable compensation. The method, where price is not 
used as a selection factor, can only be used in procurement of A/E 
professional services. It cannot be used to purchase other types of 
services though A/E firms are a potential source to perform the 
proposed effort.
    (e) [Reserved]
    (f) Procurement by noncompetitive proposals. Procurement by 
noncompetitive proposals is procurement through solicitation of a 
proposal from only one source and may be used only when one or more of 
the following circumstances apply:
    (1) The item is available only from a single source;
    (2) The public exigency or emergency for the requirement will not 
permit a delay resulting from competitive solicitation;
    (3) The HHS awarding agency or pass-through entity expressly 
authorizes noncompetitive proposals in response to a written request 
from the non-Federal entity; or
    (4) After solicitation of a number of sources, competition is 
determined inadequate.


Sec.  75.330  Contracting with small and minority businesses, women's 
business enterprises, and labor surplus area firms.

    (a) The non-Federal entity must take all necessary affirmative 
steps to assure that minority businesses, women's business enterprises, 
and labor surplus area firms are used when possible.
    (b) Affirmative steps must include:
    (1) Placing qualified small and minority businesses and women's 
business enterprises on solicitation lists;
    (2) Assuring that small and minority businesses, and women's 
business enterprises are solicited whenever they are potential sources;
    (3) Dividing total requirements, when economically feasible, into 
smaller tasks or quantities to permit maximum participation by small 
and minority businesses, and women's business enterprises;
    (4) Establishing delivery schedules, where the requirement permits, 
which encourage participation by small and minority businesses, and 
women's business enterprises;
    (5) Using the services and assistance, as appropriate, of such 
organizations as the Small Business Administration and the Minority 
Business Development Agency of the Department of Commerce; and
    (6) Requiring the prime contractor, if subcontracts are to be let, 
to take the affirmative steps listed in paragraphs (b)(1) through (5) 
of this section.


Sec.  75.331  Procurement of recovered materials.

    A non-Federal entity that is a state agency or agency of a 
political subdivision of a state and its contractors must comply with 
section 6002 of the Solid Waste Disposal Act, as amended by the 
Resource Conservation and Recovery Act. The requirements of Section 
6002 include procuring only items designated in guidelines of the 
Environmental Protection Agency (EPA) at 40 CFR part 247 that contain 
the highest percentage of recovered materials practicable, consistent 
with maintaining a satisfactory level of competition, where the 
purchase price of the item exceeds $10,000 or the value of the quantity 
acquired during the preceding fiscal year exceeded $10,000; procuring 
solid waste management services in a manner that maximizes energy and 
resource recovery; and establishing an affirmative procurement program 
for procurement of recovered materials identified in the EPA 
guidelines.


Sec.  75.332  Contract cost and price.

    (a) The non-Federal entity must perform a cost or price analysis in 
connection with every procurement action in excess of the Simplified 
Acquisition Threshold including contract modifications. The method and 
degree of analysis is dependent on the facts surrounding the particular 
procurement situation, but as a starting point, the non-Federal entity 
must make

[[Page 75915]]

independent estimates before receiving bids or proposals.
    (b) The non-Federal entity must negotiate profit as a separate 
element of the price for each contract in which there is no price 
competition and in all cases where cost analysis is performed. To 
establish a fair and reasonable profit, consideration must be given to 
the complexity of the work to be performed, the risk borne by the 
contractor, the contractor's investment, the amount of subcontracting, 
the quality of its record of past performance, and industry profit 
rates in the surrounding geographical area for similar work.
    (c) Costs or prices based on estimated costs for contracts under 
the Federal award are allowable only to the extent that costs incurred 
or cost estimates included in negotiated prices would be allowable for 
the non-Federal entity under Subpart E of this part. The non-Federal 
entity may reference its own cost principles that comply with the 
Federal cost principles.
    (d) The cost plus a percentage of cost and percentage of 
construction cost methods of contracting must not be used.


Sec.  75.333  HHS awarding agency or pass-through entity review.

    (a) The non-Federal entity must make available, upon request of the 
HHS awarding agency or pass-through entity, technical specifications on 
proposed procurements where the HHS awarding agency or pass-through 
entity believes such review is needed to ensure that the item or 
service specified is the one being proposed for acquisition. This 
review generally will take place prior to the time the specification is 
incorporated into a solicitation document. However, if the non-Federal 
entity desires to have the review accomplished after a solicitation has 
been developed, the HHS awarding agency or pass-through entity may 
still review the specifications, with such review usually limited to 
the technical aspects of the proposed purchase.
    (b) The non-Federal entity must make available upon request, for 
the HHS awarding agency or pass-through entity pre-procurement review, 
procurement documents, such as requests for proposals or invitations 
for bids, or independent cost estimates, when:
    (1) The non-Federal entity's procurement procedures or operation 
fails to comply with the procurement standards in this part;
    (2) The procurement is expected to exceed the Simplified 
Acquisition Threshold and is to be awarded without competition or only 
one bid or offer is received in response to a solicitation;
    (3) The procurement, which is expected to exceed the Simplified 
Acquisition Threshold, specifies a ``brand name'' product;
    (4) The proposed contract is more than the Simplified Acquisition 
Threshold and is to be awarded to other than the apparent low bidder 
under a sealed bid procurement; or
    (5) A proposed contract modification changes the scope of a 
contract or increases the contract amount by more than the Simplified 
Acquisition Threshold.
    (c) The non-Federal entity is exempt from the pre-procurement 
review in paragraph (b) of this section if the HHS awarding agency or 
pass-through entity determines that its procurement systems comply with 
the standards of this part.
    (1) The non-Federal entity may request that its procurement system 
be reviewed by the HHS awarding agency or pass-through entity to 
determine whether its system meets these standards in order for its 
system to be certified. Generally, these reviews must occur where there 
is continuous high-dollar funding, and third party contracts are 
awarded on a regular basis;
    (2) The non-Federal entity may self-certify its procurement system. 
Such self-certification must not limit the HHS awarding agency's right 
to survey the system. Under a self-certification procedure, the HHS 
awarding agency may rely on written assurances from the non-Federal 
entity that it is complying with these standards. The non-Federal 
entity must cite specific policies, procedures, regulations, or 
standards as being in compliance with these requirements and have its 
system available for review.


Sec.  75.334  Bonding requirements.

    For construction or facility improvement contracts or subcontracts 
exceeding the Simplified Acquisition Threshold, the HHS awarding agency 
or pass-through entity may accept the bonding policy and requirements 
of the non-Federal entity provided that the HHS awarding agency or 
pass-through entity has made a determination that the Federal interest 
is adequately protected. If such a determination has not been made, the 
minimum requirements must be as follows:
    (a) A bid guarantee from each bidder equivalent to five percent of 
the bid price. The ``bid guarantee'' must consist of a firm commitment 
such as a bid bond, certified check, or other negotiable instrument 
accompanying a bid as assurance that the bidder will, upon acceptance 
of the bid, execute such contractual documents as may be required 
within the time specified.
    (b) A performance bond on the part of the contractor for 100 
percent of the contract price. A ``performance bond'' is one executed 
in connection with a contract to secure fulfillment of all the 
contractor's obligations under such contract.
    (c) A payment bond on the part of the contractor for 100 percent of 
the contract price. A ``payment bond'' is one executed in connection 
with a contract to assure payment as required by law of all persons 
supplying labor and material in the execution of the work provided for 
in the contract.
    (d) Where bonds are required in the situations described herein, 
the bonds shall be obtained from companies holding certificates of 
authority as acceptable sureties pursuant to 31 CFR part 223.


Sec.  75.335  Contract provisions.

    The non-Federal entity's contracts must contain the applicable 
provisions described in Appendix II to this part.


Sec.  75.336-Sec.  75.340  [Reserved]

Performance and Financial Monitoring and Reporting


Sec.  75.341  Financial reporting.

    Unless otherwise approved by OMB, the HHS awarding agency may 
solicit only the standard, OMB-approved government-wide data elements 
for collection of financial information (at time of publication the 
Federal Financial Report or such future collections as may be approved 
by OMB and listed on the OMB Web site). This information must be 
collected with the frequency required by the terms and conditions of 
the Federal award, but no less frequently than annually nor more 
frequently than quarterly except in unusual circumstances, for example 
where more frequent reporting is necessary for the effective monitoring 
of the Federal award or could significantly affect program outcomes, 
and preferably in coordination with performance reporting.


Sec.  75.342  Monitoring and reporting program performance.

    (a) Monitoring by the non-Federal entity. The non-Federal entity is 
responsible for oversight of the operations of the Federal award 
supported activities. The non-Federal entity must monitor its 
activities under Federal awards to assure compliance with applicable 
Federal requirements and performance expectations are being achieved. 
Monitoring by the non-Federal entity must cover each program, function 
or activity. See also Sec.  75.352.

[[Page 75916]]

    (b) Non-construction performance reports. The HHS awarding agency 
must use standard, OMB-approved data elements for collection of 
performance information (including performance progress reports, 
Research Performance Progress Report, or such future collections as may 
be approved by OMB and listed on the OMB Web site).
    (1) The non-Federal entity must submit performance reports at the 
interval required by the HHS awarding agency or pass-through entity to 
best inform improvements in program outcomes and productivity. 
Intervals must be no less frequent than annually nor more frequent than 
quarterly except in unusual circumstances, for example where more 
frequent reporting is necessary for the effective monitoring of the 
Federal award or could significantly affect program outcomes. Annual 
reports must be due 90 calendar days after the reporting period; 
quarterly or semiannual reports must be due 30 calendar days after the 
reporting period. Alternatively, the HHS awarding agency or pass-
through entity may require annual reports before the anniversary dates 
of multiple year Federal awards. The final performance report will be 
due 90 calendar days after the period of performance end date. If a 
justified request is submitted by a non-Federal entity, the HHS 
awarding agency may extend the due date for any performance report.
    (2) The non-Federal entity must submit performance reports using 
OMB-approved government-wide standard information collections when 
providing performance information. As appropriate in accordance with 
the above-mentioned information collections, these reports will 
contain, for each Federal award, brief information on the following 
unless other collections are approved by OMB:
    (i) A comparison of actual accomplishments to the objectives of the 
Federal award established for the period. Where the accomplishments of 
the Federal award can be quantified, a computation of the cost (for 
example, related to units of accomplishment) may be required if that 
information will be useful. Where performance trend data and analysis 
would be informative to the HHS awarding agency program, the HHS 
awarding agency should include this as a performance reporting 
requirement.
    (ii) The reasons why established goals were not met, if 
appropriate.
    (iii) Additional pertinent information including, when appropriate, 
analysis and explanation of cost overruns or high unit costs.
    (c) Construction performance reports. For the most part, onsite 
technical inspections and certified percentage of completion data are 
relied on heavily by HHS awarding agencies and pass-through entities to 
monitor progress under Federal awards and subawards for construction. 
The HHS awarding agency may require additional performance reports only 
when considered necessary.
    (d) Significant developments. Events may occur between the 
scheduled performance reporting dates that have significant impact upon 
the supported activity. In such cases, the non-Federal entity must 
inform the HHS awarding agency or pass-through entity as soon as the 
following types of conditions become known:
    (1) Problems, delays, or adverse conditions which will materially 
impair the ability to meet the objective of the Federal award. This 
disclosure must include a statement of the action taken, or 
contemplated, and any assistance needed to resolve the situation.
    (2) Favorable developments which enable meeting time schedules and 
objectives sooner or at less cost than anticipated or producing more or 
different beneficial results than originally planned.
    (e) The HHS awarding agency may make site visits as warranted by 
program needs.
    (f) The HHS awarding agency may waive any performance report 
required by this part if not needed.


Sec.  75.343  Reporting on real property.

    The HHS awarding agency or pass-through entity must require a non-
Federal entity to submit reports at least annually on the status of 
real property in which the Federal Government retains an interest, 
unless the Federal interest in the real property extends 15 years or 
longer. In those instances where the Federal interest attached is for a 
period of 15 years or more, the HHS awarding agency or pass-through 
entity, at its option, may require the non-Federal entity to report at 
various multi-year frequencies (e.g., every two years or every three 
years, not to exceed a five-year reporting period; or an HHS awarding 
agency or pass-through entity may require annual reporting for the 
first three years of a Federal award and thereafter require reporting 
every five years).


Sec.  75.344-Sec.  75.350  [Reserved]

Subrecipient Monitoring and Management


Sec.  75.351  Subrecipient and contractor determinations.

    The non-Federal entity may concurrently receive Federal awards as a 
recipient, a subrecipient, and a contractor, depending on the substance 
of its agreements with HHS awarding agencies and pass-through entities. 
Therefore, a pass-through entity must make case-by-case determinations 
whether each agreement it makes for the disbursement of Federal program 
funds casts the party receiving the funds in the role of a subrecipient 
or a contractor. The HHS awarding agency may supply and require 
recipients to comply with additional guidance to support these 
determinations provided such guidance does not conflict with this 
section.
    (a) Subrecipients. A subaward is for the purpose of carrying out a 
portion of a Federal award and creates a Federal assistance 
relationship with the subrecipient. See Sec.  75.2 Subaward. 
Characteristics which support the classification of the non-Federal 
entity as a subrecipient include when the non-Federal entity:
    (1) Determines who is eligible to receive what Federal assistance;
    (2) Has its performance measured in relation to whether objectives 
of a Federal program were met;
    (3) Has responsibility for programmatic decision making;
    (4) Is responsible for adherence to applicable Federal program 
requirements specified in the Federal award; and
    (5) In accordance with its agreement, uses the Federal funds to 
carry out a program for a public purpose specified in authorizing 
statute, as opposed to providing goods or services for the benefit of 
the pass-through entity.
    (b) Contractors. A contract is for the purpose of obtaining goods 
and services for the non-Federal entity's own use and creates a 
procurement relationship with the contractor. See Sec.  75.2 Contract. 
Characteristics indicative of a procurement relationship between the 
non-Federal entity and a contractor are when the non-Federal entity 
receiving the Federal funds:
    (1) Provides the goods and services within normal business 
operations;
    (2) Provides similar goods or services to many different 
purchasers;
    (3) Normally operates in a competitive environment;
    (4) Provides goods or services that are ancillary to the operation 
of the Federal program; and

[[Page 75917]]

    (5) Is not subject to compliance requirements of the Federal 
program as a result of the agreement, though similar requirements may 
apply for other reasons.
    (c) Use of judgment in making determination. In determining whether 
an agreement between a pass-through entity and another non-Federal 
entity casts the latter as a subrecipient or a contractor, the 
substance of the relationship is more important than the form of the 
agreement. All of the characteristics listed above may not be present 
in all cases, and the pass-through entity must use judgment in 
classifying each agreement as a subaward or a procurement contract.


Sec.  75.352  Requirements for pass-through entities.

    All pass-through entities must:
    (a) Ensure that every subaward is clearly identified to the 
subrecipient as a subaward and includes the following information at 
the time of the subaward and if any of these data elements change, 
include the changes in subsequent subaward modification. When some of 
this information is not available, the pass-through entity must provide 
the best information available to describe the Federal award and 
subaward. Required information includes:
    (1) Federal Award Identification.
    (i) Subrecipient name (which must match the name associated with 
their unique entity identifier);
    (ii) Subrecipient's unique entity identifier;
    (iii) Federal Award Identification Number (FAIN);
    (iv) Federal Award Date (see Sec.  75.2 Federal award date);
    (v) Subaward Period of Performance Start and End Date;
    (vi) Amount of Federal Funds Obligated by this action;
    (vii) Total Amount of Federal Funds Obligated to the subrecipient;
    (viii) Total Amount of the Federal Award;
    (ix) Federal award project description, as required to be 
responsive to the Federal Funding Accountability and Transparency Act 
(FFATA);
    (x) Name of HHS awarding agency, pass-through entity, and contact 
information for awarding official,
    (xi) CFDA Number and Name; the pass-through entity must identify 
the dollar amount made available under each Federal award and the CFDA 
number at time of disbursement;
    (xii) Identification of whether the award is R&D; and
    (xiii) Indirect cost rate for the Federal award (including if the 
de minimis rate is charged per Sec.  75.414).
    (2) All requirements imposed by the pass-through entity on the 
subrecipient so that the Federal award is used in accordance with 
Federal statutes, regulations and the terms and conditions of the 
Federal award.
    (3) Any additional requirements that the pass-through entity 
imposes on the subrecipient in order for the pass-through entity to 
meet its own responsibility to the HHS awarding agency including 
identification of any required financial and performance reports;
    (4) An approved federally recognized indirect cost rate negotiated 
between the subrecipient and the Federal Government or, if no such rate 
exists, either a rate negotiated between the pass-through entity and 
the subrecipient (in compliance with this part), or a de minimis 
indirect cost rate as defined in Sec.  75.414(f).
    (5) A requirement that the subrecipient permit the pass-through 
entity and auditors to have access to the subrecipient's records and 
financial statements as necessary for the pass-through entity to meet 
the requirements of this part; and
    (6) Appropriate terms and conditions concerning closeout of the 
subaward.
    (b) Evaluate each subrecipient's risk of noncompliance with Federal 
statutes, regulations, and the terms and conditions of the subaward for 
purposes of determining the appropriate subrecipient monitoring 
described in paragraphs (d) and (e) of this section, which may include 
consideration of such factors as:
    (1) The subrecipient's prior experience with the same or similar 
subawards;
    (2) The results of previous audits including whether or not the 
subrecipient receives a Single Audit in accordance with Subpart F, and 
the extent to which the same or similar subaward has been audited as a 
major program;
    (3) Whether the subrecipient has new personnel or new or 
substantially changed systems; and
    (4) The extent and results of HHS awarding agency monitoring (e.g., 
if the subrecipient also receives Federal awards directly from a HHS 
awarding agency).
    (c) Consider imposing specific subaward conditions upon a 
subrecipient if appropriate as described in Sec.  75.207.
    (d) Monitor the activities of the subrecipient as necessary to 
ensure that the subaward is used for authorized purposes, in compliance 
with Federal statutes, regulations, and the terms and conditions of the 
subaward; and that subaward performance goals are achieved. Pass-
through entity monitoring of the subrecipient must include:
    (1) Reviewing financial and performance reports required by the 
pass-through entity.
    (2) Following-up and ensuring that the subrecipient takes timely 
and appropriate action on all deficiencies pertaining to the Federal 
award provided to the subrecipient from the pass-through entity 
detected through audits, on-site reviews, and other means.
    (3) Issuing a management decision for audit findings pertaining to 
the Federal award provided to the subrecipient from the pass-through 
entity as required by Sec.  75.521.
    (e) Depending upon the pass-through entity's assessment of risk 
posed by the subrecipient (as described in paragraph (b) of this 
section), the following monitoring tools may be useful for the pass-
through entity to ensure proper accountability and compliance with 
program requirements and achievement of performance goals:
    (1) Providing subrecipients with training and technical assistance 
on program-related matters; and
    (2) Performing on-site reviews of the subrecipient's program 
operations;
    (3) Arranging for agreed-upon-procedures engagements as described 
in Sec.  75.425.
    (f) Verify that every subrecipient is audited as required by 
Subpart F of this part when it is expected that the subrecipient's 
Federal awards expended during the respective fiscal year equaled or 
exceeded the threshold set forth in Sec.  75.501.
    (g) Consider whether the results of the subrecipient's audits, on-
site reviews, or other monitoring indicate conditions that necessitate 
adjustments to the pass-through entity's own records.
    (h) Consider taking enforcement action against noncompliant 
subrecipients as described in Sec.  75.371 and in program regulations.


Sec.  75.353  Fixed amount subawards.

    With prior written approval from the HHS awarding agency, a pass-
through entity may provide subawards based on fixed amounts up to the 
Simplified Acquisition Threshold, provided that the subawards meet the 
requirements for fixed amount awards in Sec.  75.201.


Sec.  75.354-Sec.  75.360  [Reserved]

Record Retention and Access


Sec.  75.361  Retention requirements for records.

    Financial records, supporting documents, statistical records, and 
all

[[Page 75918]]

other non-Federal entity records pertinent to a Federal award must be 
retained for a period of three years from the date of submission of the 
final expenditure report or, for Federal awards that are renewed 
quarterly or annually, from the date of the submission of the quarterly 
or annual financial report, respectively, as reported to the HHS 
awarding agency or pass-through entity in the case of a subrecipient. 
HHS awarding agencies and pass-through entities must not impose any 
other record retention requirements upon non-Federal entities. The only 
exceptions are the following:
    (a) If any litigation, claim, or audit is started before the 
expiration of the 3-year period, the records must be retained until all 
litigation, claims, or audit findings involving the records have been 
resolved and final action taken.
    (b) When the non-Federal entity is notified in writing by the HHS 
awarding agency, cognizant agency for audit, oversight agency for 
audit, cognizant agency for indirect costs, or pass-through entity to 
extend the retention period.
    (c) Records for real property and equipment acquired with Federal 
funds must be retained for 3 years after final disposition.
    (d) When records are transferred to or maintained by the HHS 
awarding agency or pass-through entity, the 3-year retention 
requirement is not applicable to the non-Federal entity.
    (e) Records for program income transactions after the period of 
performance. In some cases, recipients must report program income after 
the period of performance. Where there is such a requirement, the 
retention period for the records pertaining to the earning of the 
program income starts from the end of the non-Federal entity's fiscal 
year in which the program income is earned.
    (f) Indirect cost rate proposals and cost allocations plans. This 
paragraph applies to the following types of documents and their 
supporting records: Indirect cost rate computations or proposals, cost 
allocation plans, and any similar accounting computations of the rate 
at which a particular group of costs is chargeable (such as computer 
usage chargeback rates or composite fringe benefit rates).
    (1) If submitted for negotiation. If the proposal, plan, or other 
computation is required to be submitted to the Federal Government (or 
to the pass-through entity) to form the basis for negotiation of the 
rate, then the 3-year retention period for its supporting records 
starts from the date of such submission.
    (2) If not submitted for negotiation. If the proposal, plan, or 
other computation is not required to be submitted to the Federal 
Government (or to the pass-through entity) for negotiation purposes, 
then the 3-year retention period for the proposal, plan, or computation 
and its supporting records starts from the end of the fiscal year (or 
other accounting period) covered by the proposal, plan, or other 
computation.


Sec.  75.362  Requests for transfer or records.

    The HHS awarding agency must request transfer of certain records to 
its custody from the non-Federal entity when it determines that the 
records possess long-term retention value. However, in order to avoid 
duplicate recordkeeping, the HHS awarding agency may make arrangements 
for the non-Federal entity to retain any records that are continuously 
needed for joint use.


Sec.  75.363  Methods for collection, transmission and storage of 
information.

    In accordance with Executive Order 13642, the HHS awarding agency 
and the non-Federal entity should, whenever practicable, collect, 
transmit, and store Federal award-related information in open and 
machine readable formats rather than in closed formats or on paper. The 
HHS awarding agency or pass-through entity must always provide or 
accept paper versions of Federal award-related information to and from 
the non-Federal entity upon request. If paper copies are submitted, the 
HHS awarding agency or pass-through entity must not require more than 
an original and two copies. When original records are electronic and 
cannot be altered, there is no need to create and retain paper copies. 
When original records are paper, electronic versions may be substituted 
through the use of duplication or other forms of electronic media 
provided that they are subject to periodic quality control reviews, 
provide reasonable safeguards against alteration, and remain readable.


Sec.  75.364  Access to records.

    (a) Records of non-Federal entities. The HHS awarding agency, 
Inspectors General, the Comptroller General of the United States, and 
the pass-through entity, or any of their authorized representatives, 
must have the right of access to any documents, papers, or other 
records of the non-Federal entity which are pertinent to the Federal 
award, in order to make audits, examinations, excerpts, and 
transcripts. The right also includes timely and reasonable access to 
the non-Federal entity's personnel for the purpose of interview and 
discussion related to such documents.
    (b) Only under extraordinary and rare circumstances would such 
access include review of the true name of victims of a crime. Routine 
monitoring cannot be considered extraordinary and rare circumstances 
that would necessitate access to this information. When access to the 
true name of victims of a crime is necessary, appropriate steps to 
protect this sensitive information must be taken by both the non-
Federal entity and the HHS awarding agency. Any such access, other than 
under a court order or subpoena pursuant to a bona fide confidential 
investigation, must be approved by the head of the HHS awarding agency 
or delegate.
    (c) Expiration of right of access. The rights of access in this 
section are not limited to the required retention period but last as 
long as the records are retained. HHS awarding agencies and pass-
through entities must not impose any other access requirements upon 
non-Federal entities.


Sec.  75.365  Restrictions on public access to records.

    No HHS awarding agency may place restrictions on the non-Federal 
entity that limit public access to the records of the non-Federal 
entity pertinent to a Federal award, except for protected personally 
identifiable information (PII) or when the HHS awarding agency can 
demonstrate that such records will be kept confidential and would have 
been exempted from disclosure pursuant to the Freedom of Information 
Act (5 U.S.C. 552) or controlled unclassified information pursuant to 
Executive Order 13556 if the records had belonged to the HHS awarding 
agency. The Freedom of Information Act (5 U.S.C. 552) (FOIA) does not 
apply to those records that remain under a non-Federal entity's control 
except as required under Sec.  75.322. Unless required by Federal, 
state, local, or tribal statute, non-Federal entities are not required 
to permit public access to their records. The non-Federal entity's 
records provided to a Federal agency generally will be subject to FOIA 
and applicable exemptions.


Sec.  75.366-Sec.  75.370  [Reserved]

Remedies for Noncompliance


Sec.  75.371  Remedies for noncompliance.

    If a non-Federal entity fails to comply with Federal statutes, 
regulations, or the terms and conditions of a Federal award, the HHS 
awarding agency or pass-through entity may impose additional 
conditions, as described in Sec.  75.207. If the HHS awarding agency or

[[Page 75919]]

pass-through entity determines that noncompliance cannot be remedied by 
imposing additional conditions, the HHS awarding agency or pass-through 
entity may take one or more of the following actions, as appropriate in 
the circumstances:
    (a) Temporarily withhold cash payments pending correction of the 
deficiency by the non-Federal entity or more severe enforcement action 
by the HHS awarding agency or pass-through entity.
    (b) Disallow (that is, deny both use of funds and any applicable 
matching credit for) all or part of the cost of the activity or action 
not in compliance.
    (c) Wholly or partly suspend (suspension of award activities) or 
terminate the Federal award.
    (d) Initiate suspension or debarment proceedings as authorized 
under 2 CFR part 180 and HHS awarding agency regulations at 2 CFR part 
376 (or in the case of a pass-through entity, recommend such a 
proceeding be initiated by a HHS awarding agency).
    (e) Withhold further Federal awards for the project or program.
    (f) Take other remedies that may be legally available.


Sec.  75.372  Termination.

    (a) The Federal award may be terminated in whole or in part as 
follows:
    (1) By the HHS awarding agency or pass-through entity, if a non-
Federal entity fails to comply with terms and conditions of a Federal 
award;
    (2) By the HHS awarding agency or pass-through entity for cause;
    (3) By the HHS awarding agency or pass-through entity with the 
consent of the non-Federal entity, in which case the two parties must 
agree upon the termination conditions, including the effective date 
and, in the case of partial termination, the portion to be terminated; 
or
    (4) By the non-Federal entity upon sending to the HHS awarding 
agency or pass-through entity written notification setting forth the 
reasons for such termination, the effective date, and, in the case of 
partial termination, the portion to be terminated. However, if the HHS 
awarding agency or pass-through entity determines in the case of 
partial termination that the reduced or modified portion of the Federal 
award or subaward will not accomplish the purposes for which the 
Federal award was made, the HHS awarding agency or pass-through entity 
may terminate the Federal award in its entirety.
    (b) When a Federal award is terminated or partially terminated, 
both the HHS awarding agency or pass-through entity and the non-Federal 
entity remain responsible for compliance with the requirements in 
Sec. Sec.  75.381and 75.386.


Sec.  75.373  Notification of termination requirement.

    (a) The HHS awarding agency or pass-through entity must provide to 
the non-Federal entity a notice of termination.
    (b) If the Federal award is terminated for the non-Federal entity's 
failure to comply with the Federal statutes, regulations, or terms and 
conditions of the Federal award, the notification must state that the 
termination decision may be considered in evaluating future 
applications received from the non-Federal entity.
    (c) Upon termination of a Federal award, the HHS awarding agency 
must provide the information required under FFATA to the Federal Web 
site established to fulfill the requirements of FFATA, and update or 
notify any other relevant government-wide systems or entities of any 
indications of poor performance as required by 41 U.S.C. 417b and 31 
U.S.C. 3321 and implementing guidance at 2 CFR part 77 (forthcoming at 
time of publication). See also the requirements for Suspension and 
Debarment at 2 CFR part 180.


Sec.  75.374  Opportunities to object, hearings, and appeals.

    (a) Upon taking any remedy for non-compliance, the HHS awarding 
agency must provide the non-Federal entity an opportunity to object and 
provide information and documentation challenging the suspension or 
termination action, in accordance with written processes and procedures 
published by the HHS awarding agency. The HHS awarding agency or pass-
through entity must comply with any requirements for hearings, appeals 
or other administrative proceedings to which the non-Federal entity is 
entitled under any statute or regulation applicable to the action 
involved.
    (b) See also:
    (1) 42 CFR part 50, subpart D for the Public Health Service Appeals 
Procedures,
    (2) 45 CFR part 16 for the Procedures of the Departmental Appeals 
Board, and
    (3) 45 CFR part 95, subpart A for the time limits for states to 
file claims.
    (4) 45 CFR part 95, subpart E for the State cost allocation plan 
disapprovals.


Sec.  75.375  Effects of suspension and termination.

    Costs to the non-Federal entity resulting from obligations incurred 
by the non-Federal entity during a suspension or after termination of a 
Federal award or subaward are not allowable unless the HHS awarding 
agency or pass-through entity expressly authorizes them in the notice 
of suspension or termination or subsequently. However, costs during 
suspension or after termination are allowable if:
    (a) The costs result from obligations which were properly incurred 
by the non-Federal entity before the effective date of suspension or 
termination, are not in anticipation of it; and
    (b) The costs would be allowable if the Federal award was not 
suspended or expired normally at the end of the period of performance 
in which the termination takes effect.


Sec.  75.376-Sec.  75.380  [Reserved]

Closeout


Sec.  75.381  Closeout.

    The HHS awarding agency or pass-through entity will close-out the 
Federal award when it determines that all applicable administrative 
actions and all required work of the Federal award have been completed 
by the non-Federal entity. This section specifies the actions the non-
Federal entity and HHS awarding agency or pass-through entity must take 
to complete this process at the end of the period of performance.
    (a) The non-Federal entity must submit, no later than 90 calendar 
days after the end date of the period of performance, all financial, 
performance, and other reports as required by the terms and conditions 
of the Federal award. The HHS awarding agency or pass-through entity 
may approve extensions when requested by the non-Federal entity.
    (b) Unless the HHS awarding agency or pass-through entity 
authorizes an extension, a non-Federal entity must liquidate all 
obligations incurred under the Federal award not later than 90 calendar 
days after the end date of the period of performance as specified in 
the terms and conditions of the Federal award.
    (c) The HHS awarding agency or pass-through entity must make prompt 
payments to the non-Federal entity for allowable reimbursable costs 
under the Federal award being closed out.
    (d) The non-Federal entity must promptly refund any balances of 
unobligated cash that the HHS awarding agency or pass-through entity 
paid in advance or paid and that are not authorized to be retained by 
the non-Federal entity for use in other projects. See OMB Circular A-
129 and see Sec.  75.391 for requirements regarding unreturned amounts 
that become delinquent debts.

[[Page 75920]]

    (e) Consistent with the terms and conditions of the Federal award, 
the HHS awarding agency or pass-through entity must make a settlement 
for any upward or downward adjustments to the Federal share of costs 
after closeout reports are received.
    (f) The non-Federal entity must account for any real and personal 
property acquired with Federal funds or received from the Federal 
Government in accordance with Sec. Sec.  75.317 through 75.323 and 
75.343.
    (g) The HHS awarding agency or pass-through entity should complete 
all closeout actions for Federal awards no later than 180 calendar days 
after receipt and acceptance of all required final reports.


Sec.  75.382-Sec.  75.385  [Reserved]

Post-Closeout Adjustments and Continuing Responsibilities


Sec.  75.386  Post-Closeout Adjustments and Continuing 
Responsibilities.

    (a) The closeout of a Federal award does not affect any of the 
following:
    (1) The right of the HHS awarding agency or pass-through entity to 
disallow costs and recover funds on the basis of a later audit or other 
review. The HHS awarding agency or pass-through entity must make any 
cost disallowance determination and notify the non-Federal entity 
within the record retention period.
    (2) The obligation of the non-Federal entity to return any funds 
due as a result of later refunds, corrections, or other transactions 
including final indirect cost rate adjustments.
    (3) Audit requirements in Subpart F of this part.
    (4) Property management and disposition requirements in Sec. Sec.  
75.317 through 75.323.
    (5) Records retention as required in Sec. Sec.  75.361 through 
75.365.
    (b) After closeout of the Federal award, a relationship created 
under the Federal award may be modified or ended in whole or in part 
with the consent of the HHS awarding agency or pass-through entity and 
the non-Federal entity, provided the responsibilities of the non-
Federal entity referred to in paragraph (a) of this section, including 
those for property management as applicable, are considered and 
provisions made for continuing responsibilities of the non-Federal 
entity, as appropriate.


Sec.  75.387-Sec.  75.390  [Reserved]

Collection of Amounts Due


Sec.  75.391  Collection of amounts due.

    (a) Any funds paid to the non-Federal entity in excess of the 
amount to which the non-Federal entity is finally determined to be 
entitled under the terms of the Federal award constitute a debt to the 
Federal Government. If not paid within 90 calendar days after demand, 
the HHS awarding agency may reduce the debt by:
    (1) Making an administrative offset against other requests for 
reimbursements;
    (2) Withholding advance payments otherwise due to the non-Federal 
entity; or
    (3) Other action permitted by Federal statute.
    (b) Except where otherwise provided by statutes or regulations, the 
HHS awarding agency will charge interest on an overdue debt in 
accordance with the Federal Claims Collection Standards (31 CFR parts 
900 through 999). The date from which interest is computed is not 
extended by litigation or the filing of any form of appeal. (See also 
HHS Claims Collection regulations at 45 CFR part 30.)

Subpart E--Cost Principles

General Provisions


Sec.  75.400  Policy guide.

    The application of these cost principles is based on the 
fundamental premises that:
    (a) The non-Federal entity is responsible for the efficient and 
effective administration of the Federal award through the application 
of sound management practices.
    (b) The non-Federal entity assumes responsibility for administering 
Federal funds in a manner consistent with underlying agreements, 
program objectives, and the terms and conditions of the Federal award.
    (c) The non-Federal entity, in recognition of its own unique 
combination of staff, facilities, and experience, has the primary 
responsibility for employing whatever form of sound organization and 
management techniques may be necessary in order to assure proper and 
efficient administration of the Federal-award.
    (d) The application of these cost principles should require no 
significant changes in the internal accounting policies and practices 
of the non-Federal entity. However, the accounting practices of the 
non-Federal entity must be consistent with these cost principles and 
support the accumulation of costs as required by the principles, and 
must provide for adequate documentation to support costs charged to the 
Federal award.
    (e) In reviewing, negotiating and approving cost allocation plans 
or indirect cost proposals, the cognizant agency for indirect costs 
should generally assure that the non-Federal entity is applying these 
cost accounting principles on a consistent basis during their review 
and negotiation of indirect cost proposals. Where wide variations exist 
in the treatment of a given cost item by the non-Federal entity, the 
reasonableness and equity of such treatments should be fully 
considered. See Sec.  75.2 Indirect (facilities & administrative (F&A)) 
costs.
    (f) For non-Federal entities that educate and engage students in 
research, the dual role of students as both trainees and employees 
(including pre- and post-doctoral staff) contributing to the completion 
of Federal awards for research must be recognized in the application of 
these principles.
    (g) The non-Federal entity may not earn or keep any profit 
resulting from Federal financial assistance, unless explicitly 
authorized by the terms and conditions of the Federal award. See also 
Sec.  75.307.


Sec.  75.401  Application.

    (a) General. These principles must be used in determining the 
allowable costs of work performed by the non-Federal entity under 
Federal awards. These principles also must be used by the non-Federal 
entity as a guide in the pricing of fixed-price contracts and 
subcontracts where costs are used in determining the appropriate price. 
The principles do not apply to:
    (1) Arrangements under which Federal financing is in the form of 
loans, scholarships, fellowships, traineeships, or other fixed amounts 
based on such items as education allowance or published tuition rates 
and fees.
    (2) For IHEs, capitation awards, which are awards based on case 
counts or number of beneficiaries according to the terms and conditions 
of the Federal award.
    (3) Fixed amount awards. See also Sec. Sec.  75.2 Fixed amount 
awards and 75.201.
    (4) Federal awards to hospitals (see Appendix IX to Part 75).
    (5) Other awards under which the non-Federal entity is not required 
to account to the Federal Government for actual costs incurred.
    (b) Federal Contract. Where a Federal contract awarded to a non-
Federal entity is subject to the Cost Accounting

[[Page 75921]]

Standards (CAS), it incorporates the applicable CAS clauses, Standards, 
and CAS administration requirements per the 48 CFR Chapter 99 and 48 
CFR part 30 (FAR Part 30). CAS applies directly to the CAS-covered 
contract and the Cost Accounting Standards at 48 CFR parts 9904 or 9905 
takes precedence over the cost principles in this Subpart E with 
respect to the allocation of costs. When a contract with a non-Federal 
entity is subject to full CAS coverage, the allowability of certain 
costs under the cost principles will be affected by the allocation 
provisions of the Cost Accounting Standards (e.g., CAS 414-48 CFR 
9904.414, and CAS 417-48 CFR 9904.417), apply rather the allowability 
provisions of Sec.  75.449. In complying with those requirements, the 
non-Federal entity's application of cost accounting practices for 
estimating, accumulating, and reporting costs for other Federal awards 
and other cost objectives under the CAS-covered contract still must be 
consistent with its cost accounting practices for the CAS-covered 
contracts. In all cases, only one set of accounting records needs to be 
maintained for the allocation of costs by the non-Federal entity.
    (c) Exemptions. Some nonprofit organizations, because of their size 
and nature of operations, can be considered to be similar to for-profit 
entities for purpose of applicability of cost principles. Such 
nonprofit organizations must operate under Federal cost principles 
applicable to for-profit entities located at 48 CFR 31.2. A listing of 
these organizations is contained in Appendix VIII to Part 75. Other 
organizations, as approved by the cognizant agency for indirect costs, 
may be added from time to time.

Basic Considerations


Sec.  75.402  Composition of Costs.

    Total cost. The total cost of a Federal award is the sum of the 
allowable direct and allocable indirect costs less any applicable 
credits.


Sec.  75.403  Factors affecting allowability of costs.

    Except where otherwise authorized by statute, costs must meet the 
following general criteria in order to be allowable under Federal 
awards:
    (a) Be necessary and reasonable for the performance of the Federal 
award and be allocable thereto under these principles.
    (b) Conform to any limitations or exclusions set forth in these 
principles or in the Federal award as to types or amount of cost items.
    (c) Be consistent with policies and procedures that apply uniformly 
to both federally-financed and other activities of the non-Federal 
entity.
    (d) 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.
    (e) Be determined in accordance with generally accepted accounting 
principles (GAAP), except, for state and local governments and Indian 
tribes only, as otherwise provided for in this part.
    (f) Not be included as a cost or used to meet cost sharing or 
matching requirements of any other federally-financed program in either 
the current or a prior period. See also Sec.  75.306(b).
    (g) Be adequately documented. See also Sec. Sec.  75.300 through 
75.309.


Sec.  75.404  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 the 
non-Federal entity is predominantly federally-funded. In determining 
reasonableness of a given cost, consideration must be given to:
    (a) Whether the cost is of a type generally recognized as ordinary 
and necessary for the operation of the non-Federal entity or the proper 
and efficient performance of the Federal award.
    (b) The restraints or requirements imposed by such factors as: 
Sound business practices; arm's-length bargaining; Federal, state, 
local, tribal, and other laws and regulations; and terms and conditions 
of the Federal award.
    (c) Market prices for comparable goods or services for the 
geographic area.
    (d) Whether the individuals concerned acted with prudence in the 
circumstances considering their responsibilities to the non-Federal 
entity, its employees, where applicable its students or membership, the 
public at large, and the Federal Government.
    (e) Whether the non-Federal entity significantly deviates from its 
established practices and policies regarding the incurrence of costs, 
which may unjustifiably increase the Federal award's cost.


Sec.  75.405  Allocable costs.

    (a) A cost is allocable to a particular Federal award or other cost 
objective if the goods or services involved are chargeable or 
assignable to that Federal award or cost objective in accordance with 
relative benefits received. This standard is met if the cost:
    (1) Is incurred specifically for the Federal award;
    (2) Benefits both the Federal award and other work of the non-
Federal entity and can be distributed in proportions that may be 
approximated using reasonable methods; and
    (3) Is necessary to the overall operation of the non-Federal entity 
and is assignable in part to the Federal award in accordance with the 
principles in this subpart.
    (b) All activities which benefit from the non-Federal entity's 
indirect (F&A) cost, including unallowable activities and donated 
services by the non-Federal entity or third parties, will receive an 
appropriate allocation of indirect costs.
    (c) Any cost allocable to a particular Federal award under the 
principles provided for in this part may not be charged to other 
Federal awards to overcome fund deficiencies, to avoid restrictions 
imposed by Federal statutes, regulations, or terms and conditions of 
the Federal awards, or for other reasons. However, this prohibition 
would not preclude the non-Federal entity from shifting costs that are 
allowable under two or more Federal awards in accordance with existing 
Federal statutes, regulations, or the terms and conditions of the 
Federal awards.
    (d) Direct cost allocation principles. If a cost benefits two or 
more projects or activities in proportions that can be determined 
without undue effort or cost, the cost must be allocated to the 
projects based on the proportional benefit. If a cost benefits two or 
more projects or activities in proportions that cannot be determined 
because of the interrelationship of the work involved, then, 
notwithstanding paragraph (c) of this section, the costs may be 
allocated or transferred to benefitted projects on any reasonable 
documented basis. Where the purchase of equipment or other capital 
asset is specifically authorized under a Federal award, the costs are 
assignable to the Federal award regardless of the use that may be made 
of the equipment or other capital asset involved when no longer needed 
for the purpose for which it was originally required. See also 
Sec. Sec.  75.317 through 75.323 and 75.439.
    (e) If the contract is subject to CAS, costs must be allocated to 
the contract pursuant to the Cost Accounting Standards. To the extent 
that CAS is applicable, the allocation of costs in accordance with CAS 
takes precedence over the allocation provisions in this part.

[[Page 75922]]

Sec.  75.406  Applicable credits.

    (a) Applicable credits refer to those receipts or reduction-of-
expenditure-type transactions that offset or reduce expense items 
allocable to the Federal award as direct or indirect (F&A) 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 non-Federal 
entity relate to allowable costs, they must 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 non-
Federal entity 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) must be recognized in 
determining the rates or amounts to be charged to the Federal award. 
(See Sec. Sec.  75.436 and 75.468, for areas of potential application 
in the matter of Federal financing of activities.)


Sec.  75.407  Prior written approval (prior approval).

    (a) Under any given Federal award, the reasonableness and 
allocability of certain items of costs may be difficult to determine. 
In order to avoid subsequent disallowance or dispute based on 
unreasonableness or non-allocability, the non-Federal entity may seek 
the prior written approval of the cognizant agency for indirect costs 
or the HHS awarding agency in advance of the incurrence of special or 
unusual costs. Prior written approval should include the timeframe or 
scope of the agreement. The absence of prior written approval on any 
element of cost will not, in itself, affect the reasonableness or 
allocability of that element, unless prior approval is specifically 
required for allowability as described under certain circumstances in 
the following sections of this part:
    (1) Sec.  75.201 Use of grant agreements (including fixed amount 
awards), cooperative agreements, and contracts, paragraph (b)(5);
    (2) Sec.  75.306 Cost sharing or matching;
    (3) Sec.  75.307 Program income;
    (4) Sec.  75.308 Revision of budget and program plans;
    (5) Sec.  75.309 Period of performance and availability of funds;
    (6) Sec.  75.318 Real property;
    (7) Sec.  75.320 Equipment;
    (8) Sec.  75.353 Fixed amount subawards;
    (9) Sec.  75.413 Direct costs, paragraph (c);
    (10) Sec.  75.430 Compensation--personal services, paragraph (h);
    (11) Sec.  75.431 Compensation--fringe benefits;
    (12) Sec.  75.438 Entertainment costs;
    (13) Sec.  75.439 Equipment and other capital expenditures;
    (14) Sec.  75.440 Exchange rates;
    (15) Sec.  75.441 Fines, penalties, damages and other settlements;
    (16) Sec.  75.442 Fund raising and investment management costs;
    (17) Sec.  75.445 Goods or services for personal use;
    (18) Sec.  75.447 Insurance and indemnification;
    (19) Sec.  75.454 Memberships, subscriptions, and professional 
activity costs, paragraph (c);
    (20) Sec.  75.455 Organization costs;
    (21) Sec.  75.456 Participant support costs;
    (22) Sec.  75.458 Pre-award costs;
    (23) Sec.  75.462 Rearrangement and reconversion costs;
    (24) Sec.  75.467 Selling and marketing costs;
    (25) Sec.  75.470 Taxes (including Value Added Tax) paragraph (c); 
and
    (26) Sec.  75.474 Travel costs.
    (b) A request by a subrecipient for prior approval will be 
addressed in writing to the recipient. The recipient will promptly 
review such request and shall approve or disapprove the request in 
writing. A recipient will not approve any budget or project revision 
which is inconsistent with the purpose or terms and conditions of the 
Federal-award to the recipient. If the revision, requested by the 
subrecipient would result in a change to the recipient's approved 
project which requires Federal prior approval, the recipient will 
obtain the HHS awarding agency's approval before approving the 
subrecipient's request.
    (c) For cost-reimbursement contracts under the FAR, the recipient 
shall obtain prior written approval in accordance with FAR 52.244-2.


Sec.  75.408  Limitation on allowance of costs.

    The Federal award may be subject to statutory requirements that 
limit the allowability of costs. When the maximum amount allowable 
under a limitation is less than the total amount determined in 
accordance with the principles in this part, the amount not recoverable 
under the Federal award may not be charged to the Federal award.


Sec.  75.409  Special considerations.

    In addition to the basic considerations regarding the allowability 
of costs highlighted in this subpart, certain sections in this subpart 
describe special considerations and requirements applicable to states, 
local governments, Indian tribes, and IHEs. In addition, certain 
provisions among the items of cost in this subpart are only applicable 
to certain types of non-Federal entities, as specified in the following 
sections:
    (a) Direct and Indirect (F&A) Costs (Sec. Sec.  75.412 through 
75.415);
    (b) Special Considerations for States, Local Governments and Indian 
Tribes (Sec. Sec.  75.416 and 75.417); and
    (c) Special Considerations for Institutions of Higher Education 
(Sec. Sec.  75.418 and 75.419).


Sec.  75.410  Collection of unallowable costs.

    Payments made for costs determined to be unallowable by either the 
HHS awarding agency, cognizant agency for indirect costs, or pass-
through entity, either as direct or indirect costs, must be refunded 
(including interest) to the Federal Government in accordance with 
instructions from the Federal agency that determined the costs are 
unallowable unless Federal statute or regulation directs otherwise. See 
also Subpart D of this part, Sec. Sec.  75.300 through 75.309.


Sec.  75.411  Adjustment of previously negotiated indirect (F&A) cost 
rates containing unallowable costs.

    (a) Negotiated indirect (F&A) cost rates based on a proposal later 
found to have included costs that:
    (1) Are unallowable as specified by Federal statutes, regulations 
or the terms and conditions of a Federal award; or
    (2) Are unallowable because they are not allocable to the Federal 
award(s), must be adjusted, or a refund must be made, in accordance 
with the requirements of this section. These adjustments or refunds are 
designed to correct the proposals used to establish the rates and do 
not constitute a reopening of the rate negotiation. The adjustments or 
refunds will be made regardless of the type of rate negotiated 
(predetermined, final, fixed, or provisional).
    (b) For rates covering a future fiscal year of the non-Federal 
entity, the unallowable costs will be removed from the indirect (F&A) 
cost pools and the rates appropriately adjusted.
    (c) For rates covering a past period, the Federal share of the 
unallowable costs will be computed for each year involved and a cash 
refund (including interest chargeable in accordance with applicable 
regulations) will be made to the Federal Government. If cash refunds 
are made for past periods covered by provisional or fixed rates, 
appropriate adjustments will be made when the

[[Page 75923]]

rates are finalized to avoid duplicate recovery of the unallowable 
costs by the Federal Government.
    (d) For rates covering the current period, either a rate adjustment 
or a refund, as described in paragraphs (b) and (c) of this section, 
must be required by the cognizant agency for indirect costs. The choice 
of method must be at the discretion of the cognizant agency for 
indirect costs, based on its judgment as to which method would be most 
practical.
    (e) The amount or proportion of unallowable costs included in each 
year's rate will be assumed to be the same as the amount or proportion 
of unallowable costs included in the base year proposal used to 
establish the rate.

Direct and Indirect (F&A) Costs


Sec.  75.412  Classification of costs.

    There is no universal rule for classifying certain costs as either 
direct or indirect (F&A) 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 incurred for the same 
purpose be treated consistently in like circumstances either as a 
direct or an indirect (F&A) cost in order to avoid possible double-
charging of Federal awards. Guidelines for determining direct and 
indirect (F&A) costs charged to Federal awards are provided in this 
subpart.


Sec.  75.413  Direct costs.

    (a) General. Direct costs are those costs that can be identified 
specifically with a particular final cost objective, such as a Federal 
award, or other internally or externally funded activity, or that can 
be directly assigned to such activities relatively easily with a high 
degree of accuracy. Costs incurred for the same purpose in like 
circumstances must be treated consistently as either direct or indirect 
(F&A) costs. See also Sec.  75.405.
    (b) Application to Federal awards. Identification with the Federal 
award rather than the nature of the goods and services involved is the 
determining factor in distinguishing direct from indirect (F&A) costs 
of Federal awards. Typical costs charged directly to a Federal award 
are the compensation of employees who work on that award, their related 
fringe benefit costs, the costs of materials and other items of expense 
incurred for the Federal award. If directly related to a specific 
award, certain costs that otherwise would be treated as indirect costs 
may also include extraordinary utility consumption, the cost of 
materials supplied from stock or services rendered by specialized 
facilities or other institutional service operations.
    (c) The salaries of administrative and clerical staff should 
normally be treated as indirect (F&A) costs. Direct charging of these 
costs may be appropriate only if all of the following conditions are 
met:
    (1) Administrative or clerical services are integral to a project 
or activity;
    (2) Individuals involved can be specifically identified with the 
project or activity;
    (3) Such costs are explicitly included in the budget or have the 
prior written approval of the Federal awarding agency; and
    (4) The costs are not also recovered as indirect costs.
    (d) Minor items. Any direct cost of minor amount may be treated as 
an indirect (F&A) cost for reasons of practicality where such 
accounting treatment for that item of cost is consistently applied to 
all Federal and non-Federal cost objectives.
    (e) The costs of certain activities are not allowable as charges to 
Federal awards. However, even though these costs are unallowable for 
purposes of computing charges to Federal awards, they nonetheless must 
be treated as direct costs for purposes of determining indirect (F&A) 
cost rates and be allocated their equitable share of the non-Federal 
entity's indirect costs if they represent activities which:
    (1) Include the salaries of personnel,
    (2) Occupy space, and
    (3) Benefit from the non-Federal entity's indirect (F&A) costs.
    (f) For nonprofit organizations, the costs of activities performed 
by the non-Federal entity primarily as a service to members, clients, 
or the general public when significant and necessary to the non-Federal 
entity's mission must be treated as direct costs whether or not 
allowable, and be allocated an equitable share of indirect (F&A) costs. 
Some examples of these types of activities include:
    (1) Maintenance of membership rolls, subscriptions, publications, 
and related functions. See also Sec.  75.454.
    (2) Providing services and information to members, legislative or 
administrative bodies, or the public. See also Sec. Sec.  75.454 and 
75.450.
    (3) Promotion, lobbying, and other forms of public relations. See 
also Sec. Sec.  75.421 and 75.450.
    (4) Conferences except those held to conduct the general 
administration of the non-Federal entity. See also Sec.  75.432.
    (5) Maintenance, protection, and investment of special funds not 
used in operation of the non-Federal entity. See also Sec.  75.442.
    (6) Administration of group benefits on behalf of members or 
clients, including life and hospital insurance, annuity or retirement 
plans, and financial aid. See also Sec.  75.431.


Sec.  75.414  Indirect (F&A) costs.

    (a) Facilities and Administration Classification. For major IHEs 
and major nonprofit organizations, indirect (F&A) costs must be 
classified within two broad categories: ``Facilities'' and 
``Administration.'' ``Facilities'' is defined as depreciation on 
buildings, equipment and capital improvement, interest on debt 
associated with certain buildings, equipment and capital improvements, 
and operations and maintenance expenses. ``Administration'' is defined 
as general administration and general expenses such as the director's 
office, accounting, personnel and all other types of expenditures not 
listed specifically under one of the subcategories of ``Facilities'' 
(including cross allocations from other pools, where applicable). For 
nonprofit organizations, library expenses are included in the 
``Administration'' category; for institutions of higher education, they 
are included in the ``Facilities'' category. Major IHEs are defined as 
those required to use the Standard Format for Submission as noted in 
Appendix III to Part 75.C. 11. Major nonprofit organizations are those 
which receive more than $10 million dollars in direct Federal funding.
    (b) Diversity of nonprofit organizations. Because of the diverse 
characteristics and accounting practices of nonprofit organizations, it 
is not possible to specify the types of cost which may be classified as 
indirect (F&A) cost in all situations. Identification with a Federal 
award rather than the nature of the goods and services involved is the 
determining factor in distinguishing direct from indirect (F&A) costs 
of Federal awards. However, typical examples of indirect (F&A) cost for 
many nonprofit organizations may include depreciation on buildings and 
equipment, the costs of operating and maintaining facilities, and 
general administration and general expenses, such as the salaries and 
expenses of executive officers, personnel administration, and 
accounting.
    (c) Federal Agency Acceptance of Negotiated Indirect Cost Rates. 
(See also Sec.  75.306.)
    (1) The negotiated rates must be accepted by all Federal awarding 
agencies. An HHS awarding agency may

[[Page 75924]]

use a rate different from the negotiated rate for a class of Federal 
awards or a single Federal award only when required by Federal statute 
or regulation, or when approved by a Federal awarding agency head or 
delegate based on documented justification as described in paragraph 
(c)(3) of this section.
    (2) The HHS awarding agency head or delegate must notify OMB of any 
approved deviations.
    (3) The HHS awarding agency must implement, and make publicly 
available, the policies, procedures and general decision making 
criteria that their programs will follow to seek and justify deviations 
from negotiated rates.
    (4) As required under Sec.  75.203(c), the HHS awarding agency must 
include in the notice of funding opportunity the policies relating to 
indirect cost rate reimbursement, matching, or cost share as approved. 
See also Appendix I.C.2 and D.6 of this part. As appropriate, the HHS 
agency should incorporate discussion of these policies into their 
outreach activities with non-Federal entities prior to the posting of a 
notice of funding opportunity.
    (d) Pass-through entities are subject to the requirements in Sec.  
75.352(a)(4).
    (e) Requirements for development and submission of indirect (F&A) 
cost rate proposals and cost allocation plans are contained in 
Appendices III-VII, and Appendix IX as follows:
    (1) Appendix III to Part 75--Indirect (F&A) Costs Identification 
and Assignment, and Rate Determination for Institutions of Higher 
Education (IHEs);
    (2) Appendix IV to Part 75--Indirect (F&A) Costs Identification and 
Assignment, and Rate Determination for Nonprofit Organizations;
    (3) Appendix V to Part 75--State/Local Government and Indian Tribe-
Wide Central Service Cost Allocation Plans;
    (4) Appendix VI to Part 75--Public Assistance Cost Allocation 
Plans;
    (5) Appendix VII to Part 75--States and Local Government and Indian 
Tribe Indirect Cost Proposals; and
    (6) Appendix IX to Part 75--Principles for Determining Costs 
Applicable to Research and Development Under Grants and Contracts with 
Hospitals.
    (f) In addition to the procedures outlined in the appendices in 
paragraph (e) of this section, any non-Federal entity that has never 
received a negotiated indirect cost rate, except for those non-Federal 
entities described in Appendix VII to part 75 (D)(1)(b) may elect to 
charge a de minimis rate of 10% of modified total direct costs (MTDC) 
which may be used indefinitely. As described in Sec.  75.403, costs 
must be consistently charged as either indirect or direct costs, but 
may not be double charged or inconsistently charged as both. If chosen, 
this methodology once elected must be used consistently for all Federal 
awards until such time as a non-Federal entity chooses to negotiate for 
a rate, which the non-Federal entity may apply to do at any time.
    (g) Any non-Federal entity that has a current federally negotiated 
indirect cost rate may apply for a one-time extension of the rates in 
that agreement for a period of up to four years. This extension will be 
subject to the review and approval of the cognizant agency for indirect 
costs. If an extension is granted the non-Federal entity may not 
request a rate review until the extension period ends. At the end of 
the 4-year extension, the non-Federal entity must re-apply to negotiate 
a rate. Subsequent one-time extensions (up to four years) are permitted 
if a renegotiation is completed between each extension request.


Sec.  75.415  Required certifications.

    Required certifications include:
    (a) To assure that expenditures are proper and in accordance with 
the terms and conditions of the Federal award and approved project 
budgets, the annual and final fiscal reports or vouchers requesting 
payment under the agreements must include a certification, signed by an 
official who is authorized to legally bind the non-Federal entity, 
which reads as follows: ``By signing this report, I certify to the best 
of my knowledge and belief that the report is true, complete, and 
accurate, and the expenditures, disbursements and cash receipts are for 
the purposes and objectives set forth in the terms and conditions of 
the Federal award. I am aware that any false, fictitious, or fraudulent 
information, or the omission of any material fact, may subject me to 
criminal, civil or administrative penalties for fraud, false 
statements, false claims or otherwise. (U.S. Code Title 18, Section 
1001 and Title 31, Sections 3729-3730 and 3801-3812).''
    (b) Certification of cost allocation plan or indirect (F&A) cost 
rate proposal. Each cost allocation plan or indirect (F&A) cost rate 
proposal must comply with the following:
    (1) A proposal to establish a cost allocation plan or an indirect 
(F&A) cost rate, whether submitted to a Federal cognizant agency for 
indirect costs or maintained on file by the non-Federal entity, must be 
certified by the non-Federal entity using the Certificate of Cost 
Allocation Plan or Certificate of Indirect Costs as set forth in 
Appendices III through VII, and Appendix IX. The certificate must be 
signed on behalf of the non-Federal entity by an individual at a level 
no lower than vice president or chief financial officer of the non-
Federal entity that submits the proposal.
    (2) Unless the non-Federal entity has elected the option under 
Sec.  75.414(f), the Federal Government may either disallow all 
indirect (F&A) costs or unilaterally establish such a plan or rate when 
the non-Federal entity fails to submit a certified proposal for 
establishing such a plan or rate in accordance with the requirements. 
Such a plan or rate 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 a cost allocation plan or 
indirect cost rate is unilaterally established by the Federal 
Government because the non-Federal entity failed to submit a certified 
proposal, the plan or rate established will be set to ensure that 
potentially unallowable costs will not be reimbursed.
    (c) Certifications by non-profit organizations as appropriate that 
they did not meet the definition of a major non-profit organization as 
defined in Sec.  75.414(a).
    (d) See also Sec.  75.450 for another required certification.

Special Considerations for States, Local Governments and Indian Tribes


Sec.  75.416  Cost allocation plans and indirect cost proposals.

    (a) For states, local governments and Indian tribes, certain 
services, such as motor pools, computer centers, purchasing, 
accounting, etc., are provided to operating agencies on a centralized 
basis. Since Federal 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.
    (b) Individual operating agencies (governmental department or 
agency), normally charge Federal awards for indirect costs through an 
indirect cost rate. A separate indirect cost rate(s) proposal for each 
operating agency is usually necessary to claim indirect costs under 
Federal-awards. Indirect costs include:
    (1) The indirect costs originating in each department or agency of 
the governmental unit carrying out Federal awards; and
    (2) The costs of central governmental services distributed through 
the central

[[Page 75925]]

service cost allocation plan and not otherwise treated as direct costs.
    (c) The requirements for development and submission of cost 
allocation plans (for central service costs and public assistance 
programs) and indirect cost rate proposals are contained in appendices 
IV, V and VI to this part.


Sec.  75.417  Interagency service.

    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-rated 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 V to this part.

Special Considerations for Institutions of Higher Education


Sec.  75.418  Costs incurred by states and local governments.

    Costs incurred or paid by a state or local government on behalf of 
its IHEs for fringe benefit programs, such as pension costs and FICA 
and any other costs specifically incurred on behalf of, and in direct 
benefit to, the IHEs, are allowable costs of such IHEs whether or not 
these costs are recorded in the accounting records of the institutions, 
subject to the following:
    (a) The costs meet the requirements of Sec. Sec.  75.402 through 
75.411;
    (b) The costs are properly supported by approved cost allocation 
plans in accordance with applicable Federal cost accounting principles 
in this part; and
    (c) The costs are not otherwise borne directly or indirectly by the 
Federal Government.


Sec.  75.419  Cost accounting standards and disclosure statement.

    (a) An IHE that receives aggregate Federal awards totaling $50 
million or more in Federal awards subject to this part in its most 
recently completed fiscal year must comply with the Cost Accounting 
Standards Board's cost accounting standards located at 48 CFR 9905.501, 
9905.502, 9905.505, and 9905.506. CAS-covered contracts awarded to the 
IHEs are subject to the CAS requirements at 48 CFR parts 9900 through 
9999 and 48 CFR part 30 (FAR Part 30).
    (b) Disclosure statement. An IHE that receives aggregate Federal 
awards totaling $50 million or more subject to this part during its 
most recently completed fiscal year must disclose its cost accounting 
practices by filing a Disclosure Statement (DS-2), which is reproduced 
in Appendix III to part 75. With the approval of the cognizant agency 
for indirect costs, an IHE may meet the DS-2 submission by submitting 
the DS-2 for each business unit that received $50 million or more in 
Federal awards.
    (1) The DS-2 must be submitted to the cognizant agency for indirect 
costs with a copy to the IHE's cognizant agency for audit.
    (2) An IHE is responsible for maintaining an accurate DS-2 and 
complying with disclosed cost accounting practices. An IHE must file 
amendments to the DS-2 to the cognizant agency for indirect costs six 
months in advance of a disclosed practice being changed to comply with 
a new or modified standard, or when a practice is changed for other 
reasons. An IHE may proceed with implementing the change only if it has 
not been notified by the Federal cognizant agency for indirect costs 
that either a longer period will be needed for review or there are 
concerns with the potential change within the six months period. 
Amendments of a DS-2 may be submitted at any time. Resubmission of a 
complete, updated DS-2 is discouraged except when there are extensive 
changes to disclosed practices.
    (3) Cost and funding adjustments. Cost adjustments must be made by 
the cognizant agency for indirect costs if an IHE fails to comply with 
the cost policies in this part or fails to consistently follow its 
established or disclosed cost accounting practices when estimating, 
accumulating or reporting the costs of Federal awards, and the 
aggregate cost impact on Federal awards is material. The cost 
adjustment must normally be made on an aggregate basis for all affected 
Federal awards through an adjustment of the IHE's future F&A costs 
rates or other means considered appropriate by the cognizant agency for 
indirect costs. Under the terms of CAS covered contracts, adjustments 
in the amount of funding provided may also be required when the 
estimated proposal costs were not determined in accordance with 
established cost accounting practices.
    (4) Overpayments. Excess amounts paid in the aggregate by the 
Federal Government under Federal awards due to a noncompliant cost 
accounting practice used to estimate, accumulate, or report costs must 
be credited or refunded, as deemed appropriate by the cognizant agency 
for indirect costs. Interest applicable to the excess amounts paid in 
the aggregate during the period of noncompliance must also be 
determined and collected in accordance with applicable HHS agency 
regulations.
    (5) Compliant cost accounting practice changes. Changes from one 
compliant cost accounting practice to another compliant practice that 
are approved by the cognizant agency for indirect costs may require 
cost adjustments if the change has a material effect on Federal awards 
and the changes are deemed appropriate by the cognizant agency for 
indirect costs.
    (6) Responsibilities. The cognizant agency for indirect cost must:
    (i) Determine cost adjustments for all Federal awards in the 
aggregate on behalf of the Federal Government. Actions of the cognizant 
agency for indirect cost in making cost adjustment determinations must 
be coordinated with all affected HHS awarding agencies to the extent 
necessary.
    (ii) Prescribe guidelines and establish internal procedures to 
promptly determine on behalf of the Federal Government that a DS-2 
adequately discloses the IHE's cost accounting practices and that the 
disclosed practices are compliant with applicable CAS and the 
requirements of this part.
    (iii) Distribute to all affected Federal awarding agencies any DS-2 
determination of adequacy or noncompliance.

General Provisions for Selected Items of Cost


Sec.  75.420  Considerations for selected items of cost.

    This section provides principles to be applied in establishing the 
allowability of certain items involved in determining cost, in addition 
to the requirements of Sec. Sec.  75.402 through 75.411. These 
principles apply whether or not a particular item of cost is properly 
treated as direct cost or indirect (F&A) cost. Failure to mention a 
particular item of cost is not intended to imply that it is either 
allowable or unallowable; rather, determination as to allowability in 
each case should be based on the treatment provided for similar or 
related items of cost, and based on the principles described in 
Sec. Sec.  75.402 through 75.411. In case of a discrepancy between the 
provisions of a specific Federal award and the provisions below, the 
Federal award governs. Criteria outlined in Sec.  75.403 must be 
applied in determining allowability. See also Sec.  75.102.


Sec.  75.421  Advertising and public relations.

    (a) The term advertising costs means the costs of advertising media 
and

[[Page 75926]]

corollary administrative costs. Advertising media include magazines, 
newspapers, radio and television, direct mail, exhibits, electronic or 
computer transmittals, and the like.
    (b) The only allowable advertising costs are those which are solely 
for:
    (1) The recruitment of personnel required by the non-Federal entity 
for performance of a Federal award (See also Sec.  75.463);
    (2) The procurement of goods and services for the performance of a 
Federal award;
    (3) The disposal of scrap or surplus materials acquired in the 
performance of a Federal award except when non-Federal entities are 
reimbursed for disposal costs at a predetermined amount; or
    (4) Program outreach and other specific purposes necessary to meet 
the requirements of the Federal award.
    (c) The term ``public relations'' includes community relations and 
means those activities dedicated to maintaining the image of the non-
Federal entity or maintaining or promoting understanding and favorable 
relations with the community or public at large or any segment of the 
public.
    (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 
the Federal award (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 to keep 
the public informed on matters of public concern, such as notices of 
funding opportunities, financial matters, etc.
    (e) Unallowable advertising and public relations costs include the 
following:
    (1) All advertising and public relations costs other than as 
specified in paragraphs (b) and (d) of this section;
    (2) Costs of meetings, conventions, convocations, or other events 
related to other activities of the entity (see also Sec.  75.432), 
including:
    (i) Costs of displays, demonstrations, and exhibits;
    (ii) Costs of meeting rooms, hospitality suites, and other special 
facilities used in conjunction with shows and other special events; and
    (iii) Salaries and wages of employees engaged in setting up and 
displaying exhibits, making demonstrations, and providing briefings;
    (3) Costs of promotional items and memorabilia, including models, 
gifts, and souvenirs;
    (4) Costs of advertising and public relations designed solely to 
promote the non-Federal entity.


Sec.  75.422  Advisory councils.

    Costs incurred by advisory councils or committees are unallowable 
unless authorized by statute, the HHS awarding agency or as an indirect 
cost where allocable to Federal awards. See Sec.  75.444, applicable to 
states, local governments and Indian tribes.


Sec.  75.423  Alcoholic beverages.

    Costs of alcoholic beverages are unallowable.


Sec.  75.424  Alumni/ae activities.

    Costs incurred by IHEs for, or in support of, alumni/ae activities 
are unallowable.


Sec.  75.425  Audit services.

    (a) A reasonably proportionate share of the costs of audits 
required by, and performed in accordance with, the Single Audit Act 
Amendments of 1996 (31 U.S.C. 7501-7507), as implemented by 
requirements of this part, are allowable. However, the following audit 
costs are unallowable:
    (1) Any costs when audits required by the Single Audit Act and 
Subpart F of this part--have not been conducted or have been conducted 
but not in accordance therewith; and
    (2) Any costs of auditing a non-Federal entity that is exempted 
from having an audit conducted under the Single Audit Act and Subpart F 
of this part because its expenditures under Federal awards are less 
than $750,000 during the non-Federal entity's fiscal year.
    (b) The costs of a financial statement audit of a non-Federal 
entity that does not currently have a Federal award may be included in 
the indirect cost pool for a cost allocation plan or indirect cost 
proposal.
    (c) Pass-through entities may charge Federal awards for the cost of 
agreed-upon-procedures engagements to monitor subrecipients (in 
accordance with Subpart D of this part, Sec. Sec.  75.351 through 
75.353) which are exempted from the requirements of the Single Audit 
Act and Subpart F of this part. This cost is allowable only if the 
agreed-upon-procedures engagements are:
    (1) Conducted in accordance with GAGAS attestation standards;
    (2) Paid for and arranged by the pass-through entity; and
    (3) Limited in scope to one or more of the following types of 
compliance requirements: activities allowed or unallowed; allowable 
costs/cost principles; eligibility; and reporting.


Sec.  75.426  Bad debts.

    Bad debts (debts which have been determined to be uncollectable), 
including losses (whether actual or estimated) arising from 
uncollectable accounts and other claims, are unallowable. Related 
collection costs, and related legal costs, arising from such debts 
after they have been determined to be uncollectable are also 
unallowable. See also Sec.  75.428.


Sec.  75.427  Bonding costs.

    (a) Bonding costs arise when the HHS awarding agency requires 
assurance against financial loss to itself or others by reason of the 
act or default of the non-Federal entity. They arise also in instances 
where the non-Federal entity requires similar assurance, including: 
Bonds as bid, performance, payment, advance payment, infringement, and 
fidelity bonds for employees and officials.
    (b) Costs of bonding required pursuant to the terms and conditions 
of the Federal award are allowable.
    (c) Costs of bonding required by the non-Federal entity in the 
general conduct of its operations are allowable as an indirect cost to 
the extent that such bonding is in accordance with sound business 
practice and the rates and premiums are reasonable under the 
circumstances.


Sec.  75.428  Collections of improper payments.

    The costs incurred by a non-Federal entity to recover improper 
payments are allowable as either direct or indirect costs, as 
appropriate. Amounts collected may be used by the non-Federal entity in 
accordance with cash management standards set forth in Sec.  75.305.


Sec.  75.429  Commencement and convocation costs.

    For IHEs, costs incurred for commencements and convocations are 
unallowable, except as provided for in Appendix III.B.9, as student 
activity costs.


Sec.  75.430  Compensation--personal services.

    (a) General. Compensation for personal services includes all 
remuneration, paid currently or accrued, for services of employees 
rendered during the period of performance under the Federal award, 
including but not necessarily limited to wages and salaries. 
Compensation for

[[Page 75927]]

personal services may also include fringe benefits which are addressed 
in Sec.  75.431. Costs of compensation are allowable to the extent that 
they satisfy the specific requirements of this part, and that the total 
compensation for individual employees:
    (1) Is reasonable for the services rendered and conforms to the 
established written policy of the non-Federal entity consistently 
applied to both Federal and non-Federal activities;
    (2) Follows an appointment made in accordance with a non-Federal 
entity's laws and/or rules or written policies and meets the 
requirements of Federal statute, where applicable; and
    (3) Is determined and supported as provided in paragraph (i) of 
this section, when applicable.
    (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 
non-Federal entity. In cases where the kinds of employees required for 
Federal awards are not found in the other activities of the non-Federal 
entity, 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 non-Federal entity competes for the kind of employees 
involved.
    (c) Professional activities outside the non-Federal entity. Unless 
an arrangement is specifically authorized by an HHS awarding agency, a 
non-Federal entity must follow its written non-Federal entity-wide 
policies and practices concerning the permissible extent of 
professional services that can be provided outside the non-Federal 
entity for non-organizational compensation. Where such non-Federal 
entity-wide written policies do not exist or do not adequately define 
the permissible extent of consulting or other non-organizational 
activities undertaken for extra outside pay, the Federal Government may 
require that the effort of professional staff working on Federal awards 
be allocated between:
    (1) Non-Federal entity activities, and
    (2) Non-organizational professional activities. If the HHS awarding 
agency considers the extent of non-organizational professional effort 
excessive or inconsistent with the conflicts-of-interest terms and 
conditions of the Federal award, appropriate arrangements governing 
compensation will be negotiated on a case-by-case basis.
    (d) Unallowable costs. (1) Costs which are unallowable under other 
sections of these principles must not be allowable under this section 
solely on the basis that they constitute personnel compensation.
    (2) The allowable compensation for certain employees is subject to 
a ceiling in accordance with statute. For the amount of the ceiling for 
cost-reimbursement contracts, the covered compensation subject to the 
ceiling, the covered employees, and other relevant provisions, see 10 
U.S.C. 2324(e)(1)(P), and 41 U.S.C. 1127 and 4304(a)(16). For other 
types of Federal awards, other statutory ceilings may apply.
    (e) Special considerations. Special considerations in determining 
allowability of compensation will be given to any change in a non-
Federal entity's compensation policy resulting in a substantial 
increase in its employees' level of compensation (particularly when the 
change was concurrent with an increase in the ratio of Federal awards 
to other activities) or any change in the treatment of allowability of 
specific types of compensation due to changes in Federal policy.
    (f) Incentive compensation. Incentive compensation to employees 
based on cost reduction, or efficient performance, suggestion awards, 
safety awards, etc., is allowable to the extent that the overall 
compensation is determined to be reasonable and such costs are paid or 
accrued pursuant to an agreement entered into in good faith between the 
non-Federal entity and the employees before the services were rendered, 
or pursuant to an established plan followed by the non-Federal entity 
so consistently as to imply, in effect, an agreement to make such 
payment.
    (g) Nonprofit organizations. For compensation to members of 
nonprofit organizations, trustees, directors, associates, officers, or 
the immediate families thereof, determination must be made that such 
compensation is reasonable for the actual personal services rendered 
rather than a distribution of earnings in excess of costs. This may 
include director's and executive committee member's fees, incentive 
awards, allowances for off-site pay, incentive pay, location 
allowances, hardship pay, and cost-of-living differentials.
    (h) Institutions of higher education (IHEs). (1) Certain conditions 
require special consideration and possible limitations in determining 
allowable personnel compensation costs under Federal awards. Among such 
conditions are the following:
    (i) Allowable activities. Charges to Federal awards may include 
reasonable amounts for activities contributing and directly related to 
work under an agreement, such as delivering special lectures about 
specific aspects of the ongoing activity, writing reports and articles, 
developing and maintaining protocols (human, animals, etc.), managing 
substances/chemicals, managing and securing project-specific data, 
coordinating research subjects, participating in appropriate seminars, 
consulting with colleagues and graduate students, and attending 
meetings and conferences.
    (ii) Incidental activities. Incidental activities for which 
supplemental compensation is allowable under written institutional 
policy (at a rate not to exceed institutional base salary) need not be 
included in the records described in paragraph (i) of this section to 
directly charge payments of incidental activities, such activities must 
either be specifically provided for in the Federal award budget or 
receive prior written approval by the HHS awarding agency.
    (2) Salary basis. Charges for work performed on Federal awards by 
faculty members during the academic year are allowable at the IBS rate. 
Except as noted in paragraph (h)(1)(ii) of this section, in no event 
will charges to Federal awards, irrespective of the basis of 
computation, exceed the proportionate share of the IBS for that period. 
This principle applies to all members of faculty at an institution. IBS 
is defined as the annual compensation paid by an IHE for an 
individual's appointment, whether that individual's time is spent on 
research, instruction, administration, or other activities. IBS 
excludes any income that an individual earns outside of duties 
performed for the IHE. Unless there is prior approval by the HHS 
awarding agency, charges of a faculty member's salary to a Federal 
award must not exceed the proportionate share of the IBS for the period 
during which the faculty member worked on the award.
    (3) Intra-Institution of Higher Education (IHE) consulting. Intra-
IHE consulting by faculty is assumed to be undertaken as an IHE 
obligation requiring no compensation in addition to IBS. However, in 
unusual cases where consultation is across departmental lines or 
involves a separate or remote operation, and the work performed by the 
faculty member is in addition to his or her regular responsibilities, 
any charges for such work representing additional compensation above 
IBS are allowable provided that such consulting arrangements are 
specifically provided for in the Federal award or approved in writing 
by the HHS awarding agency.
    (4) Extra Service Pay normally represents overload compensation, 
subject to institutional compensation

[[Page 75928]]

policies for services above and beyond IBS. Where extra service pay is 
a result of Intra-IHE consulting, it is subject to the same 
requirements of paragraph (b) above. It is allowable if all of the 
following conditions are met:
    (i) The non-Federal entity establishes consistent written policies 
which apply uniformly to all faculty members, not just those working on 
Federal awards.
    (ii) The non-Federal entity establishes a consistent written 
definition of work covered by IBS which is specific enough to determine 
conclusively when work beyond that level has occurred. This may be 
described in appointment letters or other documentations.
    (iii) The supplementation amount paid is commensurate with the IBS 
rate of pay and the amount of additional work performed. See paragraph 
(h)(2) of this section.
    (iv) The salaries, as supplemented, fall within the salary 
structure and pay ranges established by and documented in writing or 
otherwise applicable to the non-Federal entity.
    (v) The total salaries charged to Federal awards including extra 
service pay are subject to the Standards of Documentation as described 
in paragraph (i) of this section.
    (5) Periods outside the academic year. (i) Except as specified for 
teaching activity in paragraph (h)(5)(ii) of this section, charges for 
work performed by faculty members on Federal awards during periods not 
included in the base salary period will be at a rate not in excess of 
the IBS.
    (ii) Charges for teaching activities performed by faculty members 
on Federal awards during periods not included in IBS period will be 
based on the normal written policy of the IHE governing compensation to 
faculty members for teaching assignments during such periods.
    (6) Part-time faculty. Charges for work performed on Federal awards 
by faculty members having only part-time appointments will be 
determined at a rate not in excess of that regularly paid for part-time 
assignments.
    (7) Sabbatical leave costs. Rules for sabbatical leave are as 
follow:
    (i) Costs of leaves of absence by employees for performance of 
graduate work or sabbatical study, travel, or research are allowable 
provided the IHE has a uniform written policy on sabbatical leave for 
persons engaged in instruction and persons engaged in research. Such 
costs will be allocated on an equitable basis among all related 
activities of the IHE.
    (ii) Where sabbatical leave is included in fringe benefits for 
which a cost is determined for assessment as a direct charge, the 
aggregate amount of such assessments applicable to all work of the 
institution during the base period must be reasonable in relation to 
the IHE's actual experience under its sabbatical leave policy.
    (8) Salary rates for non-faculty members. Non-faculty full-time 
professional personnel may also earn ``extra service pay'' in 
accordance with the non-Federal entity's written policy and consistent 
with paragraph (h)(1)(i) of this section.
    (i) Standards for Documentation of Personnel Expenses (1) Charges 
to Federal awards for salaries and wages must be based on records that 
accurately reflect the work performed. These records must:
    (i) Be supported by a system of internal control which provides 
reasonable assurance that the charges are accurate, allowable, and 
properly allocated;
    (ii) Be incorporated into the official records of the non-Federal 
entity;
    (iii) Reasonably reflect the total activity for which the employee 
is compensated by the non-Federal entity, not exceeding 100% of 
compensated activities (for IHE, this per the IHE's definition of IBS);
    (iv) Encompass both federally assisted and all other activities 
compensated by the non-Federal entity on an integrated basis, but may 
include the use of subsidiary records as defined in the non-Federal 
entity's written policy;
    (v) Comply with the established accounting policies and practices 
of the non-Federal entity (See paragraph (h)(1)(ii) of this section for 
treatment of incidental work for IHEs.); and
    (vi) [Reserved]
    (vii) Support the distribution of the employee's salary or wages 
among specific activities or cost objectives if the employee works on 
more than one Federal award; a Federal award and non-Federal award; an 
indirect cost activity and a direct cost activity; two or more indirect 
activities which are allocated using different allocation bases; or an 
unallowable activity and a direct or indirect cost activity.
    (viii) Budget estimates (i.e., estimates determined before the 
services are performed) alone do not qualify as support for charges to 
Federal awards, but may be used for interim accounting purposes, 
provided that:
    (A) The system for establishing the estimates produces reasonable 
approximations of the activity actually performed;
    (B) Significant changes in the corresponding work activity (as 
defined by the non-Federal entity's written policies) are identified 
and entered into the records in a timely manner. Short term (such as 
one or two months) fluctuation between workload categories need not be 
considered as long as the distribution of salaries and wages is 
reasonable over the longer term; and
    (C) The non-Federal entity's system of internal controls includes 
processes to review after-the-fact interim charges made to a Federal 
awards based on budget estimates. All necessary adjustment must be made 
such that the final amount charged to the Federal award is accurate, 
allowable, and properly allocated.
    (ix) Because practices vary as to the activity constituting a full 
workload (for IHEs, IBS), records may reflect categories of activities 
expressed as a percentage distribution of total activities.
    (x) It is recognized that teaching, research, service, and 
administration are often inextricably intermingled in an academic 
setting. When recording salaries and wages charged to Federal awards 
for IHEs, a precise assessment of factors that contribute to costs is 
therefore not always feasible, nor is it expected.
    (2) For records which meet the standards required in paragraph 
(i)(1) of this section, the non-Federal entity will not be required to 
provide additional support or documentation for the work performed, 
other than that referenced in paragraph (i)(3) of this section.
    (3) In accordance with Department of Labor regulations implementing 
the Fair Labor Standards Act (FLSA) (29 CFR part 516), charges for the 
salaries and wages of nonexempt employees, in addition to the 
supporting documentation described in this section, must also be 
supported by records indicating the total number of hours worked each 
day.
    (4) Salaries and wages of employees used in meeting cost sharing or 
matching requirements on Federal awards must be supported in the same 
manner as salaries and wages claimed for reimbursement from Federal 
awards.
    (5) For states, local governments and Indian tribes, substitute 
processes or systems for allocating salaries and wages to Federal 
awards may be used in place of or in addition to the records described 
in paragraph (i)(1) of this section if approved by the cognizant agency 
for indirect cost. Such systems may include, but are not limited to, 
random moment sampling, ``rolling'' time studies, case counts, or other 
quantifiable measures of work performed.
    (i) Substitute systems which use sampling methods (primarily for 
Temporary Assistance for Needy

[[Page 75929]]

Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), 
Medicaid, and other public assistance programs) must meet acceptable 
statistical sampling standards including:
    (A) 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 paragraph (i)(5)(iii) of this section;
    (B) The entire time period involved must be covered by the sample; 
and
    (C) The results must be statistically valid and applied to the 
period being sampled.
    (ii) Allocating charges for the sampled employees' supervisors, 
clerical and support staffs, based on the results of the sampled 
employees, will be acceptable.
    (iii) Less than full compliance with the statistical sampling 
standards noted in paragraph (i)(5)(i) of this section may be accepted 
by the cognizant agency for indirect costs 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 non-Federal entity will 
result in lower costs to Federal awards than a system which complies 
with the standards.
    (6) Cognizant agencies for indirect costs are encouraged to approve 
alternative proposals based on outcomes and milestones for program 
performance where these are clearly documented. Where approved by the 
Federal cognizant agency for indirect costs, these plans are acceptable 
as an alternative to the requirements of paragraph (i)(1) of this 
section.
    (7) For Federal awards of similar purpose activity or instances of 
approved blended funding, a non-Federal entity may submit performance 
plans that incorporate funds from multiple Federal awards and account 
for their combined use based on performance-oriented metrics, provided 
that such plans are approved in advance by all involved HHS awarding 
agencies. In these instances, the non-Federal entity must submit a 
request for waiver of the requirements based on documentation that 
describes the method of charging costs, relates the charging of costs 
to the specific activity that is applicable to all fund sources, and is 
based on quantifiable measures of the activity in relation to time 
charged.
    (8) For a non-Federal entity where the records do not meet the 
standards described in this section, the Federal Government may require 
personnel activity reports, including prescribed certifications, or 
equivalent documentation that support the records as required in this 
section.


Sec.  75.431  Compensation--fringe benefits.

    (a) Fringe benefits are allowances and services provided by 
employers to their employees as compensation in addition to regular 
salaries and wages. Fringe benefits include, but are not limited to, 
the costs of leave (vacation, family-related, sick or military), 
employee insurance, pensions, and unemployment benefit plans. Except as 
provided elsewhere in these principles, the costs of fringe benefits 
are allowable provided that the benefits are reasonable and are 
required by law, non-Federal entity-employee agreement, or an 
established policy of the non-Federal entity.
    (b) Leave. 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, family-related leave, sick 
leave, holidays, court leave, military leave, administrative leave, and 
other similar benefits, are allowable if all of the following criteria 
are met:
    (1) They are provided under established written leave policies;
    (2) The costs are equitably allocated to all related activities, 
including Federal awards; and,
    (3) The accounting basis (cash or accrual) selected for costing 
each type of leave is consistently followed by the non-Federal entity 
or specified grouping of employees.
    (i) When a non-Federal entity 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.
    (ii) The accrual basis may be only used for those types of leave 
for which a liability as defined by GAAP exists when the leave is 
earned. When a non-Federal entity uses the accrual basis of accounting, 
allowable leave costs are the lesser of the amount accrued or funded.
    (c) 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 Sec.  75.447); pension plan costs (see paragraph (i) of this 
section); and other similar benefits are allowable, provided such 
benefits are granted under established written policies. Such benefits, 
must 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, and charged as 
direct or indirect costs in accordance with the non-Federal entity's 
accounting practices.
    (d) Fringe benefits may be assigned to cost objectives by 
identifying specific benefits to specific individual employees or by 
allocating on the basis of entity-wide salaries and wages of the 
employees receiving the benefits. When the allocation method is used, 
separate allocations must be made to selective groupings of employees, 
unless the non-Federal entity demonstrates that costs in relationship 
to salaries and wages do not differ significantly for different groups 
of employees.
    (e) Insurance. See also Sec.  75.447(d)(1) and (2).
    (1) Provisions for a reserve under a self-insurance program for 
unemployment compensation or workers' compensation are allowable to the 
extent that the provisions represent reasonable estimates of the 
liabilities for such compensation, and the types of coverage, extent of 
coverage, and rates and premiums would have been allowable had 
insurance been purchased to cover the risks. However, provisions for 
self-insured liabilities which do not become payable for more than one 
year after the provision is made must not exceed the present value of 
the liability.
    (2) Costs of insurance on the lives of trustees, officers, or other 
employees holding positions of similar responsibility are allowable 
only to the extent that the insurance represents additional 
compensation. The costs of such insurance when the non-Federal entity 
is named as beneficiary are unallowable.
    (3) 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., post-retirement 
health benefits), are allowable in the year of payment provided that 
the non-Federal entity follows a consistent costing policy.
    (f) Automobiles. That portion of automobile costs furnished by the 
entity that relates to personal use by employees (including 
transportation to and from work) is unallowable as fringe benefit or 
indirect (F&A) costs regardless of whether the cost is reported as 
taxable income to the employees.
    (g) Pension Plan Costs. Pension plan costs which are incurred in 
accordance with the established policies of the non-Federal entity are 
allowable, provided that:

[[Page 75930]]

    (1) Such policies meet the test of reasonableness.
    (2) The methods of cost allocation are not discriminatory.
    (3) For entities using accrual based accounting, the cost assigned 
to each fiscal year is determined in accordance with GAAP.
    (4) The costs assigned to a given fiscal year are funded for all 
plan participants within six months after the end of that year. 
However, increases to normal and past service pension costs caused by a 
delay in funding the actuarial liability beyond 30 calendar days after 
each quarter of the year to which such costs are assignable are 
unallowable. Non-Federal entity may elect to follow the ``Cost 
Accounting Standard for Composition and Measurement of Pension Costs'' 
(48 CFR 9904.412).
    (5) Pension plan termination insurance premiums paid pursuant to 
the Employee Retirement Income Security Act (ERISA) of 1974 (29 U.S.C. 
1301-1461) are allowable. Late payment charges on such premiums are 
unallowable. Excise taxes on accumulated funding deficiencies and other 
penalties imposed under ERISA are unallowable.
    (6) 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 non-Federal entity.
    (i) For pension plans financed on a pay-as-you-go method, allowable 
costs will be limited to those representing actual payments to retirees 
or their beneficiaries.
    (ii) 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 for indirect costs) are allowable in the year 
funded. The cognizant agency for indirect costs 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 non-Federal entity'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.
    (iii) Amounts funded by the non-Federal entity in excess of the 
actuarially determined amount for a fiscal year may be used as the non-
Federal entity's contribution in future periods.
    (iv) When a non-Federal entity 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 is 
allowable if amortized over a period of years in accordance with GAAP.
    (v) The Federal Government must receive an equitable share of any 
previously allowed pension costs (including earnings thereon) which 
revert or inure to the non-Federal entity in the form of a refund, 
withdrawal, or other credit.
    (h) Post-Retirement Health. Post-retirement health plans (PRHP) 
refers to costs of health insurance or health services not included in 
a pension plan covered by paragraph (g) of this section for retirees 
and their spouses, dependents, and survivors. PRHP 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 non-
Federal entity.
    (1) For PRHP financed on a pay-as-you-go method, allowable costs 
will be limited to those representing actual payments to retirees or 
their beneficiaries.
    (2) PRHP 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 Federal cognizant agency for indirect 
costs 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 non-Federal entity's contributions to the PRHP fund. 
Adjustments may be made by cash refund, reduction in current year's 
PRHP costs, or other equitable procedures to compensate the Federal 
Government for the time value of Federal reimbursements in excess of 
contributions to the PRHP fund.
    (3) Amounts funded in excess of the actuarially determined amount 
for a fiscal year may be used as the Federal Government's contribution 
in a future period.
    (4) When a non-Federal entity converts to an acceptable actuarial 
cost method and funds PRHP costs in accordance with this method, the 
initial unfunded liability attributable to prior years is 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 for indirect costs.
    (5) To be allowable in the current year, the PRHP costs must be 
paid either to:
    (i) An insurer or other benefit provider as current year costs or 
premiums, or
    (ii) 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 must receive an equitable share of any 
amounts of previously allowed post-retirement benefit costs (including 
earnings thereon) which revert or inure to the non-Federal entity in 
the form of a refund, withdrawal, or other credit.
    (i) Severance Pay. (1) Severance pay, also commonly referred to as 
dismissal wages, is a payment in addition to regular salaries and 
wages, by non-Federal entities to workers whose employment is being 
terminated. Costs of severance pay are allowable only to the extent 
that in each case, it is required by law, employer-employee agreement, 
established policy that constitutes, in effect, an implied agreement on 
the non-Federal entity's part, or circumstances of the particular 
employment.
    (2) Costs of severance payments are divided into two categories as 
follows:
    (i) Actual normal turnover severance payments must be allocated to 
all activities; or, where the non-Federal entity provides for a reserve 
for normal severances, such method will be acceptable if the charge to 
current operations is reasonable in light of payments actually made for 
normal severances over a representative past period, and if amounts 
charged are allocated to all activities of the non-Federal entity.
    (ii) Measurement of costs of abnormal or mass severance pay by 
means of an accrual will not achieve equity to both parties. Thus, 
accruals for this purpose are not allowable. However, the Federal 
Government recognizes its obligation to participate, to the extent of 
its fair share, in any specific payment. Prior approval by the Federal 
awarding agency or cognizant agency for indirect cost, as appropriate, 
is required.
    (3) Costs incurred in certain severance pay packages which are in 
an amount in excess of the normal severance pay paid by the non-Federal 
entity to an employee upon termination of employment and are paid to 
the employee contingent upon a change in management control over, or 
ownership of, the non-Federal entity's assets, are unallowable.

[[Page 75931]]

    (4) Severance payments to foreign nationals employed by the non-
Federal entity outside the United States, to the extent that the amount 
exceeds the customary or prevailing practices for the non-Federal 
entity in the United States, are unallowable, unless they are necessary 
for the performance of Federal programs and approved by the HHS 
awarding agency.
    (5) Severance payments to foreign nationals employed by the non-
Federal entity outside the United States due to the termination of the 
foreign national as a result of the closing of, or curtailment of 
activities by, the non-Federal entity in that country, are unallowable, 
unless they are necessary for the performance of Federal programs and 
approved by the HHS awarding agency.
    (j)(1) For IHEs only. Fringe benefits in the form of tuition or 
remission of tuition for individual employees are allowable, provided 
such benefits are granted in accordance with established non-Federal 
entity policies, and are distributed to all non-Federal entity 
activities on an equitable basis. Tuition benefits for family members 
other than the employee are unallowable.
    (2) Fringe benefits in the form of tuition or remission of tuition 
for individual employees not employed by IHEs are limited to the tax-
free amount allowed per section 127 of the Internal Revenue Code as 
amended.
    (3) IHEs may offer employees tuition waivers or tuition reductions 
for undergraduate education under IRC Section 117(d) as amended, 
provided that the benefit does not discriminate in favor of highly 
compensated employees. Federal reimbursement of tuition or remission of 
tuition is also limited to the institution for which the employee 
works. See Sec.  75.466, for treatment of tuition remission provided to 
students.
    (k) For IHEs whose costs are paid by state or local governments, 
fringe benefit programs (such as pension costs and FICA) and any other 
benefits costs specifically incurred on behalf of, and in direct 
benefit to, the non-Federal entity, are allowable costs of such non-
Federal entities whether or not these costs are recorded in the 
accounting records of the non-Federal entities, subject to the 
following:
    (1) The costs meet the requirements of Basic Considerations in 
Sec. Sec.  75.402 through 75.411;
    (2) The costs are properly supported by approved cost allocation 
plans in accordance with applicable Federal cost accounting principles; 
and
    (3) The costs are not otherwise borne directly or indirectly by the 
Federal Government.


Sec.  75.432  Conferences.

    A conference is defined as a meeting, retreat, seminar, symposium, 
workshop or event whose primary purpose is the dissemination of 
technical information beyond the non-Federal entity and is necessary 
and reasonable for successful performance under the Federal award. 
Allowable conference costs paid by the non-Federal entity as a sponsor 
or host of the conference may include rental of facilities, speakers' 
fees, costs of meals and refreshments, local transportation, and other 
items incidental to such conferences unless further restricted by the 
terms and conditions of the Federal award. As needed, the costs of 
identifying, but not providing, locally available dependent-care 
resources are allowable. Conference hosts/sponsors must exercise 
discretion and judgment in ensuring that conference costs are 
appropriate, necessary and managed in a manner that minimizes costs to 
the Federal award. The HHS awarding agency may authorize exceptions 
where appropriate for programs including Indian tribes, children, and 
the elderly. See also Sec. Sec.  75.438, 75.456, 75.474, and 75.475.


Sec.  75.433  Contingency provisions.

    (a) Contingency is that part of a budget estimate of future costs 
(typically of large construction projects, IT systems, or other items 
as approved by the HHS awarding agency) which is associated with 
possible events or conditions arising from causes the precise outcome 
of which is indeterminable at the time of estimate, and that experience 
shows will likely result, in aggregate, in additional costs for the 
approved activity or project. Amounts for major project scope changes, 
unforeseen risks, or extraordinary events may not be included.
    (b) It is permissible for contingency amounts other than those 
excluded in paragraph (a) of this section to be explicitly included in 
budget estimates, to the extent they are necessary to improve the 
precision of those estimates. Amounts must be estimated using broadly-
accepted cost estimating methodologies, specified in the budget 
documentation of the Federal award, and accepted by the HHS awarding 
agency. As such, contingency amounts are to be included in the Federal 
award. In order for actual costs incurred to be allowable, they must 
comply with the cost principles and other requirements in this part 
(see also Sec. Sec.  75.300 through 75.309 of Subpart D of this part 
and 75.403); be necessary and reasonable for proper and efficient 
accomplishment of project or program objectives, and be verifiable from 
the non-Federal entity's records.
    (c) Payments made by the HHS awarding agency to the non-Federal 
entity's ``contingency reserve'' or any similar payment made for events 
the occurrence of which cannot be foretold with certainty as to the 
time or intensity, or with an assurance of their happening, are 
unallowable, except as noted in Sec. Sec.  75.431 and 75.447.


Sec.  75.434  Contributions and donations.

    (a) Costs of contributions and donations, including cash, property, 
and services, from the non-Federal entity to other entities, are 
unallowable.
    (b) The value of services and property donated to the non-Federal 
entity may not be charged to the Federal award either as a direct or 
indirect (F&A) cost. The value of donated services and property may be 
used to meet cost sharing or matching requirements (see Sec.  75.306). 
Depreciation on donated assets is permitted in accordance with Sec.  
75.436, as long as the donated property is not counted towards cost 
sharing or matching requirements.
    (c) Services donated or volunteered to the non-Federal entity may 
be furnished to a non-Federal entity by professional and technical 
personnel, consultants, and other skilled and unskilled labor. The 
value of these services may not be charged to the Federal award 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 Sec.  75.306.
    (d) To the extent feasible, services donated to the non-Federal 
entity will be supported by the same methods used to support the 
allocability of regular personnel services.
    (e) The following provisions apply to nonprofit organizations. The 
value of services donated to the nonprofit organization utilized in the 
performance of a direct cost activity must be considered in the 
determination of the non-Federal entity's indirect cost rate(s) and, 
accordingly, must be allocated a proportionate share of applicable 
indirect costs when the following circumstances exist:
    (1) The aggregate value of the services is material;
    (2) The services are supported by a significant amount of the 
indirect costs incurred by the non-Federal entity;
    (i) In those instances where there is no basis for determining the 
fair market value of the services rendered, the non-Federal entity and 
the cognizant agency for indirect costs must negotiate an appropriate 
allocation of indirect cost to the services.

[[Page 75932]]

    (ii) Where donated services directly benefit a project supported by 
the Federal award, the indirect costs allocated to the services will be 
considered as a part of the total costs of the project. Such indirect 
costs may be reimbursed under the Federal award or used to meet cost 
sharing or matching requirements.
    (f) Fair market value of donated services must be computed as 
described in Sec.  75.306.
    (g) Personal Property and Use of Space.
    (1) Donated personal property and use of space may be furnished to 
a non-Federal entity. The value of the personal property and space may 
not be charged to the Federal award either as a direct or indirect 
cost.
    (2) The value of the donations may be used to meet cost sharing or 
matching share requirements under the conditions described in 
Sec. Sec.  75.300 through 75.309 of subpart D of this part. The value 
of the donations must be determined in accordance with Sec. Sec.  
75.300 through 75.309. Where donations are treated as indirect costs, 
indirect cost rates will separate the value of the donations so that 
reimbursement will not be made.


Sec.  75.435  Defense and prosecution of criminal and civil 
proceedings, claims, appeals, and patent infringements.

    (a) Definitions for the purposes of this section.
    (1) Conviction means a judgment or conviction of a criminal offense 
by any court of competent jurisdiction, whether entered upon verdict or 
a plea, including a conviction due to a plea of nolo contendere.
    (2) Costs include the services of in-house or private counsel, 
accountants, consultants, or others engaged to assist the non-Federal 
entity before, during, and after commencement of a judicial or 
administrative proceeding, that bear a direct relationship to the 
proceeding.
    (3) Fraud means:
    (i) Acts of fraud or corruption or attempts to defraud the Federal 
Government or to corrupt its agents,
    (ii) Acts that constitute a cause for debarment or suspension (as 
specified in agency regulations), and
    (iii) Acts which violate the False Claims Act (31 U.S.C. 3729-3732) 
or the Anti-kickback Act (41 U.S.C. 1320a-7b(b)).
    (4) Penalty does not include restitution, reimbursement, or 
compensatory damages.
    (5) Proceeding includes an investigation.
    (b) Costs. (1) Except as otherwise described herein, costs incurred 
in connection with any criminal, civil or administrative proceeding 
(including filing of a false certification) commenced by the Federal 
Government, a state, local government, or foreign government, or joined 
by the Federal Government (including a proceeding under the False 
Claims Act), against the non-Federal entity, (or commenced by third 
parties or a current or former employee of the non-Federal entity who 
submits a whistleblower complaint of reprisal in accordance with 10 
U.S.C. 2409 or 41 U.S.C. 4712), are not allowable if the proceeding:
    (i) Relates to a violation of, or failure to comply with, a 
Federal, state, local or foreign statute, regulation or the terms and 
conditions of the Federal award, by the non-Federal entity (including 
its agents and employees); and
    (ii) Results in any of the following dispositions:
    (A) In a criminal proceeding, a conviction.
    (B) In a civil or administrative proceeding involving an allegation 
of fraud or similar misconduct, a determination of non-Federal entity 
liability.
    (C) In the case of any civil or administrative proceeding, the 
disallowance of costs or the imposition of a monetary penalty, or an 
order issued by the HHS awarding agency head or delegate to the non-
Federal entity to take corrective action under 10 U.S.C. 2409 or 41 
U.S.C. 4712.
    (D) A final decision by an appropriate Federal official to debar or 
suspend the non-Federal entity, to rescind or void a Federal award, or 
to terminate a Federal award by reason of a violation or failure to 
comply with a statute, regulation, or the terms and conditions of the 
Federal award.
    (E) A disposition by consent or compromise, if the action could 
have resulted in any of the dispositions described in paragraphs 
(b)(1)(ii)(A) through (D) of this section.
    (2) If more than one proceeding involves the same alleged 
misconduct, the costs of all such proceedings are unallowable if any 
results in one of the dispositions shown in paragraph (b) of this 
section.
    (c) If a proceeding referred to in paragraph (b) of this section is 
commenced by the Federal Government and is resolved by consent or 
compromise pursuant to an agreement by the non-Federal entity and the 
Federal Government, then the costs incurred may be allowed to the 
extent specifically provided in such agreement.
    (d) If a proceeding referred to in paragraph (b) of this section is 
commenced by a state, local or foreign government, the authorized 
Federal official may allow the costs incurred if such authorized 
official determines that the costs were incurred as a result of:
    (1) A specific term or condition of the Federal award, or
    (2) Specific written direction of an authorized official of the HHS 
awarding agency.
    (e) Costs incurred in connection with proceedings described in 
paragraph (b) of this section, which are not made unallowable by that 
subsection, may be allowed but only to the extent that:
    (1) The costs are reasonable and necessary in relation to the 
administration of the Federal award and activities required to deal 
with the proceeding and the underlying cause of action;
    (2) Payment of the reasonable, necessary, allocable and otherwise 
allowable costs incurred is not prohibited by any other provision(s) of 
the Federal award;
    (3) The costs are not recovered from the Federal Government or a 
third party, either directly as a result of the proceeding or 
otherwise; and,
    (4) An authorized Federal official must determine the percentage of 
costs allowed considering the complexity of litigation, generally 
accepted principles governing the award of legal fees in civil actions 
involving the United States, and such other factors as may be 
appropriate. Such percentage must not exceed 80 percent. However, if an 
agreement reached under paragraph (c) of this section has explicitly 
considered this 80 percent limitation and permitted a higher 
percentage, then the full amount of costs resulting from that agreement 
are allowable.
    (f) Costs incurred by the non-Federal entity in connection with the 
defense of suits brought by its employees or ex-employees under section 
2 of the Major Fraud Act of 1988 (18 U.S.C. 1031), including the cost 
of all relief necessary to make such employee whole, where the non-
Federal entity was found liable or settled, are unallowable.
    (g) Costs of prosecution of claims against the Federal Government, 
including appeals of final HHS agency decisions, are unallowable.
    (h) Costs of legal, accounting, and consultant services, and 
related costs, incurred in connection with patent infringement 
litigation, are unallowable unless otherwise provided for in the 
Federal award.
    (i) Costs which may be unallowable under this section, including 
directly associated costs, must be segregated and accounted for 
separately. During the pendency of any proceeding covered by paragraphs 
(b) and (f) of this section, the Federal Government must generally

[[Page 75933]]

withhold payment of such costs. However, if in its best interests, the 
Federal Government may provide for conditional payment upon provision 
of adequate security, or other adequate assurance, and agreement to 
repay all unallowable costs, plus interest, if the costs are 
subsequently determined to be unallowable.


Sec.  75.436  Depreciation.

    (a) Depreciation is the method for allocating the cost of fixed 
assets to periods benefitting from asset use. The non-Federal entity 
may be compensated for the use of its buildings, capital improvements, 
equipment, and software projects capitalized in accordance with GAAP, 
provided that they are used, needed in the non-Federal entity's 
activities, and properly allocated to Federal awards. Such compensation 
must be made by computing depreciation.
    (b) The allocation for depreciation must be made in accordance with 
Appendices III through IX.
    (c) Depreciation is computed applying the following rules. The 
computation of depreciation must be based on the acquisition cost of 
the assets involved. For an asset donated to the non-Federal entity by 
a third party, its fair market value at the time of the donation must 
be considered as the acquisition cost. Such assets may be depreciated 
or claimed as matching but not both. For the purpose of computing 
depreciation, the acquisition cost will exclude:
    (1) The cost of land;
    (2) Any portion of the cost of buildings and equipment borne by or 
donated by the Federal Government, irrespective of where title was 
originally vested or where it is presently located;
    (3) Any portion of the cost of buildings and equipment contributed 
by or for the non-Federal entity, where law or agreement prohibits 
recovery; and
    (4) Any asset acquired solely for the performance of a non-Federal 
award.
    (d) When computing depreciation charges, the following must be 
observed:
    (1) The period of useful service or useful life established in each 
case for usable capital assets must take into consideration such 
factors as type of construction, nature of the equipment, technological 
developments in the particular area, historical data, and the renewal 
and replacement policies followed for the individual items or classes 
of assets involved.
    (2) The depreciation method used to charge the cost of an asset (or 
group of assets) to accounting periods must reflect the pattern of 
consumption of the asset during its useful life. In the absence of 
clear evidence indicating that the expected consumption of the asset 
will be significantly greater in the early portions than in the later 
portions of its useful life, the straight-line method must be presumed 
to be the appropriate method. Depreciation methods once used may not be 
changed unless approved in advance by the cognizant agency. The 
depreciation methods used to calculate the depreciation amounts for 
indirect (F&A) rate purposes must be the same methods used by the non-
Federal entity for its financial statements.
    (3) The entire building, including the shell and all components, 
may be treated as a single asset and depreciated over a single useful 
life. A building may also be divided into multiple components. Each 
component item may then be depreciated over its estimated useful life. 
The building components must be grouped into three general components 
of a building: building shell (including construction and design 
costs), building services systems (e.g., elevators, HVAC, plumbing 
system and heating and air-conditioning system) and fixed equipment 
(e.g., sterilizers, casework, fume hoods, cold rooms and glassware/
washers). In exceptional cases, a cognizant agency may authorize a non-
Federal entity to use more than these three groupings. When a non-
Federal entity elects to depreciate its buildings by its components, 
the same depreciation methods must be used for indirect (F&A) purposes 
and financial statements purposes, as described in paragraphs (d)(1) 
and (2) of this section.
    (4) No depreciation may be allowed on any assets that have outlived 
their depreciable lives.
    (5) Where the depreciation method is introduced to replace the use 
allowance method, depreciation must be computed as if the asset had 
been depreciated over its entire life (i.e., from the date the asset 
was acquired and ready for use to the date of disposal or withdrawal 
from service). The total amount of use allowance and depreciation for 
an asset (including imputed depreciation applicable to periods prior to 
the conversion from the use allowance method as well as depreciation 
after the conversion) may not exceed the total acquisition cost of the 
asset.
    (e) Charges for depreciation must be supported by adequate property 
records, and physical inventories must be taken at least once every two 
years to ensure that the assets exist and are usable, used, and needed. 
Statistical sampling techniques may be used in taking these 
inventories. In addition, adequate depreciation records showing the 
amount of depreciation taken each period must also be maintained.


Sec.  75.437  Employee health and welfare costs.

    (a) Costs incurred in accordance with the non-Federal entity's 
documented policies for the improvement of working conditions, 
employer-employee relations, employee health, and employee performance 
are allowable.
    (b) Such costs will be equitably apportioned to all activities of 
the non-Federal entity. Income generated from any of these activities 
will be credited to the cost thereof unless such income has been 
irrevocably sent to employee welfare organizations.
    (c) Losses resulting from operating food services are allowable 
only if the non-Federal entity's objective is to operate such services 
on a break-even basis. Losses sustained because of operating objectives 
other than the above are allowable only:
    (1) Where the non-Federal entity can demonstrate unusual 
circumstances; and
    (2) With the approval of the cognizant agency for indirect costs.


Sec.  75.438  Entertainment costs.

    Costs of entertainment, including amusement, diversion, and social 
activities and any associated costs are unallowable, except where 
specific costs that might otherwise be considered entertainment have a 
programmatic purpose and are authorized either in the approved budget 
for the Federal award or with prior written approval of the HHS 
awarding agency.


Sec.  75.439  Equipment and other capital expenditures.

    (a) See Sec.  75.2 for the definitions of Capital expenditures, 
Equipment, Special purpose equipment, General purpose equipment, 
Acquisition cost, and Capital assets.
    (b) The following rules of allowability must apply to equipment and 
other capital expenditures:
    (1) Capital expenditures for general purpose equipment, buildings, 
and land are unallowable as direct charges, except with the prior 
written approval of the HHS awarding agency or pass-through entity.
    (2) Capital expenditures for special purpose equipment are 
allowable as direct costs, provided that items with a unit cost of 
$5,000 or more have the prior written approval of the HHS awarding 
agency or pass-through entity.
    (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 written approval of 
the HHS awarding

[[Page 75934]]

agency, or pass-through entity. See Sec.  75.436 for rules on the 
allowability of depreciation on buildings, capital improvements, and 
equipment. See also Sec.  75.465.
    (4) When approved as a direct charge pursuant to paragraphs (b)(1) 
through (3) of this section, capital expenditures will be charged in 
the period in which the expenditure is incurred, or as otherwise 
determined appropriate and negotiated with the HHS awarding agency.
    (5) 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 depreciation on the 
equipment, or by amortizing the amount to be written off over a period 
of years negotiated with the Federal cognizant agency for indirect 
cost.
    (6) Cost of equipment disposal. If the non-Federal entity is 
instructed by the HHS awarding agency to otherwise dispose of or 
transfer the equipment the costs of such disposal or transfer are 
allowable.


Sec.  75.440  Exchange rates.

    (a) Cost increases for fluctuations in exchange rates are allowable 
costs subject to the availability of funding. Prior approval of 
exchange rate fluctuations is required only when the change results in 
the need for additional Federal funding, or the increased costs result 
in the need to significantly reduce the scope of the project. The HHS 
awarding agency must however ensure that adequate funds are available 
to cover currency fluctuations in order to avoid a violation of the 
Anti-Deficiency Act.
    (b) The non-Federal entity is required to make reviews of local 
currency gains to determine the need for additional federal funding 
before the expiration date of the Federal award. Subsequent adjustments 
for currency increases may be allowable only when the non-Federal 
entity provides the HHS awarding agency with adequate source 
documentation from a commonly used source in effect at the time the 
expense was made, and to the extent that sufficient Federal funds are 
available.


Sec.  75.441  Fines, penalties, damages and other settlements.

    Costs resulting from non-Federal entity violations of, alleged 
violations of, or failure to comply with, Federal, state, tribal, local 
or foreign laws and regulations are unallowable, except when incurred 
as a result of compliance with specific provisions of the Federal 
award, or with prior written approval of the HHS awarding agency. See 
also Sec.  75.435.


Sec.  75.442  Fund raising and investment management costs.

    (a) Costs of organized fund raising, including financial campaigns, 
endowment drives, solicitation of gifts and bequests, and similar 
expenses incurred to raise capital or obtain contributions are 
unallowable. Fund raising costs for the purposes of meeting the Federal 
program objectives are allowable with prior written approval from the 
Federal awarding agency. Proposal costs are covered in Sec.  75.460.
    (b) Costs of investment counsel and staff and similar expenses 
incurred to enhance income from investments are unallowable except when 
associated with investments covering pension, self-insurance, or other 
funds which include Federal participation allowed by this part.
    (c) Costs related to the physical custody and control of monies and 
securities are allowable.
    (d) Both allowable and unallowable fund raising and investment 
activities must be allocated an appropriate share of indirect costs 
under the conditions described in Sec.  75.413.


Sec.  75.443  Gains and losses on disposition of depreciable assets.

    (a) Gains and losses on the sale, retirement, or other disposition 
of depreciable property must 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) is the 
difference between the amount realized on the property and the 
undepreciated basis of the property.
    (b) Gains and losses from the disposition of depreciable property 
must not be recognized as a separate credit or charge under the 
following conditions:
    (1) The gain or loss is processed through a depreciation account 
and is reflected in the depreciation allowable under Sec. Sec.  75.436 
and 75.439.
    (2) 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.
    (3) A loss results from the failure to maintain permissible 
insurance, except as otherwise provided in Sec.  75.447.
    (4) Compensation for the use of the property was provided through 
use allowances in lieu of depreciation.
    (5) Gains and losses arising from mass or extraordinary sales, 
retirements, or other dispositions must be considered on a case-by-case 
basis.
    (c) Gains or losses of any nature arising from the sale or exchange 
of property other than the property covered in paragraph (a) of this 
section, e.g., land, must be excluded in computing Federal award costs.
    (d) When assets acquired with Federal funds, in part or wholly, are 
disposed of, the distribution of the proceeds must be made in 
accordance with Sec. Sec.  75.317 through 75.323.


Sec.  75.444  General costs of government.

    (a) For states, local governments, and Indian Tribes, the general 
costs of government are unallowable (except as provided in Sec.  
75.474). Unallowable costs include:
    (1) Salaries and expenses of the Office of the Governor of a state 
or the chief executive of a local government or the chief executive of 
an Indian tribe;
    (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 judicial branch of a government;
    (4) Costs of prosecutorial activities unless treated as a direct 
cost to a specific program if authorized by statute or regulation 
(however, this does not preclude the allowability of other legal 
activities of the Attorney General as described in Sec.  75.435); 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 Indian tribes and Councils of Governments (COGs) (see Sec.  
75.2 Local government), up to 50% of salaries and expenses directly 
attributable to managing and operating Federal programs by the chief 
executive and his or her staff can be included in the indirect cost 
calculation without documentation.


Sec.  75.445  Goods or services for personal use.

    (a) Costs of goods or services for personal use of the non-Federal 
entity's employees are unallowable regardless of whether the cost is 
reported as taxable income to the employees.
    (b) Costs of housing (e.g., depreciation, maintenance, utilities, 
furnishings, rent), housing allowances and personal living expenses are 
only allowable as direct costs regardless of whether reported as 
taxable income to

[[Page 75935]]

the employees. In addition, to be allowable direct costs must be 
approved in advance by an HHS awarding agency.


Sec.  75.446  Idle facilities and idle capacity.

    (a) As used in this section the following terms have the meanings 
set forth in this section:
    (1) Facilities means land and buildings or any portion thereof, 
equipment individually or collectively, or any other tangible capital 
asset, wherever located, and whether owned or leased by the non-Federal 
entity.
    (2) Idle facilities means completely unused facilities that are 
excess to the non-Federal entity's current needs.
    (3) Idle capacity means the unused capacity of partially used 
facilities. It is the difference between:
    (i) 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;
    (ii) 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, and depreciation. These costs could include the 
costs of idle public safety emergency facilities, telecommunications, 
or information technology system capacity that is built to withstand 
major fluctuations in load, e.g., consolidated data centers.
    (b) The costs of idle facilities are unallowable except to the 
extent that:
    (1) They are necessary to meet workload requirements which may 
fluctuate and are allocated appropriately to all benefiting programs; 
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 to carry out the 
purpose of the Federal award 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.


Sec.  75.447  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 non-Federal entity'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 HHS awarding agency has 
specifically required or approved such costs.
    (3) Costs allowed for business interruption or other similar 
insurance must exclude coverage of management fees.
    (4) Costs of insurance on the lives of trustees, officers, or other 
employees holding positions of similar responsibilities are allowable 
only to the extent that the insurance represents additional 
compensation (see Sec.  75.431). The cost of such insurance when the 
non-Federal entity is identified as the beneficiary is unallowable.
    (5) Insurance against defects. Costs of insurance with respect to 
any costs incurred to correct defects in the non-Federal entity's 
materials or workmanship are unallowable.
    (6) Medical liability (malpractice) insurance. Medical liability 
insurance is an allowable cost of Federal research programs only to the 
extent that the Federal research programs involve human subjects or 
training of participants in research techniques. Medical liability 
insurance costs must be treated as a direct cost and must be assigned 
to individual projects based on the manner in which the insurer 
allocates the risk to the population covered by the insurance.
    (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. 
However, 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, must 
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 non-Federal entity'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)(i) 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:
    (A) Submitted and adjudicated but not paid;
    (B) Submitted but not adjudicated; and
    (C) Incurred but not submitted.
    (ii) 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 non-Federal entity. If individual departments or 
agencies of the non-Federal entity experience significantly different 
levels of claims for a particular risk, those differences are to be 
recognized by the use of separate

[[Page 75936]]

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 or unrestricted account), refunds 
must be made to the Federal Government for its share of funds 
transferred, 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 cost, claims 
collection regulations.
    (e) Insurance refunds must be credited against insurance costs in 
the year the refund is received.
    (f) Indemnification includes securing the non-Federal entity 
against liabilities to third persons and other losses not compensated 
by insurance or otherwise. The Federal Government is obligated to 
indemnify the non-Federal entity only to the extent expressly provided 
for in the Federal award, except as provided in paragraph (c) of this 
section.


Sec.  75.448  Intellectual Property.

    (a) Patent costs. (1) The following costs related to securing 
patents and copyrights are allowable:
    (i) Costs 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;
    (ii) Costs 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
    (iii) General counseling services relating to patent and copyright 
matters, such as advice on patent and copyright laws, regulations, 
clauses, and employee intellectual property agreements (See also Sec.  
75.459).
    (2) The following costs related to securing patents and copyrights 
are unallowable:
    (i) Costs of preparing disclosures, reports, and other documents, 
and of searching the art to make disclosures not required by the 
Federal award;
    (ii) Costs in connection with filing and prosecuting any foreign 
patent application, or any United States patent application, where the 
Federal award does not require conveying title or a royalty-free 
license to the Federal Government.
    (b) Royalties and other costs for use of patents and copyrights. 
(1) 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 Federal award are allowable unless:
    (i) The Federal Government already has a license or the right to 
free use of the patent or copyright.
    (ii) The patent or copyright has been adjudicated to be invalid, or 
has been administratively determined to be invalid.
    (iii) The patent or copyright is considered to be unenforceable.
    (iv) The patent or copyright is expired.
    (2) 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, such as:
    (i) Royalties paid to persons, including corporations, affiliated 
with the non-Federal entity.
    (ii) Royalties paid to unaffiliated parties, including 
corporations, under an agreement entered into in contemplation that a 
Federal award would be made.
    (iii) Royalties paid under an agreement entered into after a 
Federal award is made to a non-Federal entity.
    (3) In any case involving a patent or copyright formerly owned by 
the non-Federal entity, the amount of royalty allowed must not exceed 
the cost which would have been allowed had the non-Federal entity 
retained title there.


Sec.  75.449  Interest.

    (a) General. Costs incurred for interest on borrowed capital, 
temporary use of endowment funds, or the use of the non-Federal 
entity's own funds, however represented, are unallowable. Financing 
costs (including interest) to acquire, construct, or replace capital 
assets are allowable, subject to the conditions in this section.
    (b)(1) Capital assets are defined in Sec.  75.2 Capital assets. An 
asset cost includes (as applicable) acquisition costs, construction 
costs, and other costs capitalized in accordance with GAAP.
    (2) For non-Federal entity fiscal years beginning on or after 
January 1, 2016, intangible assets include patents and computer 
software. For software development projects, only interest attributable 
to the portion of the project costs capitalized in accordance with GAAP 
is allowable.
    (c) Conditions for all non-Federal entities. (1) The non-Federal 
entity uses the capital assets in support of Federal awards;
    (2) The allowable asset costs to acquire facilities and equipment 
are limited to a fair market value available to the non-Federal entity 
from an unrelated (arm's length) third party.
    (3) The non-Federal entity obtains the financing via an arm's-
length transaction (that is, a transaction with an unrelated third 
party); or claims reimbursement of actual interest cost at a rate 
available via such a transaction.
    (4) The non-Federal entity limits claims for Federal reimbursement 
of interest costs to the least expensive alternative. For example, a 
capital lease may be determined less costly than purchasing through 
debt financing, in which case reimbursement must be limited to the 
amount of interest determined if leasing had been used.
    (5) The non-Federal entity expenses or capitalizes allowable 
interest cost in accordance with GAAP.
    (6) Earnings generated by the investment of borrowed funds pending 
their disbursement for the asset costs are used to offset the current 
period's allowable interest cost, whether that cost is expensed or 
capitalized. Earnings subject to being reported to the Federal Internal 
Revenue Service under arbitrage requirements are excludable.
    (7) The following conditions must apply to debt arrangements over 
$1 million to purchase or construct facilities, unless the non-Federal 
entity makes an initial equity contribution to the purchase of 25 
percent or more. For this purpose, ``initial equity contribution'' 
means the amount or value of contributions made by the non-Federal 
entity for the acquisition of facilities prior to occupancy.
    (i) The non-Federal entity must reduce claims for reimbursement of 
interest cost by an amount equal to imputed interest earnings on excess 
cash flow attributable to the portion of the facility used for Federal 
awards.
    (ii) The non-Federal entity must impute interest on excess cash 
flow as follows:
    (A) Annually, the non-Federal entity must prepare a cumulative 
(from the inception of the project) report of monthly cash inflows and 
outflows, regardless of the funding source. For this purpose, inflows 
consist of Federal reimbursement for depreciation, amortization of 
capitalized construction interest, and annual interest cost. Outflows 
consist of initial equity contributions, debt principal payments (less 
the pro-rata share attributable to the cost of land), and interest 
payments.
    (B) To compute monthly cash inflows and outflows, the non-Federal 
entity must divide the annual amounts determined in step (i) by the 
number of months in the year (usually 12) that the building is in 
service.
    (C) For any month in which cumulative cash inflows exceed 
cumulative outflows, interest must be calculated on the excess inflows 
for that month and be treated as a reduction to

[[Page 75937]]

allowable interest cost. The rate of interest to be used must be the 
three-month Treasury bill closing rate as of the last business day of 
that month.
    (8) Interest attributable to a fully depreciated asset is 
unallowable.
    (d) Additional conditions for states, local governments and Indian 
tribes. For costs to be allowable, the non-Federal entity must have 
incurred the interest costs for buildings after October 1, 1980, or for 
land and equipment after September 1, 1995.
    (1) The requirement to offset interest earned on borrowed funds 
against current allowable interest cost (paragraph (c)(5) of this 
section) also applies to earnings on debt service reserve funds.
    (2) The non-Federal entity will negotiate the amount of allowable 
interest cost related to the acquisition of facilities with asset costs 
of $1 million or more, as outlined in paragraph (c)(7) of this section. 
For this purpose, a non-Federal entity must consider only cash inflows 
and outflows attributable to that portion of the real property used for 
Federal awards.
    (e) Additional conditions for IHEs. For costs to be allowable, the 
IHE must have incurred the interest costs after September 23, 1982, in 
connection with acquisitions of capital assets that occurred after that 
date.
    (f) Additional condition for nonprofit organizations. For costs to 
be allowable, the nonprofit organization incurred the interest costs 
after September 29, 1995, in connection with acquisitions of capital 
assets that occurred after that date.
    (g) The interest allowability provisions of this section do not 
apply to a nonprofit organization subject to ``full coverage'' under 
the Cost Accounting Standards (CAS), as defined at 48 CFR 9903.201-
2(a). The non-Federal entity's Federal awards are instead subject to 
CAS 414 (48 CFR 9904.414), and CAS 417 (48 CFR 9904.417).


Sec.  75.450  Lobbying.

    (a) 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 is governed by relevant statutes, 
including among others, the provisions of 31 U.S.C. 1352, as well as 
the common rule, ``New Restrictions on Lobbying'' published at 55 FR 
6736 (February 26, 1990), 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), 57 FR 1772 (January 15, 1992), and 61 FR 
1412 (January 19, 1996).
    (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 Federal award 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 Federal award or regulatory matter 
on any basis other than the merits of the matter.
    (c) In addition to the above, the following restrictions are 
applicable to nonprofit organizations and IHEs:
    (1) Costs associated with the following activities are unallowable:
    (i) Attempts to influence the outcomes of any Federal, state, or 
local election, referendum, initiative, or similar procedure, through 
in-kind or cash contributions, endorsements, publicity, or similar 
activity;
    (ii) Establishing, administering, contributing to, or paying the 
expenses of a political party, campaign, political action committee, or 
other organization established for the purpose of influencing the 
outcomes of elections in the United States;
    (iii) Any attempt to influence:
    (A) The introduction of Federal or state legislation;
    (B) The enactment or modification of any pending Federal or state 
legislation through communication with any member or employee of the 
Congress or state legislature (including efforts to influence state or 
local officials to engage in similar lobbying activity);
    (C) The enactment or modification of any pending Federal or state 
legislation by preparing, distributing, or using publicity or 
propaganda, or by urging members of the general public, or any segment 
thereof, to contribute to or participate in any mass demonstration, 
march, rally, fund raising drive, lobbying campaign or letter writing 
or telephone campaign; or
    (D) Any government official or employee in connection with a 
decision to sign or veto enrolled legislation;
    (iv) Legislative liaison activities, including attendance at 
legislative sessions or committee hearings, gathering information 
regarding legislation, and analyzing the effect of legislation, when 
such activities are carried on in support of or in knowing preparation 
for an effort to engage in unallowable lobbying.
    (2) The following activities are excepted from the coverage of 
paragraph (c)(1) of this section:
    (i) Technical and factual presentations on topics directly related 
to the performance of a grant, contract, or other agreement (through 
hearing testimony, statements, or letters to the Congress or a state 
legislature, or subdivision, member, or cognizant staff member 
thereof), in response to a documented request (including a 
Congressional Record notice requesting testimony or statements for the 
record at a regularly scheduled hearing) made by the non-Federal 
entity's member of congress, legislative body or a subdivision, or a 
cognizant staff member thereof, provided such information is readily 
obtainable and can be readily put in deliverable form, and further 
provided that costs under this section for travel, lodging or meals are 
unallowable unless incurred to offer testimony at a regularly scheduled 
Congressional hearing pursuant to a written request for such 
presentation made by the Chairman or Ranking Minority Member of the 
Committee or Subcommittee conducting such hearings;
    (ii) Any lobbying made unallowable by paragraph (c)(1)(iii) of this 
section to influence state legislation in order to directly reduce the 
cost, or to avoid material impairment of the non-Federal entity's 
authority to perform the grant, contract, or other agreement; or
    (iii) Any activity specifically authorized by statute to be 
undertaken with funds from the Federal award.
    (iv) Any activity excepted from the definitions of ``lobbying'' or 
``influencing legislation'' by the Internal Revenue Code provisions 
that require nonprofit organizations to limit their participation in 
direct and ``grass roots'' lobbying activities in order to retain their 
charitable deduction status and avoid punitive excise taxes, IRC 
secs.501(c)(3), 501(h), 4911(a), including:
    (A) Nonpartisan analysis, study, or research reports;
    (B) Examinations and discussions of broad social, economic, and 
similar problems; and
    (C) Information provided upon request by a legislator for technical 
advice and assistance, as defined by IRC sec. 4911(d)(2) and 26 CFR 
56.4911-2(c)(1)-(c)(3).
    (v) When a non-Federal entity seeks reimbursement for indirect 
(F&A) costs, total lobbying costs must be separately identified in the 
indirect (F&A) cost rate proposal, and thereafter treated as other 
unallowable activity costs in accordance with the procedures of Sec.  
75.413.

[[Page 75938]]

    (vi) The non-Federal entity must submit as part of its annual 
indirect (F&A) cost rate proposal a certification that the requirements 
and standards of this section have been complied with. (See also Sec.  
75.415.)
    (vii)(A) Time logs, calendars, or similar records are not required 
to be created for purposes of complying with the record keeping 
requirements in Sec.  75.302 with respect to lobbying costs during any 
particular calendar month when:
    (1) The employee engages in lobbying (as defined in paragraphs 
(c)(1) and (c)(2) of this section) 25 percent or less of the employee's 
compensated hours of employment during that calendar month; and
    (2) Within the preceding five-year period, the non-Federal entity 
has not materially misstated allowable or unallowable costs of any 
nature, including legislative lobbying costs.
    (B) When conditions in paragraph (c)(2)(vii)(A)(1) and (2) of this 
section are met, non-Federal entities are not required to establish 
records to support the allowability of claimed costs in addition to 
records already required or maintained. Also, when conditions in 
paragraphs (c)(2)(vii)(A)(1) and (2) of this section are met, the 
absence of time logs, calendars, or similar records will not serve as a 
basis for disallowing costs by contesting estimates of lobbying time 
spent by employees during a calendar month.
    (viii) The HHS awarding agency must establish procedures for 
resolving in advance, in consultation with OMB, any significant 
questions or disagreements concerning the interpretation or application 
of this section. Any such advance resolutions must be binding in any 
subsequent settlements, audits, or investigations with respect to that 
grant or contract for purposes of interpretation of this part, 
provided, however, that this must not be construed to prevent a 
contractor or non-Federal entity from contesting the lawfulness of such 
a determination.


Sec.  75.451  Losses on other awards or contracts.

    Any excess of costs over income under any other award or contract 
of any nature is unallowable. This includes, but is not limited to, the 
non-Federal entity's contributed portion by reason of cost-sharing 
agreements or any under-recoveries through negotiation of flat amounts 
for indirect (F&A) costs. Also, any excess of costs over authorized 
funding levels transferred from any award or contract to another award 
or contract is unallowable. All losses are not allowable indirect (F&A) 
costs and are required to be included in the appropriate indirect cost 
rate base for allocation of indirect costs.


Sec.  75.452  Maintenance and repair costs.

    Costs incurred for utilities, insurance, security, necessary 
maintenance, janitorial services, repair, or upkeep of buildings and 
equipment (including Federal property unless otherwise provided for) 
which neither add to the permanent value of the property nor 
appreciably prolong its intended life, but keep it in an efficient 
operating condition, are allowable. Costs incurred for improvements 
which add to the permanent value of the buildings and equipment or 
appreciably prolong their intended life must be treated as capital 
expenditures (see Sec.  75.439). These costs are only allowable to the 
extent not paid through rental or other agreements.


Sec.  75.453  Materials and supplies costs, including costs of 
computing devices.

    (a) Costs incurred for materials, supplies, and fabricated parts 
necessary to carry out a Federal award are allowable.
    (b) Purchased materials and supplies must be charged at their 
actual prices, net of applicable credits. Withdrawals from general 
stores or stockrooms must 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) Materials and supplies used for the performance of a Federal 
award may be charged as direct costs. In the specific case of computing 
devices, charging as direct costs is allowable for devices that are 
essential and allocable, but not solely dedicated, to the performance 
of a Federal award.
    (d) Where federally-donated or furnished materials are used in 
performing the Federal award, such materials will be used without 
charge.


Sec.  75.454  Memberships, subscriptions, and professional activity 
costs.

    (a) Costs of the non-Federal entity's membership in business, 
technical, and professional organizations are allowable.
    (b) Costs of the non-Federal entity's subscriptions to business, 
professional, and technical periodicals are allowable.
    (c) Costs of membership in any civic or community organization are 
allowable with prior approval by the HHS awarding agency or pass-
through entity.
    (d) Costs of membership in any country club or social or dining 
club or organization are unallowable.
    (e) Costs of membership in organizations whose primary purpose is 
lobbying are unallowable. See also Sec.  75.450.


Sec.  75.455  Organization costs.

    Costs such as incorporation fees, brokers' fees, fees to promoters, 
organizers or management consultants, attorneys, accountants, or 
investment counselor, whether or not employees of the non-Federal 
entity in connection with establishment or reorganization of an 
organization, are unallowable except with prior approval of the HHS 
awarding agency.


Sec.  75.456  Participant support costs.

    Participant support costs are defined in Sec.  75.2. Participant 
support costs are allowable with the prior approval of the HHS awarding 
agency.


Sec.  75.457  Plant and security costs.

    Necessary and reasonable expenses incurred for protection and 
security of 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; 
protective (non-military) gear, devices, and equipment; contractual 
security services; and consultants. Capital expenditures for plant 
security purposes are subject to Sec.  75.439.


Sec.  75.458  Pre-award costs.

    Pre-award costs are those incurred prior to the effective date of 
the Federal award directly pursuant to the negotiation and in 
anticipation of the Federal award where such costs are necessary for 
efficient and timely performance of the scope of work. Such costs are 
allowable only to the extent that they would have been allowable if 
incurred after the date of the Federal award and only with the written 
approval of the HHS awarding agency.


Sec.  75.459  Professional services costs.

    (a) Costs of professional and consultant services rendered by 
persons who are members of a particular profession or possess a special 
skill, and who are not officers or employees of the non-Federal entity, 
are allowable, subject to paragraphs (b) and (c) of this section 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 Sec.  75.435.
    (b) In determining the allowability of costs in a particular case, 
no single factor or any special combination of factors is necessarily 
determinative.

[[Page 75939]]

However, the following factors are relevant:
    (1) The nature and scope of the service rendered in relation to the 
service required.
    (2) The necessity of contracting for the service, considering the 
non-Federal entity's capability in the particular area.
    (3) The past pattern of such costs, particularly in the years prior 
to Federal awards.
    (4) The impact of Federal awards on the non-Federal entity's 
business (i.e., what new problems have arisen).
    (5) Whether the proportion of Federal work to the non-Federal 
entity's total business is such as to influence the non-Federal entity 
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 awards.
    (6) Whether the service can be performed more economically by 
direct employment rather than contracting.
    (7) The qualifications of the individual or concern rendering the 
service and the customary fees charged, especially on non-federally 
funded activities.
    (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 paragraph (b) of this section, to 
be allowable, retainer fees must be supported by evidence of bona fide 
services available or rendered.


Sec.  75.460  Proposal costs.

    Proposal costs are the costs of preparing bids, proposals, or 
applications on potential Federal and non-Federal awards or projects, 
including the development of data necessary to support the non-Federal 
entity's bids or proposals. Proposal costs of the current accounting 
period of both successful and unsuccessful bids and proposals normally 
should be treated as indirect (F&A) costs and allocated currently to 
all activities of the non-Federal entity. No proposal costs of past 
accounting periods will be allocable to the current period.


Sec.  75.461  Publication and printing costs.

    (a) Publication costs for electronic and print media, including 
distribution, promotion, and general handling are allowable. If these 
costs are not identifiable with a particular cost objective, they 
should be allocated as indirect costs to all benefiting activities of 
the non-Federal entity.
    (b) Page charges for professional journal publications are 
allowable where:
    (1) The publications report work supported by the Federal 
Government; and
    (2) The charges are levied impartially on all items published by 
the journal, whether or not under a Federal award.
    (c) The non-Federal entity may charge the Federal award before 
closeout for the costs of publication as prescribed in paragraphs (a) 
or (b) of this section or sharing of research results if the costs are 
not incurred during the period of performance of the Federal award.


Sec.  75.462  Rearrangement and reconversion costs.

    (a) Costs incurred for ordinary and normal rearrangement and 
alteration of facilities are allowable as indirect costs. Special 
arrangements and alterations costs incurred specifically for a Federal 
award are allowable as a direct cost with the prior approval of the HHS 
awarding agency or pass-through entity.
    (b) Costs incurred in the restoration or rehabilitation of the non-
Federal entity'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.


Sec.  75.463  Recruiting costs.

    (a) Subject to paragraphs (b) and (c) of this section, and provided 
that the size of the staff recruited and maintained is in keeping with 
workload requirements, costs of ``help wanted'' advertising, operating 
costs of an employment office necessary to secure and maintain an 
adequate staff, costs of operating an aptitude and educational testing 
program, travel costs of employees while engaged in recruiting 
personnel, travel costs of applicants for interviews for prospective 
employment, and relocation costs incurred incident to recruitment of 
new employees, are allowable to the extent that such costs are incurred 
pursuant to the non-Federal entity's standard recruitment program. 
Where the non-Federal entity uses employment agencies, costs not in 
excess of standard commercial rates for such services are allowable.
    (b) Special emoluments, fringe benefits, and salary allowances 
incurred to attract professional personnel that do not meet the test of 
reasonableness or do not conform with the established practices of the 
non-Federal entity, are unallowable.
    (c) Where relocation costs incurred incident to recruitment of a 
new employee have been funded in whole or in part to a Federal award, 
and the newly hired employee resigns for reasons within the employee's 
control within 12 months after hire, the non-Federal entity will be 
required to refund or credit the Federal share of such relocation costs 
to the Federal Government. See also Sec.  75.464.
    (d) Short-term, travel visa costs (as opposed to longer-term, 
immigration visas) are generally allowable expenses that may be 
proposed as a direct cost. Since short-term visas are issued for a 
specific period and purpose, they can be clearly identified as directly 
connected to work performed on a Federal award. For these costs to be 
directly charged to a Federal award, they must:
    (1) Be critical and necessary for the conduct of the project;
    (2) Be allowable under the applicable cost principles;
    (3) Be consistent with the non-Federal entity's cost accounting 
practices and non-Federal entity policy; and
    (4) Meet the definition of ``direct cost'' as described in the 
applicable cost principles.


Sec.  75.464  Relocation costs of employees.

    (a) Relocation costs are costs incident to the permanent change of 
duty assignment (for an indefinite period or for a stated period of not 
less than 12 months) of an existing employee or upon recruitment of a 
new employee. Relocation costs are allowable, subject to the 
limitations described in paragraphs (b), (c), and (d) of this section, 
provided that:
    (1) The move is for the benefit of the employer.
    (2) Reimbursement to the employee is in accordance with an 
established written policy consistently followed by the employer.
    (3) The reimbursement does not exceed the employee's actual (or 
reasonably estimated) expenses.
    (b) Allowable relocation costs for current employees are limited to 
the following:
    (1) The costs of transportation of the employee, members of his or 
her immediate family and his household, and personal effects to the new 
location.
    (2) The costs of finding a new home, such as advance trips by 
employees and spouses to locate living quarters and temporary lodging 
during the transition period, up to maximum period of 30 calendar days.
    (3) Closing costs, such as brokerage, legal, and appraisal fees, 
incident to the disposition of the employee's former home. These costs, 
together with those described in (4), are limited to 8 per cent of the 
sales price of the employee's former home.
    (4) The continuing costs of ownership (for up to six months) of the 
vacant former home after the settlement or lease date of the employee's 
new

[[Page 75940]]

permanent home, such as maintenance of buildings and grounds (exclusive 
of fixing-up expenses), utilities, taxes, and property insurance.
    (5) Other necessary and reasonable expenses normally incident to 
relocation, such as the costs of canceling an unexpired lease, 
transportation of personal property, and purchasing insurance against 
loss of or damages to personal property. The cost of canceling an 
unexpired lease is limited to three times the monthly rental.
    (c) Allowable relocation costs for new employees are limited to 
those described in paragraphs (b)(1) and (2) of this section. When 
relocation costs incurred incident to the recruitment of new employees 
have been charged to a Federal award and the employee resigns for 
reasons within the employee's control within 12 months after hire, the 
non-Federal entity must refund or credit the Federal Government for its 
share of the cost. However, the costs of travel to an overseas location 
must be considered travel costs in accordance with Sec.  75.474, and 
not Sec.  75.464, for the purpose of this paragraph if dependents are 
not permitted at the location for any reason and the costs do not 
include costs of transporting household goods.
    (d) The following costs related to relocation are unallowable:
    (1) Fees and other costs associated with acquiring a new home.
    (2) A loss on the sale of a former home.
    (3) Continuing mortgage principal and interest payments on a home 
being sold.
    (4) Income taxes paid by an employee related to reimbursed 
relocation costs.


Sec.  75.465  Rental costs of real property and equipment.

    (a) Subject to the limitations described in paragraphs (b) and (c) 
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 non-
Federal entity continued to own the property. This amount would include 
expenses such as depreciation, maintenance, taxes, and insurance.
    (c) Rental costs under ``less-than-arm's-length'' leases are 
allowable only up to the amount (as explained in paragraph (b) of this 
section). 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:
    (1) Divisions of the non-Federal entity;
    (2) The non-Federal entity under common control through common 
officers, directors, or members; and
    (3) The non-Federal entity and a director, trustee, officer, or key 
employee of the non-Federal entity or an immediate family member, 
either directly or through corporations, trusts, or similar 
arrangements in which they hold a controlling interest. For example, 
the non-Federal entity may establish a separate corporation for the 
sole purpose of owning property and leasing it back to the non-Federal 
entity.
    (4) Family members include one party with any of the following 
relationships to another party:
    (i) Spouse, and parents thereof;
    (ii) Children, and spouses thereof;
    (iii) Parents, and spouses thereof;
    (iv) Siblings, and spouses thereof;
    (v) Grandparents and grandchildren, and spouses thereof;
    (vi) Domestic partner and parents thereof, including domestic 
partners of any individual in 2 through 5 of this definition; and
    (vii) Any individual related by blood or affinity whose close 
association with the employee is the equivalent of a family 
relationship.
    (5) 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 paragraph (b) of this section) that would be allowed had 
the non-Federal entity purchased the property on the date the lease 
agreement was executed. The provisions of GAAP must 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 
Sec.  75.449. Unallowable costs include amounts paid for profit, 
management fees, and taxes that would not have been incurred had the 
non-Federal entity purchased the property.
    (6) The rental of any property owned by any individuals or entities 
affiliated with the non-Federal entity, to include commercial or 
residential real estate, for purposes such as the home office workspace 
is unallowable.


Sec.  75.466  Scholarships and student aid costs.

    (a) Costs of scholarships, fellowships, and other programs of 
student aid at IHEs are allowable only when the purpose of the Federal 
award is to provide training to selected participants and the charge is 
approved by the HHS awarding agency. However, tuition remission and 
other forms of compensation paid as, or in lieu of, wages to students 
performing necessary work are allowable provided that:
    (1) The individual is conducting activities necessary to the 
Federal award;
    (2) Tuition remission and other support are provided in accordance 
with established policy of the IHE and consistently provided in a like 
manner to students in return for similar activities conducted under 
Federal awards as well as other activities; and
    (3) During the academic period, the student is enrolled in an 
advanced degree program at a non-Federal entity or affiliated 
institution and the activities of the student in relation to the 
Federal award are related to the degree program;
    (4) The tuition or other payments are reasonable compensation for 
the work performed and are conditioned explicitly upon the performance 
of necessary work; and
    (5) It is the IHE's practice to similarly compensate students under 
Federal awards as well as other activities.
    (b) Charges for tuition remission and other forms of compensation 
paid to students as, or in lieu of, salaries and wages must be subject 
to the reporting requirements in Sec.  75.430, and must be treated as 
direct or indirect cost in accordance with the actual work being 
performed. Tuition remission may be charged on an average rate basis. 
See also Sec.  75.431.


Sec.  75.467  Selling and marketing costs.

    Costs of selling and marketing any products or services of the non-
Federal entity (unless allowed under Sec.  75.421) are unallowable, 
except as direct costs, with prior approval by the HHS awarding agency 
when necessary for the performance of the Federal award.


Sec.  75.468  Specialized service facilities.

    (a) The costs of services provided by highly complex or specialized 
facilities operated by the non-Federal entity, such as computing 
facilities, wind tunnels, and reactors are allowable, provided the 
charges for the services meet the conditions of either paragraphs (b) 
or (c) of this section, and, in addition, take into account any items 
of income or Federal financing that qualify as applicable credits under 
Sec.  75.406.
    (b) The costs of such services, when material, must be charged 
directly to applicable awards based on actual usage of the services on 
the basis of a schedule of rates or established methodology that:

[[Page 75941]]

    (1) Does not discriminate between activities under Federal awards 
and other activities of the non-Federal entity, including usage by the 
non-Federal entity for internal purposes, and
    (2) Is designed to recover only the aggregate costs of the 
services. The costs of each service must consist normally of both its 
direct costs and its allocable share of all indirect (F&A) costs. Rates 
must be adjusted at least biennially, and must take into consideration 
over/under applied costs of the previous period(s).
    (c) Where the costs incurred for a service are not material, they 
may be allocated as indirect (F&A) costs.
    (d) Under some extraordinary circumstances, where it is in the best 
interest of the Federal Government and the non-Federal entity to 
establish alternative costing arrangements, such arrangements may be 
worked out with the Federal cognizant agency for indirect costs.


Sec.  75.469  Student activity costs.

    Costs incurred for intramural activities, student publications, 
student clubs, and other student activities, are unallowable, unless 
specifically provided for in the Federal award.


Sec.  75.470  Taxes (including Value Added Tax).

    (a) For states, local governments and Indian tribes:
    (1) Taxes that a governmental unit is legally required to pay are 
allowable, except for self-assessed taxes that disproportionately 
affect Federal programs or changes in tax policies that 
disproportionately affect Federal programs.
    (2) Gasoline taxes, motor vehicle fees, and other taxes that are in 
effect user fees for benefits provided to the Federal Government are 
allowable.
    (3) This provision does not restrict the authority of the HHS 
awarding agency 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 for indirect costs may accept a reasonable approximation 
thereof.
    (b) For nonprofit organizations and IHEs:
    (1) In general, taxes which the non-Federal entity is required to 
pay and which are paid or accrued in accordance with GAAP, and payments 
made to local governments in lieu of taxes which are commensurate with 
the local government services received are allowable, except for:
    (i) Taxes from which exemptions are available to the non-Federal 
entity directly or which are available to the non-Federal entity based 
on an exemption afforded the Federal Government and, in the latter 
case, when the HHS awarding agency makes available the necessary 
exemption certificates,
    (ii) Special assessments on land which represent capital 
improvements, and
    (iii) Federal income taxes.
    (2) Any refund of taxes, and any payment to the non-Federal entity 
of interest thereon, which were allowed as Federal award costs, will be 
credited either as a cost reduction or cash refund, as appropriate, to 
the Federal Government. However, any interest actually paid or credited 
to an non-Federal entity incident to a refund of tax, interest, and 
penalty will be paid or credited to the Federal Government only to the 
extent that such interest accrued over the period during which the non-
Federal entity has been reimbursed by the Federal Government for the 
taxes, interest, and penalties.
    (c) Value Added Tax (VAT) Foreign taxes charged for the purchase of 
goods or services that a non-Federal entity is legally required to pay 
in country is an allowable expense under Federal awards. Foreign tax 
refunds or applicable credits under Federal awards refer to receipts, 
or reduction of expenditures, which operate to offset or reduce expense 
items that are allocable to Federal awards as direct or indirect costs. 
To the extent that such credits accrued or received by the non-Federal 
entity relate to allowable cost, these costs must be credited to the 
HHS awarding agency either as costs or cash refunds. If the costs are 
credited back to the Federal award, the non-Federal entity may reduce 
the Federal share of costs by the amount of the foreign tax 
reimbursement, or where Federal award has not expired, use the foreign 
government tax refund for approved activities under the Federal award 
with prior approval of the HHS awarding agency.


Sec.  75.471  Termination costs.

    Termination of a Federal award 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 in this section. They are 
to be used in conjunction with the other provisions of this part in 
termination situations.
    (a) The cost of items reasonably usable on the non-Federal entity's 
other work must not be allowable unless the non-Federal entity submits 
evidence that it would not retain such items at cost without sustaining 
a loss. In deciding whether such items are reasonably usable on other 
work of the non-Federal entity, the HHS awarding agency should consider 
the non-Federal entity's plans and orders for current and scheduled 
activity. Contemporaneous purchases of common items by the non-Federal 
entity must be regarded as evidence that such items are reasonably 
usable on the non-Federal entity's other work. Any acceptance of common 
items as allocable to the terminated portion of the Federal award must 
be limited to the extent that the quantities of such items on hand, in 
transit, and on order are in excess of the reasonable quantitative 
requirements of other work.
    (b) If in a particular case, despite all reasonable efforts by the 
non-Federal entity, certain costs cannot be discontinued immediately 
after the effective date of termination, such costs are generally 
allowable within the limitations set forth in this part, except that 
any such costs continuing after termination due to the negligent or 
willful failure of the non-Federal entity to discontinue such costs 
must 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 non-Federal entity,
    (2) The interest of the Federal Government is protected by transfer 
of title or by other means deemed appropriate by the HHS awarding 
agency (see also Sec.  75.320(d)), 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 non-Federal entity 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

[[Page 75942]]

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:
    (i) The preparation and presentation to the Federal awarding agency 
of settlement claims and supporting data with respect to the terminated 
portion of the Federal award, unless the termination is for cause (see 
Subpart D of this part, Sec. Sec.  75.371 through 75.375); and
    (ii) 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.
    (f) Claims under subawards, including the allocable portion of 
claims which are common to the Federal award and to other work of the 
non-Federal entity, are generally allowable. An appropriate share of 
the non-Federal entity's indirect costs may be allocated to the amount 
of settlements with contractors and/or subrecipients, provided that the 
amount allocated is otherwise consistent with the basic guidelines 
contained in Sec.  75.414. The indirect costs so allocated must exclude 
the same and similar costs claimed directly or indirectly as settlement 
expenses.


Sec.  75.472  Training and education costs.

    The cost of training and education provided for employee 
development is allowable.


Sec.  75.473  Transportation costs.

    Costs incurred for freight, express, cartage, postage, and other 
transportation services relating either to goods purchased, in process, 
or delivered, are allowable. When such costs can readily be identified 
with the items involved, they may be charged directly as transportation 
costs or added to the cost of such items. Where identification with the 
materials received cannot readily be made, inbound transportation cost 
may be charged to the appropriate indirect (F&A) cost accounts if the 
non-Federal entity follows a consistent, equitable procedure in this 
respect. Outbound freight, if reimbursable under the terms and 
conditions of the Federal award, should be treated as a direct cost.


Sec.  75.474  Travel costs.

    (a) General. Travel costs are the expenses for transportation, 
lodging, subsistence, and related items incurred by employees who are 
in travel status on official business of the non-Federal entity. Such 
costs may be charged on an actual cost basis, on a per diem or mileage 
basis in lieu of actual costs incurred, or on a combination of the two, 
provided the method used is applied to an entire trip and not to 
selected days of the trip, and results in charges consistent with those 
normally allowed in like circumstances in the non-Federal entity's non-
federally-funded activities and in accordance with non-Federal entity's 
written travel reimbursement policies. Notwithstanding the provisions 
of Sec.  75.444, travel costs of officials covered by that section are 
allowable with the prior written approval of the Federal awarding 
agency or pass-through entity when they are specifically related to the 
Federal award.
    (b) Lodging and subsistence. Costs incurred by employees and 
officers for travel, including costs of lodging, other subsistence, and 
incidental expenses, must be considered reasonable and otherwise 
allowable only to the extent such costs do not exceed charges normally 
allowed by the non-Federal entity in its regular operations as the 
result of the non-Federal entity's written travel policy. In addition, 
if these costs are charged directly to the Federal award documentation 
must justify that:
    (1) Participation of the individual is necessary to the Federal 
award; and
    (2) The costs are reasonable and consistent with non-Federal 
entity's established travel policy.
    (c)(1) Temporary dependent care costs (as dependent is defined in 
26 U.S.C. 152) above and beyond regular dependent care that directly 
results from travel to conferences is allowable provided that:
    (i) The costs are a direct result of the individual's travel for 
the Federal award;
    (ii) The costs are consistent with the non-Federal entity's 
documented travel policy for all entity travel; and
    (iii) Are only temporary during the travel period.
    (2) Travel costs for dependents are unallowable, except for travel 
of duration of six months or more with prior approval of the HHS 
awarding agency. See also Sec.  75.432.
    (d) In the absence of an acceptable, written non-Federal entity 
policy regarding travel costs, the rates and amounts established under 
5 U.S.C. 5701-11, or by the Administrator of General Services, or by 
the President (or his or her designee) pursuant to any provisions of 
such subchapter must apply to travel under Federal awards (48 CFR 
31.205-46(a)).
    (e) Commercial air travel. (1) Airfare costs in excess of the basic 
least expensive unrestricted accommodations class offered by commercial 
airlines are unallowable except when such accommodations would:
    (i) Require circuitous routing;
    (ii) Require travel during unreasonable hours;
    (iii) Excessively prolong travel;
    (iv) Result in additional costs that would offset the 
transportation savings; or
    (v) Offer accommodations not reasonably adequate for the traveler's 
medical needs. The non-Federal entity must justify and document these 
conditions on a case-by-case basis in order for the use of first-class 
or business-class airfare to be allowable in such cases.
    (2) Unless a pattern of avoidance is detected, the Federal 
Government will generally not question a non-Federal entity's 
determinations that customary standard airfare or other discount 
airfare is unavailable for specific trips if the non-Federal entity can 
demonstrate that such airfare was not available in the specific case.
    (f) Air travel by other than commercial carrier. Costs of travel by 
non-Federal entity-owned, -leased, or -chartered aircraft include the 
cost of lease, charter, operation (including personnel costs), 
maintenance, depreciation, insurance, and other related costs. The 
portion of such costs that exceeds the cost of airfare as provided for 
in paragraph (d) of this section, is unallowable.


Sec.  75.475  Trustees.

    Travel and subsistence costs of trustees (or directors) at IHEs and 
nonprofit organizations are allowable. See also Sec.  75.474.

HHS Selected Items of Cost


Sec.  75.476  Independent research and development costs.

    Independent research and development is research and development 
which is conducted by an organization, and which is not sponsored by 
Federal or non-Federal awards, contracts, or other agreements. 
Independent research and development shall be allocated its 
proportionate share of indirect costs on the same basis as the 
allocation of indirect costs to sponsored research and development. The 
cost of independent research and development, including their 
proportionate share of indirect costs, are unallowable.

[[Page 75943]]

Subpart F--Audit Requirements

General


Sec.  75.500  Purpose.

    This part sets forth standards for obtaining consistency and 
uniformity among HHS agencies for the audit of non-Federal entities 
expending Federal awards.

Audits


Sec.  75.501  Audit requirements.

    (a) Audit required. A non-Federal entity that expends $750,000 or 
more during the non-Federal entity's fiscal year in Federal awards must 
have a single or program-specific audit conducted for that year in 
accordance with the provisions of this part.
    (b) Single audit. A non-Federal entity that expends $750,000 or 
more during the non-Federal entity's fiscal year in Federal awards must 
have a single audit conducted in accordance with Sec.  75.514 except 
when it elects to have a program-specific audit conducted in accordance 
with paragraph (c) of this section.
    (c) Program-specific audit election. When an auditee expends 
Federal awards under only one Federal program (excluding R&D) and the 
Federal program's statutes, regulations, or the terms and conditions of 
the Federal award do not require a financial statement audit of the 
auditee, the auditee may elect to have a program-specific audit 
conducted in accordance with Sec.  75.507. A program-specific audit may 
not be elected for R&D unless all of the Federal awards expended were 
received from the same Federal agency, or the same Federal agency and 
the same pass-through entity, and that Federal agency, or pass-through 
entity in the case of a subrecipient, approves in advance a program-
specific audit.
    (d) Exemption when Federal awards expended are less than $750,000. 
A non-Federal entity that expends less than $750,000 during the non-
Federal entity's fiscal year in Federal awards is exempt from Federal 
audit requirements for that year, except as noted in Sec.  75.503, but 
records must be available for review or audit by appropriate officials 
of the Federal agency, pass-through entity, and Government 
Accountability Office (GAO).
    (e) Federally Funded Research and Development Centers (FFRDC). 
Management of an auditee that owns or operates a FFRDC may elect to 
treat the FFRDC as a separate entity for purposes of this part.
    (f) Subrecipients and Contractors. An auditee may simultaneously be 
a recipient, a subrecipient, and a contractor. Federal awards expended 
as a recipient or a subrecipient are subject to audit under this part. 
The payments received for goods or services provided as a contractor 
are not Federal awards. Section 75.351 sets forth the considerations in 
determining whether payments constitute a Federal award or a payment 
for goods or services provided as a contractor.
    (g) Compliance responsibility for contractors. In most cases, the 
auditee's compliance responsibility for contractors is only to ensure 
that the procurement, receipt, and payment for goods and services 
comply with Federal statutes, regulations, and the terms and conditions 
of Federal awards. Federal award compliance requirements normally do 
not pass through to contractors. However, the auditee is responsible 
for ensuring compliance for procurement transactions which are 
structured such that the contractor is responsible for program 
compliance or the contractor's records must be reviewed to determine 
program compliance. Also, when these procurement transactions relate to 
a major program, the scope of the audit must include determining 
whether these transactions are in compliance with Federal statutes, 
regulations, and the terms and conditions of Federal awards.
    (h) For-profit subrecipient. Since this part does not apply to for-
profit subrecipients, the pass-through entity is responsible for 
establishing requirements, as necessary, to ensure compliance by for-
profit subrecipients. The agreement with the for-profit subrecipient 
must describe applicable compliance requirements and the for-profit 
subrecipient's compliance responsibility. Methods to ensure compliance 
for Federal awards made to for-profit subrecipients may include pre-
award audits, monitoring during the agreement, and post-award audits. 
See also Sec.  75.352.
    (i) Recipients and subrecipients that are commercial organizations 
(including for-profit hospitals) have two options regarding audits:
    (1) A financial related audit (as defined in the Government 
Auditing Standards, GPO Stock #020-000-00-265-4) of a particular award 
in accordance with Government Auditing Standards, in those cases where 
the recipient receives awards under only one HHS program; or, if awards 
are received under multiple HHS programs, a financial related audit of 
all HHS awards in accordance with Government Auditing Standards; or
    (2) An audit that meets the requirements contained in this subpart.
    (j) Commercial organizations that receive annual HHS awards 
totaling less than $750,000 are exempt from requirements for a non-
Federal audit for that year, but records must be available for review 
by appropriate officials of Federal agencies.
    (k) See also Sec.  75.215.


Sec.  75.502  Basis for determining Federal awards expended.

    (a) Determining Federal awards expended. The determination of when 
a Federal award is expended must be based on when the activity related 
to the Federal award occurs. Generally, the activity pertains to events 
that require the non-Federal entity to comply with Federal statutes, 
regulations, and the terms and conditions of Federal awards, such as: 
expenditure/expense transactions associated with awards including 
grants, cost-reimbursement contracts under the FAR, compacts with 
Indian Tribes, cooperative agreements, and direct appropriations; the 
disbursement of funds to subrecipients; the use of loan proceeds under 
loan and loan guarantee programs; the receipt of property; the receipt 
of surplus property; the receipt or use of program income; the 
distribution or use of food commodities; the disbursement of amounts 
entitling the non-Federal entity to an interest subsidy; and the period 
when insurance is in force.
    (b) Loan and loan guarantees (loans). Since the Federal Government 
is at risk for loans until the debt is repaid, the following guidelines 
must be used to calculate the value of Federal awards expended under 
loan programs, except as noted in paragraphs (c) and (d) of this 
section:
    (1) Value of new loans made or received during the audit period; 
plus
    (2) Beginning of the audit period balance of loans from previous 
years for which the Federal Government imposes continuing compliance 
requirements; plus
    (3) Any interest subsidy, cash, or administrative cost allowance 
received.
    (c) Loan and loan guarantees (loans) at IHEs. When loans are made 
to students of an IHE but the IHE does not make the loans, then only 
the value of loans made during the audit period must be considered 
Federal awards expended in that audit period. The balance of loans for 
previous audit periods is not included as Federal awards expended 
because the lender accounts for the prior balances.
    (d) Prior loan and loan guarantees (loans). Loans, the proceeds of 
which were received and expended in prior years, are not considered 
Federal awards expended under this part when the Federal statutes, 
regulations, and the terms and conditions of Federal awards

[[Page 75944]]

pertaining to such loans impose no continuing compliance requirements 
other than to repay the loans.
    (e) Endowment funds. The cumulative balance of Federal awards for 
endowment funds that are federally restricted are considered Federal 
awards expended in each audit period in which the funds are still 
restricted.
    (f) Free rent. Free rent received by itself is not considered a 
Federal award expended under this part. However, free rent received as 
part of a Federal award to carry out a Federal program must be included 
in determining Federal awards expended and subject to audit under this 
part.
    (g) Valuing non-cash assistance. Federal non-cash assistance, such 
as free rent, food commodities, donated property, or donated surplus 
property, must be valued at fair market value at the time of receipt or 
the assessed value provided by the HHS agency.
    (h) Medicare. Medicare payments to a non-Federal entity for 
providing patient care services to Medicare-eligible individuals are 
not considered Federal awards expended under this part.
    (i) Medicaid. Medicaid payments to a subrecipient for providing 
patient care services to Medicaid-eligible individuals are not 
considered Federal awards expended under this part unless a state 
requires the funds to be treated as Federal awards expended because 
reimbursement is on a cost-reimbursement basis.
    (j) Certain loans provided by the National Credit Union 
Administration. For purposes of this part, loans made from the National 
Credit Union Share Insurance Fund and the Central Liquidity Facility 
that are funded by contributions from insured non-Federal entities are 
not considered Federal awards expended.


Sec.  75.503  Relation to other audit requirements.

    (a) An audit conducted in accordance with this part must be in lieu 
of any financial audit of Federal awards which a non-Federal entity is 
required to undergo under any other Federal statute or regulation. To 
the extent that such audit provides a Federal agency with the 
information it requires to carry out its responsibilities under Federal 
statute or regulation, a Federal agency must rely upon and use that 
information.
    (b) Notwithstanding paragraph (a) of this section, a Federal 
agency, Inspectors General, or GAO may conduct or arrange for 
additional audits which are necessary to carry out its responsibilities 
under Federal statute or regulation. The provisions of this part do not 
authorize any non-Federal entity to constrain, in any manner, such 
Federal agency from carrying out or arranging for such additional 
audits, except that the Federal agency must plan such audits to not be 
duplicative of other audits of Federal awards. Prior to commencing such 
an audit, the Federal agency or pass-through entity must review the FAC 
for recent audits submitted by the non-Federal entity, and to the 
extent such audits meet a Federal agency or pass-through entity's 
needs, the Federal agency or pass-through entity must rely upon and use 
such audits. Any additional audits must be planned and performed in 
such a way as to build upon work performed, including the audit 
documentation, sampling, and testing already performed, by other 
auditors.
    (c) The provisions of this part do not limit the authority of 
Federal agencies to conduct, or arrange for the conduct of, audits and 
evaluations of Federal awards, nor limit the authority of any Federal 
agency Inspector General or other Federal official. For example, 
requirements that may be applicable under the FAR or CAS and the terms 
and conditions of a cost-reimbursement contract may include additional 
applicable audits to be conducted or arranged for by Federal agencies.
    (d) Federal agency to pay for additional audits. A Federal agency 
that conducts or arranges for additional audits must, consistent with 
other applicable Federal statutes and regulations, arrange for funding 
the full cost of such additional audits.
    (e) Request for a program to be audited as a major program. An HHS 
awarding agency may request that an auditee have a particular Federal 
program audited as a major program in lieu of the HHS awarding agency 
conducting or arranging for the additional audits. To allow for 
planning, such requests should be made at least 180 calendar days prior 
to the end of the fiscal year to be audited. The auditee, after 
consultation with its auditor, should promptly respond to such a 
request by informing the HHS awarding agency whether the program would 
otherwise be audited as a major program using the risk-based audit 
approach described in Sec.  75.518 and, if not, the estimated 
incremental cost. The HHS awarding agency must then promptly confirm to 
the auditee whether it wants the program audited as a major program. If 
the program is to be audited as a major program based upon this HHS 
awarding agency request, and the HHS awarding agency agrees to pay the 
full incremental costs, then the auditee must have the program audited 
as a major program. A pass-through entity may use the provisions of 
this paragraph for a subrecipient.


Sec.  75.504  Frequency of audits.

    Except for the provisions for biennial audits provided in 
paragraphs (a) and (b) of this section, audits required by this part 
must be performed annually. Any biennial audit must cover both years 
within the biennial period.
    (a) A state, local government, or Indian tribe that is required by 
constitution or statute, in effect on January 1, 1987, to undergo its 
audits less frequently than annually, is permitted to undergo its 
audits pursuant to this part biennially. This requirement must still be 
in effect for the biennial period.
    (b) Any nonprofit organization that had biennial audits for all 
biennial periods ending between July 1, 1992, and January 1, 1995, is 
permitted to undergo its audits pursuant to this part biennially.


Sec.  75.505  Sanctions.

    In cases of continued inability or unwillingness to have an audit 
conducted in accordance with this part, Federal agencies and pass-
through entities must take appropriate action as provided in Sec.  
75.371.


Sec.  75.506  Audit costs.

    See Sec.  75.425.


Sec.  75.507  Program-specific audits.

    (a) Program-specific audit guide available. In many cases, a 
program-specific audit guide will be available to provide specific 
guidance to the auditor with respect to internal controls, compliance 
requirements, suggested audit procedures, and audit reporting 
requirements. A listing of current program-specific audit guides can be 
found in the compliance supplement beginning with the 2014 supplement 
including HHS awarding agency contact information and a Web site where 
a copy of the guide can be obtained. When a current program-specific 
audit guide is available, the auditor must follow GAGAS and the guide 
when performing a program-specific audit.
    (b) Program-specific audit guide not available. (1) When a current 
program-specific audit guide is not available, the auditee and auditor 
must have basically the same responsibilities for the Federal program 
as they would have for an audit of a major program in a single audit.
    (2) The auditee must prepare the financial statement(s) for the 
Federal program that includes, at a minimum, a schedule of expenditures 
of Federal awards for the program and notes that describe the 
significant accounting

[[Page 75945]]

policies used in preparing the schedule, a summary schedule of prior 
audit findings consistent with the requirements of Sec.  75.511(b), and 
a corrective action plan consistent with the requirements of Sec.  
75.511(c).
    (3) The auditor must:
    (i) Perform an audit of the financial statement(s) for the Federal 
program in accordance with GAGAS;
    (ii) Obtain an understanding of internal controls and perform tests 
of internal controls over the Federal program consistent with the 
requirements of Sec.  75.514(c) for a major program;
    (iii) Perform procedures to determine whether the auditee has 
complied with Federal statutes, regulations, and the terms and 
conditions of Federal awards that could have a direct and material 
effect on the Federal program consistent with the requirements of Sec.  
75.514(d) for a major program;
    (iv) Follow up on prior audit findings, perform procedures to 
assess the reasonableness of the summary schedule of prior audit 
findings prepared by the auditee in accordance with the requirements of 
Sec.  75.511, and report, as a current year audit finding, when the 
auditor concludes that the summary schedule of prior audit findings 
materially misrepresents the status of any prior audit finding; and
    (v) Report any audit findings consistent with the requirements of 
Sec.  75.516.
    (4) The auditor's report(s) may be in the form of either combined 
or separate reports and may be organized differently from the manner 
presented in this section. The auditor's report(s) must state that the 
audit was conducted in accordance with this part and include the 
following:
    (i) An opinion (or disclaimer of opinion) as to whether the 
financial statement(s) of the Federal program is presented fairly in 
all material respects in accordance with the stated accounting 
policies;
    (ii) A report on internal control related to the Federal program, 
which must describe the scope of testing of internal control and the 
results of the tests;
    (iii) A report on compliance which includes an opinion (or 
disclaimer of opinion) as to whether the auditee complied with laws, 
regulations, and the terms and conditions of Federal awards which could 
have a direct and material effect on the Federal program; and
    (iv) A schedule of findings and questioned costs for the Federal 
program that includes a summary of the auditor's results relative to 
the Federal program in a format consistent with Sec.  75.515(d)(1) and 
findings and questioned costs consistent with the requirements of Sec.  
75.515(d)(3).
    (c) Report submission for program-specific audits. (1) The audit 
must be completed and the reporting required by paragraph (c)(2) or 
(c)(3) of this section submitted within the earlier of 30 calendar days 
after receipt of the auditor's report(s), or nine months after the end 
of the audit period, unless a different period is specified in a 
program-specific audit guide. Unless restricted by Federal law or 
regulation, the auditee must make report copies available for public 
inspection. Auditees and auditors must ensure that their respective 
parts of the reporting package do not include protected personally 
identifiable information.
    (2) When a program-specific audit guide is available, the auditee 
must electronically submit to the FAC the data collection form prepared 
in accordance with Sec.  75.512(b), as applicable to a program-specific 
audit, and the reporting required by the program-specific audit guide.
    (3) When a program-specific audit guide is not available, the 
reporting package for a program-specific audit must consist of the 
financial statement(s) of the Federal program, a summary schedule of 
prior audit findings, and a corrective action plan as described in 
paragraph (b)(2) of this section, and the auditor's report(s) described 
in paragraph (b)(4) of this section. The data collection form prepared 
in accordance with Sec.  75.512(b), as applicable to a program-specific 
audit, and one copy of this reporting package must be electronically 
submitted to the FAC.
    (d) Other sections of this part may apply. Program-specific audits 
are subject to:
    (1) Sec.  75.500 through Sec.  75.503(d);
    (2) Sec.  75.504 through Sec.  75.506;
    (3) Sec.  75.508 through Sec.  75.509;
    (4) Sec.  75.511;
    (5) Sec.  75.512(e) through (h);
    (6) Sec.  75.513;
    (7) Sec.  75.516 through Sec.  75.517;
    (8) Sec.  75.521, and
    (9) Other referenced provisions of this part unless contrary to the 
provisions of this section, a program-specific audit guide, or program 
statutes and regulations.

Auditees


Sec.  75.508  Auditee responsibilities.

    The auditee must:
    (a) Procure or otherwise arrange for the audit required by this 
part in accordance with Sec.  75.509, and ensure it is properly 
performed and submitted when due in accordance with Sec.  75.512.
    (b) Prepare appropriate financial statements, including the 
schedule of expenditures of Federal awards in accordance with Sec.  
75.510.
    (c) Promptly follow up and take corrective action on audit 
findings, including preparation of a summary schedule of prior audit 
findings and a corrective action plan in accordance with Sec.  
75.511(b) and Sec.  75.511(c), respectively.
    (d) Provide the auditor with access to personnel, accounts, books, 
records, supporting documentation, and other information as needed for 
the auditor to perform the audit required by this part.


Sec.  75.509  Auditor selection.

    (a) Auditor procurement. In procuring audit services, the auditee 
must follow the procurement standards prescribed by the Procurement 
Standards in Sec. Sec.  75.326 through 75.335 of Subpart D of this part 
or the FAR (48 CFR part 42), as applicable. When procuring audit 
services, the objective is to obtain high-quality audits. In requesting 
proposals for audit services, the objectives and scope of the audit 
must be made clear and the non-Federal entity must request a copy of 
the audit organization's peer review report which the auditor is 
required to provide under GAGAS. Factors to be considered in evaluating 
each proposal for audit services include the responsiveness to the 
request for proposal, relevant experience, availability of staff with 
professional qualifications and technical abilities, the results of 
peer and external quality control reviews, and price. Whenever 
possible, the auditee must make positive efforts to utilize small 
businesses, minority-owned firms, and women's business enterprises, in 
procuring audit services as stated in Sec.  75.330, or the FAR (48 CFR 
part 42), as applicable.
    (b) Restriction on auditor preparing indirect cost proposals. An 
auditor who prepares the indirect cost proposal or cost allocation plan 
may not also be selected to perform the audit required by this part 
when the indirect costs recovered by the auditee during the prior year 
exceeded $1 million. This restriction applies to the base year used in 
the preparation of the indirect cost proposal or cost allocation plan 
and any subsequent years in which the resulting indirect cost agreement 
or cost allocation plan is used to recover costs.
    (c) Use of Federal auditors. Federal auditors may perform all or 
part of the work required under this part if they comply fully with the 
requirements of this part.

[[Page 75946]]

Sec.  75.510  Financial statements.

    (a) Financial statements. The auditee must prepare financial 
statements that reflect its financial position, results of operations 
or changes in net assets, and, where appropriate, cash flows for the 
fiscal year audited. The financial statements must be for the same 
organizational unit and fiscal year that is chosen to meet the 
requirements of this part. However, non-Federal entity-wide financial 
statements may also include departments, agencies, and other 
organizational units that have separate audits in accordance with Sec.  
75.514(a) and prepare separate financial statements.
    (b) Schedule of expenditures of Federal awards. The auditee must 
also prepare a schedule of expenditures of Federal awards for the 
period covered by the auditee's financial statements which must include 
the total Federal awards expended as determined in accordance with 
Sec.  75.502. While not required, the auditee may choose to provide 
information requested by HHS awarding agencies and pass-through 
entities to make the schedule easier to use. For example, when a 
Federal program has multiple Federal award years, the auditee may list 
the amount of Federal awards expended for each Federal award year 
separately. At a minimum, the schedule must:
    (1) List individual Federal programs by Federal agency. For a 
cluster of programs, provide the cluster name, list individual Federal 
programs within the cluster of programs, and provide the applicable 
Federal agency name. For R&D, total Federal awards expended must be 
shown either by individual Federal award or by Federal agency and major 
subdivision within the Federal agency. For example, the National 
Institutes of Health is a major subdivision in the Department of Health 
and Human Services.
    (2) For Federal awards received as a subrecipient, the name of the 
pass-through entity and identifying number assigned by the pass-through 
entity must be included.
    (3) Provide total Federal awards expended for each individual 
Federal program and the CFDA number or other identifying number when 
the CFDA information is not available. For a cluster of programs also 
provide the total for the cluster.
    (4) Include the total amount provided to subrecipients from each 
Federal program.
    (5) For loan or loan guarantee programs described in Sec.  
75.502(b), identify in the notes to the schedule the balances 
outstanding at the end of the audit period. This is in addition to 
including the total Federal awards expended for loan or loan guarantee 
programs in the schedule.
    (6) Include notes that describe that significant accounting 
policies used in preparing the schedule, and note whether or not the 
auditee elected to use the 10% de minimis cost rate as covered in Sec.  
75.414.


Sec.  75.511  Audit findings follow-up.

    (a) General. The auditee is responsible for follow-up and 
corrective action on all audit findings. As part of this 
responsibility, the auditee must prepare a summary schedule of prior 
audit findings. The auditee must also prepare a corrective action plan 
for current year audit findings. The summary schedule of prior audit 
findings and the corrective action plan must include the reference 
numbers the auditor assigns to audit findings under Sec.  75.516(c). 
Since the summary schedule may include audit findings from multiple 
years, it must include the fiscal year in which the finding initially 
occurred. The corrective action plan and summary schedule of prior 
audit findings must include findings relating to the financial 
statements which are required to be reported in accordance with GAGAS.
    (b) Summary schedule of prior audit findings. The summary schedule 
of prior audit findings must report the status of all audit findings 
included in the prior audit's schedule of findings and questioned 
costs. The summary schedule must also include audit findings reported 
in the prior audit's summary schedule of prior audit findings except 
audit findings listed as corrected in accordance with paragraph (b)(1) 
of this section, or no longer valid or not warranting further action in 
accordance with paragraph (b)(3) of this section.
    (1) When audit findings were fully corrected, the summary schedule 
need only list the audit findings and state that corrective action was 
taken.
    (2) When audit findings were not corrected or were only partially 
corrected, the summary schedule must describe the reasons for the 
finding's recurrence and planned corrective action, and any partial 
corrective action taken. When corrective action taken is significantly 
different from corrective action previously reported in a corrective 
action plan or in the Federal agency's or pass-through entity's 
management decision, the summary schedule must provide an explanation.
    (3) When the auditee believes the audit findings are no longer 
valid or do not warrant further action, the reasons for this position 
must be described in the summary schedule. A valid reason for 
considering an audit finding as not warranting further action is that 
all of the following have occurred:
    (i) Two years have passed since the audit report in which the 
finding occurred was submitted to the FAC;
    (ii) The Federal agency or pass-through entity is not currently 
following up with the auditee on the audit finding; and
    (iii) A management decision was not issued.
    (c) Corrective action plan. At the completion of the audit, the 
auditee must prepare, in a document separate from the auditor's 
findings described in Sec.  75.516, a corrective action plan to address 
each audit finding included in the current year auditor's reports. The 
corrective action plan must provide the name(s) of the contact 
person(s) responsible for corrective action, the corrective action 
planned, and the anticipated completion date. If the auditee does not 
agree with the audit findings or believes corrective action is not 
required, then the corrective action plan must include an explanation 
and specific reasons.


Sec.  75.512  Report submission.

    (a) General. (1) The audit must be completed and the data 
collection form described in paragraph (b) of this section and 
reporting package described in paragraph (c) of this section must be 
submitted within the earlier of 30 calendar days after receipt of the 
auditor's report(s), or nine months after the end of the audit period. 
If the due date falls on a Saturday, Sunday, or Federal holiday, the 
reporting package is due the next business day.
    (2) Unless restricted by Federal statutes or regulations, the 
auditee must make copies available for public inspection. Auditees and 
auditors must ensure that their respective parts of the reporting 
package do not include protected personally identifiable information.
    (b) Data Collection. The FAC is the repository of record for 
Subpart F of this part reporting packages and the data collection form. 
All Federal agencies, pass-through entities and others interested in a 
reporting package and data collection form must obtain it by accessing 
the FAC.
    (1) The auditee must submit required data elements described in 
Appendix X to part 75, which state whether the audit was completed in 
accordance with this part and provides information about the auditee, 
its Federal programs, and the results of the audit. The data must 
include information available from the audit required by this part that 
is necessary for Federal agencies to use the

[[Page 75947]]

audit to ensure integrity for Federal programs. The data elements and 
format must be approved by OMB, available from the FAC, and include 
collections of information from the reporting package described in 
paragraph (c) of this section. A senior level representative of the 
auditee (e.g., state controller, director of finance, chief executive 
officer, or chief financial officer) must sign a statement to be 
included as part of the data collection that says that the auditee 
complied with the requirements of this part, the data were prepared in 
accordance with this part (and the instructions accompanying the form), 
the reporting package does not include protected personally 
identifiable information, the information included in its entirety is 
accurate and complete, and that the FAC is authorized to make the 
reporting package and the form publicly available on a Web site.
    (2) Exception for Indian Tribes and Tribal Organizations. An 
auditee that is an Indian tribe or a tribal organization (as defined in 
the Indian Self-Determination, Education and Assistance Act (ISDEAA), 
25 U.S.C. 450b(l)) may opt not to authorize the FAC to make the 
reporting package publicly available on a Web site, by excluding the 
authorization for the FAC publication in the statement described in 
paragraph (b)(1) of this section. If this option is exercised, the 
auditee becomes responsible for submitting the reporting package 
directly to any pass-through entities through which it has received a 
Federal award and to pass-through entities for which the summary 
schedule of prior audit findings reported the status of any findings 
related to Federal awards that the pass-through entity provided. Unless 
restricted by Federal statute or regulation, if the auditee opts not to 
authorize publication, it must make copies of the reporting package 
available for public inspection.
    (3) Using the information included in the reporting package 
described in paragraph (c) of this section, the auditor must complete 
the applicable data elements of the data collection form. The auditor 
must sign a statement to be included as part of the data collection 
form that indicates, at a minimum, the source of the information 
included in the form, the auditor's responsibility for the information, 
that the form is not a substitute for the reporting package described 
in paragraph (c) of this section, and that the content of the form is 
limited to the collection of information prescribed by OMB.
    (c) Reporting package. The reporting package must include the:
    (1) Financial statements and schedule of expenditures of Federal 
awards discussed in Sec.  75.510(a) and (b), respectively;
    (2) Summary schedule of prior audit findings discussed in Sec.  
75.511(b);
    (3) Auditor's report(s) discussed in Sec.  75.515; and
    (4) Corrective action plan discussed in Sec.  75.511(c).
    (d) Submission to FAC. The auditee must electronically submit to 
the FAC the data collection form described in paragraph (b) of this 
section and the reporting package described in paragraph (c) of this 
section.
    (e) Requests for management letters issued by the auditor. In 
response to requests by a Federal agency or pass-through entity, 
auditees must submit a copy of any management letters issued by the 
auditor.
    (f) Report retention requirements. Auditees must keep one copy of 
the data collection form described in paragraph (b) of this section and 
one copy of the reporting package described in paragraph (c) of this 
section on file for three years from the date of submission to the FAC.
    (g) FAC responsibilities. The FAC must make available the reporting 
packages received in accordance with paragraph (c) of this section and 
Sec.  75.507(c) to the public, except for Indian tribes exercising the 
option in (b)(2) of this section, and maintain a data base of completed 
audits, provide appropriate information to Federal agencies, and follow 
up with known auditees that have not submitted the required data 
collection forms and reporting packages.
    (h) Electronic filing. Nothing in this part must preclude 
electronic submissions to the FAC in such manner as may be approved by 
OMB.

Federal Agencies


Sec.  75.513  Responsibilities.

    (a)(1) Cognizant agency for audit responsibilities. A non-Federal 
entity expending more than $50 million a year in Federal awards must 
have a cognizant agency for audit. The designated cognizant agency for 
audit must be the Federal awarding agency that provides the predominant 
amount of direct funding to a non-Federal entity unless OMB designates 
a specific cognizant agency for audit.
    (2) To provide for continuity of cognizance, the determination of 
the predominant amount of direct funding must be based upon direct 
Federal awards expended in the non-Federal entity's fiscal years ending 
in 2009, 2014, 2019 and every fifth year thereafter. For example, audit 
cognizance for periods ending in 2011 through 2015 will be determined 
based on Federal awards expended in 2009.
    (3) Notwithstanding the manner in which audit cognizance is 
determined, a Federal awarding agency with cognizance for an auditee 
may reassign cognizance to another Federal awarding agency that 
provides substantial funding and agrees to be the cognizant agency for 
audit. Within 30 calendar days after any reassignment, both the old and 
the new cognizant agency for audit must provide notice of the change to 
the FAC, the auditee, and, if known, the auditor. The cognizant agency 
for audit must:
    (i) Provide technical audit advice and liaison assistance to 
auditees and auditors.
    (ii) Obtain or conduct quality control reviews on selected audits 
made by non-Federal auditors, and provide the results to other 
interested organizations. Cooperate and provide support to the Federal 
agency designated by OMB to lead a government-wide project to determine 
the quality of single audits by providing a statistically reliable 
estimate of the extent that single audits conform to applicable 
requirements, standards, and procedures; and to make recommendations to 
address noted audit quality issues, including recommendations for any 
changes to applicable requirements, standards and procedures indicated 
by the results of the project. This government-wide audit quality 
project must be performed once every 6 years beginning in 2018 or at 
such other interval as determined by OMB, and the results must be 
public.
    (iii) Promptly inform other affected Federal agencies and 
appropriate Federal law enforcement officials of any direct reporting 
by the auditee or its auditor required by GAGAS or statutes and 
regulations.
    (iv) Advise the community of independent auditors of any noteworthy 
or important factual trends related to the quality of audits stemming 
from quality control reviews. Significant problems or quality issues 
consistently identified through quality control reviews of audit 
reports must be referred to appropriate state licensing agencies and 
professional bodies.
    (v) Advise the auditor, HHS awarding agencies, and, where 
appropriate, the auditee of any deficiencies found in the audits when 
the deficiencies require corrective action by the auditor. When advised 
of deficiencies, the auditee must work with the auditor to take 
corrective action. If corrective action is not taken, the cognizant 
agency for audit must notify the auditor, the auditee, and applicable 
HHS awarding agencies and

[[Page 75948]]

pass-through entities of the facts and make recommendations for follow-
up action. Major inadequacies or repetitive substandard performance by 
auditors must be referred to appropriate state licensing agencies and 
professional bodies for disciplinary action.
    (vi) Coordinate, to the extent practical, audits or reviews made by 
or for Federal agencies that are in addition to the audits made 
pursuant to this part, so that the additional audits or reviews build 
upon rather than duplicate audits performed in accordance with this 
part.
    (vii) Coordinate a management decision for cross-cutting audit 
findings (as defined in Sec.  75.2 Cross-cutting audit finding) that 
affect the Federal programs of more than one agency when requested by 
any Federal awarding agency whose awards are included in the audit 
finding of the auditee.
    (viii) Coordinate the audit work and reporting responsibilities 
among auditors to achieve the most cost-effective audit.
    (ix) Provide advice to auditees as to how to handle changes in 
fiscal years.
    (b) Oversight agency for audit responsibilities. An auditee who 
does not have a designated cognizant agency for audit will be under the 
general oversight of the Federal agency determined in accordance with 
Sec.  75.2 Oversight agency for audit. A Federal agency with oversight 
for an auditee may reassign oversight to another Federal agency that 
agrees to be the oversight agency for audit. Within 30 calendar days 
after any reassignment, both the old and the new oversight agency for 
audit must provide notice of the change to the FAC, the auditee, and, 
if known, the auditor. The oversight agency for audit:
    (1) Must provide technical advice to auditees and auditors as 
requested.
    (2) May assume all or some of the responsibilities normally 
performed by a cognizant agency for audit.
    (c) HHS awarding agency responsibilities. The HHS awarding agency 
must perform the following for the Federal awards it makes (See also 
the requirements of Sec.  75.210):
    (1) Ensure that audits are completed and reports are received in a 
timely manner and in accordance with the requirements of this part.
    (2) Provide technical advice and counsel to auditees and auditors 
as requested.
    (3) Follow-up on audit findings to ensure that the recipient takes 
appropriate and timely corrective action. As part of audit follow-up, 
the HHS awarding agency must:
    (i) Issue a management decision as prescribed in Sec.  75.521;
    (ii) Monitor the recipient taking appropriate and timely corrective 
action;
    (iii) Use cooperative audit resolution mechanisms (see Sec.  75.2 
Cooperative audit resolution) to improve Federal program outcomes 
through better audit resolution, follow-up, and corrective action; and
    (iv) Develop a baseline, metrics, and targets to track, over time, 
the effectiveness of the Federal agency's process to follow-up on audit 
findings and on the effectiveness of Single Audits in improving non-
Federal entity accountability and their use by HHS awarding agencies in 
making award decisions.
    (4) Provide OMB annual updates to the compliance supplement and 
work with OMB to ensure that the compliance supplement focuses the 
auditor to test the compliance requirements most likely to cause 
improper payments, fraud, waste, abuse or generate audit finding for 
which the Federal awarding agency will take sanctions.
    (5) Provide OMB with the name of a single audit accountable 
official from among the senior policy officials of the HHS awarding 
agency who must be:
    (i) Responsible for ensuring that the agency fulfills all the 
requirements of paragraph (c) of this section and effectively uses the 
single audit process to reduce improper payments and improve Federal 
program outcomes.
    (ii) Held accountable to improve the effectiveness of the single 
audit process based upon metrics as described in paragraph (c)(3)(iv) 
of this section.
    (iii) Responsible for designating the Federal agency's key 
management single audit liaison.
    (6) Provide OMB with the name of a key management single audit 
liaison who must:
    (i) Serve as the Federal awarding agency's management point of 
contact for the single audit process both within and outside the 
Federal Government.
    (ii) Promote interagency coordination, consistency, and sharing in 
areas such as coordinating audit follow-up; identifying higher-risk 
non-Federal entities; providing input on single audit and follow-up 
policy; enhancing the utility of the FAC; and studying ways to use 
single audit results to improve Federal award accountability and best 
practices.
    (iii) Oversee training for the HHS awarding agency's program 
management personnel related to the single audit process.
    (iv) Promote the HHS awarding agency's use of cooperative audit 
resolution mechanisms.
    (v) Coordinate the HHS awarding agency's activities to ensure 
appropriate and timely follow-up and corrective action on audit 
findings.
    (vi) Organize the Federal cognizant agency for audit's follow-up on 
cross-cutting audit findings that affect the Federal programs of more 
than one HHS awarding agency.
    (vii) Ensure the HHS awarding agency provides annual updates of the 
compliance supplement to OMB.
    (viii) Support the HHS awarding agency's single audit accountable 
official's mission.

Auditors


Sec.  75.514  Scope of audit.

    (a) General. The audit must be conducted in accordance with GAGAS. 
The audit must cover the entire operations of the auditee, or, at the 
option of the auditee, such audit must include a series of audits that 
cover departments, agencies, and other organizational units that 
expended or otherwise administered Federal awards during such audit 
period, provided that each such audit must encompass the financial 
statements and schedule of expenditures of Federal awards for each such 
department, agency, and other organizational unit, which must be 
considered to be a non-Federal entity. The financial statements and 
schedule of expenditures of Federal awards must be for the same audit 
period.
    (b) Financial statements. The auditor must determine whether the 
financial statements of the auditee are presented fairly in all 
material respects in accordance with generally accepted accounting 
principles. The auditor must also determine whether the schedule of 
expenditures of Federal awards is stated fairly in all material 
respects in relation to the auditee's financial statements as a whole.
    (c) Internal control. (1) The compliance supplement provides 
guidance on internal controls over Federal programs based upon the 
guidance in Standards for Internal Control in the Federal Government 
issued by the Comptroller General of the United States and the Internal 
Control--Integrated Framework, issued by the Committee of Sponsoring 
Organizations of the Treadway Commission (COSO).
    (2) In addition to the requirements of GAGAS, the auditor must 
perform procedures to obtain an understanding of internal control over 
Federal programs sufficient to plan the audit to support a low assessed 
level of control risk of noncompliance for major programs.
    (3) Except as provided in paragraph (c)(4) of this section, the 
auditor must:

[[Page 75949]]

    (i) Plan the testing of internal control over compliance for major 
programs to support a low assessed level of control risk for the 
assertions relevant to the compliance requirements for each major 
program; and
    (ii) Perform testing of internal control as planned in paragraph 
(c)(3)(i) of this section.
    (4) When internal control over some or all of the compliance 
requirements for a major program are likely to be ineffective in 
preventing or detecting noncompliance, the planning and performing of 
testing described in paragraph (c)(3) of this section are not required 
for those compliance requirements. However, the auditor must report a 
significant deficiency or material weakness in accordance with Sec.  
75.516, assess the related control risk at the maximum, and consider 
whether additional compliance tests are required because of ineffective 
internal control.
    (d) Compliance. (1) In addition to the requirements of GAGAS, the 
auditor must determine whether the auditee has complied with Federal 
statutes, regulations, and the terms and conditions of Federal awards 
that may have a direct and material effect on each of its major 
programs.
    (2) The principal compliance requirements applicable to most 
Federal programs and the compliance requirements of the largest Federal 
programs are included in the compliance supplement.
    (3) For the compliance requirements related to Federal programs 
contained in the compliance supplement, an audit of these compliance 
requirements will meet the requirements of this part. Where there have 
been changes to the compliance requirements and the changes are not 
reflected in the compliance supplement, the auditor must determine the 
current compliance requirements and modify the audit procedures 
accordingly. For those Federal programs not covered in the compliance 
supplement, the auditor must follow the compliance supplement's 
guidance for programs not included in the supplement.
    (4) The compliance testing must include tests of transactions and 
such other auditing procedures necessary to provide the auditor 
sufficient appropriate audit evidence to support an opinion on 
compliance.
    (e) Audit follow-up. The auditor must follow-up on prior audit 
findings, perform procedures to assess the reasonableness of the 
summary schedule of prior audit findings prepared by the auditee in 
accordance with Sec.  75.511(b), and report, as a current year audit 
finding, when the auditor concludes that the summary schedule of prior 
audit findings materially misrepresents the status of any prior audit 
finding. The auditor must perform audit follow-up procedures regardless 
of whether a prior audit finding relates to a major program in the 
current year.
    (f) Data Collection Form. As required in Sec.  75.512(b)(3), the 
auditor must complete and sign specified sections of the data 
collection form.


Sec.  75.515  Audit reporting.

    The auditor's report(s) may be in the form of either combined or 
separate reports and may be organized differently from the manner 
presented in this section. The auditor's report(s) must state that the 
audit was conducted in accordance with this part and include the 
following:
    (a) An opinion (or disclaimer of opinion) as to whether the 
financial statements are presented fairly in all material respects in 
accordance with generally accepted accounting principles and an opinion 
(or disclaimer of opinion) as to whether the schedule of expenditures 
of Federal awards is fairly stated in all material respects in relation 
to the financial statements as a whole.
    (b) A report on internal control over financial reporting and 
compliance with provisions of laws, regulations, contracts, or award 
agreements, noncompliance with which could have a material effect on 
the financial statements. This report must describe the scope of 
testing of internal control and compliance and the results of the 
tests, and, where applicable, it will refer to the separate schedule of 
findings and questioned costs described in paragraph (d) of this 
section.
    (c) A report on compliance for each major program and a report on 
internal control over compliance. This report must describe the scope 
of testing of internal control over compliance, include an opinion or 
disclaimer of opinion as to whether the auditee complied with Federal 
statutes, regulations, and the terms and conditions of Federal awards 
which could have a direct and material effect on each major program and 
refer to the separate schedule of findings and questioned costs 
described in paragraph (d) of this section.
    (d) A schedule of findings and questioned costs which must include 
the following three components:
    (1) A summary of the auditor's results, which must include:
    (i) The type of report the auditor issued on whether the financial 
statements audited were prepared in accordance with GAAP (i.e., 
unmodified opinion, qualified opinion, adverse opinion, or disclaimer 
of opinion);
    (ii) Where applicable, a statement about whether significant 
deficiencies or material weaknesses in internal control were disclosed 
by the audit of the financial statements;
    (iii) A statement as to whether the audit disclosed any 
noncompliance that is material to the financial statements of the 
auditee;
    (iv) Where applicable, a statement about whether significant 
deficiencies or material weaknesses in internal control over major 
programs were disclosed by the audit;
    (v) The type of report the auditor issued on compliance for major 
programs (i.e., unmodified opinion, qualified opinion, adverse opinion, 
or disclaimer of opinion);
    (vi) A statement as to whether the audit disclosed any audit 
findings that the auditor is required to report under Sec.  75.516(a);
    (vii) An identification of major programs by listing each 
individual major program; however in the case of a cluster of programs 
only the cluster name as shown on the Schedule of Expenditures of 
Federal Awards is required;
    (viii) The dollar threshold used to distinguish between Type A and 
Type B programs, as described in Sec.  75.518(b)(1), or (b)(3) when a 
recalculation of the Type A threshold is required for large loan or 
loan guarantees; and
    (ix) A statement as to whether the auditee qualified as a low-risk 
auditee under Sec.  75.520.
    (2) Findings relating to the financial statements which are 
required to be reported in accordance with GAGAS.
    (3) Findings and questioned costs for Federal awards which must 
include audit findings as defined in Sec.  75.516(a).
    (i) Audit findings (e.g., internal control findings, compliance 
findings, questioned costs, or fraud) that relate to the same issue 
must be presented as a single audit finding. Where practical, audit 
findings should be organized by Federal agency or pass-through entity.
    (ii) Audit findings that relate to both the financial statements 
and Federal awards, as reported under paragraphs (d)(2) and (d)(3) of 
this section, respectively, must be reported in both sections of the 
schedule. However, the reporting in one section of the schedule may be 
in summary form with a reference to a detailed reporting in the other 
section of the schedule.
    (e) Nothing in this part precludes combining of the audit reporting 
required by this section with the reporting required by Sec.  75.512(b) 
when

[[Page 75950]]

allowed by GAGAS and Appendix X to Part 75.


Sec.  75.516  Audit findings.

    (a) Audit findings reported. The auditor must report the following 
as audit findings in a schedule of findings and questioned costs:
    (1) Significant deficiencies and material weaknesses in internal 
control over major programs and significant instances of abuse relating 
to major programs. The auditor's determination of whether a deficiency 
in internal control is a significant deficiency or material weakness 
for the purpose of reporting an audit finding is in relation to a type 
of compliance requirement for a major program identified in the 
Compliance Supplement.
    (2) Material noncompliance with the provisions of Federal statutes, 
regulations, or the terms and conditions of Federal awards related to a 
major program. The auditor's determination of whether a noncompliance 
with the provisions of Federal statutes, regulations, or the terms and 
conditions of Federal awards is material for the purpose of reporting 
an audit finding is in relation to a type of compliance requirement for 
a major program identified in the compliance supplement.
    (3) Known questioned costs that are greater than $25,000 for a type 
of compliance requirement for a major program. Known questioned costs 
are those specifically identified by the auditor. In evaluating the 
effect of questioned costs on the opinion on compliance, the auditor 
considers the best estimate of total costs questioned (likely 
questioned costs), not just the questioned costs specifically 
identified (known questioned costs). The auditor must also report known 
questioned costs when likely questioned costs are greater than $25,000 
for a type of compliance requirement for a major program. In reporting 
questioned costs, the auditor must include information to provide 
proper perspective for judging the prevalence and consequences of the 
questioned costs.
    (4) Known questioned costs that are greater than $25,000 for a 
Federal program which is not audited as a major program. Except for 
audit follow-up, the auditor is not required under this part to perform 
audit procedures for such a Federal program; therefore, the auditor 
will normally not find questioned costs for a program that is not 
audited as a major program. However, if the auditor does become aware 
of questioned costs for a Federal program that is not audited as a 
major program (e.g., as part of audit follow-up or other audit 
procedures) and the known questioned costs are greater than $25,000, 
then the auditor must report this as an audit finding.
    (5) The circumstances concerning why the auditor's report on 
compliance for each major program is other than an unmodified opinion, 
unless such circumstances are otherwise reported as audit findings in 
the schedule of findings and questioned costs for Federal awards.
    (6) Known or likely fraud affecting a Federal award, unless such 
fraud is otherwise reported as an audit finding in the schedule of 
findings and questioned costs for Federal awards. This paragraph does 
not require the auditor to report publicly information which could 
compromise investigative or legal proceedings or to make an additional 
reporting when the auditor confirms that the fraud was reported outside 
the auditor's reports under the direct reporting requirements of GAGAS.
    (7) Instances where the results of audit follow-up procedures 
disclosed that the summary schedule of prior audit findings prepared by 
the auditee in accordance with Sec.  75.511(b) materially misrepresents 
the status of any prior audit finding.
    (b) Audit finding detail and clarity. Audit findings must be 
presented in sufficient detail and clarity for the auditee to prepare a 
corrective action plan and take corrective action, and for Federal 
agencies and pass-through entities to arrive at a management decision. 
The following specific information must be included, as applicable, in 
audit findings:
    (1) Federal program and specific Federal award identification 
including the CFDA title and number, Federal award identification 
number and year, name of Federal agency, and name of the applicable 
pass-through entity. When information, such as the CFDA title and 
number or Federal award identification number, is not available, the 
auditor must provide the best information available to describe the 
Federal award.
    (2) The criteria or specific requirement upon which the audit 
finding is based, including the Federal statutes, regulations, or the 
terms and conditions of the Federal awards. Criteria generally identify 
the required or desired state or expectation with respect to the 
program or operation. Criteria provide a context for evaluating 
evidence and understanding findings.
    (3) The condition found, including facts that support the 
deficiency identified in the audit finding.
    (4) A statement of cause that identifies the reason or explanation 
for the condition or the factors responsible for the difference between 
the situation that exists (condition) and the required or desired state 
(criteria), which may also serve as a basis for recommendations for 
corrective action.
    (5) The possible asserted effect to provide sufficient information 
to the auditee and Federal agency, or pass-through entity in the case 
of a subrecipient, to permit them to determine the cause and effect to 
facilitate prompt and proper corrective action. A statement of the 
effect or potential effect should provide a clear, logical link to 
establish the impact or potential impact of the difference between the 
condition and the criteria.
    (6) Identification of questioned costs and how they were computed. 
Known questioned costs must be identified by applicable CFDA number(s) 
and applicable Federal award identification number(s).
    (7) Information to provide proper perspective for judging the 
prevalence and consequences of the audit findings, such as whether the 
audit findings represent an isolated instance or a systemic problem. 
Where appropriate, instances identified must be related to the universe 
and the number of cases examined and be quantified in terms of dollar 
value. The auditor should report whether the sampling was a 
statistically valid sample.
    (8) Identification of whether the audit finding was a repeat of a 
finding in the immediately prior audit and if so any applicable prior 
year audit finding numbers.
    (9) Recommendations to prevent future occurrences of the deficiency 
identified in the audit finding.
    (10) Views of responsible officials of the auditee.
    (c) Reference numbers. Each audit finding in the schedule of 
findings and questioned costs must include a reference number in the 
format meeting the requirements of the data collection form submission 
required by Sec.  75.512(b) to allow for easy referencing of the audit 
findings during follow-up.


Sec.  75.517  Audit documentation.

    (a) Retention of audit documentation. The auditor must retain audit 
documentation and reports for a minimum of three years after the date 
of issuance of the auditor's report(s) to the auditee, unless the 
auditor is notified in writing by the cognizant agency for audit, 
oversight agency for audit, cognizant agency for indirect costs, or 
pass-through entity to extend the retention period. When the auditor is 
aware that the Federal agency, pass-through entity, or auditee is 
contesting

[[Page 75951]]

an audit finding, the auditor must contact the parties contesting the 
audit finding for guidance prior to destruction of the audit 
documentation and reports.
    (b) Access to audit documentation. Audit documentation must be made 
available upon request to the cognizant or oversight agency for audit 
or its designee, cognizant agency for indirect cost, a Federal agency, 
or GAO at the completion of the audit, as part of a quality review, to 
resolve audit findings, or to carry out oversight responsibilities 
consistent with the purposes of this part. Access to audit 
documentation includes the right of Federal agencies to obtain copies 
of audit documentation, as is reasonable and necessary.


Sec.  75.518  Major program determination.

    (a) General. The auditor must use a risk-based approach to 
determine which Federal programs are major programs. This risk-based 
approach must include consideration of: Current and prior audit 
experience, oversight by Federal agencies and pass-through entities, 
and the inherent risk of the Federal this program. The process in 
paragraphs (b) through (h) of this section must be followed.
    (b) Step one. (1) The auditor must identify the larger Federal 
programs, which must be labeled Type A programs. Type A programs are 
defined as Federal programs with Federal awards expended during the 
audit period exceeding the levels outlined in the table in this 
paragraph (b)(1):

------------------------------------------------------------------------
     Total Federal awards expended              Type A/B threshold
------------------------------------------------------------------------
(i) Equal to or exceed $750,000 but      $750,000.
 less than or equal to $25 million.
(ii) Exceed $25 million but less than    Total Federal awards expended
 or equal to $100 million.                times .03.
(iii) Exceed $100 million but less than  $3 million.
 or equal to $1 billion.
(iv) Exceed $1 billion but less than or  Total Federal awards expended
 equal to $10 billion.                    times .003.
(v) Exceed $10 billion but less than or  $30 million.
 equal to $20 billion.
(vi) Exceed $20 billion................  Total Federal awards expended
                                          times .0015.
------------------------------------------------------------------------

    (2) Federal programs not labeled Type A under paragraph (b)(1) of 
this section must be labeled Type B programs.
    (3) The inclusion of large loan and loan guarantees (loans) must 
not result in the exclusion of other programs as Type A programs. When 
a Federal program providing loans exceeds four times the largest non-
loan program it is considered a large loan program, and the auditor 
must consider this Federal program as a Type A program and exclude its 
values in determining other Type A programs. This recalculation of the 
Type A program is performed after removing the total of all large loan 
programs. For the purposes of this paragraph a program is only 
considered to be a Federal program providing loans if the value of 
Federal awards expended for loans within the program comprises fifty 
percent or more of the total Federal awards expended for the program. A 
cluster of programs is treated as one program and the value of Federal 
awards expended under a loan program is determined as described in 
Sec.  75.502.
    (4) For biennial audits permitted under Sec.  75.504, the 
determination of Type A and Type B programs must be based upon the 
Federal awards expended during the two-year period.
    (c) Step two. (1) The auditor must identify Type A programs which 
are low-risk. In making this determination, the auditor must consider 
whether the requirements in Sec.  75.519(c), the results of audit 
follow-up, or any changes in personnel or systems affecting the program 
indicate significantly increased risk and preclude the program from 
being low risk. For a Type A program to be considered low-risk, it must 
have been audited as a major program in at least one of the two most 
recent audit periods (in the most recent audit period in the case of a 
biennial audit), and, in the most recent audit period, the program must 
have not had:
    (i) Internal control deficiencies which were identified as material 
weaknesses in the auditor's report on internal control for major 
programs as required under Sec.  75.515(c);
    (ii) A modified opinion on the program in the auditor's report on 
major programs as required under Sec.  75.515(c); or
    (iii) Known or likely questioned costs that exceed five percent of 
the total Federal awards expended for the program.
    (2) Notwithstanding paragraph (c)(1) of this section, OMB may 
approve an HHS awarding agency's request that a Type A program may not 
be considered low risk for a certain recipient. For example, it may be 
necessary for a large Type A program to be audited as a major program 
each year at a particular recipient to allow the HHS awarding agency to 
comply with 31 U.S.C. 3515. The HHS awarding agency must notify the 
recipient and, if known, the auditor of OMB's approval at least 180 
calendar days prior to the end of the fiscal year to be audited.
    (d) Step three. (1) The auditor must identify Type B programs which 
are high-risk using professional judgment and the criteria in Sec.  
75.519. However, the auditor is not required to identify more high-risk 
Type B programs than at least one fourth the number of low-risk Type A 
programs identified as low-risk under Step 2 (paragraph (c) of this 
section). Except for known material weakness in internal control or 
compliance problems as discussed in Sec.  75.519(b)(1), (b)(2), and 
(c)(1), a single criteria in risk would seldom cause a Type B program 
to be considered high-risk. When identifying which Type B programs to 
risk assess, the auditor is encouraged to use an approach which 
provides an opportunity for different high-risk Type B programs to be 
audited as major over a period of time.
    (2) The auditor is not expected to perform risk assessments on 
relatively small Federal programs. Therefore, the auditor is only 
required to perform risk assessments on Type B programs that exceed 
twenty-five percent (0.25) of the Type A threshold determined in Step 1 
(paragraph (b) of this section).
    (e) Step four. At a minimum, the auditor must audit all of the 
following as major programs:
    (1) All Type A programs not identified as low risk under step two 
(paragraph (c)(1) of this section).
    (2) All Type B programs identified as high-risk under step three 
(paragraph (d) of this section).
    (3) Such additional programs as may be necessary to comply with the 
percentage of coverage rule discussed in paragraph (f) of this section. 
This may require the auditor to audit more programs as major programs 
than the number of Type A programs.
    (f) Percentage of coverage rule. If the auditee meets the criteria 
in Sec.  75.520, the auditor need only audit the major programs 
identified in Step 4 (paragraph (e)(1) and (2) of this section) and 
such additional Federal programs with Federal awards expended that, in 
aggregate, all major programs encompass at least 20 percent (0.20) of 
total Federal awards expended. Otherwise, the auditor must audit the 
major programs identified in Step 4 (paragraphs (e)(1) and (2) of this 
section)

[[Page 75952]]

and such additional Federal programs with Federal awards expended that, 
in aggregate, all major programs encompass at least 40 percent (0.40) 
of total Federal awards expended.
    (g) Documentation of risk. The auditor must include in the audit 
documentation the risk analysis process used in determining major 
programs.
    (h) Auditor's judgment. When the major program determination was 
performed and documented in accordance with this Subpart, the auditor's 
judgment in applying the risk-based approach to determine major 
programs must be presumed correct. Challenges by Federal agencies and 
pass-through entities must only be for clearly improper use of the 
requirements in this part. However, Federal agencies and pass-through 
entities may provide auditors guidance about the risk of a particular 
Federal program and the auditor must consider this guidance in 
determining major programs in audits not yet completed.


Sec.  75.519  Criteria for Federal program risk.

    (a) General. The auditor's determination should be based on an 
overall evaluation of the risk of noncompliance occurring that could be 
material to the Federal program. The auditor must consider criteria, 
such as described in paragraphs (b), (c), and (d) of this section, to 
identify risk in Federal programs. Also, as part of the risk analysis, 
the auditor may wish to discuss a particular Federal program with 
auditee management and the Federal agency or pass-through entity.
    (b) Current and prior audit experience. (1) Weaknesses in internal 
control over Federal programs would indicate higher risk. Consideration 
should be given to the control environment over Federal programs and 
such factors as the expectation of management's adherence to Federal 
statutes, regulations, and the terms and conditions of Federal awards 
and the competence and experience of personnel who administer the 
Federal programs.
    (i) A Federal program administered under multiple internal control 
structures may have higher risk. When assessing risk in a large single 
audit, the auditor must consider whether weaknesses are isolated in a 
single operating unit (e.g., one college campus) or pervasive 
throughout the entity.
    (ii) When significant parts of a Federal program are passed through 
to subrecipients, a weak system for monitoring subrecipients would 
indicate higher risk.
    (2) Prior audit findings would indicate higher risk, particularly 
when the situations identified in the audit findings could have a 
significant impact on a Federal program or have not been corrected.
    (3) Federal programs not recently audited as major programs may be 
of higher risk than Federal programs recently audited as major programs 
without audit findings.
    (c) Oversight exercised by Federal agencies and pass-through 
entities. (1) Oversight exercised by Federal agencies or pass-through 
entities could be used to assess risk. For example, recent monitoring 
or other reviews performed by an oversight entity that disclosed no 
significant problems would indicate lower risk, whereas monitoring that 
disclosed significant problems would indicate higher risk.
    (2) Federal agencies, with the concurrence of OMB, may identify 
Federal programs that are higher risk. OMB will provide this 
identification in the compliance supplement.
    (d) Inherent risk of the Federal program. (1) The nature of a 
Federal program may indicate risk. Consideration should be given to the 
complexity of the program and the extent to which the Federal program 
contracts for goods and services. For example, Federal programs that 
disburse funds through third party contracts or have eligibility 
criteria may be of higher risk. Federal programs primarily involving 
staff payroll costs may have high risk for noncompliance with 
requirements of Sec.  75.430, but otherwise be at low risk.
    (2) The phase of a Federal program in its life cycle at the Federal 
agency may indicate risk. For example, a new Federal program with new 
or interim regulations may have higher risk than an established program 
with time-tested regulations. Also, significant changes in Federal 
programs, statutes, regulations, or the terms and conditions of Federal 
awards may increase risk.
    (3) The phase of a Federal program in its life cycle at the auditee 
may indicate risk. For example, during the first and last years that an 
auditee participates in a Federal program, the risk may be higher due 
to start-up or closeout of program activities and staff.
    (4) Type B programs with larger Federal awards expended would be of 
higher risk than programs with substantially smaller Federal awards 
expended.


Sec.  75.520  Criteria for a low-risk auditee.

    An auditee that meets all of the following conditions for each of 
the preceding two audit periods must qualify as a low-risk auditee and 
be eligible for reduced audit coverage in accordance with Sec.  75.518.
    (a) Single audits were performed on an annual basis in accordance 
with the provisions of this Subpart, including submitting the data 
collection form and the reporting package to the FAC within the 
timeframe specified in Sec.  75.512 . A non-Federal entity that has 
biennial audits does not qualify as a low-risk auditee.
    (b) The auditor's opinion on whether the financial statements were 
prepared in accordance with GAAP, or a basis of accounting required by 
state law, and the auditor's in relation to opinion on the schedule of 
expenditures of Federal awards were unmodified.
    (c) There were no deficiencies in internal control which were 
identified as material weaknesses under the requirements of GAGAS.
    (d) The auditor did not report a substantial doubt about the 
auditee's ability to continue as a going concern.
    (e) None of the Federal programs had audit findings from any of the 
following in either of the preceding two audit periods in which they 
were classified as Type A programs:
    (1) Internal control deficiencies that were identified as material 
weaknesses in the auditor's report on internal control for major 
programs as required under Sec.  75.515(c);
    (2) A modified opinion on a major program in the auditor's report 
on major programs as required under Sec.  75.515(c); or
    (3) Known or likely questioned costs that exceeded five percent of 
the total Federal awards expended for a Type A program during the audit 
period.

Management Decisions


Sec.  75.521  Management Decision.

    (a) General. The management decision must clearly state whether or 
not the audit finding is sustained, the reasons for the decision, and 
the expected auditee action to repay disallowed costs, make financial 
adjustments, or take other action. If the auditee has not completed 
corrective action, a timetable for follow-up should be given. Prior to 
issuing the management decision, the Federal agency or pass-through 
entity may request additional information or documentation from the 
auditee, including a request for auditor assurance related to the 
documentation, as a way of mitigating disallowed costs. The management 
decision should describe any appeal process available to the auditee. 
While not required, the Federal agency or pass-through entity may also 
issue a management decision on findings relating to the financial

[[Page 75953]]

statements which are required to be reported in accordance with GAGAS.
    (b) Federal agency. As provided in Sec.  75.513(a)(3)(vii), the 
cognizant agency for audit must be responsible for coordinating a 
management decision for audit findings that affect the programs of more 
than one Federal agency. As provided in Sec.  75.513(c)(3), a Federal 
awarding agency is responsible for issuing a management decision for 
findings that relate to Federal awards it makes to non-Federal 
entities.
    (c) Pass-through entity. As provided in Sec.  75.352(d), the pass-
through entity must be responsible for issuing a management decision 
for audit findings that relate to Federal awards it makes to 
subrecipients.
    (d) Time requirements. The HHS awarding agency or pass-through 
entity responsible for issuing a management decision must do so within 
six months of acceptance of the audit report by the FAC. The auditee 
must initiate and proceed with corrective action as rapidly as possible 
and corrective action should begin no later than upon receipt of the 
audit report.
    (e) Reference numbers. Management decisions must include the 
reference numbers the auditor assigned to each audit finding in 
accordance with Sec.  75.516(c).

Appendix I to Part 75--Full Text of Notice of Funding Opportunity

    The full text of the notice of funding opportunity is organized 
in sections. The required format outlined in this appendix indicates 
immediately following the title of each section whether that section 
is required in every announcement or is an HHS awarding agency 
option. The format is designed so that similar types of information 
will appear in the same sections in announcements of different 
Federal funding opportunities. Toward that end, there is text in 
each of the following sections to describe the types of information 
that an HHS awarding agency would include in that section of an 
actual announcement.
    An HHS awarding agency that wishes to include information that 
the format does not specifically discuss may address that subject in 
whatever section(s) is most appropriate. For example, if an HHS 
awarding agency chooses to address performance goals in the 
announcement, it might do so in the funding opportunity description, 
the application content, or the reporting requirements.
    Similarly, when this format calls for a type of information to 
be in a particular section, an HHS awarding agency wishing to 
address that subject in other sections may elect to repeat the 
information in those sections or use cross references between the 
sections (there should be hyperlinks for cross-references in any 
electronic versions of the announcement). For example, an HHS 
awarding agency may want to include in Section A information about 
the types of non-Federal entities who are eligible to apply. The 
format specifies a standard location for that information in Section 
C.1 but that does not preclude repeating the information in Section 
I or creating a cross reference between Sections A and C.1, as long 
as a potential applicant can find the information quickly and easily 
from the standard location.
    The sections of the full text of the announcement are described 
in the following paragraphs.

A. Program Description--Required

    This section contains the full program description of the 
funding opportunity. It may be as long as needed to adequately 
communicate to potential applicants the areas in which funding may 
be provided. It describes the HHS awarding agency's funding 
priorities or the technical or focus areas in which the HHS awarding 
agency intends to provide assistance. As appropriate, it may include 
any program history (e.g., whether this is a new program or a new or 
changed area of program emphasis). This section may communicate 
indicators of successful projects (e.g., if the program encourages 
collaborative efforts) and may include examples of projects that 
have been funded previously. This section also may include other 
information the HHS awarding agency deems necessary, and must at a 
minimum include citations for authorizing statutes and regulations 
for the funding opportunity.

B. Federal Award Information--Required

    This section provides sufficient information to help an 
applicant make an informed decision about whether to submit a 
proposal. Relevant information could include the total amount of 
funding that the HHS awarding agency expects to award through the 
announcement; the anticipated number of Federal awards; the expected 
amounts of individual Federal awards (which may be a range); the 
amount of funding per Federal award, on average, experienced in 
previous years; and the anticipated start dates and periods of 
performance for new Federal awards. This section also should address 
whether applications for renewal or supplementation of existing 
projects are eligible to compete with applications for new Federal 
awards.
    This section also must indicate the type(s) of assistance 
instrument (e.g., grant, cooperative agreement) that may be awarded 
if applications are successful. If cooperative agreements may be 
awarded, this section either should describe the ``substantial 
involvement'' that the HHS awarding agency expects to have or should 
reference where the potential applicant can find that information 
(e.g., in the funding opportunity description in section A. or 
Federal award administration information in Section D. If 
procurement contracts also may be awarded, this must be stated.

C. Eligibility Information

    This section addresses the considerations or factors that 
determine applicant or application eligibility. This includes the 
eligibility of particular types of applicant organizations, any 
factors affecting the eligibility of the principal investigator or 
project director, and any criteria that make particular projects 
ineligible. HHS agencies should make clear whether an applicant's 
failure to meet an eligibility criterion by the time of an 
application deadline will result in the HHS awarding agency 
returning the application without review or, even though an 
application may be reviewed, will preclude the HHS awarding agency 
from making a Federal award. Key elements to be addressed are:
    1. Eligible Applicants--Required. Announcements must clearly 
identify the types of entities that are eligible to apply. If there 
are no restrictions on eligibility, this section may simply indicate 
that all potential applicants are eligible. If there are 
restrictions on eligibility, it is important to be clear about the 
specific types of entities that are eligible, not just the types 
that are ineligible. For example, if the program is limited to 
nonprofit organizations subject to 26 U.S.C. 501(c)(3) of the tax 
code (26 U.S.C. 501(c)(3)), the announcement should say so. 
Similarly, it is better to state explicitly that Native American 
tribal organizations are eligible than to assume that they can 
unambiguously infer that from a statement that nonprofit 
organizations may apply. Eligibility also can be expressed by 
exception, (e.g., open to all types of domestic applicants other 
than individuals). This section should refer to any portion of 
Section D. specifying documentation that must be submitted to 
support an eligibility determination (e.g., proof of 501(c)(3) 
status as determined by the Internal Revenue Service or an 
authorizing tribal resolution). To the extent that any funding 
restriction in Section D.6 could affect the eligibility of an 
applicant or project, the announcement must either restate that 
restriction in this section or provide a cross-reference to its 
description in Section D.6.
    2. Cost Sharing or Matching--Required. Announcements must state 
whether there is required cost sharing, matching, or cost 
participation without which an application would be ineligible (if 
cost sharing is not required, the announcement must explicitly say 
so). Required cost sharing may be a certain percentage or amount, or 
may be in the form of contributions of specified items or activities 
(e.g., provision of equipment). It is important that the 
announcement be clear about any restrictions on the types of cost 
(e.g., in-kind contributions) that are acceptable as cost sharing. 
Cost sharing as an eligibility criterion includes requirements based 
in statute or regulation, as described in Sec.  75.306. This section 
should refer to the appropriate portion(s) of section D. stating any 
pre-award requirements for submission of letters or other 
documentation to verify commitments to meet cost-sharing 
requirements if a Federal award is made.
    3. Other--Required, if applicable. If there are other 
eligibility criteria (i.e., criteria that have the effect of making 
an application or project ineligible for Federal awards, whether 
referred to as ``responsiveness'' criteria, ``go-no go'' criteria, 
``threshold'' criteria, or in other ways), must be clearly stated 
and must include a reference to the regulation of requirement that 
describes the restriction, as

[[Page 75954]]

applicable. For example, if entities that have been found to be in 
violation of a particular Federal statute are ineligible, it is 
important to say so. This section must also state any limit on the 
number of applications an applicant may submit under the 
announcement and make clear whether the limitation is on the 
submitting organization, individual investigator/program director, 
or both. This section should also address any eligibility criteria 
for beneficiaries or for program participants other than Federal 
award recipients.

D. Application and Submission Information

    1. Address to Request Application Package--Required. Potential 
applicants must be told how to get application forms, kits, or other 
materials needed to apply (if this announcement contains everything 
needed, this section need only say so). An Internet address where 
the materials can be accessed is acceptable. However, since high-
speed Internet access is not yet universally available for 
downloading documents, and applicants may have additional 
accessibility requirements, there also should be a way for potential 
applicants to request paper copies of materials, such as a U.S. 
Postal Service mailing address, telephone or FAX number, Telephone 
Device for the Deaf (TDD), Text Telephone (TTY) number, and/or 
Federal Information Relay Service (FIRS) number.
    2. Content and Form of Application Submission--Required. This 
section must identify the required content of an application and the 
forms or formats that an applicant must use to submit it. If any 
requirements are stated elsewhere because they are general 
requirements that apply to multiple programs or funding 
opportunities, this section should refer to where those requirements 
may be found. This section also should include required forms or 
formats as part of the announcement or state where the applicant may 
obtain them.
    This section should specifically address content and form or 
format requirements for:
    i. Pre-applications, letters of intent, or white papers required 
or encouraged (see Section D.4), including any limitations on the 
number of pages or other formatting requirements similar to those 
for full applications.
    ii. The application as a whole. For all submissions, this would 
include any limitations on the number of pages, font size and 
typeface, margins, paper size, number of copies, and sequence or 
assembly requirements. If electronic submission is permitted or 
required, this could include special requirements for formatting or 
signatures.
    iii. Component pieces of the application (e.g., if all copies of 
the application must bear original signatures on the face page or 
the program narrative may not exceed 10 pages). This includes any 
pieces that may be submitted separately by third parties (e.g., 
references or letters confirming commitments from third parties that 
will be contributing a portion of any required cost sharing).
    iv. Information that successful applicants must submit after 
notification of intent to make a Federal award, but prior to a 
Federal award. This could include evidence of compliance with 
requirements relating to human subjects or information needed to 
comply with the National Environmental Policy Act (NEPA) (42 U.S.C. 
4321-4370h).
    3. Unique Entity Identifier and System for Award Management 
(SAM)--Required.
    This paragraph must state clearly that each applicant (unless 
the applicant is an individual or Federal awarding agency that is 
excepted from those requirements under 2 CFR 25.110(b) or (c), or 
has an exception approved by the Federal awarding agency under 2 CFR 
25.110(d)) is required to:
    (i) Be registered in SAM before submitting its application;
    (ii) provide a valid unique entity identifier in its 
application; and
    (iii) continue to maintain an active SAM registration with 
current information at all times during which it has an active 
Federal award or an application or plan under consideration by a 
Federal awarding agency.
    It also must state that the Federal awarding agency may not make 
a Federal award to an applicant until the applicant has complied 
with all applicable unique entity identifier and SAM requirements 
and, if an applicant has not fully complied with the requirements by 
the time the Federal awarding agency is ready to make a Federal 
award, the Federal awarding agency may determine that the applicant 
is not qualified to receive a Federal award and use that 
determination as a basis for making a Federal award to another 
applicant.
    4. Submission Dates and Times--Required. Announcements must 
identify due dates and times for all submissions. This includes not 
only the full applications but also any preliminary submissions 
(e.g., letters of intent, white papers, or pre-applications). It 
also includes any other submissions of information before Federal 
award that are separate from the full application. If the funding 
opportunity is a general announcement that is open for a period of 
time with no specific due dates for applications, this section 
should say so. Note that the information on dates that is included 
in this section also must appear with other overview information in 
a location preceding the full text of the announcement (see Sec.  
75.203).
    Each type of submission should be designated as encouraged or 
required and, if required, any deadline date (or dates, if the 
Federal awarding agency plans more than one cycle of application 
submission, review, and Federal award under the announcement) should 
be specified. The announcement must state (or provide a reference to 
another document that states):
    i. Any deadline in terms of a date and local time. If the due 
date falls on a Saturday, Sunday, or Federal holiday, the reporting 
package is due the next business day.
    ii. What the deadline means (e.g., whether it is the date and 
time by which the Federal awarding agency must receive the 
application, the date by which the application must be postmarked, 
or something else) and how that depends, if at all, on the 
submission method (e.g., mail, electronic, or personal/courier 
delivery).
    iii. The effect of missing a deadline (e.g., whether late 
applications are neither reviewed nor considered or are reviewed and 
considered under some circumstances).
    iv. How the receiving Federal office determines whether an 
application or pre-application has been submitted before the 
deadline. This includes the form of acceptable proof of mailing or 
system-generated documentation of receipt date and time.
    This section also may indicate whether, when, and in what form 
the applicant will receive an acknowledgement of receipt. This 
information should be displayed in ways that will be easy to 
understand and use. It can be difficult to extract all needed 
information from narrative paragraphs, even when they are well 
written. A tabular form for providing a summary of the information 
may help applicants for some programs and give them what effectively 
could be a checklist to verify the completeness of their application 
package before submission.
    5. Intergovernmental Review--Required, if applicable. If the 
funding opportunity is subject to Executive Order 12372, 
``Intergovernmental Review of Federal Programs,'' the notice must 
say so. In alerting applicants that they must contact their state's 
Single Point of Contact (SPOC) to find out about and comply with the 
state's process under Executive Order 12372, it may be useful to 
inform potential applicants that the names and addresses of the 
SPOCs are listed in the Office of Management and Budget's Web site. 
www.whitehouse.gov/omb/grants/spoc.html.
    6. Funding Restrictions--Required. Notices must include 
information on funding restrictions in order to allow an applicant 
to develop an application and budget consistent with program 
requirements. Examples are whether construction is an allowable 
activity, if there are any limitations on direct costs such as 
foreign travel or equipment purchases, and if there are any limits 
on indirect costs (or facilities and administrative costs). 
Applicants must be advised if Federal awards will not allow 
reimbursement of pre-Federal award costs.
    7. Other Submission Requirements-- Required. This section must 
address any other submission requirements not included in the other 
paragraphs of this section. This might include the format of 
submission, i.e., paper or electronic, for each type of required 
submission. Applicants should not be required to submit in more than 
one format and this section should indicate whether they may choose 
whether to submit applications in hard copy or electronically, may 
submit only in hard copy, or may submit only electronically.
    This section also must indicate where applications (and any pre-
applications) must be submitted if sent by postal mail, electronic 
means, or hand-delivery. For postal mail submission, this must 
include the name of an office, official, individual or function 
(e.g., application receipt center) and a complete mailing address. 
For electronic submission, this must include the URL or email 
address; whether a password(s) is required; whether particular 
software or other electronic capabilities are required; what to do 
in the event of system problems and a point of contact who will be 
available in the event the applicant experiences technical 
difficulties.\1\
    \1\With respect to electronic methods for providing information 
about funding

[[Page 75955]]

opportunities or accepting applicants' submissions of information, 
each HHS awarding agency is responsible for compliance with Section 
508 of the Rehabilitation Act of 1973 (29 U.S.C. 794d).

E. Application Review Information

    1. Criteria--Required. This section must address the criteria 
that the Federal awarding agency will use to evaluate applications. 
This includes the merit and other review criteria that evaluators 
will use to judge applications, including any statutory, regulatory, 
or other preferences (e.g., minority status or Native American 
tribal preferences) that will be applied in the review process. 
These criteria are distinct from eligibility criteria that are 
addressed before an application is accepted for review and any 
program policy or other factors that are applied during the 
selection process, after the review process is completed. The intent 
is to make the application process transparent so applicants can 
make informed decisions when preparing their applications to 
maximize fairness of the process. The announcement should clearly 
describe all criteria, including any sub-criteria. If criteria vary 
in importance, the announcement should specify the relative 
percentages, weights, or other means used to distinguish among them. 
For statutory, regulatory, or other preferences, the announcement 
should provide a detailed explanation of those preferences with an 
explicit indication of their effect (e.g., whether they result in 
additional points being assigned).
    If an applicant's proposed cost sharing will be considered in 
the review process (as opposed to being an eligibility criterion 
described in Section C.2), the announcement must specifically 
address how it will be considered (e.g., to assign a certain number 
of additional points to applicants who offer cost sharing, or to 
break ties among applications with equivalent scores after 
evaluation against all other factors). If cost sharing will not be 
considered in the evaluation, the announcement should say so, so 
that there is no ambiguity for potential applicants. Vague 
statements that cost sharing is encouraged, without clarification as 
to what that means, are unhelpful to applicants. It also is 
important that the announcement be clear about any restrictions on 
the types of cost (e.g., in-kind contributions) that are acceptable 
as cost sharing.
    2. Review and Selection Process--Required. This section may vary 
in the level of detail provided. The announcement must list any 
program policy or other factors or elements, other than merit 
criteria, that the selecting official may use in selecting 
applications for Federal award (e.g., geographical dispersion, 
program balance, or diversity). The HHS awarding agency may also 
include other appropriate details. For example, this section may 
indicate who is responsible for evaluation against the merit 
criteria (e.g., peers external to the HHS awarding agency or HHS 
awarding agency personnel) and/or who makes the final selections for 
Federal awards. If there is a multi-phase review process (e.g., an 
external panel advising internal HHS awarding agency personnel who 
make final recommendations to the deciding official), the 
announcement may describe the phases. It also may include: the 
number of people on an evaluation panel and how it operates, the way 
reviewers are selected, reviewer qualifications, and the way that 
conflicts of interest are avoided. With respect to electronic 
methods for providing information about funding opportunities or 
accepting applicants' submissions of information, each HHS awarding 
agency is responsible for compliance with Section 508 of the 
Rehabilitation Act of 1973 (29 U.S.C. 794d).
    In addition, if the HHS awarding agency permits applicants to 
nominate suggested reviewers of their applications or suggest those 
they feel may be inappropriate due to a conflict of interest, that 
information should be included in this section.
    3. Anticipated Announcement and Federal Award Dates--Optional. 
This section is intended to provide applicants with information they 
can use for planning purposes. If there is a single application 
deadline followed by the simultaneous review of all applications, 
the HHS awarding agency can include in this section information 
about the anticipated dates for announcing or notifying successful 
and unsuccessful applicants and for having Federal awards in place. 
If applications are received and evaluated on a ``rolling'' basis at 
different times during an extended period, it may be appropriate to 
give applicants an estimate of the time needed to process an 
application and notify the applicant of the Federal awarding 
agency's decision.

F. Federal Award Administration Information

    1. Federal Award Notices--Required. This section must address 
what a successful applicant can expect to receive following 
selection. If the HHS awarding agency's practice is to provide a 
separate notice stating that an application has been selected before 
it actually makes the Federal award, this section would be the place 
to indicate that the letter is not an authorization to begin 
performance (to the extent that it allows charging to Federal awards 
of pre-award costs at the non-Federal entity's own risk). This 
section should indicate that the notice of Federal award signed by 
the grants officer (or equivalent) is the authorizing document, and 
whether it is provided through postal mail or by electronic means 
and to whom. It also may address the timing, form, and content of 
notifications to unsuccessful applicants. See also Sec.  75.210.
    2. Administrative and National Policy Requirements--Required. 
This section must identify the usual administrative and national 
policy requirements the HHS awarding agency's Federal awards may 
include. Providing this information lets a potential applicant 
identify any requirements with which it would have difficulty 
complying if its application is successful. In those cases, early 
notification about the requirements allows the potential applicant 
to decide not to apply or to take needed actions before receiving 
the Federal award. The announcement need not include all of the 
terms and conditions of the Federal-award, but may refer to a 
document (with information about how to obtain it) or Internet site 
where applicants can see the terms and conditions. If this funding 
opportunity will lead to Federal awards with some specific terms and 
conditions that differ from the HHS awarding agency's usual 
(sometimes called ``general'') terms and conditions, this section 
should highlight those specific terms and conditions. Doing so will 
alert applicants that have received Federal awards from the HHS 
awarding agency previously and might not otherwise expect different 
terms and conditions. For the same reason, the announcement should 
inform potential applicants about special requirements that could 
apply to particular Federal awards after the review of applications 
and other information, based on the particular circumstances of the 
effort to be supported (e.g., if human subjects were to be involved 
or if some situations may justify special terms on intellectual 
property, data sharing or security requirements).
    3. Reporting--Required. This section must include general 
information about the type (e.g., financial or performance), 
frequency, and means of submission (paper or electronic) of post-
Federal award reporting requirements. Highlight any special 
reporting requirements for Federal awards under this funding 
opportunity that differ (e.g., by report type, frequency, form/
format, or circumstances for use) from what the HHS awarding 
agency's Federal awards usually require.

G. HHS Awarding Agency Contact(s)--Required

    The announcement must give potential applicants a point(s) of 
contact for answering questions or helping with problems while the 
funding opportunity is open. The intent of this requirement is to be 
as helpful as possible to potential applicants, so the HHS awarding 
agency should consider approaches such as giving:
    1. Points of contact who may be reached in multiple ways (e.g., 
by telephone, FAX, and/or email, as well as regular mail).
    2. A fax or email address that multiple people access, so that 
someone will respond even if others are unexpectedly absent during 
critical periods.
    3. Different contacts for distinct kinds of help (e.g., one for 
questions of programmatic content and a second for administrative 
questions).

H. Other Information--Optional

    This section may include any additional information that will 
assist a potential applicant. For example, the section might:
    1. Indicate whether this is a new program or a one-time 
initiative.
    2. Mention related programs or other upcoming or ongoing HHS 
awarding agency funding opportunities for similar activities.
    3. Include current Internet addresses for the HHS awarding 
agency Web sites that may be useful to an applicant in understanding 
the program.
    4. Alert applicants to the need to identify proprietary 
information and inform them about the way the HHS awarding agency 
will handle it.
    5. Include certain routine notices to applicants (e.g., that the 
Federal Government is not obligated to make any Federal award

[[Page 75956]]

as a result of the announcement or that only grants officers can 
bind the Federal Government to the expenditure of funds).

Appendix II to Part 75--Contract Provisions for Non-Federal Entity 
Contracts Under Federal Awards

    In addition to other provisions required by the HHS agency or 
non-Federal entity, all contracts made by the non-Federal entity 
under the Federal award must contain provisions covering the 
following, as applicable.
    A. Contracts for more than the simplified acquisition threshold 
currently set at $150,000, which is the inflation adjusted amount 
determined by the Civilian Agency Acquisition Council and the 
Defense Acquisition Regulations Council (Councils) as authorized by 
41 U.S.C. 1908, must address administrative, contractual, or legal 
remedies in instances where contractors violate or breach contract 
terms, and provide for such sanctions and penalties as appropriate.
    B. All contracts in excess of $10,000 must address termination 
for cause and for convenience by the non-Federal entity including 
the manner by which it will be effected and the basis for 
settlement.
    C. Equal Employment Opportunity. Except as otherwise provided 
under 41 CFR part 60, all contracts that meet the definition of 
``federally assisted construction contract'' in 41 CFR part 60-1.3 
must include the equal opportunity clause provided under 41 CFR 60-
1.4(b), in accordance with Executive Order 11246, as amended by 
Executive Order 11375, and implementing regulations at 41 CFR part 
60.
    D. Davis-Bacon Act, as amended (40 U.S.C. 3141-3148). When 
required by Federal program legislation, all prime construction 
contracts in excess of $2,000 awarded by non-Federal entities must 
include a provision for compliance with the Davis-Bacon Act (40 
U.S.C. 3141-3144, and 3146-3148) as supplemented by Department of 
Labor regulations (29 CFR part 5). In accordance with the statute, 
contractors must be required to pay wages to laborers and mechanics 
at a rate not less than the prevailing wages specified in a wage 
determination made by the Secretary of Labor. In addition, 
contractors must be required to pay wages not less than once a week. 
The non-Federal entity must place a copy of the current prevailing 
wage determination issued by the Department of Labor in each 
solicitation. The decision to award a contract or subcontract must 
be conditioned upon the acceptance of the wage determination. The 
non-Federal entity must report all suspected or reported violations 
to the Federal awarding agency. The contracts must also include a 
provision for compliance with the Copeland ``Anti-Kickback'' Act (40 
U.S.C. 3145), as supplemented by Department of Labor regulations (29 
CFR part 3). The Act provides that each contractor or subrecipient 
must be prohibited from inducing, by any means, any person employed 
in the construction, completion, or repair of public work, to give 
up any part of the compensation to which he or she is otherwise 
entitled. The non-Federal entity must report all suspected or 
reported violations to the Federal awarding agency.
    E. Contract Work Hours and Safety Standards Act (40 U.S.C. 3701-
3708). Where applicable, all contracts awarded by the non-Federal 
entity in excess of $100,000 that involve the employment of 
mechanics or laborers must include a provision for compliance with 
40 U.S.C. 3702 and 3704, as supplemented by Department of Labor 
regulations (29 CFR part 5). Under 40 U.S.C. 3702 of the Act, each 
contractor must be required to compute the wages of every mechanic 
and laborer on the basis of a standard work week of 40 hours. Work 
in excess of the standard work week is permissible provided that the 
worker is compensated at a rate of not less than one and a half 
times the basic rate of pay for all hours worked in excess of 40 
hours in the work week. The requirements of 40 U.S.C. 3704 are 
applicable to construction work and provide that no laborer or 
mechanic must be required to work in surroundings or under working 
conditions which are unsanitary, hazardous or dangerous. These 
requirements do not apply to the purchases of supplies or materials 
or articles ordinarily available on the open market, or contracts 
for transportation or transmission of intelligence.
    F. Rights to Inventions Made Under a Contract or Agreement. If 
the Federal award meets the definition of ``funding agreement'' 
under 37 CFR 401.2 (a) and the recipient or subrecipient wishes to 
enter into a contract with a small business firm or nonprofit 
organization regarding the substitution of parties, assignment or 
performance of experimental, developmental, or research work under 
that ``funding agreement,'' the recipient or subrecipient must 
comply with the requirements of 37 CFR part 401 and any implementing 
regulations issued by the awarding agency.
    G. Clean Air Act (42 U.S.C. 7401-7671q.) and the Federal Water 
Pollution Control Act (33 U.S.C. 1251-1387), as amended--Contracts 
and subgrants of amounts in excess of $150,000 must contain a 
provision that requires the non-Federal award to agree to comply 
with all applicable standards, orders or regulations issued pursuant 
to the Clean Air Act (42 U.S.C. 7401-7671q) and the Federal Water 
Pollution Control Act as amended (33 U.S.C. 1251-1387). Violations 
must be reported to the Federal awarding agency and the Regional 
Office of the Environmental Protection Agency (EPA).
    H. Debarment and Suspension (Executive Orders 12549 and 12689)--
A contract award (see 2 CFR 180.220) must not be made to parties 
listed on the government-wide exclusions in the System for Award 
Management (SAM), in accordance with the OMB guidelines at 2 CFR 
part 180 that implement Executive Orders 12549 (3 CFR part 1986 
Comp., p. 189) and 12689 (3 CFR part 1989 Comp., p. 235), 
``Debarment and Suspension.'' SAM Exclusions contains the names of 
parties debarred, suspended, or otherwise excluded by agencies, as 
well as parties declared ineligible under statutory or regulatory 
authority other than Executive Order 12549.
    I. Byrd Anti-Lobbying Amendment (31 U.S.C. 1352)--Contractors 
that apply or bid for an award exceeding $100,000 must file the 
required certification. Each tier certifies to the tier above that 
it will not and has not used Federal appropriated funds to pay any 
person or organization for influencing or attempting to influence an 
officer or employee of any agency, a member of Congress, officer or 
employee of Congress, or an employee of a member of Congress in 
connection with obtaining any Federal contract, grant or any other 
award covered by 31 U.S.C. 1352. Each tier must also disclose any 
lobbying with non-Federal funds that takes place in connection with 
obtaining any Federal award. Such disclosures are forwarded from 
tier to tier up to the non-Federal award.
    J. See Sec.  75.331 Procurement of recovered materials.

Appendix III to Part 75--Indirect (F&A) Costs Identification and 
Assignment, and Rate Determination for Institutions of Higher Education

A. General

    This appendix provides criteria for identifying and computing 
indirect (or indirect (F&A)) rates at IHEs (institutions). Indirect 
(F&A) costs are those that are incurred for common or joint 
objectives and therefore cannot be identified readily and 
specifically with a particular sponsored project, an instructional 
activity, or any other institutional activity. See subsection B.1, 
for a discussion of the components of indirect (F&A) costs.

1. Major Functions of an Institution

    Refers to instruction, organized research, other sponsored 
activities and other institutional activities as defined in this 
section:
    a. Instruction means the teaching and training activities of an 
institution. Except for research training as provided in subsection 
b, this term includes all teaching and training activities, whether 
they are offered for credits toward a degree or certificate or on a 
non-credit basis, and whether they are offered through regular 
academic departments or separate divisions, such as a summer school 
division or an extension division. Also considered part of this 
major function are departmental research, and, where agreed to, 
university research.
    (1) Sponsored instruction and training means specific 
instructional or training activity established by grant, contract, 
or cooperative agreement. For purposes of the cost principles, this 
activity may be considered a major function even though an 
institution's accounting treatment may include it in the instruction 
function.
    (2) Departmental research means research, development and 
scholarly activities that are not organized research and, 
consequently, are not separately budgeted and accounted for. 
Departmental research, for purposes of this document, is not 
considered as a major function, but as a part of the instruction 
function of the institution.
    b. Organized research means all research and development 
activities of an institution that are separately budgeted and 
accounted for. It includes:

[[Page 75957]]

    (1) Sponsored research means all research and development 
activities that are sponsored by Federal and non-Federal agencies 
and organizations. This term includes activities involving the 
training of individuals in research techniques (commonly called 
research training) where such activities utilize the same facilities 
as other research and development activities and where such 
activities are not included in the instruction function.
    (2) University research means all research and development 
activities that are separately budgeted and accounted for by the 
institution under an internal application of institutional funds. 
University research, for purposes of this document, must be combined 
with sponsored research under the function of organized research.
    (3) Only mandatory cost sharing or cost sharing specifically 
committed in the project budget must be included in the organized 
research base for computing the indirect (F&A) cost rate or 
reflected in any allocation of indirect costs. Salary costs above 
statutory limits are not considered cost sharing.
    c. Other sponsored activities means programs and projects 
financed by Federal and non-Federal agencies and organizations which 
involve the performance of work other than instruction and organized 
research. Examples of such programs and projects are health service 
projects and community service programs. However, when any of these 
activities are undertaken by the institution without outside 
support, they may be classified as other institutional activities.
    d. Other institutional activities means all activities of an 
institution except for instruction, departmental research, organized 
research, and other sponsored activities, as defined in this 
section; indirect (F&A) cost activities identified in this Appendix 
paragraph B, Identification and assignment of indirect (F&A) costs; 
and specialized services facilities described in Sec.  75.468 of 
this part.
    Examples of other institutional activities include operation of 
residence halls, dining halls, hospitals and clinics, student 
unions, intercollegiate athletics, bookstores, faculty housing, 
student apartments, guest houses, chapels, theaters, public museums, 
and other similar auxiliary enterprises. This definition also 
includes any other categories of activities, costs of which are 
``unallowable'' to Federal awards, unless otherwise indicated in an 
award.

2. Criteria for Distribution

    a. Base period. A base period for distribution of indirect (F&A) 
costs is the period during which the costs are incurred. The base 
period normally should coincide with the fiscal year established by 
the institution, but in any event the base period should be so 
selected as to avoid inequities in the distribution of costs.
    b. Need for cost groupings. The overall objective of the 
indirect (F&A) cost allocation process is to distribute the indirect 
(F&A) costs described in Section B, Identification and assignment of 
indirect (F&A) costs, to the major functions of the institution in 
proportions reasonably consistent with the nature and extent of 
their use of the institution's resources. In order to achieve this 
objective, it may be necessary to provide for selective distribution 
by establishing separate groupings of cost within one or more of the 
indirect (F&A) cost categories referred to in subsection B.1. In 
general, the cost groupings established within a category should 
constitute, in each case, a pool of those items of expense that are 
considered to be of like nature in terms of their relative 
contribution to (or degree of remoteness from) the particular cost 
objectives to which distribution is appropriate. Cost groupings 
should be established considering the general guides provided in 
subsection c of this section. Each such pool or cost grouping should 
then be distributed individually to the related cost objectives, 
using the distribution base or method most appropriate in light of 
the guidelines set forth in subsection d of this section.
    c. General considerations on cost groupings. The extent to which 
separate cost groupings and selective distribution would be 
appropriate at an institution is a matter of judgment to be 
determined on a case-by-case basis. Typical situations which may 
warrant the establishment of two or more separate cost groupings 
(based on account classification or analysis) within an indirect 
(F&A) cost category include but are not limited to the following:
    (1) If certain items or categories of expense relate solely to 
one of the major functions of the institution or to less than all 
functions, such expenses should be set aside as a separate cost 
grouping for direct assignment or selective allocation in accordance 
with the guides provided in subsections b and d.
    (2) If any types of expense ordinarily treated as general 
administration or departmental administration are charged to Federal 
awards as direct costs, expenses applicable to other activities of 
the institution when incurred for the same purposes in like 
circumstances must, through separate cost groupings, be excluded 
from the indirect (F&A) costs allocable to those Federal awards and 
included in the direct cost of other activities for cost allocation 
purposes.
    (3) If it is determined that certain expenses are for the 
support of a service unit or facility whose output is susceptible of 
measurement on a workload or other quantitative basis, such expenses 
should be set aside as a separate cost grouping for distribution on 
such basis to organized research, instructional, and other 
activities at the institution or within the department.
    (4) If activities provide their own purchasing, personnel 
administration, building maintenance or similar service, the 
distribution of general administration and general expenses, or 
operation and maintenance expenses to such activities should be 
accomplished through cost groupings which include only that portion 
of central indirect (F&A) costs (such as for overall management) 
which are properly allocable to such activities.
    (5) If the institution elects to treat fringe benefits as 
indirect (F&A) charges, such costs should be set aside as a separate 
cost grouping for selective distribution to related cost objectives.
    (6) The number of separate cost groupings within a category 
should be held within practical limits, after taking into 
consideration the materiality of the amounts involved and the degree 
of precision attainable through less selective methods of 
distribution.
    d. Selection of distribution method.
    (1) Actual conditions must be taken into account in selecting 
the method or base to be used in distributing individual cost 
groupings. The essential consideration in selecting a base is that 
it be the one best suited for assigning the pool of costs to cost 
objectives in accordance with benefits derived; with a traceable 
cause-and-effect relationship; or with logic and reason, where 
neither benefit nor a cause-and-effect relationship is determinable.
    (2) If a cost grouping can be identified directly with the cost 
objective benefitted, it should be assigned to that cost objective.
    (3) If the expenses in a cost grouping are more general in 
nature, the distribution may be based on a cost analysis study which 
results in an equitable distribution of the costs. Such cost 
analysis studies may take into consideration weighting factors, 
population, or space occupied if appropriate. Cost analysis studies, 
however, must (a) be appropriately documented in sufficient detail 
for subsequent review by the cognizant agency for indirect costs, 
(b) distribute the costs to the related cost objectives in 
accordance with the relative benefits derived, (c) be statistically 
sound, (d) be performed specifically at the institution at which the 
results are to be used, and (e) be reviewed periodically, but not 
less frequently than rate negotiations, updated if necessary, and 
used consistently. Any assumptions made in the study must be stated 
and explained. The use of cost analysis studies and periodic changes 
in the method of cost distribution must be fully justified.
    (4) If a cost analysis study is not performed, or if the study 
does not result in an equitable distribution of the costs, the 
distribution must be made in accordance with the appropriate base 
cited in Section B, unless one of the following conditions is met:
    (a) It can be demonstrated that the use of a different base 
would result in a more equitable allocation of the costs, or that a 
more readily available base would not increase the costs charged to 
Federal awards, or
    (b) The institution qualifies for, and elects to use, the 
simplified method for computing indirect (F&A) cost rates described 
in Section D.
    (5) Notwithstanding subsection (3), effective July 1, 1998, a 
cost analysis or base other than that in Section B must not be used 
to distribute utility or student services costs. Instead, 
subsections B.4.c may be used in the recovery of utility costs.
    e. Order of distribution.
    (1) Indirect (F&A) costs are the broad categories of costs 
discussed in Section B.1.
    (2) Depreciation, interest expenses, operation and maintenance 
expenses, and general administrative and general expenses should be 
allocated in that order to the remaining indirect (F&A) cost 
categories as well as to the major functions and specialized service 
facilities of the institution. Other cost categories may be

[[Page 75958]]

allocated in the order determined to be most appropriate by the 
institutions. When cross allocation of costs is made as provided in 
subsection (3), this order of allocation does not apply.
    (3) Normally an indirect (F&A) cost category will be considered 
closed once it has been allocated to other cost objectives, and 
costs may not be subsequently allocated to it. However, a cross 
allocation of costs between two or more indirect (F&A) cost 
categories may be used if such allocation will result in a more 
equitable allocation of costs. If a cross allocation is used, an 
appropriate modification to the composition of the indirect (F&A) 
cost categories described in Section B is required.

B. Identification and Assignment of Indirect (F&A) Costs

1. Definition of Facilities and Administration

    See Sec.  75.414 which provides the basis for these indirect 
cost requirements.

2. Depreciation

    a. The expenses under this heading are the portion of the costs 
of the institution's buildings, capital improvements to land and 
buildings, and equipment which are computed in accordance with Sec.  
75.436.
    b. In the absence of the alternatives provided for in Section 
A.2.d, the expenses included in this category must be allocated in 
the following manner:
    (1) 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.
    (2) 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 rest rooms.
    (3) Depreciation on buildings, capital improvements and 
equipment related to space (e.g., individual rooms, laboratories) 
used jointly by more than one function (as determined by the users 
of the space) must be treated as follows. The cost of each jointly 
used unit of space must be allocated to benefitting functions on the 
basis of:
    (a) The employee full-time equivalents (FTEs) or salaries and 
wages of those individual functions benefitting from the use of that 
space; or
    (b) Institution-wide employee FTEs or salaries and wages 
applicable to the benefitting major functions (see Section A.1) of 
the institution.
    (4) 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 of students and employees on a full-time equivalent 
basis. The amount allocated to the student category must be assigned 
to the instruction function of the institution. The amount allocated 
to the employee category must be further allocated to the major 
functions of the institution in proportion to the salaries and wages 
of all employees applicable to those functions.

3. Interest

    Interest on debt associated with certain buildings, equipment 
and capital improvements, as defined in Sec.  75.449, must be 
classified as an expenditure under the category Facilities. These 
costs must be allocated in the same manner as the depreciation on 
the buildings, equipment and capital improvements to which the 
interest relates.

4. Operation and Maintenance Expenses

    a. The expenses under this heading are those that have been 
incurred for the administration, supervision, operation, 
maintenance, preservation, and protection of the institution's 
physical plant. They include expenses normally incurred for such 
items as janitorial and utility services; repairs and ordinary or 
normal alterations of buildings, furniture and equipment; care of 
grounds; maintenance and operation of buildings and other plant 
facilities; security; earthquake and disaster preparedness; 
environmental safety; hazardous waste disposal; property, liability 
and all other insurance relating to property; space and capital 
leasing; facility planning and management; and central receiving. 
The operation and maintenance expense category should also include 
its allocable share of fringe benefit costs, depreciation, and 
interest costs.
    b. In the absence of the alternatives provided for in Section 
A.2.d, the expenses included in this category must be allocated in 
the same manner as described in subsection 2.b for depreciation.
    c. A utility cost adjustment of up to 1.3 percentage points may 
be included in the negotiated indirect cost rate of the IHE for 
organized research, per the computation alternatives in paragraphs 
(c)(1) and (2) of this section:
    (1) Where space is devoted to a single function and metering 
allows unambiguous measurement of usage related to that space, costs 
must be assigned to the function located in that space.
    (2) Where space is allocated to different functions and metering 
does not allow unambiguous measurement of usage by function, costs 
must be allocated as follows:
    (i) Utilities costs should be apportioned to functions in the 
same manner as depreciation, based on the calculated difference 
between the site or building actual square footage for monitored 
research laboratory space (site, building, floor, or room), and a 
separate calculation prepared by the IHE using the ``effective 
square footage'' described in subsection (c)(2)(ii) of this section.
    (ii) ``Effective square footage'' allocated to research 
laboratory space must be calculated as the actual square footage 
times the relative energy utilization index (REUI) posted on the OMB 
Web site at the time of a rate determination.
    A. This index is the ratio of a laboratory energy use index (lab 
EUI) to the corresponding index for overall average college or 
university space (college EUI).
    B. In July 2012, values for these two indices (taken 
respectively from the Lawrence Berkeley Laboratory ``Labs for the 
21st Century'' benchmarking tool http://labs21benchmarking.lbl.gov/CompareData.php and the US Department of Energy ``Buildings Energy 
Databook'' and http://buildingsdatabook.eren.doe.gov/CBECS.aspx) 
were 310 kBtu/sq ft-yr. and 155 kBtu/sq ft-yr., so that the 
adjustment ratio is 2.0 by this methodology. To retain currency, OMB 
will adjust the EUI numbers from time to time (no more often than 
annually nor less often than every 5 years), using reliable and 
publicly disclosed data. Current values of both the EUIs and the 
REUI will be posted on the OMB Web site.

5. General Administration and General Expenses

    a. The expenses under this heading are those that have been 
incurred for the general executive and administrative offices of 
educational institutions and other expenses of a general character 
which do not relate solely to any major function of the institution; 
i.e., solely to (1) instruction, (2) organized research, (3) other 
sponsored activities, or (4) other institutional activities. The 
general administration and general expense category should also 
include its allocable share of fringe benefit costs, operation and 
maintenance expense, depreciation, and interest costs. Examples of 
general administration and general expenses include: Those expenses 
incurred by administrative offices that serve the entire university 
system of which the institution is a part; central offices of the 
institution such as the President's or Chancellor's office, the 
offices for institution-wide financial management, business 
services, budget and planning, personnel management, and safety and 
risk management; the office of the General Counsel; and the 
operations of the central administrative management information 
systems. General administration and general expenses must not 
include expenses incurred within non-university-wide deans' offices, 
academic departments, organized research units, or similar 
organizational units. (See subsection 6.)
    b. In the absence of the alternatives provided for in Section 
A.2.d, the expenses included in this category must be grouped first 
according to common major functions of the institution to which they 
render services or provide benefits. The aggregate expenses of each 
group must then be allocated to serviced or benefitted functions on 
the modified total cost basis. Modified total costs consist of the 
same elements as those in Section C.2. When an activity included in 
this indirect (F&A) cost category provides a service or product to 
another institution or organization, an appropriate adjustment must 
be made to either the expenses or the basis of allocation or both, 
to assure a proper allocation of costs.

6. Departmental Administration Expenses

    a. The expenses under this heading are those that have been 
incurred for administrative and supporting services that benefit 
common or joint departmental activities or objectives in academic 
deans' offices, academic departments and divisions, and organized 
research units. Organized research units include such units as 
institutes, study centers, and research centers. Departmental 
administration

[[Page 75959]]

expenses are subject to the following limitations.
    (1) Academic deans' offices. Salaries and operating expenses are 
limited to those attributable to administrative functions.
    (2) Academic departments:
    (a) Salaries and fringe benefits attributable to the 
administrative work (including bid and proposal preparation) of 
faculty (including department heads) and other professional 
personnel conducting research and/or instruction, must be allowed at 
a rate of 3.6 percent of modified total direct costs. This category 
does not include professional business or professional 
administrative officers. This allowance must be added to the 
computation of the indirect (F&A) cost rate for major functions in 
Section C; the expenses covered by the allowance must be excluded 
from the departmental administration cost pool. No documentation is 
required to support this allowance.
    (b) Other administrative and supporting expenses incurred within 
academic departments are allowable provided they are treated 
consistently in like circumstances. This would include expenses such 
as the salaries of secretarial and clerical staffs, the salaries of 
administrative officers and assistants, travel, office supplies, 
stockrooms, and the like.
    (3) Other fringe benefit costs applicable to the salaries and 
wages included in subsections (1) and (2) are allowable, as well as 
an appropriate share of general administration and general expenses, 
operation and maintenance expenses, and depreciation.
    (4) Federal agencies may authorize reimbursement of additional 
costs for department heads and faculty only in exceptional cases 
where an institution can demonstrate undue hardship or detriment to 
project performance.
    b. The following guidelines apply to the determination of 
departmental administrative costs as direct or indirect (F&A) costs.
    (1) In developing the departmental administration cost pool, 
special care should be exercised to ensure that costs incurred for 
the same purpose in like circumstances are treated consistently as 
either direct or indirect (F&A) costs. For example, salaries of 
technical staff, laboratory supplies (e.g., chemicals), telephone 
toll charges, animals, animal care costs, computer costs, travel 
costs, and specialized shop costs must be treated as direct costs 
wherever identifiable to a particular cost objective. Direct 
charging of these costs may be accomplished through specific 
identification of individual costs to benefitting cost objectives, 
or through recharge centers or specialized service facilities, as 
appropriate under the circumstances. See Sec. Sec.  75.413(c) and 
75.468.
    (2) Items such as office supplies, postage, local telephone 
costs, and memberships must normally be treated as indirect (F&A) 
costs.
    c. In the absence of the alternatives provided for in Section 
A.2.d, the expenses included in this category must be allocated as 
follows:
    (1) The administrative expenses of the dean's office of each 
college and school must be allocated to the academic departments 
within that college or school on the modified total cost basis.
    (2) The administrative expenses of each academic department, and 
the department's share of the expenses allocated in subsection (1) 
must be allocated to the appropriate functions of the department on 
the modified total cost basis.

7. Sponsored Projects Administration

    a. The expenses under this heading are limited to those incurred 
by a separate organization(s) established primarily to administer 
sponsored projects, including such functions as grant and contract 
administration (Federal and non-Federal), special security, 
purchasing, personnel, administration, and editing and publishing of 
research and other reports. They include the salaries and expenses 
of the head of such organization, assistants, and immediate staff, 
together with the salaries and expenses of personnel engaged in 
supporting activities maintained by the organization, such as stock 
rooms, print shops, and the like. This category also includes an 
allocable share of fringe benefit costs, general administration and 
general expenses, operation and maintenance expenses, and 
depreciation. Appropriate adjustments will be made for services 
provided to other functions or organizations.
    b. In the absence of the alternatives provided for in Section 
A.2.d, the expenses included in this category must be allocated to 
the major functions of the institution under which the sponsored 
projects are conducted on the basis of the modified total cost of 
sponsored projects.
    c. An appropriate adjustment must be made to eliminate any 
duplicate charges to Federal awards when this category includes 
similar or identical activities as those included in the general 
administration and general expense category or other indirect (F&A) 
cost items, such as accounting, procurement, or personnel 
administration.

8. Library Expenses

    a. The expenses under this heading are those that have been 
incurred for the operation of the library, including the cost of 
books and library materials purchased for the library, less any 
items of library income that qualify as applicable credits under 
Sec.  75.406. The library expense category should also include the 
fringe benefits applicable to the salaries and wages included 
therein, an appropriate share of general administration and general 
expense, operation and maintenance expense, and depreciation. Costs 
incurred in the purchases of rare books (museum-type books) with no 
value to Federal awards should not be allocated to them.
    b. In the absence of the alternatives provided for in Section 
A.2.d, the expenses included in this category must be allocated 
first on the basis of primary categories of users, including 
students, professional employees, and other users.
    (1) The student category must consist of full-time equivalent 
students enrolled at the institution, regardless of whether they 
earn credits toward a degree or certificate.
    (2) The professional employee category must consist of all 
faculty members and other professional employees of the institution, 
on a full-time equivalent basis. This category may also include 
post-doctorate fellows and graduate students.
    (3) The other users category must consist of a reasonable factor 
as determined by institutional records to account for all other 
users of library facilities.
    c. Amount allocated in paragraph b of this section must be 
assigned further as follows:
    (1) The amount in the student category must be assigned to the 
instruction function of the institution.
    (2) The amount in the professional employee category must be 
assigned to the major functions of the institution in proportion to 
the salaries and wages of all faculty members and other professional 
employees applicable to those functions.
    (3) The amount in the other users category must be assigned to 
the other institutional activities function of the institution.

9. Student Administration and Services

    a. The expenses under this heading are those that have been 
incurred for the administration of student affairs and for services 
to students, including expenses of such activities as deans of 
students, admissions, registrar, counseling and placement services, 
student advisers, student health and infirmary services, catalogs, 
and commencements and convocations. The salaries of members of the 
academic staff whose responsibilities to the institution require 
administrative work that benefits sponsored projects may also be 
included to the extent that the portion charged to student 
administration is determined in accordance with Subpart E of this 
part. This expense category also includes the fringe benefit costs 
applicable to the salaries and wages included therein, an 
appropriate share of general administration and general expenses, 
operation and maintenance, interest expense, and depreciation.
    b. In the absence of the alternatives provided for in Section 
A.2.d, the expenses in this category must be allocated to the 
instruction function, and subsequently to Federal awards in that 
function.

10. Offset for Indirect (F&A) Expenses Otherwise Provided for by the 
Federal Government

    a. The items to be accumulated under this heading are the 
reimbursements and other payments from the Federal Government which 
are made to the institution to support solely, specifically, and 
directly, in whole or in part, any of the administrative or service 
activities described in subsections 2 through 9.
    b. The items in this group must be treated as a credit to the 
affected individual indirect (F&A) cost category before that 
category is allocated to benefitting functions.

C. Determination and Application of Indirect (F&A) Cost Rate or Rates

1. Indirect (F&A) Cost Pools

    a. (1) Subject to subsection b, the separate categories of 
indirect (F&A) costs allocated to each major function of the 
institution as prescribed in Section B of this paragraph C.1-, must 
be aggregated and treated as a common pool for that function. The 
amount in each pool must be divided by the distribution base 
described in subsection 2 to

[[Page 75960]]

arrive at a single indirect (F&A) cost rate for each function.
    (2) The rate for each function is used to distribute indirect 
(F&A) costs to individual Federal awards of that function. Since a 
common pool is established for each major function of the 
institution, a separate indirect (F&A) cost rate would be 
established for each of the major functions described in Section A.1 
under which Federal awards are carried out.
    (3) Each institution's indirect (F&A) cost rate process must be 
appropriately designed to ensure that Federal sponsors do not in any 
way subsidize the indirect (F&A) costs of other sponsors, 
specifically activities sponsored by industry and foreign 
governments. Accordingly, each allocation method used to identify 
and allocate the indirect (F&A) cost pools, as described in Sections 
A.2, and B.2 through B.9, must contain the full amount of the 
institution's modified total costs or other appropriate units of 
measurement used to make the computations. In addition, the final 
rate distribution base (as defined in subsection 2) for each major 
function (organized research, instruction, etc., as described in 
Section A.1) must contain all the programs or activities which 
utilize the indirect (F&A) costs allocated to that major function. 
At the time an indirect (F&A) cost proposal is submitted to a 
cognizant agency for indirect costs, each institution must describe 
the process it uses to ensure that Federal funds are not used to 
subsidize industry and foreign government funded programs.
    b. In some instances a single rate basis for use across the 
board on all work within a major function at an institution may not 
be appropriate. A single rate for research, for example, might not 
take into account those different environmental factors and other 
conditions which may affect substantially the indirect (F&A) costs 
applicable to a particular segment of research at the institution. A 
particular segment of research may be that performed under a single 
sponsored agreement or it may consist of research under a group of 
Federal awards performed in a common environment. The environmental 
factors are not limited to the physical location of the work. Other 
important factors are the level of the administrative support 
required, the nature of the facilities or other resources employed, 
the scientific disciplines or technical skills involved, the 
organizational arrangements used, or any combination thereof. If a 
particular segment of a sponsored agreement is performed within an 
environment which appears to generate a significantly different 
level of indirect (F&A) costs, provisions should be made for a 
separate indirect (F&A) cost pool applicable to such work. The 
separate indirect (F&A) cost pool should be developed during the 
regular course of the rate determination process and the separate 
indirect (F&A) cost rate resulting therefrom should be utilized; 
provided it is determined that (1) such indirect (F&A) cost rate 
differs significantly from that which would have been obtained under 
subsection a, and (2) the volume of work to which such rate would 
apply is material in relation to other Federal awards at the 
institution.

2. The Distribution Basis

    Indirect (F&A) costs must be distributed to applicable Federal 
awards and other benefitting activities within each major function 
(see section A.1, Major functions of an institution) on the basis of 
modified total direct costs (MTDC), consisting of all salaries and 
wages, fringe benefits, materials and supplies, services, travel, 
and up to the first $25,000 of each subaward (regardless of the 
period covered by the subaward). MTDC is defined in Sec.  75.2. For 
this purpose, an indirect (F&A) cost rate should be determined for 
each of the separate indirect (F&A) cost pools developed pursuant to 
subsection 1. The rate in each case should be stated as the 
percentage which the amount of the particular indirect (F&A) cost 
pool is of the modified total direct costs identified with such 
pool.

3. Negotiated Lump Sum for Indirect (F&A) Costs

    A negotiated fixed amount in lieu of indirect (F&A) costs may be 
appropriate for self-contained, off-campus, or primarily 
subcontracted activities where the benefits derived from an 
institution's indirect (F&A) services cannot be readily determined. 
Such negotiated indirect (F&A) costs will be treated as an offset 
before allocation to instruction, organized research, other 
sponsored activities, and other institutional activities. The base 
on which such remaining expenses are allocated should be 
appropriately adjusted.

4. Predetermined Rates for Indirect (F&A) Costs

    Public Law 87-638 (76 Stat. 437) as amended (41 U.S.C. 4708) 
authorizes the use of predetermined rates in determining the 
``indirect costs'' (indirect (F&A) costs) applicable under research 
agreements with educational institutions. The stated objectives of 
the law are to simplify the administration of cost-type research and 
development contracts (including grants) with educational 
institutions, to facilitate the preparation of their budgets, and to 
permit more expeditious closeout of such contracts when the work is 
completed. In view of the potential advantages offered by this 
procedure, negotiation of predetermined rates for indirect (F&A) 
costs for a period of two to four years should be the norm in those 
situations where the cost experience and other pertinent facts 
available are deemed sufficient to enable the parties involved to 
reach an informed judgment as to the probable level of indirect 
(F&A) costs during the ensuing accounting periods.

5. Negotiated Fixed Rates and Carry-Forward Provisions

    When a fixed rate is negotiated in advance for a fiscal year (or 
other time period), the over- or under-recovery for that year may be 
included as an adjustment to the indirect (F&A) cost for the next 
rate negotiation. When the rate is negotiated before the carry-
forward adjustment is determined, the carry-forward amount may be 
applied to the next subsequent rate negotiation. When such 
adjustments are to be made, each fixed rate negotiated in advance 
for a given period will be computed by applying the expected 
indirect (F&A) costs allocable to Federal awards for the forecast 
period plus or minus the carry-forward adjustment (over- or under-
recovery) from the prior period, to the forecast distribution base. 
Unrecovered amounts under lump-sum agreements or cost-sharing 
provisions of prior years must not be carried forward for 
consideration in the new rate negotiation. There must, however, be 
an advance understanding in each case between the institution and 
the cognizant agency for indirect costs as to whether these 
differences will be considered in the rate negotiation rather than 
making the determination after the differences are known. Further, 
institutions electing to use this carry-forward provision may not 
subsequently change without prior approval of the cognizant agency 
for indirect costs. In the event that an institution returns to a 
post-determined rate, any over- or under-recovery during the period 
in which negotiated fixed rates and carry-forward provisions were 
followed will be included in the subsequent post-determined rates. 
Where multiple rates are used, the same procedure will be applicable 
for determining each rate.

6. Provisional and Final Rates for Indirect (F&A) Costs

    Where the cognizant agency for indirect costs determines that 
cost experience and other pertinent facts do not justify the use of 
predetermined rates, or a fixed rate with a carry-forward, or if the 
parties cannot agree on an equitable rate, a provisional rate must 
be established. To prevent substantial overpayment or underpayment, 
the provisional rate may be adjusted by the cognizant agency for 
indirect costs during the institution's fiscal year. Predetermined 
or fixed rates may replace provisional rates at any time prior to 
the close of the institution's fiscal year. If a provisional rate is 
not replaced by a predetermined or fixed rate prior to the end of 
the institution's fiscal year, a final rate will be established and 
upward or downward adjustments will be made based on the actual 
allowable costs incurred for the period involved.

7. Fixed Rates for the Life of the Sponsored Agreement

    a. Except as provided in paragraph (c)(1) of Sec.  75.414 
Federal agencies must use the negotiated rates for indirect (F&A) 
costs in effect at the time of the initial award throughout the life 
of the Federal award. Award levels for Federal awards may not be 
adjusted in future years as a result of changes in negotiated rates. 
``Negotiated rates'' per the rate agreement include final, fixed, 
and predetermined rates and exclude provisional rates. ``Life'' for 
the purpose of this subsection means each competitive segment of a 
project. A competitive segment is a period of years approved by the 
Federal awarding agency at the time of the Federal award. If 
negotiated rate agreements do not extend through the life of the 
Federal award at the time of the initial award, then the negotiated 
rate for the last year of the Federal award must be extended through 
the end of the life of the Federal award.
    b. Except as provided in Sec.  75.414, when an educational 
institution does not have a negotiated rate with the Federal 
Government

[[Page 75961]]

at the time of an award (because the educational institution is a 
new recipient or the parties cannot reach agreement on a rate), the 
provisional rate used at the time of the award must be adjusted once 
a rate is negotiated and approved by the cognizant agency for 
indirect costs.

8. Limitation on Reimbursement of Administrative Costs

    a. Notwithstanding the provisions of subsection C.1.a, the 
administrative costs charged to Federal awards awarded or amended 
(including continuation and renewal awards) with effective dates 
beginning on or after the start of the institution's first fiscal 
year which begins on or after October 1, 1991, must be limited to 
26% of modified total direct costs (as defined in subsection 2) for 
the total of General Administration and General Expenses, 
Departmental Administration, Sponsored Projects Administration, and 
Student Administration and Services (including their allocable share 
of depreciation, interest costs, operation and maintenance expenses, 
and fringe benefits costs, as provided by Section B, Identification 
and assignment of indirect (F&A) costs, and all other types of 
expenditures not listed specifically under one of the subcategories 
of facilities in Section B.
    b. Institutions should not change their accounting or cost 
allocation methods if the effect is to change the charging of a 
particular type of cost from F&A to direct, or to reclassify costs, 
or increase allocations from the administrative pools identified in 
paragraph B.1 of this Appendix to the other F&A cost pools or fringe 
benefits. Cognizant agencies for indirect cost are authorized to 
allow changes where an institution's charging practices are at 
variance with acceptable practices followed by a substantial 
majority of other institutions.

9. Alternative Method for Administrative Costs

    a. Notwithstanding the provisions of subsection C.1.a, an 
institution may elect to claim a fixed allowance for the 
``Administration'' portion of indirect (F&A) costs. The allowance 
could be either 24% of modified total direct costs or a percentage 
equal to 95% of the most recently negotiated fixed or predetermined 
rate for the cost pools included under ``Administration'' as defined 
in Section B.1, whichever is less. Under this alternative, no cost 
proposal need be prepared for the ``Administration'' portion of the 
indirect (F&A) cost rate nor is further identification or 
documentation of these costs required (see subsection c). Where a 
negotiated indirect (F&A) cost agreement includes this alternative, 
an institution must make no further charges for the expenditure 
categories described in Section B.5, Section B.6, Section B.7, and 
Section B.9.
    b. In negotiations of rates for subsequent periods, an 
institution that has elected the option of subsection a may continue 
to exercise it at the same rate without further identification or 
documentation of costs.
    c. If an institution elects to accept a threshold rate as 
defined in subsection a of this section, it is not required to 
perform a detailed analysis of its administrative costs. However, in 
order to compute the facilities components of its indirect (F&A) 
cost rate, the institution must reconcile its indirect (F&A) cost 
proposal to its financial statements and make appropriate 
adjustments and reclassifications to identify the costs of each 
major function as defined in Section A.1, as well as to identify and 
allocate the facilities components. Administrative costs that are 
not identified as such by the institution's accounting system (such 
as those incurred in academic departments) will be classified as 
instructional costs for purposes of reconciling indirect (F&A) cost 
proposals to financial statements and allocating facilities costs.

10. Individual Rate Components

    In order to provide mutually agreed-upon information for 
management purposes, each indirect (F&A) cost rate negotiation or 
determination must include development of a rate for each indirect 
(F&A) cost pool as well as the overall indirect (F&A) cost rate.

11. Negotiation and Approval of Indirect (F&A) Rate

    a. Cognizant agency for indirect costs is defined in Sec.  75.2.
    (1) Cost negotiation cognizance is assigned to the Department of 
Health and Human Services (HHS) or the Department of Defense's 
Office of Naval Research (DOD), normally depending on which of the 
two agencies (HHS or DOD) provides more funds to the educational 
institution for the most recent three years. Information on funding 
must be derived from relevant data gathered by the National Science 
Foundation. In cases where neither HHS nor DOD provides Federal 
funding to an educational institution, the cognizant agency for 
indirect costs assignment must default to HHS. Notwithstanding the 
method for cognizance determination described in this section, other 
arrangements for cognizance of a particular educational institution 
may also be based in part on the types of research performed at the 
educational institution and must be decided based on mutual 
agreement between HHS and DOD. Where a non-Federal entity only 
receives funds as a subrecipient, see the requirements of Sec.  
75.352.
    (2) After cognizance is established, it must continue for a 
five-year period.
    b. Acceptance of rates. See Sec.  75.414.
    c. Correcting deficiencies. The cognizant agency for indirect 
costs must negotiate changes needed to correct systems deficiencies 
relating to accountability for Federal awards. Cognizant agencies 
for indirect costs must address the concerns of other affected 
agencies, as appropriate, and must negotiate special rates for 
Federal agencies that are required to limit recovery of indirect 
costs by statute.
    d. Resolving questioned costs. The cognizant agency for indirect 
costs must conduct any necessary negotiations with an educational 
institution regarding amounts questioned by audit that are due the 
Federal Government related to costs covered by a negotiated 
agreement.
    e. Reimbursement. Reimbursement to cognizant agencies for 
indirect costs for work performed under this Part may be made by 
reimbursement billing under the Economy Act, 31 U.S.C. 1535.
    f. Procedure for establishing facilities and administrative 
rates must be established by one of the following methods:
    (1) Formal negotiation. The cognizant agency for indirect costs 
is responsible for negotiating and approving rates for an 
educational institution on behalf of all Federal agencies. Federal 
awarding agencies that do not have cognizance for indirect costs 
must notify the cognizant agency for indirect costs of specific 
concerns (i.e., a need to establish special cost rates) which could 
affect the negotiation process. The cognizant agency for indirect 
costs must address the concerns of all interested agencies, as 
appropriate. A pre-negotiation conference may be scheduled among all 
interested agencies, if necessary. The cognizant agency for indirect 
costs must then arrange a negotiation conference with the 
educational institution.
    (2) Other than formal negotiation. The cognizant agency for 
indirect costs and educational institution may reach an agreement on 
rates without a formal negotiation conference; for example, through 
correspondence or use of the simplified method described in this 
section D of this Appendix.
    g. Formalizing determinations and agreements. The cognizant 
agency for indirect costs must formalize all determinations or 
agreements reached with an educational institution and provide 
copies to other agencies having an interest. Determinations should 
include a description of any adjustments, the actual amount, both 
dollar and percentage adjusted, and the reason for making 
adjustments.
    h. Disputes and disagreements. Where the cognizant agency for 
indirect costs is unable to reach agreement with an educational 
institution with regard to rates or audit resolution, the appeal 
system of the cognizant agency for indirect costs must be followed 
for resolution of the disagreement.

12. Standard Format for Submission

    For facilities and administrative (indirect (F&A)) rate 
proposals, educational institutions must use the standard format, 
shown in section E of this appendix, to submit their indirect (F&A) 
rate proposal to the cognizant agency for indirect costs. The 
cognizant agency for indirect costs may, on an institution-by-
institution basis, grant exceptions from all or portions of Part II 
of the standard format requirement. This requirement does not apply 
to educational institutions that use the simplified method for 
calculating indirect (F&A) rates, as described in Section D of this 
Appendix.
    As provided in section C.10, each F&A cost rate negotiation or 
determination must include development of a rate for each F&A cost 
pool as well as the overall F&A rate.

D. Simplified Method for Small Institutions

1. General

    a. Where the total direct cost of work covered by this part 75 
at an institution does not exceed $10 million in a fiscal year, the 
simplified procedure described in subsections 2 or 3 may be used in

[[Page 75962]]

determining allowable indirect (F&A) costs. Under this simplified 
procedure, the institution's most recent annual financial report and 
immediately available supporting information must be utilized as a 
basis for determining the indirect (F&A) cost rate applicable to all 
Federal awards. The institution may use either the salaries and 
wages (see subsection 2) or modified total direct costs (see 
subsection 3) as the distribution basis.
    b. The simplified procedure should not be used where it produces 
results which appear inequitable to the Federal Government or the 
institution. In any such case, indirect (F&A) costs should be 
determined through use of the regular procedure.

2. Simplified Procedure--Salaries and Wages Base

    a. Establish the total amount of salaries and wages paid to all 
employees of the institution.
    b. Establish an indirect (F&A) cost pool consisting of the 
expenditures (exclusive of capital items and other costs 
specifically identified as unallowable) which customarily are 
classified under the following titles or their equivalents:
    (1) General administration and general expenses (exclusive of 
costs of student administration and services, student activities, 
student aid, and scholarships).
    (2) Operation and maintenance of physical plant and depreciation 
(after appropriate adjustment for costs applicable to other 
institutional activities).
    (3) Library.
    (4) Department administration expenses, which will be computed 
as 20 percent of the salaries and expenses of deans and heads of 
departments.
    In those cases where expenditures classified under subsection 
(1) have previously been allocated to other institutional 
activities, they may be included in the indirect (F&A) cost pool. 
The total amount of salaries and wages included in the indirect 
(F&A) cost pool must be separately identified.
    c. Establish a salary and wage distribution base, determined by 
deducting from the total of salaries and wages as established in 
subsection a. from the amount of salaries and wages included under 
subsection b.
    d. Establish the indirect (F&A) cost rate, determined by 
dividing the amount in the indirect (F&A) cost pool, subsection b, 
by the amount of the distribution base, subsection c.
    e. Apply the indirect (F&A) cost rate to direct salaries and 
wages for individual agreements to determine the amount of indirect 
(F&A) costs allocable to such agreements.

3. Simplified Procedure--Modified Total Direct Cost Base

    a. Establish the total costs incurred by the institution for the 
base period.
    b. Establish an indirect (F&A) cost pool consisting of the 
expenditures (exclusive of capital items and other costs 
specifically identified as unallowable) which customarily are 
classified under the following titles or their equivalents:
    (1) General administration and general expenses (exclusive of 
costs of student administration and services, student activities, 
student aid, and scholarships).
    (2) Operation and maintenance of physical plant and depreciation 
(after appropriate adjustment for costs applicable to other 
institutional activities).
    (3) Library.
    (4) Department administration expenses, which will be computed 
as 20 percent of the salaries and expenses of deans and heads of 
departments. In those cases where expenditures classified under 
subsection (1) have previously been allocated to other institutional 
activities, they may be included in the indirect (F&A) cost pool. 
The modified total direct costs amount included in the indirect 
(F&A) cost pool must be separately identified.
    c. Establish a modified total direct cost distribution base, as 
defined in Section C.2, that consists of all institution's direct 
functions.
    d. Establish the indirect (F&A) cost rate, determined by 
dividing the amount in the indirect (F&A) cost pool, subsection b, 
by the amount of the distribution base, subsection c.
    e. Apply the indirect (F&A) cost rate to the modified total 
direct costs for individual agreements to determine the amount of 
indirect (F&A) costs allocable to such agreements.

E. Documentation Requirements

    The standard format for documentation requirements for indirect 
(indirect (F&A)) rate proposals for claiming costs under the regular 
method is available on the OMB Web site here: http://www.whitehouse.gov/omb/grants_forms.

F. Certification

1. Certification of Charges

    To assure that expenditures for Federal awards are proper and in 
accordance with the agreement documents and approved project 
budgets, the annual and/or final fiscal reports or vouchers 
requesting payment under the agreements will include a 
certification, signed by an authorized official of the university, 
which reads ``By signing this report, I certify to the best of my 
knowledge and belief that the report is true, complete, and 
accurate, and the expenditures, disbursements and cash receipts are 
for the purposes and intent set forth in the award documents. I am 
aware that any false, fictitious, or fraudulent information, or the 
omission of any material fact, may subject me to criminal, civil or 
administrative penalties for fraud, false statements, false claims 
or otherwise. (U.S. Code, Title 18, Section 1001 and Title 31, 
Sections 3729-3733 and 3801-3812)''.

2. Certification of Indirect (F&A) Costs

    a. Policy. Cognizant agencies must not accept a proposed 
indirect cost rate unless such costs have been certified by the 
educational institution using the Certificate of indirect (F&A) 
Costs set forth in subsection F.2.c
    b. The certificate must be signed on behalf of the institution 
by the chief financial officer or an individual designated by an 
individual at a level no lower than vice president or chief 
financial officer.
    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:

Certificate of Indirect (F&A) Costs

    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 applicable cost principles 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.
    I declare that the foregoing is true and correct.
    Institution of Higher Education:
    Signature:
    Name of Official:
    Title:
    Date of Execution:

Appendix IV to Part 75--Indirect (F&A) Costs Identification and 
Assignment, and Rate Determination for Nonprofit Organizations

A. 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 Sec.  
75.413(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

[[Page 75963]]

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.
    ``Major nonprofit organizations'' are defined in Sec.  75.414. 
See indirect cost rate reporting requirements in sections B.2.e and 
B.3.g of this Appendix.

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

1. General

    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.

2. Simplified Allocation Method

    a. Where an organization's major functions benefit from its 
indirect costs to approximately the same degree, the allocation of 
indirect costs may be accomplished by (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 Sec.  75.413(e).
    c. The distribution base may be total direct costs (excluding 
capital expenditures and other distorting items, such contracts or 
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 Sec.  
75.2.
    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 
Federal funding of direct costs in a fiscal year, a breakout of the 
indirect cost component into two broad categories, Facilities and 
Administration as defined in section A.3 of this Appendix, 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.

3. Multiple Allocation Base Method

    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:
    (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 Sec.  75.436 .
    (2) Interest. Interest on debt associated with certain 
buildings, equipment and capital improvements are computed in 
accordance with Sec.  75.449.
    (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 Sec.  75.413. 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 would 
not increase the costs charged to Federal awards. The results of 
special cost

[[Page 75964]]

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 Sec.  75.2, 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. 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 Sec.  
75.2).
    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 
section A.3 of this Appendix.

4. Direct Allocation Method

    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 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.

5. Special Indirect Cost Rates

    In some instances, a single indirect cost rate for all 
activities of an organization or for each major function of the 
organization may not be appropriate, since it would not take into 
account those different factors which may substantially affect the 
indirect costs applicable to a particular segment of work. For this 
purpose, a particular segment of work may be that performed under a 
single 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.

C. Negotiation and Approval of Indirect Cost Rates

1. Definitions

    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.
    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

[[Page 75965]]

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.

2. Negotiation and Approval of Rates

    a. Unless different arrangements are agreed to by the Federal 
agencies concerned, the Federal agency with the largest dollar value 
of Federal awards with 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 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 Sec.  75.414.) Where a non-Federal entity 
only receives funds as a subrecipient, see the requirements of Sec.  
75.352.
    b. Except as otherwise provided in Sec.  75.414(e), 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 Sec.  75.414(f), 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; (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.

D. Certification of Indirect (F&A) Costs

    1. Required Certification. No proposal to establish indirect 
(F&A) cost rates must be acceptable unless such costs have been 
certified by the non-profit organization using the Certificate of 
Indirect (F&A) Costs set forth in subsection b., below. 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. Certificate. Each indirect cost rate proposal must be 
accompanied by a certification in the following form:
    Certificate of Indirect (F&A) Costs
    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 part 75.
    (3) This proposal does not include any costs which are 
unallowable under Subpart E of part 75 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.
    I declare that the foregoing is true and correct.
Nonprofit Organization:
Signature:
Name of Official:
Title:
Date of Execution:

Appendix V to Part 75--State/Local Governmentwide 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, 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 at 
https://rates.psc.gov.

B. Definitions

    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 Sec.  75.2. 
The determination of cognizant agency for indirect costs for states 
and local governments is described in section F.1.
    5. Major local government means local government that receives 
more than $100 million in direct Federal awards subject to this 
part.

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.

[[Page 75966]]

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) 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.

E. Documentation Requirements for Submitted Plans

    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.

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 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.

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. must also be included.

3. Billed Services

    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 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 
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 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.

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 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.
Governmental Unit:
Signature:
Name of Official:
Title:
Date of Execution:

F. Negotiation and Approval of Central Service Plans

1. Federal Cognizant Agency for Indirect Costs Assignments for Cost 
Negotiation

    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

[[Page 75967]]

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.

2. Review

    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.

3. Agreement

    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.

4. Adjustments

    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.

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 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.

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 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.

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 Subpart D of part 75.

6. Appeals

    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.

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.

Appendix VI to Part 75--Public Assistance Cost Allocation Plans

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 
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 for 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

[[Page 75968]]

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.

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 section E, Review 
of Implementation of Approved Plans, 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.

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 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.

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.

Appendix VII to Part 75--States and Local Government and Indian Tribe 
Indirect Cost Proposals

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 (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 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 the HHS' Cost Allocation 
Services at https://rates.psc.gov.
    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 part 
75.

B. Definitions

    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.
    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

[[Page 75969]]

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.

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.
    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.

2. Simplified Method

    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 (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 
pass-through 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.

3. Multiple Allocation Base Method

    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.
    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 pass-through 
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.

4. Special Indirect Cost Rates

    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.

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 Sec.  75.361.
    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

[[Page 75970]]

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.

2. Documentation of Proposals

    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.)

3. Required Certification.

    Each indirect cost rate proposal must 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 the provisions of 
this 45 CFR part 75. 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.
Governmental Unit:
Signature:
Name of Official:
Title:
Date of Execution:

E. Negotiation and Approval of Rates

    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.
    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 Sec.  75.420 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. 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 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.

2. Billed Services Provided by the Recipient Agency

    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.

3. Indirect Cost Allocations Not Using Rates

    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.

4. Appeals

    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.

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 
cognizant agency for indirect costs regulations).

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.

[[Page 75971]]

Appendix VIII to Part 75--Nonprofit Organizations Exempted from Subpart 
E of Part 75

Advance Technology Institute (ATI), Charleston, South Carolina
Aerospace Corporation, El Segundo, California
American Institutes of Research (AIR), Washington, DC
Argonne National Laboratory, Chicago, Illinois
Atomic Casualty Commission, Washington, DC
Battelle Memorial Institute, Headquartered in Columbus, Ohio
Brookhaven National Laboratory, Upton, New York
Charles Stark Draper Laboratory, Incorporated, Cambridge, 
Massachusetts
CNA Corporation (CNAC), Alexandria, Virginia
Environmental Institute of Michigan, Ann Arbor, Michigan
Georgia Institute of Technology/Georgia Tech Applied Research 
Corporation/Georgia Tech Research Institute, Atlanta, Georgia
Hanford Environmental Health Foundation, Richland, Washington
IIT Research Institute, Chicago, Illinois
Institute of Gas Technology, Chicago, Illinois
Institute for Defense Analysis, Alexandria, Virginia
LMI, McLean, Virginia
Mitre Corporation, Bedford, Massachusetts
Noblis, Inc., Falls Church, Virginia
National Radiological Astronomy Observatory, Green Bank, West 
Virginia
National Renewable Energy Laboratory, Golden, Colorado
Oak Ridge Associated Universities, Oak Ridge, Tennessee
Rand Corporation, Santa Monica, California
Research Triangle Institute, Research Triangle Park, North Carolina
Riverside Research Institute, New York, New York
South Carolina Research Authority (SCRA), Charleston, South Carolina
Southern Research Institute, Birmingham, Alabama
Southwest Research Institute, San Antonio, Texas
SRI International, Menlo Park, California
Syracuse Research Corporation, Syracuse, New York
Universities Research Association, Incorporated (National 
Acceleration Lab), Argonne, Illinois
Urban Institute, Washington DC
Non-profit insurance companies, such as Blue Cross and Blue Shield 
Organizations
Other non-profit organizations as negotiated with Federal awarding 
agencies

Appendix IX to Part 75--Principles for Determining Costs Applicable to 
Research and Development Under Grants and Contracts with Hospitals

A. Purpose and Scope

1. Objectives

    This appendix provides principles for determining the costs 
applicable to research and development work performed by hospitals 
under grants and contracts with the Department of Health and Human 
Services. These principles are confined to the subject of cost 
determination and make no attempt to identify the circumstances or 
dictate the extent of hospital participation in the financing of a 
particular research or development project. The principles are 
designed to provide recognition of the full allocated costs of such 
research work under generally accepted accounting principles. These 
principles will be applicable to both proprietary and non-profit 
hospitals. No provision for profit or other increment above cost is 
provided for in these principles. However, this is not to be 
interpreted as precluding a negotiated fee between contracting 
parties when a fee is appropriate.

2. Policy Guides

    The successful application of these principles requires 
development of mutual understanding between representatives of 
hospitals and of the Department of Health and Human Services as to 
their scope, applicability and interpretation. It is recognized 
that:
    a. The arrangements for hospital participation in the financing 
of a research and development project are properly subject to 
negotiation between the agency and the hospital concerned in 
accordance with such Government-wide criteria as may be applicable.
    b. Each hospital, possessing its own unique combination of 
staff, facilities and experience, should be encouraged to conduct 
research in a manner consonant with its own institutional 
philosophies and objectives.
    c. Each hospital in the fulfillment of its contractual 
obligations should be expected to employ sound management practices.
    d. The application of the principles established herein shall be 
in conformance with the generally accepted accounting practices of 
hospitals.
    e. Hospitals receive reimbursements from the Federal Government 
for differing types of services under various programs such as 
support of Research and Development (including discrete clinical 
centers) Health Services Projects, Medicare, etc. It is essential 
that consistent procedures for determining reimbursable costs for 
similar services be employed without regard to program differences. 
Therefore, both the direct and indirect costs of research programs 
must be identified as a cost center(s) for the cost finding and 
step-down requirements of the Medicare program, or in its absence 
the Medicaid program.

3. Application

    All operating agencies within the Department of Health and Human 
Services that sponsor research and development work in hospitals 
will apply these principles and related policy guides in determining 
the costs incurred for such work under grants and cost-reimbursement 
type contracts and subcontracts. These principles will also be used 
as a guide in the pricing of fixed-price contracts and subcontracts.

B. Definition of Terms

    1. Organized research means all research activities of a 
hospital that may be identified whether the support for such 
research is from a federal, non-federal or internal source.
    2. Departmental research means research activities that are not 
separately budgeted and accounted for. Such work, which includes all 
research activities not encompassed under the term organized 
research, is regarded for purposes of this document as a part of the 
patient care activities of the hospital.
    3. Research agreement means any valid arrangement to perform 
federally-sponsored research or development including grants, cost-
reimbursement type contracts, cost-reimbursement type subcontracts, 
and fixed-price contracts and subcontracts.
    4. Instruction and training means the formal or informal 
programs of educating and training technical and professional health 
services personnel, primarily medical and nursing training. This 
activity, if separately budgeted or identifiable with specific 
costs, should be considered as a cost objective for purposes of 
indirect cost allocations and the development of patient care costs.
    5. Other hospital activities means all organized activities of a 
hospital not immediately related to the patient care, research, and 
instructional and training functions which produce identifiable 
revenue from the performance of these activities. If a non-related 
activity does not produce identifiable revenue, it may be necessary 
to allocate this expense using an appropriate basis. In such a case, 
the activity may be included as an allocable cost (See paragraph C.4 
below.) Also included under this definition is any category of cost 
treated as ``Unallowable,'' provided such category of cost 
identifies a function or activity to which a portion of the 
institution's indirect cost (as defined in paragraph E.1.) are 
properly allocable.
    6. Patient care means those departments or cost centers which 
render routine or ancillary services to in-patients and/or out-
patients. As used in paragraph I.2.w, it means the cost of these 
services applicable to patients involved in research programs.
    7. Allocation means the process by which the indirect costs are 
assigned as between:
    a. Organized research,
    b. Patient care including departmental research.
    c. Instruction and training, and
    d. Other hospital activities.
    8. Cost center means an identifiable department or area 
(including research) within the hospital which has been assigned an 
account number in the hospital accounting system for the purpose of 
accumulating expense by department or area.
    9. Cost finding is the process of recasting the data derived 
from the accounts ordinarily kept by a hospital to ascertain costs 
of the various types of services rendered. It is the determination 
of direct costs by specific identification and the proration of 
indirect costs by allocation.
    10. Step down is a cost finding method that recognizes that 
services rendered by certain nonrevenue-producing departments or 
centers are utilized by certain other nonrevenue producing centers 
as well as by the revenue-producing centers. All costs of 
nonrevenue-producing centers are allocated to all centers which they 
serve, regardless of whether or not these centers produce

[[Page 75972]]

revenue. Following the apportionment of the cost of the nonrevenue-
producing center, that center will be considered closed and no 
further costs are apportioned to that center.
    11. Scatter bed is a bed assigned to a research patient based on 
availability. Research patients occupying these beds are not 
physically segregated from nonresearch patients occupying beds. 
Scatter beds are geographically dispersed among all the beds 
available for use in the hospital. There are no special features 
attendant to a scatter bed that distinguishes it from others that 
could just as well have been occupied.
    12. Discrete bed is a bed or beds that have been set aside for 
occupancy by research patients and are physically segregated from 
other hospital beds in an environment that permits an easily 
ascertainable allocation of costs associated with the space they 
occupy and the services they generate.

C. Basic Considerations

1. Composition of Total Costs

    The cost of a research agreement is comprised of the allowable 
direct costs incident to its performance plus the allocable portion 
of the allowable indirect costs of the hospital less applicable 
credits. (See paragraph C.5.)

2. Factors Affecting Allowability of Costs

    The tests of allowability of costs under these principles are:
    a. They must be reasonable.
    b. They must be assigned to research agreements under the 
standards and methods provided herein.
    c. They must be accorded consistent treatment through 
application of those generally accepted accounting principles 
appropriate to the circumstances (See paragraph A.2.e.) and
    d. They must conform to any limitations or exclusions set forth 
in these principles or in the research agreement as to types or 
amounts of cost items.

3. Reasonable Costs

    A cost may be considered reasonable if the nature of the goods 
or services acquired or applied, and the amount involved therefor 
reflect the action that a prudent person would have taken under the 
circumstances prevailing at the time the decision to incur the cost 
was made. Major considerations involved in the determination of the 
reasonableness of a cost are:
    a. Whether or not the cost is of a type generally recognized as 
necessary for the operation of the hospital or the performance of 
the research agreement,
    b. The restraints or requirements imposed by such factors as 
arm's length bargaining, federal and state laws and regulations, and 
research agreement terms and conditions,
    c. Whether or not the individuals concerned acted with due 
prudence in the circumstances, considering their responsibilities to 
the hospital, its patients, its employees, its students, the 
Government, and the public at large, and
    d. The extent to which the actions taken with respect to the 
incurrence of the cost are consistent with established hospital 
policies and practices applicable to the work of the hospital 
generally, including Government research.

4. Allocable Costs

    a. A cost is allocable to a particular cost center (i.e., a 
specific function, project, research agreement, department, or the 
like) if the goods or services involved are chargeable or assignable 
to such cost center in accordance with relative benefits received or 
other equitable relationship. Subject to the foregoing, a cost is 
allocable to a research agreement if it is incurred solely to 
advance the work under the research agreement; or it benefits both 
the research agreement and other work of the hospital in proportions 
that can be approximated through use of reasonable methods; or it is 
necessary to the overall operation of the hospital and, in light of 
the standards provided in this chapter, is deemed to be assignable 
in part to organized research. Where the purchase of equipment or 
other capital items are specifically authorized under a research 
agreement, the amounts thus authorized for such purchases are 
allocable to the research agreement regardless of the use that may 
subsequently be made of the equipment or other capital items 
involved.
    b. Any costs allocable to a particular research agreement under 
the standards provided in these principles may not be shifted to 
other research agreements in order to meet deficiencies caused by 
overruns or other fund considerations, to avoid restrictions imposed 
by law or by terms of the research agreement, or for other reasons 
of convenience.

5. Applicable Credits

    a. The term applicable credits refers to those receipts or 
negative expenditure types of transactions which operate to offset 
or reduce expense items that are allocable to research agreements as 
direct or indirect costs as outlined in paragraph E.1. Typical 
examples of such transactions are: Purchase discounts, rebates, or 
allowances; recoveries or indemnities on losses; sales of scrap or 
incidental services; tuition; adjustments of overpayments or 
erroneous charges; and services rendered to patients admitted to 
federally funded clinical research centers, primarily for care 
though also participating in research protocols.
    b. In some instances, the amounts received from the Federal 
Government to finance hospital activities or service operations 
should be treated as applicable credits. Specifically, the concept 
of netting such credit items against related expenditures should be 
applied by the hospital in determining the rates or amounts to be 
charged to government research for services rendered whenever the 
facilities or other resources used in providing such services have 
been financed directly, in whole or in part, by federal funds. Thus, 
where such items are provided for or benefit a particular hospital 
activity, i.e., patient care, research, instruction and training, or 
other, they should be treated as an offset to the indirect costs 
apportioned to that activity. Where the benefits are common to all 
hospital activities they should be treated as a credit to the total 
indirect cost pool before allocation to the various cost objectives.

D. Direct Costs

1. General

    Direct costs are those that can be identified specifically with 
a particular cost center. For this purpose, the term cost center 
refers not only to the ultimate centers against which costs are 
finally lodged such as research agreements, but also to other 
established cost centers such as the individual accounts for 
recording particular objects or items of expense, and the separate 
account groupings designed to record the expenses incurred by 
individual organizational units, functions, projects and the like. 
In general, the administrative functions and service activities 
described in paragraph VI are identifiable as separate cost centers, 
and the expenses associated with such centers become eligible in due 
course for distribution as indirect costs of research agreements and 
other ultimate cost centers.

2. Application to Research Agreements

    Identifiable benefit to the research work rather than the nature 
of the goods and services involved is the determining factor in 
distinguishing direct from indirect costs of research agreements. 
Typical of transactions chargeable to a research agreement as direct 
costs are the compensation of employees for the time or effort 
devoted to the performance of work under the research agreement, 
including related staff benefit and pension plan costs to the extent 
that such items are consistently accorded to all employees and 
treated by the hospital as direct rather than indirect costs (see 
paragraph E.2.d(2)); the costs of materials consumed or expended in 
the performance of such work; and other items of expense incurred 
for the research agreement, such as extraordinary utility 
consumption. The cost of materials supplied from stock or services 
rendered by specialized facilities or other institutional service 
operations may be included as direct costs of research agreements 
provided such items are consistently treated by the institution as 
direct rather than indirect costs and are charged under a recognized 
method of costing or pricing designed to recover only the actual 
direct and indirect costs of such material or service and conforming 
to generally accepted cost accounting practices consistently 
followed by the institution.

E. Indirect Costs

1. General

    Indirect costs are those that have been incurred for common or 
joint objectives, and thus are not readily subject to treatment as 
direct costs of research agreements or other ultimate or revenue 
producing cost centers. In hospitals such costs normally are 
classified but not necessarily restricted to the following 
functional categories: Depreciation; Administrative and General 
(including fringe benefits if not charged directly); Operation of 
Plant; Maintenance of Plant; Laundry and Linen Service; 
Housekeeping; Dietary; Maintenance of Personnel; and Medical Records 
and Library.

2. Criteria for Distribution

    a. Base period.
    A base period for distribution of indirect costs is the period 
during which such costs

[[Page 75973]]

are incurred and accumulated for distribution to work performed 
within that period. The base period normally should coincide with 
the fiscal year established by the hospital, but in any event the 
base period should be so selected as to avoid inequities in the 
distribution of costs.
    b. Need for cost groupings.
    The overall objective of the allocation process is to distribute 
the indirect costs described in paragraph F. to organized research, 
patient care, instruction and training, and other hospital 
activities in reasonable proportions consistent with the nature and 
extent of the use of the hospital's resources by research personnel, 
medical staff, patients, students, and other personnel or 
organizations. In order to achieve this objective with reasonable 
precision, it may be necessary to provide for selective distribution 
by establishing separate groupings of cost within one or more of the 
functional categories of indirect costs referred to in paragraph 
E.1. In general, the cost groupings established within a functional 
category should constitute, in each case, a pool of those items of 
expense that are considered to be of like character in terms of 
their relative contribution to (or degree of remoteness from) the 
particular cost centers to which distribution is appropriate. Each 
such pool or cost grouping should then be distributed individually 
to the related cost centers, using the distribution base or method 
most appropriate in the light of the guides set out in 2.c. below. 
While this paragraph places primary emphasis on a step-down method 
of indirect cost computation, paragraph H. provides an alternate 
method which may be used under certain conditions.
    c. Selection of distribution method.
    Actual conditions must be taken into account in selecting the 
method or base to be used in distributing to related cost centers 
the expenses assembled under each of the individual cost groups 
established as indicated under 2.b. above. Where a distribution can 
be made by assignment of a cost grouping directly to the area 
benefited, the distribution should be made in that manner. Care 
should be given, however, to eliminate similar or duplicative costs 
from any other distribution made to this area. Where the expenses 
under a cost grouping are more general in nature, the distribution 
to related cost centers should be made through use of a selected 
base which will produce results which are equitable to both the 
Government and the hospital. In general, any cost element or cost-
related factor associated with the hospital's work is potentially 
adaptable for use as a distribution base provided:
    (1) It can readily be expressed in terms of dollars or other 
quantitative measure (total direct expenditures, direct salaries, 
man-hours applied, square feet utilized, hours of usage, number of 
documents processed, population served, and the like); and
    (2) It is common to the related cost centers during the base 
period. The essential consideration in selection of the distribution 
base in each instance is that it be the one best suited for 
assigning the pool of costs to related cost centers in accord with 
the relative benefits derived; the traceable cause and effect 
relationship; or logic and reason, where neither benefit nor cause 
and effect relationship is determinable.
    d. General consideration on cost groupings.
    The extent to which separate cost groupings and selective 
distribution would be appropriate at a hospital is a matter of 
judgment to be determined on a case-by-case basis. Typical 
situations which may warrant the establishment of two or more 
separate cost groups (based on account classification or analysis) 
within a functional category include but are not limited to the 
following:
    (1) Where certain items or categories of expense relate solely 
to one of the major divisions of the hospital (patient care, 
sponsored research, instruction and training, or other hospital 
activities) or to any two but not all, such expenses should be set 
aside as a separate cost grouping for direct assignment or selective 
distribution in accordance with the guides provided in 2.b. and 
2.c.above.
    (2) Where any types of expense ordinary treated as indirect cost 
as outlined in paragraph are charged to research agreements as 
direct costs, the similar type expenses applicable to other 
activities of the institution must through separate cost grouping be 
excluded from the indirect costs allocable to research agreements.
    (3) Where it is determined that certain expenses are for the 
support of a service unit or facility whose output is susceptible of 
measurement on a workload or other quantitative basis, such expenses 
should be set aside as a separate cost grouping for distribution on 
such basis to organized research and other hospital activities.
    (4) Where organized activities (including identifiable segments 
of organized research as well as the activities cited inB.5.) 
provide their own purchasing, personnel administration, building 
maintenance, or housekeeping or similar service, the distribution of 
such elements of indirect cost to such activities should be 
accomplished through cost grouping which includes only that portion 
of central indirect costs (such as for overall management) which are 
properly allocable to such activities.
    (5) Where the hospital elects to treat as indirect charges the 
costs of pension plans and other staff benefits, such costs should 
be set aside as a separate cost grouping for selective distribution 
to related cost centers, including organized research.
    (6) Where the hospital is affiliated with a medical school or 
some other institution which performs organized research on the 
hospital's premises, every effort should be made to establish 
separate cost groupings in the Administrative and General or other 
applicable category which will reasonably reflect the use of 
services and facilities by such research. (See also paragraph.)
    e. Materiality.
    Where it is determined that the use of separate cost groupings 
and selective distribution are necessary to produce equitable 
results, the number of such separate cost groupings within a 
functional category should be held within practical limits, after 
taking into consideration the materiality of the amounts involved 
and the degree of precision attainable through less selective 
methods of distribution.

3. Administration of Limitations on Allowances for Indirect Costs

    a. Research grants may be subject to laws and/or administrative 
regulations that limit the allowance for indirect costs under each 
such grant to a stated percentage of the direct costs allowed. 
Agencies that sponsor such grants will establish procedures which 
will assure that:
    (1) The terms and amount authorized in each case conform with 
the provisions of paragraphs C, E, and I of these principles as they 
apply to matters involving the consistent treatment and allowability 
of individual items of cost; and
    (2) The amount actually allowed for indirect costs under each 
such research grant does not exceed the maximum allowable under the 
limitation or the amount otherwise allowable under these principles, 
whichever is the smaller.
    b. Where the actual allowance for indirect costs on any research 
grant must be restricted to the smaller of the two alternative 
amounts referred to in 3.a. above, such alternative amounts should 
be determined in accordance with the following guides:
    (1) The maximum allowable under the limitation should be 
established by applying the stated percentage to a direct cost base 
which shall include all items of expenditure authorized by the 
sponsoring agency for inclusion as part of the total cost for the 
direct benefit of the work under the grant; and
    (2) The amount otherwise allowable under these principles should 
be established by applying the current institutional indirect cost 
rate to those elements of direct cost which were included in the 
base on which the rate was computed.
    c. When the maximum amount allowable under a statutory 
limitation or the terms of a research agreement is less than the 
amount otherwise allocable as indirect costs under these principles, 
the amount not recoverable as indirect costs under the research 
agreement involved may not be shifted to other research agreements.

F. Identification and Assignment of Indirect Costs

1. Depreciation or Use Charge

    a. The expenses under this heading should include depreciation 
(as defined in paragraph I.2.i(1)) on buildings, fixed equipment, 
and movable equipment, except to the extent purchased through 
federal funds. Where adequate records for the recording of 
depreciation are not available, a use charge may be substituted for 
depreciation (See paragraph I.2.)
    b. The expenses included in this category should be allocated to 
applicable cost centers in a manner consistent with the guides set 
forth in paragraph E.2., on a basis that gives primary emphasis to 
(a) space utilization with respect to depreciation on buildings and 
fixed equipment; and (b) specific identification of assets and their 
use with respect to movable equipment as it relates to patient care, 
organized research, instruction and training, and other hospital 
activities. Where such records are not sufficient for the purpose of 
the foregoing, reasonable

[[Page 75974]]

estimates will suffice as a means for effecting distribution of the 
amounts involved.

2. Administration and General Expenses

    a. The expenses under this heading are those that have been 
incurred for the administrative offices of the hospital including 
accounting, personnel, purchasing, information centers, telephone 
expense, and the like which do not relate solely to any major 
division of the institution, i.e., solely to patient care, organized 
research, instruction and training, or other hospital activities.
    b. The expenses included in this category may be allocated on 
the basis of total expenditures exclusive of capital expenditures, 
or salaries and wages in situations where the results of the 
distribution made on this basis are deemed to be equitable both to 
the Government and the hospital; otherwise the distribution of 
Administration and General expenses should be made through use of 
selected bases, applied to separate cost groupings established 
within this category of expenses in accordance with the guides set 
out in paragraph E.2.

3. Operation of Plant

    a. The expenses under this heading are those that have been 
incurred by a central service organization or at the departmental 
level for the administration, supervision, and provision of 
utilities (exclusive of telephone expense) and protective services 
to the physical plant. They include expenses incurred for such items 
as power plant operations, general utility costs, elevator 
operations, protection services, and general parking lots.
    b. The expenses included in this category should be allocated to 
applicable cost centers in a manner consistent with the guides 
provided in paragraph E.2., on a basis that gives primary emphasis 
to space utilization. The allocations should be developed as 
follows:
    (1) Where actual space and related cost records are available or 
can readily be developed and maintained without significant change 
in the accounting practices, the amount distributed should be based 
on such records;
    (2) Where the space and related cost records maintained are not 
sufficient for purposes of the foregoing, a reasonable estimate of 
the proportion of total space assigned to the various costs centers 
normally will suffice as a means for effecting distribution of the 
amounts involved; or
    (3) Where it can be demonstrated that an area or volume or space 
basis of allocation is impractical or inequitable, other bases may 
be used provided consideration is given to the use of facilities by 
research personnel and others, including patients.

4. Maintenance of Plant

    a. The expenses under this heading should include:
    (1) All salaries and wages pertaining to ordinary repair and 
maintenance work performed by employees on the payroll of the 
hospital;
    (2) All supplies and parts used in the ordinary repairing and 
maintaining of buildings and general equipment; and
    (3) Amounts paid to outside concerns for the ordinary repairing 
and maintaining of buildings and general equipment.
    b. The expenses included in this category should be allocated to 
applicable cost centers in a manner consistent with the guides 
provided in paragraph E.2. on a basis that gives primary emphasis to 
space utilization. The allocations and apportionments should be 
developed as follows:
    (1) Where actual space and related cost records are available 
and can readily be developed and maintained without significant 
change in the accounting practices, the amount distributed should be 
based on such records;
    (2) Where the space and related cost records maintained are not 
sufficient for purposes of the foregoing, a reasonable estimate of 
the proportion of total space assigned to the various cost centers 
normally will suffice as a means for effecting distribution of the 
amounts involved; or
    (3) Where it can be demonstrated that an area or volume of space 
basis of allocation is impractical or inequitable, other basis may 
be used provided consideration is given to the use of facilities by 
research personnel and others, including patients.

5. Laundry and Linen

    a. The expenses under this heading should include:
    (1) Salaries and wages of laundry department employees, 
seamstresses, clean linen handlers, linen delivery men, etc.;
    (2) Supplies used in connection with the laundry operation and 
all linens purchased; and
    (3) Amounts paid to outside concerns for purchased laundry and/
or linen service.
    b. The expense included in this category should be allocated to 
related cost centers in a manner consistent with the guides provided 
in paragraph E.2. on a basis that gives primary emphasis to actual 
pounds of linen used. The allocations should be developed as 
follows:
    (1) Where actual poundage and related cost records are available 
or can readily be developed and maintained without significant 
change in the accounting practices, the amount distributed should be 
based on such records;
    (2) Where it can be demonstrated that a poundage basis of 
allocation is impractical or inequitable other bases may be used 
provided consideration is given to the use of linen by research 
personnel and others, including patients.

6. Housekeeping

    a. The expenses under this heading should include:
    (1) All salaries and wages of the department head, foreman, 
maids, porters, janitors, wall washers, and other housekeeping 
employees;
    (2) All supplies used in carrying out the housekeeping 
functions; and
    (3) Amounts paid to outside concerns for purchased services such 
as window washing, insect extermination, etc.
    b. The expenses included in this category should be allocated to 
related cost centers in a manner consistent with the guides provided 
in paragraph E.2. on a basis that gives primary emphasis to space 
actually serviced by the housekeeping department. The allocations 
and apportionments should be developed as follows:
    (1) Where actual space serviced and related cost records are 
available or can readily be developed and maintained without 
significant change in the accounting practices, the amount 
distributed should be based on such records;
    (2) Where the space serviced and related cost records maintained 
are not sufficient for purposes of the foregoing, a reasonable 
estimate of the proportion of total space assigned to the various 
cost centers normally will suffice as a means for effecting 
distribution of the amounts of housekeeping expenses involved; or
    (3) Where it can be demonstrated that the space serviced basis 
of allocation is impractical or inequitable, other bases may be used 
provided consideration is given to the use of housekeeping services 
by research personnel and others, including patients.

7. Dietary

    a. These expenses, as used herein, shall mean only the subsidy 
provided by the hospital to its employees including research 
personnel through its cafeteria operation. The hospital must be able 
to demonstrate through the use of proper cost accounting techniques 
that the cafeteria operates at a loss to the benefit of employees.
    b. The reasonable operating loss of a subsidized cafeteria 
operation should be allocated to related cost centers in a manner 
consistent with the guides provided in paragraph E.2. on a basis 
that gives primary emphasis to number of employees.

8. Maintenance (Housing) of Personnel

    a. The expenses under this heading should include:
    (1) The salaries and wages of matrons, clerks, and other 
employees engaged in work in nurses' residences and other employees' 
quarters;
    (2) All supplies used in connection with the operation of such 
dormitories; and
    (3) Payments to outside agencies for the rental of houses, 
apartments, or rooms used by hospital personnel.
    b. The expenses included in this category should be allocated to 
related cost centers in a manner consistent with the guides provided 
in paragraph E.2. on a basis that gives primary emphasis to employee 
utilization of housing facilities. The allocation should be 
developed as follows:
    (1) Appropriate credit should be given for all payments received 
from employees or otherwise to reduce the expense to be allocated;
    (2) A net cost per housed employee may then be computed; and
    (3) Allocation should be made on a departmental basis based on 
the number of housed employees in each respective department.

9. Medical Records and Library

    a. The expenses under this heading should include:
    (1) The salaries and wages of the records librarian, medical 
librarian, clerks, stenographers, etc.; and

[[Page 75975]]

    (2) All supplies such as medical record forms, chart covers, 
filing supplies, stationery, medical library books, periodicals, 
etc.
    b. The expenses included in this category should be allocated to 
related cost centers in a manner consistent with the guides provided 
in paragraph E.2. on a basis that gives primary emphasis to a 
special time survey of medical records personnel. If this appears to 
be impractical or inequitable, other bases may be used provided 
consideration is given to the use of these facilities by research 
personnel and others, including patients.

G. Determination and Application of Indirect Cost Rate or Rates

1. Indirect Cost Pools

    a. Subject to b. below, indirect costs allocated to organized 
research should be treated as a common pool, and the costs in such 
common pool should be distributed to individual research agreements 
benefiting therefrom on a single rate basis.
    b. In some instances a single rate basis for use on all 
government research at a hospital may not be appropriate since it 
would not take into account those different environmental factors 
which may affect substantially the indirect costs applicable to a 
particular segment of government research at the institution. For 
this purpose, a particular segment of government research may be 
that performed under a single research agreement or it may consist 
of research under a group of research agreements performed in a 
common environment. The environmental factors are not limited to the 
physical location of the work. Other important factors are the level 
of the administrative support required, the nature of the facilities 
or other resources employed, the scientific disciplines or technical 
skills involved, the organizational arrangements used, or any 
combination thereof. Where a particular segment of government 
research is performed within an environment which appears to 
generate a significantly different level of indirect costs, 
provision should be made for a separate indirect cost pool 
applicable to such work. An example of this differential may be in 
the development of a separate indirect cost pool for a clinical 
research center grant. The separate indirect cost pool should be 
developed during the course of the regular distribution process, and 
the separate indirect cost rate resulting therefrom should be 
utilized provided it is determined that:
    (1) Such indirect cost rate differs significantly from that 
which would have obtained under a. above; and
    (2) The volume of research work to which such rate would apply 
is material in relation to other government research at the 
institution.
    c. It is a common practice for grants or contracts awarded to 
other institutions, typically University Schools of Medicine, to be 
performed on hospital premises. In these cases the hospital should 
develop a separate indirect cost pool applicable to the work under 
such grants or contracts. This pool should be developed by a 
selective distribution of only those indirect cost categories which 
benefit the work performed by the other institution, within the 
practical limits dictated by available data and the materiality of 
the amounts involved. Hospital costs determined to be allocable to 
grants or contracts awarded to another institution may not be 
recovered as a cost of grants or contracts awarded directly to the 
hospital.

2. The Distribution Base

    Preferably, indirect costs allocated to organized research 
should be distributed to applicable research agreements on the basis 
of direct salaries and wages. However, where the use of salaries and 
wages results in an inequitable allocation of costs to the research 
agreements, total direct costs or a variation thereof, may be used 
in lieu of salaries and wages. Regardless of the base used, an 
indirect cost rate should be determined for each of the separate 
indirect cost pools developed pursuant to paragraph G.1. The rate in 
each case should be stated as the percentage which the amount of the 
particular indirect cost pool is of the total direct salaries and 
wages (or other base selected) for all research agreements 
identified with such a pool.

3. Negotiated Lump Sum for Overhead

    A negotiated fixed amount in lieu of indirect costs may be 
appropriate for self-contained or off-campus research activities 
where the benefits derived from a hospital's indirect services 
cannot be readily determined. Such amount negotiated in lieu of 
indirect costs will be treated as an offset to the appropriate 
indirect cost pool after allocation to patient care, organized 
research, instruction and training, and other hospital activities. 
The base on which such remaining expenses are allocated should be 
appropriately adjusted.

4. Predetermined Overhead Rates

    The utilization of predetermined fixed overhead rates may offer 
potential advantages in the administration of research agreements by 
facilitating the preparation of research budgets and permitting more 
expeditious close out of the agreements when the work is completed. 
Therefore, to the extent allowed by law, consideration may be given 
to the negotiation of predetermined fixed rates in those situations 
where the cost experience and other pertinent factors available are 
deemed sufficient to enable the Government and the hospital to reach 
a reasonable conclusion as to the probable level of the indirect 
cost rate for the ensuing accounting period.

H. Simplified Method for Small Institutions

1. General

    a. Where the total direct cost of all government-sponsored 
research and development work at a hospital in a year is minimal, 
the use of the abbreviated procedure described in paragraph H.2. 
below may be acceptable in the determination of allowable indirect 
costs. This method may also be used to initially determine a 
provisional indirect cost rate for hospitals that have not 
previously established a rate. Under this abbreviated procedure, 
data taken directly from the institution's most recent annual 
financial report and immediately available supporting information 
will be utilized as a basis for determining the indirect cost rate 
applicable to research agreements at the institution.
    b. The rigid formula approach provided under the abbreviated 
procedure has limitations which may preclude its use at some 
hospitals either because the minimum data required for this purpose 
are not readily available or because the application of the 
abbreviated procedure to the available data produces results which 
appear inequitable to the Government or the hospital. In any such 
case, indirect costs should be determined through use of the regular 
procedure rather than the abbreviated procedure.
    c. In certain instances where the total direct cost of all 
government-sponsored research and development work at the hospital 
is more than minimal, the abbreviated procedure may be used if prior 
permission is obtained. This alternative will be granted only in 
those cases where it can be demonstrated that the step-down 
technique cannot be followed.

2. Abbreviated Procedure

    a. Total expenditures as taken from the most recent annual 
financial report will be adjusted by eliminating from further 
consideration expenditures for capital items as defined in paragraph 
I.2.d. and unallowable costs as defined under various headings in 
paragraph I. and paragraph C.5.
    b. Total expenditures as adjusted under the foregoing will then 
be distributed among (1) expenditures applicable to administrative 
and general overhead functions, (2) expenditures applicable to all 
other overhead functions, and (3) expenditures for all other 
purposes. The first group shall include amounts associated with the 
functional categories, Administration and General, and Dietary, as 
defined in paragraphs F.2. and 7. The second group shall include 
Depreciation, Operation of Plant, Maintenance of Plant, and 
Housekeeping. The third group--expenditures for all other purposes--
shall include the amounts applicable to all other activities, 
namely, patient care, organized research, instruction and training, 
and other hospital activities as defined under paragraph B.5. For 
the purposes of this section, the functional categories of Laundry 
and Linen, Maintenance of Personnel, and Medical Records and Library 
as defined in paragraph E. shall be considered as expenditures for 
all other purposes.
    c. The expenditures distributed to the first two groups in 
paragraph H.2.b. should then be adjusted by those receipts or 
negative expenditure types of transactions which tend to reduce 
expense items allocable to research agreements as indirect costs. 
Examples of such receipts or negative expenditures are itemized in 
paragraph C.5.a.
    d. In applying the procedures in paragraphs H.2.a and 2.b, the 
cost of unallowable activities such as Gift Shop, Investment 
Property Management, Fund Raising, and Public Relations, when they 
benefit from the hospital's indirect cost services, should be 
treated as expenditures for all other purposes. Such activities are 
presumed to benefit from the hospital's indirect cost services when 
they include salaries of personnel working in the hospital.

[[Page 75976]]

When they do not include such salaries, they should be eliminated 
from the indirect cost rate computation.
    e. The indirect cost rate will then be computed in two stages. 
The first stage requires the computation of an Administrative and 
General rate component. This is done by applying a ratio of research 
direct costs over total direct costs to the Administrative and 
General pool developed under paragraphs H.2.b and 2.c. above. The 
resultant amount--that which is allocable to research--is divided by 
the direct research cost base. The second stage requires the 
computation of an All Other Indirect Cost rate component. This is 
done by applying a ratio of research direct space over total direct 
space to All Other Indirect Cost pool developed under paragraphs 
H.2.b. and 2.c. above. The resultant amount--that which is allocable 
to research--is divided by the direct research cost base.
    The total of the two rate components will be the institution's 
indirect cost rate. For the purposes of this section, the research 
direct cost or space and total direct cost or space will be that 
cost or space identified with the functional categories classified 
under Expenditures for all other purposes under paragraph H.2.b.

I. General Standards for Selected Items of Cost

1. General

    This section provides standards to be applied in establishing 
the allowability of certain items involved in determining cost. 
These standards should apply irrespective of whether a particular 
item of cost is properly treated as direct cost or indirect cost. 
Failure to mention a particular item of cost in the standards is not 
intended to imply that it is either allowable or unallowable; 
rather, determination as to allowability in each case should be 
based on the treatment or standards provided for similar or related 
items of cost. In case of discrepancy between the provisions of a 
specific research agreement and the applicable standards provided, 
the provisions of the research agreement should govern. However, in 
some cases advance understandings should be reached on particular 
cost items in order that the full costs of research be supported. 
The extent of allowability of the selected items of cost covered in 
this section has been stated to apply broadly to many accounting 
systems in varying environmental situations. Thus, as to any given 
research agreement, the reasonableness and allocability of certain 
items of costs may be difficult to determine, particularly in 
connection with hospitals which have medical school or other 
affiliations. In order to avoid possible subsequent disallowance or 
dispute based on unreasonableness or nonallocability, it is 
important that prospective recipients of federal funds, particularly 
those whose work is predominantly or substantially with the 
Government, seek agreement with the Government in advance of the 
incurrence of special or unusual costs in categories where 
reasonableness or allocability are difficult to determine. Such 
agreement may also be initiated by the Government. Any such 
agreement should be incorporated in the research agreement itself. 
However, the absence of such an advance agreement on any element of 
cost will not in itself serve to make that element either allowable 
or unallowable. Examples of costs on which advance agreements may be 
particularly important are:
    a. Facilities costs, such as;
    (1) Depreciation
    (2) Rental
    (3) Use charges for fully depreciated assets
    (4) Idle facilities and idle capacity
    (5) Plant reconversion
    (6) Extraordinary or deferred maintenance and repair
    (7) Acquisition of automatic data processing equipment.
    b. Pre-award costs
    c. Non-hospital professional activities
    d. Self-insurance
    e. Support services charged directly (computer services, 
printing and duplicating services, etc.)
    f. Employee compensation, travel, and other personnel costs, 
including:
    (1) Compensation for personal service, including wages and 
salaries, bonuses and incentives, premium payments, pay for time not 
worked, and supplementary compensation and benefits, such as pension 
and retirement, group insurance, severance pay plans, and other 
forms of compensation;
    (2) Morale, health, welfare, and food service and dormitory 
costs.
    (3) Training and education costs.
    (4) Relocation costs, including special or mass personnel 
movement.

2. Selected Items

    a. Advertising costs. The term advertising costs means the costs 
of advertising media and corollary administrative costs. Advertising 
media include magazines, newspapers, radio and television programs, 
direct mail, exhibits, and the like. The only advertising costs 
allowable are those which are solely for:
    (1) The recruitment of persons required for the performance by 
the institution of obligations arising under the research agreement, 
when considered in conjunction with all other recruitment costs as 
set forth in paragraph I.2.hh;
    (2) The procurement of scarce items for the performance of the 
research agreement; or
    (3) The disposal of scrap or surplus materials acquired in the 
performance of the research agreement.
    Costs of this nature, if incurred for more than one research 
agreement or for both research agreement work and other work of the 
institution, are allowable to the extent that the principles in 
paragraphs D. and E. are observed.
    b. Bad debts. Losses arising from uncollectible accounts and 
other claims and related collection and legal costs are unallowable 
except that a bad debt may be included as a direct cost of the 
research agreement to the extent that it is caused by a research 
patient and approved by the awarding agency. This inclusion is only 
intended to cover the situation of the patient admitted for research 
purposes who subsequently or in conjunction with the research 
receives clinical care for which a charge is made to the patient. 
If, after exhausting all means of collecting these charges, a bad 
debt results, it may be considered an appropriate charge to the 
research agreement.
    c. Bonding costs.
    (1) Bonding costs arise when the Government requires assurance 
against financial loss to itself or others by reason of the act or 
default of the hospital. They arise also in instances where the 
hospital requires similar assurance.
    Included are such types as bid, performance, payment, advance 
payment, infringement, and fidelity bonds.
    (2) Costs of bonding required pursuant to the terms of the 
research agreement are allowable.
    (3) Costs of bonding required by the hospital in the general 
conduct of its business 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.
    d. Capital expenditures. The costs of equipment, buildings, and 
repairs which materially increase the value or useful life of 
buildings or equipment should be capitalized and are unallowable 
except as provided for in the research agreement.
    e. Civil defense costs. Civil defense costs are those incurred 
in planning for, and the protection of life and property against the 
possible effects of enemy attack. Reasonable costs of civil defense 
measures (including costs in excess of normal plant protection 
costs, first-aid training and supplies, fire-fighting training, 
posting of additional exit notices and directions, and other 
approved civil defense measures) undertaken on the institution's 
premises pursuant to suggestions or requirements of civil defense 
authorities are allowable when distributed to all activities of the 
institution. Capital expenditures for civil defense purposes will 
not be allowed, but a use allowance or depreciation may be permitted 
in accordance with provisions set forth elsewhere. Costs of local 
civil defense projects not on the institution's premises are 
unallowable.
    f. Communication costs. Costs incurred for telephone services, 
local and long distance telephone calls, telegrams, radiograms, 
postage, and the like are allowable.
    g. Compensation for personal services.

(1) General

    Compensation for personal services covers all remuneration paid 
currently or accrued to employees of the hospital for services 
rendered during the period of performance under government research 
agreements. Such remuneration includes salaries, wages, staff 
benefits (see paragraph I.2.j.), and pension plan costs (see 
paragraph I.2.y.). The costs of such remuneration are allowable to 
the extent that the total compensation to individual employees is 
reasonable for the services rendered and conforms to the established 
policy of the institution consistently applied, and provided that 
the charges for work performed directly on government research 
agreements and for other work allocable as indirect costs to 
sponsored research are determined and supported as hereinafter 
provided. For non-profit, non-proprietary institutions, where 
federally supported programs constitute less

[[Page 75977]]

than a preponderance of the activity at the institution the primary 
test of reasonableness will be to require that the institution's 
compensation policies be applied consistently both to federally-
sponsored and non-sponsored activities alike. However, where special 
circumstances so dictate a contractual clause may be utilized which 
calls for application of the test of comparability in determining 
the reasonableness of compensation.

(2) Payroll Distribution

    Amounts charged to organized research for personal services, 
regardless of whether treated as direct costs or allocated as 
indirect costs, will be based on hospital payrolls which have been 
approved and documented in accordance with generally accepted 
hospital practices. In order to develop necessary direct and 
indirect allocations of cost, supplementary data on time or effort 
as provided in paragraph (3) below, normally need be required only 
for individuals whose compensation is properly chargeable to two or 
more research agreements or to two or more of the following broad 
functional categories: (i) Patient care; (ii) organized research; 
(iii) instruction and training; (iv) indirect activities as defined 
in paragraph E.1.; or (v) other hospital activities as defined in 
paragraph B.5.

(3) Reporting Time or Effort

    Charges for salaries and wages of individuals other than members 
of the professional staff will be supported by daily time and 
attendance and payroll distribution records. For members of the 
professional staff, current and reasonable estimates of the 
percentage distribution of their total effort may be used as support 
in the absence of actual time records. The term professional staff 
for purposes of this section includes physicians, research 
associates, and other personnel performing work at responsible 
levels of activities. These personnel normally fulfill duties, the 
competent performance of which usually requires persons possessing 
degrees from accredited institutions of higher learning and/or state 
licensure. In order to qualify as current and reasonable, estimates 
must be made no later than one month (though not necessarily a 
calendar month) after the month in which the services were 
performed.

(4) Preparation of Estimates of Effort

    Where required under paragraph (3) above, estimates of effort 
spent by a member of the professional staff on each research 
agreement should be prepared by the individual who performed the 
services or by a responsible individual such as a department head or 
supervisor having first-hand knowledge of the services performed on 
each research agreement. Estimates must show the allocation of 
effort between organized research and all other hospital activities 
in terms of the percentage of total effort devoted to each of the 
broad functional categories referred to in (2) above. The estimate 
of effort spent on a research agreement may include a reasonable 
amount of time spent in activities contributing and intimately 
related to work under the agreement, such as preparing and 
delivering special lectures about specific aspects of the ongoing 
research, writing research reports and articles, participating in 
appropriate research seminars, consulting with colleagues with 
respect to related research, and attending appropriate scientific 
meetings and conferences. The term ``all other hospital activities'' 
would include departmental research, administration, committee work, 
and public services undertaken on behalf of the hospital.

(5) Application of Budget Estimates

    Estimates determined before the performance of services, such as 
budget estimates on a monthly, quarterly, or yearly basis do not 
qualify as estimates of effort spent.

(6) Non-Hospital Professional Activities

    A hospital must not alter or waive hospital-wide policies and 
practices dealing with the permissible extent of professional 
services over and above those traditionally performed without extra 
hospital compensation, unless such arrangements are specifically 
authorized by the sponsoring agency. Where hospital-wide policies do 
not adequately define the permissible extent of consultantships or 
other non-hospital activities undertaken for extra pay, the 
Government may require that the effort of professional staff working 
under research agreements be allocated as between (i) hospital 
activities, and (ii) non-hospital professional activities. If the 
sponsoring agency should consider the extent of non-hospital 
professional effort excessive, appropriate arrangements governing 
compensation will be negotiated on a case by case basis.

(7) Salary Rates for Part-Time Appointments

    Charges for work performed on government research by staff 
members having only part-time appointments will be determined at a 
rate not in excess of that for which he is regularly paid for his 
part-time staff assignment.
    h. Contingency provisions.
    Contributions to a contingency reserve or any similar provisions 
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.
    i. Depreciation and use allowances.
    (1) Hospitals may be compensated for the use of buildings, 
capital improvements and usable equipment on hand through 
depreciation or use allowances. Depreciation is a charge to current 
operations which distributes the cost of a tangible capital asset, 
less estimated residual value, over the estimated useful life of the 
asset in a systematic and logical manner. It does not involve a 
process of valuation. Useful life has reference to the prospective 
period of economic usefulness in the particular hospital's 
operations as distinguished from physical life. Use allowances are 
the means of allowing compensation when depreciation or other 
equivalent costs are not considered.
    (2) Due consideration will be given to government-furnished 
research facilities utilized by the institution when computing use 
allowances and/or depreciation if the government-furnished research 
facilities are material in amount. Computation of the use allowance 
and/or depreciation will exclude both the cost or any portion of the 
cost of grounds, buildings and equipment borne by or donated by the 
Federal Government, irrespective of where title was originally 
vested or where it presently resides, and secondly, the cost of 
grounds. Capital expenditures for land improvements (paved areas, 
fences, streets, sidewalks, utility conduits, and similar 
improvements not already included in the cost of buildings) are 
allowable provided the systematic amortization of such capital 
expenditures has been provided in the institution's books of 
accounts, based on reasonable determinations of the probable useful 
lives of the individual items involved, and the share allocated to 
organized research is developed from the amount thus amortized for 
the base period involved.
    (3) Normal depreciation on a hospital's plant, equipment, and 
other capital facilities, except as excluded by (4) below, is an 
allowable element of research cost provided that the amount thereof 
is computed:
    i. Upon the property cost basis used by the hospital for Federal 
Income Tax purposes (See section 167 of the Internal Revenue Code of 
1954); or
    ii. In the case of non-profit or tax exempt organizations, upon 
a property cost basis which could have been used by the hospital for 
Federal Income Tax purposes, had such hospital been subject to the 
payment of income tax; and in either case
    iii. By the consistent application to the assets concerned of 
any generally accepted accounting method, and subject to the 
limitations of the Internal Revenue Code of 1954 as amended, 
including--
    (a) The straight line method;
    (b) The declining balance method, using a rate not exceeding 
twice the rate which would have been used had the annual allowance 
been computed under the method described in (a) above;
    (c) The sum of the years-digits method; and
    (d) Any other consistent method productive of an annual 
allowance which, when added to all allowances for the period 
commencing with the use of the property and including the current 
year, does not during the first two-thirds of the useful life of the 
property exceed the total of such allowances which would have been 
used had such allowances been computed under the method described in 
(b) above.
    (4) Where the depreciation method is followed, adequate property 
records must be maintained. The period of useful service (service 
life) established in each case for usable capital assets must be 
determined on a realistic basis which takes into consideration such 
factors as type of construction, nature of the equipment used, 
technological developments in the particular research area, and the 
renewal and replacement policies followed for the individual items 
or classes of assets involved. Where the depreciation method is 
introduced for application to assets acquired in prior years, the 
annual charges therefrom must not exceed the amounts that would have 
resulted had the depreciation method been in effect from the date of 
acquisition of such assets.

[[Page 75978]]

    (5) Depreciation on idle or excess facilities shall not be 
allowed except on such facilities as are reasonably necessary for 
standby purposes.
    (6) Where an institution elects to go on a depreciation basis 
for a particular class of assets, no depreciation, rental or use 
charge may be allowed on any such assets that would be viewed as 
fully depreciated; provided, however, that reasonable use charges 
may be negotiated for any such assets if warranted after taking into 
consideration the cost of the facility or item involved, the 
estimated useful life remaining at time of negotiation, the actual 
replacement policy followed in the light of service lives used for 
calculating depreciation, the effect of any increased maintenance 
charges or decreased efficiency due to age, and any other factors 
pertinent to the utilization of the facility or item for the purpose 
contemplated.
    (7) Hospitals which choose a depreciation allowance for assets 
purchased prior to 1966 based on a percentage of operating costs in 
lieu of normal depreciation for purposes of reimbursement under Pub. 
L. 89-97 (Medicare) shall utilize that method for determining 
depreciation applicable to organized research.
    The operating costs to be used are the lower of the hospital's 
1965 operating costs or the hospital's current year's allowable 
costs. The percent to be applied is 5 percent starting with the year 
1966-67, with such percentage being uniformity reduced by one-half 
percent each succeeding year. The allowance based on operating costs 
is in addition to regular depreciation on assets acquired after 
1965. However, the combined amount of such allowance on pre-1966 
assets and the allowance for actual depreciation on assets acquired 
after 1965 may not exceed 6 percent of the hospital's allowable cost 
for the current year. After total depreciation has been computed, 
allocation methods are used to determine the share attributable to 
organized research.
    For purposes of this section, Operating Costs means the total 
costs incurred by the hospital in operating the institution, and 
includes patient care, research, and other activities. Allowable 
Costs means operating costs less unallowable costs as defined in 
these principles; by the application of allocation methods to the 
total amount of such allowable costs, the share attributable to 
Federally-sponsored research is determined.
    A hospital which elects to use this procedure under Pub. L. 89-
97 and subsequently changes to an actual depreciation basis on pre-
1966 assets in accordance with the option afforded under the 
Medicare program shall simultaneously change to an actual 
depreciation basis for organized research.
    Where the hospital desires to change to actual depreciation but 
either has no historical cost records or has incomplete records, the 
determination of historical cost could be made through appropriate 
means involving expert consultation with the determination being 
subject to review and approval by the Department of Health and Human 
Services.
    (8) Where the use allowance method is followed, the use 
allowance for buildings and improvements will be computed at an 
annual rate not exceeding two percent of acquisition cost. The use 
allowance for equipment will be computed at an annual rate not 
exceeding six and two-thirds percent of acquisition cost of usable 
equipment in those cases where the institution maintains current 
records with respect to such equipment on hand. Where the 
institution's records reflect only the cost (actual or estimated) of 
the original complement of equipment, the use allowance will be 
computed at an annual rate not exceeding ten percent of such cost. 
Original complement for this purpose means the complement of 
equipment initially placed in buildings to perform the functions 
currently being performed in such buildings; however, where a 
permanent change in the function of a building takes place, a 
redetermination of the original complement of equipment may be made 
at that time to establish a new original complement. In those cases 
where no equipment records are maintained, the institution will 
justify a reasonable estimate of the acquisition cost of usable 
equipment which may be used to compute the use allowance at an 
annual rate not exceeding six and two-thirds percent of such 
estimate.
    (9) Depreciation and/or use charges should usually be allocated 
to research and other activities as an indirect cost.
    j. Employee morale, health, and welfare costs and credits.
    The costs of house publications, health or first-aid benefits, 
recreational activities, employees' counseling services, and other 
expenses incurred in accordance with the hospital's established 
practice or custom for the improvement of working conditions, 
employer-employee relations, employee morale, and employee 
performance, are allowable. Such costs will be equitably apportioned 
to all activities of the hospital. Income generated from any of 
these activities will be credited to the cost thereof unless such 
income has been irrevocably set over to employee welfare 
organizations.
    k. Entertainment costs.
    Except as pertains to j. above, costs incurred for amusement, 
social activities, entertainment, and any items relating thereto, 
such as meals, lodging, rentals, transportation, and gratuities are 
unallowable.
    l. Equipment and other facilities.
    The cost of equipment or other facilities are allowable on a 
direct charge basis where such purchases are approved by the 
sponsoring agency concerned or provided for by the terms of the 
research agreement.
    m. Fines and penalties.
    Costs resulting from violations of, or failure of the 
institution to comply with federal, state and local laws and 
regulations are unallowable except when incurred as a result of 
compliance with specific provisions of the research agreement, or 
instructions in writing from the awarding agency.
    n. Insurance and indemnification.
    (1) Costs of insurance required or approved and maintained 
pursuant to the research agreement are allowable.
    (2) Costs of other insurance maintained by the hospital in 
connection with the general conduct of its activities are allowable 
subject to the following limitations: (i) Types and extent and cost 
of coverage must be in accordance with sound institutional practice; 
(ii) costs of insurance or of any contributions to any reserve 
covering the risk of loss of or damage to government owned property 
are unallowable except to the extent that the Government has 
specifically required or approved such costs; and (iii) costs of 
insurance on the lives of officers or trustees are unallowable 
except where such insurance is part of an employee plan which is not 
unduly restricted.
    (3) Contributions to a reserve for an approved self-insurance 
program are allowable to the extent that the types of coverage, 
extent of coverage, and the rates and premiums would have been 
allowed had insurance been purchased to cover the risks. Such 
contributions are subject to prior approval of the Government.
    (4) Actual losses which could have been covered by permissible 
insurance (through an approved self-insurance program or otherwise) 
are unallowable unless expressly provided for in the research 
agreement, except that costs incurred because of losses not covered 
under nominal deductible insurance coverage provided in keeping with 
sound management practice as well as minor losses not covered by 
insurance such as spoilage, breakage and disappearance of small hand 
tools which occur in the ordinary course of operations are 
allowable.
    o. Interest, fund raising and investment management costs.
    (1) Costs incurred for interest on borrowed capital or temporary 
use of endowment funds, however represented, are unallowable.
    (2) Costs of organized fund raising, including financial 
campaigns, endowment drives, solicitation of gifts and bequests, and 
similar expenses incurred solely to raise capital or obtain 
contributions are not allowable.
    (3) Costs of investment counsel and staff and similar expenses 
incurred solely to enhance income from investments are not 
allowable.
    (4) Costs related to the physical custody and control of monies 
and securities are allowable.
    p. Labor relations costs.
    Costs incurred in maintaining satisfactory relations between the 
hospital and its employees, including costs of labor management 
committees, employees' publications, and other related activities 
are allowable.
    q. Losses on research agreements or contracts.
    Any excess of costs over income under any agreement or contract 
of any nature is unallowable. This includes, but is not limited to, 
the hospital's contributed portion by reason of cost-sharing 
agreements, under-recoveries through negotiation of flat amounts for 
overhead, or legal or administrative limitations.
    r. Maintenance and repair costs.
    (1) Costs necessary for the upkeep of property (including 
government property unless otherwise provided for), which neither 
add to the permanent value of the property nor appreciably prolong 
its intended life, but keep it in an efficient operating condition, 
are to be treated as follows:

[[Page 75979]]

    i. Normal maintenance and repair costs are allowable;
    ii. Extraordinary maintenance and repair costs are allowable, 
provided they are allocated to the periods to which applicable for 
purposes of determining research costs.
    (2) Expenditures for plant and equipment, including 
rehabilitation thereof, which according to generally accepted 
accounting principles as applied under the hospital's established 
policy, should be capitalized and subjected to depreciation, are 
allowable only on a depreciation basis.
    s. Material costs.
    Costs incurred for purchased materials, supplies and fabricated 
parts directly or indirectly related to the research agreement, are 
allowable. Purchases made specifically for the research agreement 
should be charged thereto at their actual prices after deducting all 
cash discounts, trade discounts, rebates, and allowances received by 
the institution. Withdrawals from general stores or stockrooms 
should be charged at their cost under any recognized method of 
pricing stores withdrawals conforming to sound accounting practices 
consistently followed by the hospital. Incoming transportation 
charges are a proper part of material cost. Direct material cost 
should include only the materials and supplies actually used for the 
performance of the research agreement, and due credit should be 
given for any excess materials retained or returned to vendors. Due 
credit should be given for all proceeds or value received for any 
scrap resulting from work under the research agreement. Where 
government donated or furnished material is used in performing the 
research agreement, such material will be used without charge.
    t. Memberships, subscriptions and professional activity costs.
    (1) Costs of the hospital's membership in civic, business, 
technical and professional organizations are allowable.
    (2) Costs of the hospital's subscriptions to civic, business, 
professional and technical periodicals are allowable.
    (3) Costs of meetings and conferences, when the primary purpose 
is the dissemination of technical information, are allowable. This 
includes costs of meals, transportation, rental of facilities, and 
other items incidental to such meetings or conferences.
    u. Organization costs.
    Expenditures such as incorporation fees, attorneys' fees, 
accountants' fees, brokers' fees, fees to promoters and organizers 
in connection with (1) organization or reorganization of a hospital, 
or (2) raising capital, are unallowable.
    v. Other business expenses.
    Included in this item are such recurring expenses as registry 
and transfer charges resulting from changes in ownership of 
securities issued by the hospital, cost of shareholders meetings 
preparation and publication of reports to shareholders, preparation 
and submission of required reports and forms to taxing and other 
regulatory bodies, and incidental costs of directors and committee 
meetings. The above and similar costs are allowable when allocated 
on an equitable basis.
    w. Patient care.
    The cost of routine and ancillary or special services to 
research patients is an allowable direct cost of research 
agreements.
    (1) Routine services shall include the costs of the regular 
room, dietary and nursing services, minor medical and surgical 
supplies and the use of equipment and facilities for which a 
separate charge is not customarily made.
    (2) Ancillary or special services are the services for which 
charges are customarily made in addition to routine services, such 
as operating rooms, anesthesia, laboratory, BMR-EKG, etc.
    (3) Patient care, whether expressed as a rate or an amount, 
shall be computed in a manner consistent with the procedures used to 
determine reimbursable costs under Pub. L. 89-97 (Medicare Program) 
as defined under the ``Principles of Reimbursement For Provider 
Costs'' published by the Social Security Administration of the 
Department of Health and Human Services. The allowability of 
specific categories of cost shall be in accordance with those 
principles rather than the principles for research contained herein. 
In the absence of participation in the Medicare program by a 
hospital, all references to the Medicare program in these principles 
shall be construed as meaning the Medicaid program.
    i. Once costs have been recognized as allowable, the indirect 
costs or general service center's cost shall be allocated (stepped-
down) to special service centers, and all patient and nonpatient 
costs centers based upon actual services received or benefiting 
these centers.
    ii. After allocation, routine and ancillary costs shall be 
apportioned to scatter-bed research patients on the same basis as is 
used to apportion costs to Medicare patients, i.e. using either the 
departmental method or the combination method, as those methods are 
defined by the Social Security Administration; except that final 
settlement shall be on a grant-by-grant basis. However, to the 
extent that the Social Security Administration has recognized any 
other method of cost apportionment, that method generally shall also 
be recognized as applicable to the determination of research patient 
care costs.
    iii. A cost center must be established on Medicare reimbursement 
forms for each discrete-bed unit grant award received by a hospital. 
Routine costs should be stepped-down to this line item(s) in the 
normal course of stepping-down costs under Medicare/Medicaid 
requirements. However, in stepping-down routine costs, consideration 
must be given to preventing a step-down of those costs to discrete-
bed unit line items that have already been paid for directly by the 
grant, such as bedside nursing costs. Ancillary costs allocable to 
research discrete-bed units shall be determined and proposed in 
accordance with paragraph w.(3).ii.
    (4) Where federally sponsored research programs provide 
specifically for the direct reimbursement of nursing, dietary, and 
other services, appropriate adjustment must be made to patient care 
costs to preclude duplication and/or misallocation of costs.
    x. Patent costs.
    Costs of preparing disclosures, reports and other documents 
required by the research agreement and of searching the art to the 
extent necessary to make such invention disclosures are allowable. 
In accordance with the clauses of the research agreement relating to 
patents, costs of preparing documents and any other patent costs, in 
connection with the filing of a patent application where title is 
conveyed to the Government, are allowable. (See also paragraph 
I.2.jj.)
    y. Pension plan costs.
    Costs of the hospital's pension plan which are incurred in 
accordance with the established policies of the institution are 
allowable, provided such policies meet the test of reasonableness 
and the methods of cost allocation are not discriminatory, and 
provided appropriate adjustments are made for credits or gains 
arising out of normal and abnormal employee turnover or any other 
contingencies that can result in forfeitures by employees which 
inure to the benefit of the hospital.
    z. Plan security costs.
    Necessary expenses incurred to comply with government security 
requirements including wages, uniforms and equipment of personnel 
engaged in plant protection are allowable.
    aa. Pre-research agreement costs.
    Costs incurred prior to the effective date of the research 
agreement, whether or not they would have been allowable thereunder 
if incurred after such date, are unallowable unless specifically set 
forth and identified in the research agreement.
    bb. Professional services costs.
    (1) Costs of professional services rendered by the members of a 
particular profession who are not employees of the hospital are 
allowable subject to (2) and (3) below when reasonable in relation 
to the services rendered and when not contingent upon recovery of 
the costs from the Government. Retainer fees to be allowable must be 
reasonably supported by evidence of services rendered.
    (2) Factors to be considered in determining the allowability of 
costs in a particular case include (i) the past pattern of such 
costs, particularly in the years prior to the award of government 
research agreements on the institution's total activity; (ii) the 
nature and scope of managerial services expected of the 
institution's own organizations; and (iii) whether the proportion of 
government work to the hospital's total activity is such as to 
influence the institution in favor of incurring the cost, 
particularly where the services rendered are not of a continuing 
nature and have little relationship to work under government 
research agreements.
    (3) Costs of legal, accounting and consulting services, and 
related costs incurred in connection with organization and 
reorganization or the prosecution of claims against the Government 
are unallowable. Costs of legal, accounting and consulting services, 
and related costs incurred in connection with patent infringement 
litigation are unallowable unless otherwise provided for in the 
research agreement.
    cc. Profits and losses on disposition of plant equipment, or 
other assets.
    Profits or losses of any nature arising from the sale or 
exchange of plant, equipment, or

[[Page 75980]]

other capital assets, including sales or exchange of either short- 
or long-term investments, shall be excluded in computing research 
agreement costs.
    dd. Proposal costs.
    Proposal costs are the costs of preparing bids or proposals on 
potential government and non-government research agreements or 
projects, including the development of technical data and cost data 
necessary to support the institution's bids or proposals. Proposal 
costs of the current accounting period of both successful and 
unsuccessful bids and proposals normally should be treated as 
indirect costs and allocated currently to all activities of the 
institution, and no proposal costs of past accounting periods will 
be allocable in the current period to the government research 
agreement. However, the institution's established practices may be 
to treat proposal costs by some other recognized method. Regardless 
of the methods used, the results obtained may be accepted only if 
found to be reasonable and equitable.
    ee. Public information services costs.
    Costs of news releases pertaining to specific research or 
scientific accomplishment are unallowable unless specifically 
authorized by the sponsoring agency.
    ff. Rearrangement and alteration costs.
    Costs incurred for ordinary or normal rearrangement and 
alteration of facilities are allowable. Special rearrangement and 
alteration costs incurred specifically for a project are allowable 
only as a direct charge when such work has been approved in advance 
by the sponsoring agency concerned.
    gg. Reconversion costs.
    Costs incurred in the restoration or rehabilitation of the 
institution's facilities to approximately the same condition 
existing immediately prior to commencement of government research 
agreement work, fair wear and tear excepted, are allowable.
    hh. Recruiting costs.
    (1) Subject to (2), (3), and (4) below, and provided that the 
size of the staff recruited and maintained is in keeping with 
workload requirements, costs of ``help wanted'' advertising, 
operating costs of an employment office necessary to secure and 
maintain an adequate staff, costs of operating an aptitude and 
educational testing program, travel costs of employees while engaged 
in recruiting personnel, travel costs of applicants for interviews 
for prospective employment, and relocation costs incurred incident 
to recruitment of new employees are allowable to the extent that 
such costs are incurred pursuant to a well-managed recruitment 
program. Where an institution uses employment agencies, costs not in 
excess of standard commercial rates for such services are allowable.
    (2) In publications, costs of help wanted advertising that 
includes color, includes advertising material for other than 
recruitment purposes, or is excessive in size (taking into 
consideration recruitment purposes for which intended and normal 
institutional practices in this respect) are unallowable.
    (3) Costs of help wanted advertising, special emoluments; fringe 
benefits, and salary allowances incurred to attract professional 
personnel from other institutions that do not meet the test of 
reasonableness or do not conform with the established practices of 
the institution are unallowable.
    (4) Where relocation costs incurred incident to recruitment of a 
new employee have been allowed either as an allocable direct or 
indirect cost, and the newly hired employee resigns for reasons 
within his control within twelve months after hire, the institution 
will be required to refund or credit such relocations costs as were 
charged to the Government.
    ii. Rental costs (including sale and lease-back of facilities).
    (1) Rental costs of land, building, and equipment and other 
personal property are allowable if the rates are reasonable in light 
of such factors as rental costs of comparable facilities and market 
conditions in the area, the type, life expectancy, condition, and 
value of the facilities leased, options available, and other 
provisions of the rental agreement. Application of these factors, in 
situations where rentals are extensively used, may involve among 
other considerations comparison of rental costs with the amount 
which the hospital would have received had it owned the facilities.
    (2) Charges in the nature of rent between organizations having a 
legal or other affiliation or arrangement such as hospitals, medical 
schools, foundations, etc., are allowable to the extent such charges 
do not exceed the normal costs of ownership such as depreciation, 
taxes, insurance, and maintenance, provided that no part of such 
costs shall duplicate any other allowed costs.
    (3) Unless otherwise specifically provided in the agreement, 
rental costs specified in sale and lease-back agreements incurred by 
hospitals through selling plant facilities to investment 
organizations such as insurance companies or to private investors, 
and concurrently leasing back the same facilities are allowable only 
to the extent that such rentals do not exceed the amount which the 
hospital would have received had it retained legal title to the 
facilities.
    jj. Royalties and other costs for use of patents.
    Royalties on a patent or amortization of the cost of acquiring a 
patent or invention or rights thereto necessary for the proper 
performance of the research agreement and applicable to tasks or 
processes thereunder are allowable unless the Government has a 
license or the right to free use of the patent, the patent has been 
adjudicated to be invalid, or has been administratively determined 
to be invalid, the patent is considered to be unenforceable, or the 
patent has expired.
    kk. Severance pay.
    (1) Severance pay is compensation in addition to regular 
salaries and wages which is paid by a hospital to employees whose 
services are being terminated. Costs of severance pay are allowable 
only to the extent that such payments are required by law, by 
employer-employee agreement, by established policy that constitutes 
in effect an implied agreement on the institution's part, or by 
circumstances of the particular employment.
    (2) Severance payments that are due to normal, recurring 
turnover, and which otherwise meet the conditions of (a) above may 
be allowed provided the actual costs of such severance payments are 
regarded as expenses applicable to the current fiscal year and are 
equitably distributed among the institution's activities during that 
period.
    (3) Severance payments that are due to abnormal or mass 
terminations are of such conjectural nature that allowability must 
be determined on a case-by-case basis. However, the Government 
recognizes its obligation to participate to the extent of its fair 
share in any specific payment.
    ll. Specialized service facilities operated by a hospital.
    (1) The costs of institutional services involving the use of 
highly complex and specialized facilities such as electronic 
computers and reactors are allowable provided the charges therefor 
meet the conditions of (2) or (3) below, and otherwise take into 
account any items of income or federal financing that qualify as 
applicable credits under paragraph C.5.
    (2) The costs of such hospital services normally will be charged 
directly to applicable research agreements based on actual usage or 
occupancy of the facilities at rates that (i) are designed to 
recover only actual costs of providing such services, and (ii) are 
applied on a nondiscriminatory basis as between organized research 
and other work of the hospital including commercial or accommodation 
sales and usage by the hospital for internal purposes. This would 
include use of such facilities as radiology, laboratories, 
maintenance men used for a special purpose, medical art, 
photography, etc.
    (3) In the absence of an acceptable arrangement for direct 
costing as provided in (2) above, the costs incurred for such 
institutional services may be assigned to research agreements as 
indirect costs, provided the methods used achieve substantially the 
same results. Such arrangements should be worked out in coordination 
with all government users of the facilities in order to assure 
equitable distribution of the indirect costs.
    mm. Special administrative costs.
    Costs incurred for general public relations activities, 
catalogs, alumni activities, and similar services are unallowable.
    nn. Staff and/or employee benefits.
    (1) Staff and/or employee benefits in the form of regular 
compensation paid to employees during periods of authorized absences 
from the job such as for annual leave, sick leave, military leave 
and the like are allowable provided such costs are absorbed by all 
hospital activities including organized research in proportion to 
the relative amount of time or effort actually devoted to each.
    (2) Staff benefits in the form of employer contributions or 
expenses for Social Security taxes, employee insurance, Workmen's 
Compensation insurance, the Pension Plan (see paragraph I.2.y.), 
hospital costs or remission of hospital charges to the extent of 
costs for individual employees or their families, and the like are 
allowable provided such benefits are granted in accordance with

[[Page 75981]]

established hospital policies, and provided such contributions and 
other expenses whether treated as indirect costs or an increment of 
direct labor costs are distributed to particular research agreements 
and other activities in a manner consistent with the pattern of 
benefits accruing to the individuals or groups of employees whose 
salaries and wages are chargeable to such research agreements and 
other activities.
    oo. Taxes.
    (1) In general, taxes which the hospital is required to pay and 
which are paid or accrued in accordance with generally accepted 
accounting principles, and payments made to local governments in 
lieu of taxes which are commensurate with the local government 
services received are allowable except for (i) taxes from which 
exemptions are available to the hospital directly or which are 
available to the hospital based on an exemption afforded the 
Government and in the latter case when the sponsoring agency makes 
available the necessary exemption certificates, (ii) special 
assessments on land which represent capital improvements, and (iii) 
Federal Income Taxes.
    (2) Any refund of taxes, interest, or penalties, and any payment 
to the hospital of interest thereon attributable to taxes, interest 
or penalties, which were allowed as research agreement costs will be 
credited or paid to the Government in the manner directed by the 
Government provided any interest actually paid or credited to a 
hospital incident to a refund of tax, interest, and penalty will be 
paid or credited to the Government only to the extent that such 
interest accrued over the period during which the hospital had been 
reimbursed by the Government for the taxes, interest, and penalties.
    pp. Transportation costs.
    Costs incurred for inbound freight, express, cartage, postage 
and other transportation services relating either to goods 
purchased, in process, or delivered are allowable. When such costs 
can readily be identified with the items involved, they may be 
charged directly as transportation costs or added to the cost of 
such items. Where identification with the material received cannot 
readily be made, inbound transportation costs may be charged to the 
appropriate indirect cost accounts if the institution follows a 
consistent equitable procedure in this respect. Outbound freight, if 
reimbursable under the terms of the research agreement, should be 
treated as a direct cost.
    qq. Travel costs.
    (1) 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 hospital. Such costs may 
be charged on an actual 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 by the institution in its regular operations.
    (2) Travel costs are allowable subject to (3) and (4) below when 
they are directly attributable to specific work under a research 
agreement or when they are incurred in the normal course of 
administration of the hospital or a department or research program 
thereof.
    (3) The difference in cost between first class air 
accommodations and less than first class air accommodations is 
unallowable except when less than first class air accommodations are 
not reasonably available to meet necessary mission requirements such 
as where less than first class accommodations would (i) require 
circuitous routing, (ii) require travel during unreasonable hours, 
(iii) greatly increase the duration of the flight, (iv) result in 
additional costs which would offset the transportation savings, or 
(v) offer accommodations which are not reasonably adequate for the 
medical needs of the traveler.
    (4) Costs of personnel movements of a special or mass nature are 
allowable only when authorized or approved in writing by the 
sponsoring agency or its authorized representative.
    rr. Termination costs applicable to contracts.
    (1) Contract terminations generally give rise to the incurrence 
of costs or to the need for special treatment of costs which would 
not have arisen had the contract not been terminated. Items peculiar 
to termination are set forth below. They are to be used in 
conjunction with all other provisions of these principles in the 
case of contract termination.
    (2) The cost of common items of material reasonably usable on 
the hospital's other work will not be allowable unless the hospital 
submits evidence that it could not retain such items at cost without 
sustaining a loss. In deciding whether such items are reasonably 
usable on other work of the institution, consideration should be 
given to the hospital's plans for current scheduled work or 
activities including other research agreements. Contemporaneous 
purchases of common items by the hospital will be regarded as 
evidence that such items are reasonably usable on the hospital's 
other work. Any acceptance of common items as allowable to the 
terminated portion of the contract should 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 requirement of other 
work.
    (3) If in a particular case, despite all reasonable efforts by 
the hospital, certain costs cannot be discontinued immediately after 
the effective date of termination, such costs are generally 
allowable within the limitations set forth in these principles, 
except that any such costs continuing after termination due to the 
negligent or willful failure of the hospital to discontinue such 
costs will be considered unacceptable.
    (4) Loss of useful value of special tooling and special 
machinery and equipment is generally allowable, provided (i) such 
special tooling, machinery or equipment is not reasonably capable of 
use in the other work of the hospital; (ii) the interest of the 
Government is protected by transfer of title or by other means 
deemed appropriate by the contracting officer; and (iii) the loss of 
useful value as to any one terminated contract 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 contract 
bears to the entire terminated contract and other government 
contracts for which the special tooling, special machinery or 
equipment was acquired.
    (5) Rental costs under unexpired leases are generally allowable 
where clearly shown to have been reasonably necessary for the 
performance of the terminated contract, less the residual value of 
such leases, if (i) the amount of such rental claimed does not 
exceed the reasonable use value of the property leased for the 
period of the contract and such further period as may be reasonable; 
and (ii) the hospital 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 contract and of reasonable restoration required 
by the provisions of the lease.
    (6) Settlement expenses including the following are generally 
allowable: (i) Accounting, legal, clerical, and similar costs 
reasonably necessary for the preparation and presentation to 
contracting officers of settlement claims and supporting data with 
respect to the terminated portion of the contract and the 
termination and settlement of subcontracts; and (ii) reasonable 
costs for the storage, transportation, protection, and disposition 
of property provided by the Government or acquired or produced by 
the institution for the contract.
    (7) Subcontractor claims including the allocable portion of 
claims which are common to the contract and to other work of the 
contractor are generally allowable.
    ss. Voluntary services.
    The value of voluntary services provided by sisters or other 
members of religious orders is allowable provided that amounts do 
not exceed that paid other employees for similar work. Such amounts 
must be identifiable in the records of the hospital as a legal 
obligation of the hospital. This may be reflected by an agreement 
between the religious order and the hospital supported by evidence 
of payments to the order.

Appendix X to Part 75--Data Collection Form (SF-SAC)

    The Data Collection Form SF-SAC is available on the FAC Web site 
https://harvester.census.gov/facweb/Default.aspx.

Appendix XI to Part 75--Compliance Supplement

    The compliance supplement is available on the OMB Web site: 
(http://www.whitehouse.gov/omb/circulars/)

PART 92 [REMOVED AND RESERVED]

0
4. Remove and reserve 45 CFR part 92.

Ellen Murray,
Assistant Secretary for Financial Resources.

Department of Agriculture

    For the reasons stated in the common preamble, under the authority 
of 5

[[Page 75982]]

U.S.C. 301, 7 CFR 2.28(a)(13)(iii), and the authorities listed below, 
USDA adds Parts 400, 415, 416, 418 and 422 to Title 2 of the CFR and 
removes Parts 3015, 3016, 3018, 3019, 3022 and 3052 from Title 7 of the 
CFR as follows:

TITLE 2--GRANTS AND AGREEMENTS

CHAPTER IV--DEPARTMENT OF AGRICULTURE

0
1. Title 2 of the Code of Federal Regulations is amended by adding Part 
400 to read as follows:

PART 400--UNIFORM ADMINISTRATIVE REQUIREMENTS, COST PRINCIPLES, AND 
AUDIT REQUIREMENTS FOR FEDERAL AWARDS

400.1 What does this part do?
400.2 Conflict of interest.

    Authority: 31 U.S.C. 503.

PART 400--UNIFORM ADMINISTRATIVE REQUIREMENTS, COST PRINCIPLES, AND 
AUDIT REQUIREMENTS FOR FEDERAL AWARDS


Sec.  400.1  What does this part do?

    This part adopts the OMB guidance in subparts A through F of 2 CFR 
part 200, as supplemented by this part, as USDA policies and procedures 
for uniform administrative requirements, cost principles, and audit 
requirements for Federal awards. It thereby gives regulatory effect for 
the USDA to the OMB guidance, as supplemented by this part.


Sec.  400.2  Conflict of interest.

    (a) Each USDA awarding agency must establish conflict of interest 
policies for its Federal awards.
    (b) Non-Federal entities must disclose in writing any potential 
conflicts of interest to the USDA awarding agency or pass-through 
entity.
    (1) The non-Federal entity must maintain written standards of 
conduct covering conflicts of interest and governing the performance of 
its employees in the selection, award and administration of Federal 
awards. No employee, officer or agent may participate in the selection, 
award, or administration of a Federal award if he or she has a real or 
apparent conflict of interest. Such a conflict of interest would arise 
when the employee, officer, or agent, any member of his or her 
immediate family, his or her partner, or an organization which employs 
or is about to employ any of the parties indicated herein, has a 
financial or other interest in or a tangible personal benefit from a 
non-Federal entity considered for a Federal award. The non-Federal 
entity may set standards for situations in which the financial interest 
is not substantial or the gift is an unsolicited item of nominal value. 
The standards of conduct must provide for disciplinary actions to be 
applied for violations of such standards by officers, employees, or 
agents of the non-Federal entity.
    (2) If the non-Federal entity has a parent, affiliate, or 
subsidiary organization that is not a state, local government, or 
Indian tribe, the non-Federal entity must also maintain written 
standards of conduct covering organizational conflicts of interest. 
Organizational conflicts of interest means that because of the 
relationships with a parent company, affiliate, or subsidiary 
organization, is unable or appears to be unable to be impartial in 
conducting a Federal award action involving a related organization.

0
2. Title 2 of the Code of Federal Regulations is amended by adding Part 
415 to read as follows:

PART 415--GENERAL PROGRAM ADMINISTRATIVE REGULATIONS

Subpart A--Application for Federal Assistance
Sec.
415.1 Competition in the awarding of discretionary grants and 
cooperative agreements.
Subpart B--Miscellaneous
415.2 Acknowledgement of Support on Publications and Audiovisuals.
Subpart C--Intergovernmental Review of Department of Agriculture 
Programs and Activities
415.3 Purpose.
415.4 Definitions.
415.5 Applicability.


415.6  Secretary's general responsibilities.

415.7 Federal interagency coordination.
415.8 State selection of programs and activities.
415.9 Communication with State and local elected officials.
415.10 State comments on proposed Federal financial assistance and 
direct Federal development.
415.11 Processing comments.
415.12 Accommodation of intergovernmental concerns.
415.13 Interstate situations.
415.14 Simplification, consolidation, or substitution of State 
plans.
415.15 Waivers.

    Authority:  5 U.S.C. 301.

Subpart A--Application for Federal Assistance


Sec.  415.1  Competition in the awarding of discretionary grants and 
cooperative agreements.

    (a) Standards for competition. Except as provided in paragraph (d) 
of this section, awarding agencies shall enter into discretionary 
grants and cooperative agreements only after competition. An awarding 
agency's competitive award process shall adhere to the following 
standards:
    (1) Potential applicants must be invited to submit proposals 
through publications such as the Federal Register, OMB-designated 
governmentwide Web site as described in 2 CFR 200.203, professional 
trade journals, agency or program handbooks, the Catalog of Federal 
Domestic Assistance, or any other appropriate means of solicitation. In 
so doing, awarding agencies should consider the broadest dissemination 
of project solicitations in order to reach the highest number of 
potential applicants.
    (2) Proposals are to be evaluated objectively by independent 
reviewers in accordance with written criteria set forth by the awarding 
agency. Reviewers should make written comments, as appropriate, on each 
application. Independent reviewers may be from the private sector, 
another agency, or within the awarding agency, as long as they do not 
include anyone who has approval authority for the applications being 
reviewed or anyone who might appear to have a conflict of interest in 
the role of reviewer of applications. A conflict of interest might 
arise when the reviewer or the reviewer's immediate family members have 
been associated with the applicant or applicant organization within the 
past two years as an owner, partner, officer, director, employee, or 
consultant; has any financial interest in the applicant or applicant 
organization; or is negotiating for, or has any arrangement, concerning 
prospective employment.
    (3) An unsolicited application, which is not unique and innovative, 
shall be competed under the project solicitation it comes closest to 
fitting. Awarding agency officials will determine the solicitation 
under which the application is to be evaluated. When the awarding 
agency official decides that the unsolicited application does not fall 
under a recent, current, or planned solicitation, a noncompetitive 
award may be made, if appropriate to do so under the criteria of this 
section. Otherwise, the application should be returned to the 
applicant.

[[Page 75983]]

    (b) Project solicitations. A project solicitation by the awarding 
agency shall include or reference the following, as appropriate:
    (1) A description of the eligible activities which the awarding 
agency proposes to support and the program priorities;
    (2) Eligible applicants;
    (3) The dates and amounts of funds expected to be available for 
awards;
    (4) Evaluation criteria and weights, if appropriate, assigned to 
each;
    (5) Methods for evaluating and ranking applications;
    (6) Name and address where proposals should be mailed or emailed 
and submission deadline(s);
    (7) Any required forms and how to obtain them;
    (8) Applicable cost principles and administrative requirements;
    (9) Type of funding instrument intended to be used (grant or 
cooperative agreement); and
    (10) The Catalog of Federal Domestic Assistance number and title.
    (c) Approval of applications. The final decision to award is at the 
discretion of the awarding/approving official in each agency. The 
awarding/approving official shall consider the ranking, comments, and 
recommendations from the independent review group, and any other 
pertinent information before deciding which applications to approve and 
their order of approval. Any appeals by applicants regarding the award 
decision shall be handled by the awarding agency using existing agency 
appeal procedures or good administrative practice and sound business 
judgment.
    (d) Exceptions. The awarding/approving official may make a 
determination in writing that competition is not deemed appropriate for 
a particular transaction. Such determination shall be limited to 
transactions where it can be adequately justified that a noncompetitive 
award is in the best interest of the Government and necessary to the 
accomplishment of the goals of the program. Reasons for considering 
noncompetitive awards may include, but are not necessarily limited to, 
the following:
    (1) Nonmonetary awards of property or services;
    (2) Awards of less than $75,000;
    (3) Awards to fund continuing work already started under a previous 
award;
    (4) Awards which cannot be delayed due to an emergency or a 
substantial danger to health or safety;
    (5) Awards when it is impracticable to secure competition; or
    (6) Awards to fund unique and innovative unsolicited applications.

Subpart B--Miscellaneous


Sec.  415.2  Acknowledgement of USDA Support on Publications and 
Audiovisuals.

    (a) Definitions.
    (1) ``Audiovisual'' means a product containing visual imagery or 
sound or both. Examples of audiovisuals are motion pictures, live or 
prerecorded radio or television programs, slide shows, filmstrips, 
audio recordings, and multimedia presentations.
    (2) ``Production of an audiovisual'' means any of the steps that 
lead to a finished audiovisual, including design, layout, script-
writing, filming, editing, fabrication, sound recording or taping. The 
term does not include the placing of captions for the hearing impaired 
on films or videotapes not originally produced for use with the hearing 
impaired.
    (3) ``Publication'' means a published book, periodical, pamphlet, 
brochure, flier, or similar item. It does not include any audiovisuals.
    (b) Publications. Recipients shall have an acknowledgement of USDA 
awarding agency support placed on any publications written or published 
with grant support and, if feasible, on any publication reporting the 
results of, or describing, a grant-supported activity.
    (c) Audiovisuals. Recipients shall have an acknowledgement of USDA 
awarding agency support placed on any audiovisual which is produced 
with grant support and which has a direct production cost to the 
recipient of over $5,000. Unless the other provisions of the grant 
award make it apply, this requirement does not apply to:
    (1) Audiovisuals produced as research instruments or for 
documenting experimentation or findings and not intended for 
presentation or distribution to the general public.
    (2) [Reserved]
    (d) Waivers. USDA awarding agencies may waive any requirement of 
this section.

Subpart C--Intergovernmental Review of Department of Agriculture 
Programs and Activities


Sec.  415.3  Purpose.

    (a) The regulations in this part implement Executive Order 12372, 
``Intergovernmental Review of Federal Programs'', issued July 14, 1982, 
and amended on April 8, 1983. These regulations also implement 
applicable provisions of section 401 of the Intergovernmental 
Cooperation Act of 1968 and section 204 of the Demonstration Cities and 
Metropolitan Development Act of 1966.
    (b) These regulations are intended to foster an intergovernmental 
partnership and a strengthened Federalism by relying on State processes 
and on State, areawide, regional and local coordination for review of 
proposed Federal financial assistance and direct Federal development.
    (c) The regulations are intended to aid the internal management of 
the Department, and are not intended to create any right or benefit 
enforceable at law by a party against the Department or its officers.


Sec.  415.4  Definitions.

    As used in this part, the following definitions apply:
    Department means the U.S. Department of Agriculture.
    Order means Executive Order 12372, issued July 14, 1982, and 
amended April 8, 1983, and titled Intergovernmental Review of Federal 
Programs.
    Secretary means the Secretary of the U.S. Department of Agriculture 
or an official or employee of the Department acting for the Secretary 
under a delegation of authority.
    State means any of the 50 states, the District of Columbia, the 
Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana 
Islands, Guam, American Samoa, and the U.S. Virgin Islands.


Sec.  415.5  Applicability.

    The Secretary publishes in the Federal Register a list of the 
Department's programs and activities that are subject to these 
regulations and identifies which of these are subject to the 
requirements of section 204 of the Demonstration Cities and 
Metropolitan Development Act.


Sec.  415.6  Secretary's general responsibilities.

    (a) The Secretary provides opportunities for consultation by 
elected officials of those State and local governments that would 
provide the non-Federal funds for, or that would be directly affected 
by, proposed Federal financial assistance from, or direct Federal 
development by, the Department.
    (b) If a State adopts a process under the Order to review and 
coordinate proposed Federal financial assistance and direct Federal 
development, the Secretary, to the extent permitted by law:
    (1) Uses the State process to determine official views of State and 
local elected officials;
    (2) Communicates with State and local elected officials as early in 
a program planning cycle as is reasonably feasible to explain specific 
plans and actions;

[[Page 75984]]

    (3) Makes efforts to accommodate State and local elected officials' 
concerns with proposed Federal financial assistance and direct Federal 
development that are communicated through the State process;
    (4) Allows the States to simplify and consolidate existing 
Federally required State plan submissions;
    (5) Where State planning and budgeting systems are sufficient and 
where permitted by law, encourages the substitution of State plans for 
Federally required State plans;
    (6) Seeks the coordination of views of affected State and local 
elected officials in one State with those of another State when 
proposed Federal financial assistance or direct Federal development has 
an impact on interstate metropolitan urban centers or other interstate 
areas; and
    (7) Supports State and local governments by discouraging the 
reauthorization or creation of any planning organization which is 
Federally-funded, which has a limited purpose, and which is not 
adequately representative of, or accountable to, State or local elected 
officials.


Sec.  415.7  Federal interagency coordination.

    The Secretary, to the extent practicable, consults with and seeks 
advice from all other substantially affected Federal departments and 
agencies in an effort to assure full coordination between such agencies 
and the Department regarding programs and activities covered under 
these regulations.


Sec.  415.8  State selection of programs and activities.

    (a) A State may select any program or activity published in the 
Federal Register in accordance with Sec.  415.5 for intergovernmental 
review under these regulations. Each State, before selecting programs 
and activities, shall consult with local elected officials.
    (b) Each State that adopts a process shall notify the secretary of 
the Department's programs and activities selected for that process.
    (c) A State may notify the Secretary of changes in its selections 
at any time. For each change, the State shall submit to the Secretary 
an assurance that the State has consulted with elected local officials 
regarding the change. The Department may establish deadlines by which 
States are required to inform the Secretary of changes in their program 
selections.
    (d) The Secretary uses a State's process as soon as feasible, 
depending on individual programs and activities, after the Secretary is 
notified of its selections.


Sec.  415.9  Communication with State and local elected officials.

    (a) The Secretary provides notice to directly affected State, 
areawide, regional, and local entities in a State of proposed Federal 
financial assistance or direct Federal development if:
    (1) The State has not adopted a process under the Order; or
    (2) The assistance or development involves a program or an activity 
that is not covered under the State process.
    (b) This notice may be made by publication in the Federal Register 
or other appropriate means, which the Department in its discretion 
deems appropriate.
    (c) In order to facilitate communication with State and local 
officials the Secretary has established an office within the Department 
to receive all communications pertinent to this Order. All 
communications should be sent to the Office of the Chief Financial 
Officer, Room 143-W, 1400 Independence Avenue SW., Washington, DC 
20250, Attention: E.O. 12372.


Sec.  415.10  State comments on proposed Federal financial assistance 
and direct Federal development.

    (a) Except in unusual circumstances, the Secretary gives State 
processes or directly affected State, areawide, regional, and local 
officials and entities:
    (1) At least 30 days from the date established by the Secretary to 
comment on proposed Federal financial assistance in the form of 
noncompeting continuation awards; and
    (2) At least 60 days from the date established by the Secretary to 
comment on proposed direct Federal development or Federal financial 
assistance other than noncompeting continuation awards.
    (b) This section also applies to comments in cases in which the 
review, coordination and communication with the Department have been 
delegated.
    (c) Applicants for programs and activities subject to section 204 
of the Demonstration Cities and Metropolitan Development Act shall 
allow areawide agencies a 60-day opportunity for review and comment.


Sec.  415.11  Processing comments.

    (a) The Secretary follows the procedures in Sec.  415.12 if:
    (1) A State office or official is designated to act as a single 
point of contact between a State process and all Federal agencies; and
    (2) That office or official transmits a State process 
recommendation for a program selected under Sec.  415.8.
    (b)(1) The single point of contact is not obligated to transmit 
comments from State, areawide, regional or local officials and entities 
where there is no State process recommendation.
    (2) If a State process recommendation is transmitted by a single 
point of contact, all comments from State, areawide, regional and local 
officials and entities that differ from it must also be transmitted.
    (c) If a State has not established a process, or is unable to 
submit a State process recommendation, State, areawide, regional and 
local officials and entities may submit comments either to the 
applicant or to the Department.
    (d) If a program or activity is not selected by a State process, 
State, areawide, regional and local officials and entities may submit 
comments either to the applicant or to the Department. In addition, if 
a State process recommendation for a non-selected program or activity 
is transmitted to the Department by the single point of contact, the 
Secretary follows the procedures of Sec.  415.12.
    (e) The Secretary considers comments which do not constitute a 
State process recommendation submitted under these regulations and for 
which the Secretary is not required to apply the procedures of Sec.  
415.12, when such comments are provided by a single point of contact by 
the applicant, or directly to the Department by a commenting party.


Sec.  415.12  Accommodation of intergovernmental concerns.

    (a) If a State process provides a State process recommendation to 
the Department through its single point of contact, the Secretary 
either--
    (1) Accepts the recommendations;
    (2) Reaches a mutually agreeable solution with the State process; 
or
    (3) Provides the single point of contact with a written explanation 
of the decision, as the Secretary in his or her discretion deems 
appropriate. The Secretary may also supplement the written explanation 
by also providing the explanation to the single point of contact by 
telephone, other telecommunication, or other means.
    (b) In any explanation under paragraph (a)(3) of this section, the 
Secretary informs the single point of contact that:
    (1) The Department will not implement its decision for at least ten 
days after the single point of contact receives the explanation; or
    (2) The Secretary has reviewed the decision and determined that, 
because of unusual circumstances, the waiting period of at least ten 
days is not feasible.
    (c) For purposes of computing the waiting period under paragraph 
(b)(1) of

[[Page 75985]]

this section, a single point of contact is presumed to have received 
written notification five days after the date of mailing of such 
notification.


Sec.  415.13  Interstate situations.

    (a) The Secretary is responsible for:
    (1) Identifying proposed Federal financial assistance and direct 
Federal development that have an impact on interstate areas;
    (2) Notifying appropriate officials in States which have adopted a 
process and which selected the Department's program or activity;
    (3) Making efforts to identify and notify the affected State, 
areawide, regional and local officials and entities in those States 
that have not adopted a process under the Order or do not select the 
Department's program or activity; and
    (4) Responding, pursuant to Sec.  415.12, if the Secretary receives 
a recommendation from a designated areawide agency transmitted by a 
single point of contact, in cases in which the review, coordination, 
and communication with the Department have been delegated.
    (b) The Secretary uses the procedures in Sec.  415.12 if a State 
process provides a State process recommendation to the Department 
through a single point of contact.


Sec.  415.14  Simplification, consolidation, or substitution of State 
plans.

    (a) As used in this section:
    (1) Simplify means that a State may develop its own format, choose 
its own submission date, and select the planning period for a State 
plan.
    (2) Consolidate means that a State may meet statutory and 
regulatory requirements by combining two or more plans into one 
document and that the State can select the format, submission date, and 
the planning period for the consolidated plan.
    (3) Substitute means that a State may use a plan or other document 
that it has developed for its own purposes to meet Federal 
requirements.
    (b) If not inconsistent with law, a State may decide to try to 
simplify, consolidate, or substitute Federally required State plans 
without prior approval by the Secretary.
    (c) The Secretary reviews each State plan a State has simplified, 
consolidated or substituted and accepts the plan only if its contents 
meet Federal requirements.


Sec.  415.15  Waivers.

    In an emergency, the Secretary may waive any provision in Subpart 
C--Intergovernmental Review of Department of Agriculture Programs and 
Activities, 2 CFR 415.3 to 415.14.

0
3. Title 2 of the Code of Federal Regulations is amended by adding Part 
416 to read as follows:

PART 416--GENERAL PROGRAM ADMINISTRATIVE REGULATIONS FOR GRANTS AND 
COOPERATIVE AGREEMENTS TO STATE AND LOCAL GOVERNMENTS

    Authority:  5 U.S.C. 301.


Sec.  416.1  Special Procurement Provisions.

    (a) In order to ensure objective contractor performance and 
eliminate unfair competitive advantage, a prospective contractor that 
develops or drafts specifications, requirements, statements of work, 
invitations for bids, request for proposals, contract term and 
conditions or other documents for use by a State in conducting a 
procurement under the USDA entitlement programs specified in 2 CFR 
200.101(e)(4) through (6) shall be excluded from competing for such 
procurements. Such prospective contractors are ineligible for contract 
awards resulting from such procurements regardless of the procurement 
method used. However, prospective contractors may provide States with 
specification information related to a State procurement under the USDA 
entitlement programs specified in 2 CFR 200.101(e)(4) through (6) and 
still compete for the procurement if the State, and not the prospective 
contractor, develops or drafts the specifications, requirements, 
statements of work, invitations for bid, and/or requests for proposals 
used to conduct the procurement.
    (b) Procurements by States under USDA entitlement programs 
specified in 2 CFR 200.101(e)(4) through (6) shall be conducted in a 
manner that prohibits the use of statutorily or administratively 
imposed in-State or local geographic preferences except as provided for 
in 2 CFR 200.319(b).

0
4. Title 2 of the Code of Federal Regulations is amended by adding part 
418 to read as follows:

PART 418--NEW RESTRICTIONS ON LOBBYING

Sec.
Subpart A--General
418.100 Conditions on use of funds.
418.105 Definitions.
418.110 Certification and disclosure.
Subpart B--Activities by Own Employees
418.200 Agency and legislative liaison.
418.205 Professional and technical services.
418.210 Reporting.
Subpart C--Activities by Other Than Own Employees
418.300 Professional and technical services.
Subpart D--Penalties and Enforcement
418.400 Penalties.
418.405 Penalty procedures.
418.410 Enforcement.
Subpart E--Exemptions
418.500 Secretary of Defense.
Subpart F--Agency Reports
418.600 Semi-annual compilation.
418.605 Inspector General report.
Appendix A to Part 418--Certification Regarding Lobbying
Appendix B to Part 418--Disclosure Form to Report Lobbying

    Authority: 31 U.S.C. 1352; 5 U.S.C. 301.

Subpart A--General


Sec.  418.100  Conditions on use of funds.

    (a) No appropriated funds may be expended by the recipient of a 
Federal contract, grant, loan, or cooperative agreement to pay any 
person for influencing or attempting to influence an officer or 
employee of any agency, a Member of Congress, an officer or employee of 
Congress, or an employee of a Member of Congress in connection with any 
of the following covered Federal actions: the awarding of any Federal 
contract, the making of any Federal grant, the making of any Federal 
loan, the entering into of any cooperative agreement, and the 
extension, continuation, renewal, amendment, or modification of any 
Federal contract, grant, loan, or cooperative agreement.
    (b) Each person who requests or receives from an agency a Federal 
contract, grant, loan, or cooperative agreement shall file with that 
agency a certification, set forth in Appendix A, that the person has 
not made, and will not make, any payment prohibited by paragraph (a) of 
this section.
    (c) Each person who requests or receives from an agency a Federal 
contract, grant, loan, or a cooperative agreement shall file with that 
agency a disclosure form, set forth in Appendix B, if such person has 
made or has agreed to make any payment using nonappropriated funds (to 
include profits from any covered Federal action), which would be 
prohibited under paragraph (a) of this section if paid for with 
appropriated funds.
    (d) Each person who requests or receives from an agency a 
commitment providing for the United States to insure or guarantee a 
loan shall file with that agency a statement, set forth in Appendix A, 
whether that person has made or has agreed to make any

[[Page 75986]]

payment to influence or attempt to influence an officer or employee of 
any agency, a Member of Congress, an officer or employee of Congress, 
or an employee of a Member of Congress in connection with that loan 
insurance or guarantee.
    (e) Each person who requests or receives from an agency a 
commitment providing for the United States to insure or guarantee a 
loan shall file with that agency a disclosure form, set forth in 
Appendix B, if that person has made or has agreed to make any payment 
to influence or attempt to influence an officer or employee of any 
agency, a Member of Congress, an officer or employee of Congress, or an 
employee of a Member of Congress in connection with that loan insurance 
or guarantee.


Sec.  418.105  Definitions.

    For purposes of this part:
    (a) Agency, as defined in 5 U.S.C. 552(f), includes Federal 
executive departments and agencies as well as independent regulatory 
commissions and Government corporations, as defined in 31 U.S.C. 
9101(1).
    (b) Covered Federal action. (1) Covered Federal action means any of 
the following Federal actions:
    (i) The awarding of any Federal contract;
    (ii) The making of any Federal grant;
    (iii) The making of any Federal loan;
    (iv) The entering into of any cooperative agreement; and,
    (v) The extension, continuation, renewal, amendment, or 
modification of any Federal contract, grant, loan, or cooperative 
agreement.
    (2) Covered Federal action does not include receiving from an 
agency a commitment providing for the United States to insure or 
guarantee a loan. Loan guarantees and loan insurance are addressed 
independently within this part.
    (c) Federal contract means an acquisition contract awarded by an 
agency, including those subject to the Federal Acquisition Regulation 
(FAR), and any other acquisition contract for real or personal property 
or services not subject to the FAR.
    (d) Federal cooperative agreement means a cooperative agreement 
entered into by an agency.
    (e) Federal grant means an award of financial assistance in the 
form of money, or property in lieu of money, by the Federal Government 
or a direct appropriation made by law to any person. The term does not 
include technical assistance which provides services instead of money, 
or other assistance in the form of revenue sharing, loans, loan 
guarantees, loan insurance, interest subsidies, insurance, or direct 
United States cash assistance to an individual.
    (f) Federal loan means a loan made by an agency. The term does not 
include loan guarantee or loan insurance.
    (g) Indian tribe and tribal organization have the meaning provided 
in section 4 of the Indian Self-Determination and Education Assistance 
Act (25 U.S.C. 450B). Alaskan Natives are included under the 
definitions of Indian tribes in that Act.
    (h) Influencing or attempting to influence means making, with the 
intent to influence, any communication to or appearance before an 
officer or employee or any agency, a Member of Congress, an officer or 
employee of Congress, or an employee of a Member of Congress in 
connection with any covered Federal action.
    (i) Loan guarantee and loan insurance means an agency's guarantee 
or insurance of a loan made by a person.
    (j) Local government means a unit of government in a State and, if 
chartered, established, or otherwise recognized by a State for the 
performance of a governmental duty, including a local public authority, 
a special district, an intrastate district, a council of governments, a 
sponsor group representative organization, and any other 
instrumentality of a local government.
    (k) Officer or employee of an agency includes the following 
individuals who are employed by an agency:
    (1) An individual who is appointed to a position in the Government 
under title 5, U.S. Code, including a position under a temporary 
appointment;
    (2) A member of the uniformed services as defined in section 
101(3), title 37, U.S. Code;
    (3) A special Government employee as defined in section 202, title 
18, U.S. Code; and,
    (4) An individual who is a member of a Federal advisory committee, 
as defined by the Federal Advisory Committee Act, title 5, U.S. Code 
appendix 2.
    (l) Person means an individual, corporation, company, association, 
authority, firm, partnership, society, State, and local government, 
regardless of whether such entity is operated for profit or not for 
profit. This term excludes an Indian tribe, tribal organization, or any 
other Indian organization with respect to expenditures specifically 
permitted by other Federal law.
    (m) Reasonable compensation means, with respect to a regularly 
employed officer or employee of any person, compensation that is 
consistent with the normal compensation for such officer or employee 
for work that is not furnished to, not funded by, or not furnished in 
cooperation with the Federal Government.
    (n) Reasonable payment means, with respect to professional and 
other technical services, a payment in an amount that is consistent 
with the amount normally paid for such services in the private sector.
    (o) Recipient includes all contractors, subcontractors at any tier, 
and subgrantees at any tier of the recipient of funds received in 
connection with a Federal contract, grant, loan, or cooperative 
agreement. The term excludes an Indian tribe, tribal organization, or 
any other Indian organization with respect to expenditures specifically 
permitted by other Federal law.
    (p) Regularly employed means, with respect to an officer or 
employee of a person requesting or receiving a Federal contract, grant, 
loan, or cooperative agreement or a commitment providing for the United 
States to insure or guarantee a loan, an officer or employee who is 
employed by such person for at least 130 working days within one year 
immediately preceding the date of the submission that initiates agency 
consideration of such person for receipt of such contract, grant, loan, 
cooperative agreement, loan insurance commitment, or loan guarantee 
commitment. An officer or employee who is employed by such person for 
less than 130 working days within one year immediately preceding the 
date of the submission that initiates agency consideration of such 
person shall be considered to be regularly employed as soon as he or 
she is employed by such person for 130 working days.
    (q) State means a State of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, a territory or possession of 
the United States, an agency or instrumentality of a State, and a 
multi-State, regional, or interstate entity having governmental duties 
and powers.


Sec.  418.110  Certification and disclosure.

    (a) Each person shall file a certification, and a disclosure form, 
if required, with each submission that initiates agency consideration 
of such person for:
    (1) Award of a Federal contract, grant, or cooperative agreement 
exceeding $100,000; or
    (2) An award of a Federal loan or a commitment providing for the 
United States to insure or guarantee a loan exceeding $150,000.

[[Page 75987]]

    (b)(1) Each person shall file a certification, and a disclosure 
form, if required, upon receipt by such person of:
    (i) A Federal contract, grant, or cooperative agreement exceeding 
$100,000; or
    (ii) A Federal loan or a commitment providing for the United States 
to insure or guarantee a loan exceeding $150,000,
    (2) Unless such person previously filed a certification, and a 
disclosure form, if required, under paragraph (a) of this section.
    (c) Each person shall file a disclosure form at the end of each 
calendar quarter in which there occurs any event that requires 
disclosure or that materially affects the accuracy of the information 
contained in any disclosure form previously filed by such person under 
paragraphs (a) or (b) of this section. An event that materially affects 
the accuracy of the information reported includes:
    (1) A cumulative increase of $25,000 or more in the amount paid or 
expected to be paid for influencing or attempting to influence a 
covered Federal action; or
    (2) A change in the person(s) or individual(s) influencing or 
attempting to influence a covered Federal action; or,
    (3) A change in the officer(s), employee(s), or Member(s) contacted 
to influence or attempt to influence a covered Federal action.
    (d) Any person shall file a certification, and a disclosure form, 
if required, to the next tier above who requests or receives from a 
person referred to in paragraphs (a) or (b) of this section:
    (1) A subcontract exceeding $100,000 at any tier under a Federal 
contract;
    (2) A subgrant, contract, or subcontract exceeding $100,000 at any 
tier under a Federal grant;
    (3) A contract or subcontract exceeding $100,000 at any tier under 
a Federal loan exceeding $150,000; or,
    (4) A contract or subcontract exceeding $100,000 at any tier under 
a Federal cooperative agreement.
    (e) All disclosure forms, but not certifications, shall be 
forwarded from tier to tier until received by the person referred to in 
paragraphs (a) or (b) of this section. That person shall forward all 
disclosure forms to the agency.
    (f) Any certification or disclosure form filed under paragraph (e) 
of this section shall be treated as a material representation of fact 
upon which all receiving tiers shall rely. All liability arising from 
an erroneous representation shall be borne solely by the tier filing 
that representation and shall not be shared by any tier to which the 
erroneous representation is forwarded. Submitting an erroneous 
certification or disclosure constitutes a failure to file the required 
certification or disclosure, respectively. If a person fails to file a 
required certification or disclosure, the United States may pursue all 
available remedies, including those authorized by section 1352, title 
31, U.S. Code.
    (g) For awards and commitments in process prior to December 23, 
1989, but not made before that date, certifications shall be required 
at award or commitment, covering activities occurring between December 
23, 1989, and the date of award or commitment. However, for awards and 
commitments in process prior to the December 23, 1989 effective date of 
these provisions, but not made before December 23, 1989, disclosure 
forms shall not be required at time of award or commitment but shall be 
filed within 30 days.
    (h) No reporting is required for an activity paid for with 
appropriated funds if that activity is allowable under either Subpart B 
or C of this part.

Subpart B--Activities by Own Employees


Sec.  418.200  Agency and legislative liaison.

    (a) The prohibition on the use of appropriated funds, in Sec.  
418.100 (a), does not apply in the case of a payment of reasonable 
compensation made to an officer or employee of a person requesting or 
receiving a Federal contract, grant, loan, or cooperative agreement if 
the payment is for agency and legislative liaison activities not 
directly related to a covered Federal action.
    (b) For purposes of paragraph (a) of this section, providing any 
information specifically requested by an agency or Congress is 
allowable at any time.
    (c) For purposes of paragraph (a) of this section, the following 
agency and legislative liaison activities are allowable at any time 
only where they are not related to a specific solicitation for any 
covered Federal action:
    (1) Discussing with an agency (including individual demonstrations) 
the qualities and characteristics of the person's products or services, 
conditions or terms of sale, and service capabilities; and,
    (2) Technical discussions and other activities regarding the 
application or adaptation of the person's products or services for an 
agency's use.
    (d) For purposes of paragraph (a) of this section, the following 
agencies and legislative liaison activities are allowable only where 
they are prior to formal solicitation of any covered Federal action:
    (1) Providing any information not specifically requested but 
necessary for an agency to make an informed decision about initiation 
of a covered Federal action;
    (2) Technical discussions regarding the preparation of an 
unsolicited proposal prior to its official submission; and,
    (3) Capability presentations by persons seeking awards from an 
agency pursuant to the provisions of the Small Business Act, as amended 
by Public Law 95-507 and other subsequent amendments.
    (e) Only those activities expressly authorized by this section are 
allowable under this section.


Sec.  418.205  Professional and technical services.

    (a) The prohibition on the use of appropriated funds, in Sec.  
418.100 (a), does not apply in the case of a payment of reasonable 
compensation made to an officer or employee of a person requesting or 
receiving a Federal contract, grant, loan, or cooperative agreement or 
an extension, continuation, renewal, amendment, or modification of a 
Federal contract, grant, loan, or cooperative agreement if payment is 
for professional or technical services rendered directly in the 
preparation, submission, or negotiation of any bid, proposal, or 
application for that Federal contract, grant, loan, or cooperative 
agreement or for meeting requirements imposed by or pursuant to law as 
a condition for receiving that Federal contract, grant, loan, or 
cooperative agreement.
    (b) For purposes of paragraph (a) of this section, ``professional 
and technical services'' shall be limited to advice and analysis 
directly applying any professional or technical discipline. For 
example, drafting of a legal document accompanying a bid or proposal by 
a lawyer is allowable. Similarly, technical advice provided by an 
engineer on the performance or operational capability of a piece of 
equipment rendered directly in the negotiation of a contract is 
allowable. However, communications with the intent to influence made by 
a professional (such as a licensed lawyer) or a technical person (such 
as a licensed accountant) are not allowable under this section unless 
they provide advice and analysis directly applying their professional 
or technical expertise and unless the advice or analysis is rendered 
directly and solely in the preparation, submission or negotiation of a 
covered Federal action. Thus, for example, communications with the 
intent to influence made by a lawyer that do not provide legal advice 
or analysis directly

[[Page 75988]]

and solely related to the legal aspects of his or her client's 
proposal, but generally advocate one proposal over another are not 
allowable under this section because the lawyer is not providing 
professional legal services. Similarly, communications with the intent 
to influence made by an engineer providing an engineering analysis 
prior to the preparation or submission of a bid or proposal are not 
allowable under this section since the engineer is providing technical 
services but not directly in the preparation, submission or negotiation 
of a covered Federal action.
    (c) Requirements imposed by or pursuant to law as a condition for 
receiving a covered Federal award include those required by law or 
regulation, or reasonably expected to be required by law or regulation, 
and any other requirements in the actual award documents.
    (d) Only those services expressly authorized by this section are 
allowable under this section.


Sec.  418.210  Reporting.

    No reporting is required with respect to payments of reasonable 
compensation made to regularly employed officers or employees of a 
person.

Subpart C--Activities by Other Than Own Employees


Sec.  418.300  Professional and technical services.

    (a) The prohibition on the use of appropriated funds, in Sec.  
418.100 (a), does not apply in the case of any reasonable payment to a 
person, other than an officer or employee of a person requesting or 
receiving a covered Federal action, if the payment is for professional 
or technical services rendered directly in the preparation, submission, 
or negotiation of any bid, proposal, or application for that Federal 
contract, grant, loan, or cooperative agreement or for meeting 
requirements imposed by or pursuant to law as a condition for receiving 
that Federal contract, grant, loan, or cooperative agreement.
    (b) The reporting requirements in Sec.  418.110 (a) and (b) 
regarding filing a disclosure form by each person, if required, shall 
not apply with respect to professional or technical services rendered 
directly in the preparation, submission, or negotiation of any 
commitment providing for the United States to insure or guarantee a 
loan.
    (c) For purposes of paragraph (a) of this section, ``professional 
and technical services'' shall be limited to advice and analysis 
directly applying any professional or technical discipline. For 
example, drafting of a legal document accompanying a bid or proposal by 
a lawyer is allowable. Similarly, technical advice provided by an 
engineer on the performance or operational capability of a piece of 
equipment rendered directly in the negotiation of a contract is 
allowable. However, communications with the intent to influence made by 
a professional (such as a licensed lawyer) or a technical person (such 
as a licensed accountant) are not allowable under this section unless 
they provide advice and analysis directly applying their professional 
or technical expertise and unless the advice or analysis is rendered 
directly and solely in the preparation, submission or negotiation of a 
covered Federal action. Thus, for example, communications with the 
intent to influence made by a lawyer that do not provide legal advice 
or analysis directly and solely related to the legal aspects of his or 
her client's proposal, but generally advocate one proposal over another 
are not allowable under this section because the lawyer is not 
providing professional legal services. Similarly, communications with 
the intent to influence made by an engineer providing an engineering 
analysis prior to the preparation or submission of a bid or proposal 
are not allowable under this section since the engineer is providing 
technical services but not directly in the preparation, submission or 
negotiation of a covered Federal action.
    (d) Requirements imposed by or pursuant to law as a condition for 
receiving a covered Federal award include those required by law or 
regulation, or reasonably expected to be required by law or regulation, 
and any other requirements in the actual award documents.
    (e) Persons other than officers or employees of a person requesting 
or receiving a covered Federal action include consultants and trade 
associations.
    (f) Only those services expressly authorized by this section are 
allowable under this section.

Subpart D--Penalties and Enforcement


Sec.  418.400  Penalties.

    (a) Any person who makes an expenditure prohibited herein shall be 
subject to a civil penalty of not less than $10,000 and not more than 
$100,000 for each such expenditure.
    (b) Any person who fails to file or amend the disclosure form (see 
Appendix B) to be filed or amended if required herein, shall be subject 
to a civil penalty of not less than $10,000 and not more than $100,000 
for each such failure.
    (c) A filing or amended filing on or after the date on which an 
administrative action for the imposition of a civil penalty is 
commenced does not prevent the imposition of such civil penalty for a 
failure occurring before that date. An administrative action is 
commenced with respect to a failure when an investigating official 
determines in writing to commence an investigation of an allegation of 
such failure.
    (d) In determining whether to impose a civil penalty, and the 
amount of any such penalty, by reason of a violation by any person, the 
agency shall consider the nature, circumstances, extent, and gravity of 
the violation, the effect on the ability of such person to continue in 
business, any prior violations by such person, the degree of 
culpability of such person, the ability of the person to pay the 
penalty, and such other matters as may be appropriate.
    (e) First offenders under paragraphs (a) or (b) of this section 
shall be subject to a civil penalty of $10,000, absent aggravating 
circumstances. Second and subsequent offenses by persons shall be 
subject to an appropriate civil penalty between $10,000 and $100,000, 
as determined by the agency head or his or her designee.
    (f) An imposition of a civil penalty under this section does not 
prevent the United States from seeking any other remedy that may apply 
to the same conduct that is the basis for the imposition of such civil 
penalty.


Sec.  418.405  Penalty procedures.

    Agencies shall impose and collect civil penalties pursuant to the 
provisions of the Program Fraud and Civil Remedies Act, 31 U.S.C.s 3803 
(except subsection (c)), 3804, 3805, 3806, 3807, 3808, and 3812, 
insofar as these provisions are not inconsistent with the requirements 
herein.


Sec.  418.410  Enforcement.

    The head of each agency shall take such actions as are necessary to 
ensure that the provisions herein are vigorously implemented and 
enforced in that agency.'

Subpart E--Exemptions


Sec.  418.500  Secretary of Defense.

    (a) The Secretary of Defense may exempt, on a case-by-case basis, a 
covered Federal action from the prohibition whenever the Secretary 
determines, in writing, that such an exemption is in the national 
interest. The Secretary shall transmit a copy of each such written 
exemption to Congress immediately after making such a determination.

[[Page 75989]]

    (b) The Department of Defense may issue supplemental regulations to 
implement paragraph (a) of this section.

Subpart F--Agency Reports


Sec.  418.600  Semi-annual compilation.

    (a) The head of each agency shall collect and compile the 
disclosure reports (see appendix B) and, on May 31 and November 30 of 
each year, submit to the Secretary of the Senate and the Clerk of the 
House of Representatives a report containing a compilation of the 
information contained in the disclosure reports received during the 
six-month period ending on March 31 or September 30, respectively, of 
that year.
    (b) The report, including the compilation, shall be available for 
public inspection 30 days after receipt of the report by the Secretary 
and the Clerk.
    (c) Information that involves intelligence matters shall be 
reported only to the Select Committee on Intelligence of the Senate, 
the Permanent Select Committee on Intelligence of the House of 
Representatives, and the Committees on Appropriations of the Senate and 
the House of Representatives in accordance with procedures agreed to by 
such committees. Such information shall not be available for public 
inspection.
    (d) Information that is classified under Executive Order 12356 or 
any successor order shall be reported only to the Committee on Foreign 
Relations of the Senate and the Committee on Foreign Affairs of the 
House of Representatives or the Committees on Armed Services of the 
Senate and the House of Representatives (whichever such committees have 
jurisdiction of matters involving such information) and to the 
Committees on Appropriations of the Senate and the House of 
Representatives in accordance with procedures agreed to by such 
committees. Such information shall not be available for public 
inspection.
    (e) The first semi-annual compilation shall be submitted on May 31, 
1990, and shall contain a compilation of the disclosure reports 
received from December 23, 1989 to March 31, 1990.
    (f) Major agencies, designated by the Office of Management and 
Budget (OMB), are required to provide machine-readable compilations to 
the Secretary of the Senate and the Clerk of the House of 
Representatives no later than with the compilations due on May 31, 
1991. OMB shall provide detailed specifications in a memorandum to 
these agencies.
    (g) Non-major agencies are requested to provide machine-readable 
compilations to the Secretary of the Senate and the Clerk of the House 
of Representatives.
    (h) Agencies shall keep the originals of all disclosure reports in 
the official files of the agency.


Sec.  418.605  Inspector General report.

    (a) The Inspector General, or other official as specified in 
paragraph (b) of this section, of each agency shall prepare and submit 
to Congress each year, commencing with submission of the President's 
Budget in 1991, an evaluation of the compliance of that agency with, 
and the effectiveness of, the requirements herein. The evaluation may 
include any recommended changes that may be necessary to strengthen or 
improve the requirements.
    (b) In the case of an agency that does not have an Inspector 
General, the agency official comparable to an Inspector General shall 
prepare and submit the annual report, or, if there is no such 
comparable official, the head of the agency shall prepare and submit 
the annual report.
    (c) The annual report shall be submitted at the same time the 
agency submits its annual budget justifications to Congress.
    (d) The annual report shall include the following: All alleged 
violations relating to the agency's covered Federal actions during the 
year covered by the report, the actions taken by the head of the agency 
in the year covered by the report with respect to those alleged 
violations and alleged violations in previous years, and the amounts of 
civil penalties imposed by the agency in the year covered by the 
report.

Appendix A to Part 418--Certification Regarding Lobbying

Certification for Contracts, Grants, Loans, and Cooperative 
Agreements

    The undersigned certifies, to the best of his or her knowledge 
and belief, that:
    (1) No Federal appropriated funds have been paid or will be 
paid, by or on behalf of the undersigned, to any person for 
influencing or attempting to influence an officer or employee of an 
agency, a Member of Congress, an officer or employee of Congress, or 
an employee of a Member of Congress in connection with the awarding 
of any Federal contract, the making of any Federal grant, the making 
of any Federal loan, the entering into of any cooperative agreement, 
and the extension, continuation, renewal, amendment, or modification 
of any Federal contract, grant, loan, or cooperative agreement.
    (2) If any funds other than Federal appropriated funds have been 
paid or will be paid to any person for influencing or attempting to 
influence an officer or employee of any agency, a Member of 
Congress, an officer or employee of Congress, or an employee of a 
Member of Congress in connection with this Federal contract, grant, 
loan, or cooperative agreement, the undersigned shall complete and 
submit Standard Form-LLL, ``Disclosure Form to Report Lobbying,'' in 
accordance with its instructions.
    (3) The undersigned shall require that the language of this 
certification be included in the award documents for all subawards 
at all tiers (including subcontracts, subgrants, and contracts under 
grants, loans, and cooperative agreements) and that all 
subrecipients shall certify and disclose accordingly.
    This certification is a material representation of fact upon 
which reliance was placed when this transaction was made or entered 
into. Submission of this certification is a prerequisite for making 
or entering into this transaction imposed by section 1352, title 31, 
U.S. Code. Any person who fails to file the required certification 
shall be subject to a civil penalty of not less than $10,000 and not 
more than $100,000 for each such failure.

Statement for Loan Guarantees and Loan Insurance

    The undersigned states, to the best of his or her knowledge and 
belief, that:
    If any funds have been paid or will be paid to any person for 
influencing or attempting to influence an officer or employee of any 
agency, a Member of Congress, an officer or employee of Congress, or 
an employee of a Member of Congress in connection with this 
commitment providing for the United States to insure or guarantee a 
loan, the undersigned shall complete and submit Standard Form-LLL, 
``Disclosure Form to Report Lobbying,'' in accordance with its 
instructions.
    Submission of this statement is a prerequisite for making or 
entering into this transaction imposed by section 1352, title 31, 
U.S. Code. Any person who fails to file the required statement shall 
be subject to a civil penalty of not less than $10,000 and not more 
than $100,000 for each such failure.

Appendix B to Part 418--Disclosure Form To Report Lobbying

BILLING CODE 6050-28-4210-67-4910-9X-3280-F5-4410-18-4710-24-3510-17-
9110-9J-9111-23-6450-01-7537-01-6560-50-6560-58-7036-01-7515-01-7536-
01-6116-01-4334-12-8320-01-4150-24-7555-01-5001-06-7510-13-8025-01-
4191-02-4810-25-3410-KS-3410-22-3410-15-3410-05-4000-01-4510-FM-3110-
01-P

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[GRAPHIC] [TIFF OMITTED] TR19DE14.003

BILLING CODE 6050-28-4210-67-4910-9X-3280-F5-4410-18-4710-24-3510-17-
9110-9J-9111-23-6450-01-7537-01-6560-50-6560-58-7036-01-7515-01-7536-
01-6116-01-4334-12-8320-01-4150-24-7555-01-5001-06-7510-13-8025-01-
4191-02-4810-25-3410-KS-3410-22-3410-15-3410-05-4000-01-4510-FM-3110-
01-C

0
5. Title 2 of the Code of Federal Regulations is amended by adding part 
422 to read as follows:

CHAPTER IV

PART 422--RESEARCH INSTITUTIONS CONDUCTING USDA-FUNDED EXTRAMURAL 
RESEARCH; RESEARCH MISCONDUCTS

Sec.
422.1 Definitions.
422.2 Procedures.
422.3 Inquiry, investigation, and adjudication.
422.4 USDA Panel to determine appropriateness of research misconduct 
policy.
422.5 Reservation of right to conduct subsequent inquiry, 
investigation, and adjudication.
422.6 Notification of USDA of allegations of research misconduct.
422.7 Notification of ARIO during an inquiry of investigation.
422.8 Communication of research misconduct policies and procedures.
422.9 Documents required.

[[Page 75993]]

422.10 Reporting to USDA.
422.11 Research records and evidence.
422.12 Remedies for noncompliance.
422.13 Appeals.
422.14 Relationship to other requirements.

    Authority: 5 U.S.C. 301; Office of Science and Technology Policy 
(65 FR 76260); USDA Secretary's Memorandum (SM) 2400-007; and USDA 
OIG, 7 CFR 2610.1(c)(4)(ix).

PART 422--RESEARCH INSTITUTIONS CONDUCTING USDA FUNDED EXTRAMURAL 
RESEARCH; RESEARCH MISCONDUCT


Sec.  422.1  Definitions.

    The following definitions apply to this part:
    Adjudication. The stage in response to an allegation of research 
misconduct when the outcome of the investigation is reviewed, and 
appropriate corrective actions, if any, are determined. Corrective 
actions generally will be administrative in nature, such as termination 
of an award, debarment, award restrictions, recovery of funds, or 
correction of the research record. However, if there is an indication 
of violation of civil or criminal statutes, civil or criminal sanctions 
may be pursued.
    Agency Research Integrity Officer (ARIO). The individual appointed 
by a USDA agency that conducts research and who is responsible for:
    (1) Receiving and processing allegations of research misconduct as 
assigned by the USDA RIO;
    (2) Informing OIG and the USDA RIO and the research institution 
associated with the alleged research misconduct, of allegations of 
research misconduct in the event it is reported to the USDA agency;
    (3) Ensuring that any records, documents and other materials 
relating to a research misconduct allegation are provided to OIG when 
requested;
    (4) Coordinating actions taken to address allegations of research 
misconduct with respect to extramural research with the research 
institution(s) at which time the research misconduct is alleged to have 
occurred, and with the USDA RIO;
    (5) Overseeing proceedings to address allegations of extramurally 
funded research misconduct at intramural research institutions and 
research institutions where extramural research occurs;
    (6) Ensuring that agency action to address allegations of research 
misconduct at USDA agencies performing extramurally funded research is 
performed at an organizational level that allows an independent, 
unbiased, and equitable process;
    (7) Immediately notifying OIG, the USDA RIO, and the applicable 
research institution if:
    (i) Public health or safety is at risk;
    (ii) USDA's resources, reputation, or other interests need 
protecting;
    (iii) Research activities should be suspended;
    (iv) Federal action may be needed to protect the interest of a 
subject of the investigation or of others potentially affected;
    (v) A premature public disclosure of the inquiry into or 
investigation of the allegation may compromise the process;
    (vi) The scientific community or the public should be informed; or
    (vii) Behavior that is or may be criminal in nature is discovered 
at any point during the inquiry, investigation, or adjudication phases 
of the research misconduct proceedings;
    (8) Documenting the dismissal of the allegation, and ensuring that 
the name of the accused individual and/or institution is cleared if an 
allegation of research misconduct is dismissed at any point during the 
inquiry or investigation phase of the proceedings;
    (9) Other duties relating to research misconduct proceedings as 
assigned.
    Allegation. A disclosure of possible research misconduct through 
any means of communication. The disclosure may be by written or oral 
statement, or by other means of communication to an institutional or 
USDA official.
    Applied research. Systematic study to gain knowledge or 
understanding necessary to determine the means by which a recognized 
and specific need may be met.
    Assistant Inspector General for Investigations. The individual in 
OIG who is responsible for OIG's domestic and foreign investigative 
operations through a headquarters office and the six regional offices.
    Basic research. Systematic study directed toward fuller knowledge 
or understanding of the fundamental aspects of phenomena and of 
observable facts without specific applications towards processes or 
products in mind.
    Extramural research. Research conducted by any research institution 
other than the Federal agency to which the funds supporting the 
research were appropriated. Research institutions conducting extramural 
research may include Federal research facilities.
    Fabrication. Making up data or results and recording or reporting 
them.
    Falsification. Manipulating research materials, equipment, or 
processes, or changing or omitting data or results such that the 
research is not accurately represented in the research record.
    Finding of research misconduct. The conclusion, proven by a 
preponderance of the evidence, that research misconduct occurred, that 
such research misconduct represented a significant departure from 
accepted practices of the relevant research community, and that such 
research misconduct was committed intentionally, knowingly, or 
recklessly.
    Inquiry. The stage in the response to an allegation of research 
misconduct when an assessment is made to determine whether the 
allegation has substance and whether an investigation is warranted.
    Intramural research. Research conducted by a Federal Agency, to 
which funds were appropriated for the purpose of conducting research.
    Investigation. The stage in the response to an allegation of 
research misconduct when the factual record is formally developed and 
examined to determine whether to dismiss the case, recommend a finding 
of research misconduct, and/or take other appropriate remedies.
    Office of Inspector General (OIG). The Office of Inspector General 
of the United States Department of Agriculture.
    Office of Science and Technology Policy (OSTP). The Office of 
Science and Technology Policy of the Executive Office of the President.
    Plagiarism. The appropriation of another person's ideas, processes, 
results, or words without giving appropriate credit.
    Preponderance of the evidence. Proof by information that, compared 
with that opposing it, leads to the conclusion that the fact at issue 
is more probably true than not.
    Research. All basic, applied, and demonstration research in all 
fields of science, engineering, and mathematics. This includes, but is 
not limited to, research in economics, education, linguistics, 
medicine, psychology, social sciences, statistics, and research 
involving human subjects or animals regardless of the funding mechanism 
used to support it.
    Research institution. All organizations using Federal funds for 
research, including, for example, colleges and universities, Federally 
funded research and development centers, national user facilities, 
industrial laboratories, or other research institutes.
    Research misconduct. Fabrication, falsification, or plagiarism in 
proposing, performing, or reviewing research, or in reporting research 
results. Research misconduct does not include honest error or 
differences of opinion.
    Research record. The record of data or results that embody the 
facts resulting from scientific inquiry, and includes, but is not 
limited to, research proposals,

[[Page 75994]]

research records (including data, notes, journals, laboratory records 
(both physical and electronic)), progress reports, abstracts, theses, 
oral presentations, internal reports, and journal articles.
    USDA. United States Department of Agriculture.
    USDA Research Integrity Officer (USDA RIO). The individual 
designated by the Office of the Under Secretary for Research, 
Education, and Economics (REE) who is responsible for:
    (1) Overseeing USDA agency responses to allegations of research 
misconduct;
    (2) Ensuring that agency research misconduct procedures are 
consistent with this part;
    (3) Receiving and assigning allegations of research misconduct 
reported by the public;
    (4) Developing Memoranda of Understanding with agencies that elect 
not to develop their own research misconduct procedures;
    (5) Monitoring the progress of all research misconduct cases; and
    (6) Serving as liaison with OIG to receive allegations of research 
misconduct when they are received via the OIG Hotline.


Sec.  422.2  Procedures.

    Research institutions that conduct extramural research funded by 
USDA must foster an atmosphere conducive to research integrity. They 
must develop or have procedures in place to respond to allegations of 
research misconduct that ensure:
    (a) Appropriate separations of responsibility for inquiry, 
investigation, and adjudication;
    (b) Objectivity;
    (c) Due process;
    (d) Whistleblower protection;
    (e) Confidentiality. To the extent possible and consistent with a 
fair and thorough investigation and as allowed by law, knowledge about 
the identity of subjects and informants is limited to those who need to 
know; and
    (f) Timely resolution.


Sec.  422.3  Inquiry, investigation, and adjudication.

    A research institution that conducts extramural research funded by 
USDA bears primary responsibility for prevention and detection of 
research misconduct and for the inquiry, investigation, and 
adjudication of research misconduct allegations reported directly to 
it. The research institution must perform an inquiry in response to an 
allegation, and must follow the inquiry with an investigation if the 
inquiry determines that the allegation or apparent instance of research 
misconduct has substance. The responsibilities for adjudication must be 
separate from those for inquiry and investigation. In most instances, 
USDA will rely on a research institution conducting extramural research 
to promptly:
    (a) Initiate an inquiry into any suspected or alleged research 
misconduct;
    (b) Conduct a subsequent investigation, if warranted;
    (c) Acquire, prepare, and maintain appropriate records of 
allegations of extramural research misconduct and all related 
inquiries, investigations, and findings; and
    (d) Take action to ensure the following:
    (1) The integrity of research;
    (2) The rights and interests of the subject of the investigation 
and the public are protected;
    (3) The observance of legal requirements or responsibilities 
including cooperation with criminal investigations; and
    (4) Appropriate safeguards for subjects of allegations, as well as 
informants (see Sec.  422.6). These safeguards should include timely 
written notification of subjects regarding substantive allegations made 
against them; a description of all such allegations; reasonable access 
to the data and other evidence supporting the allegations; and the 
opportunity to respond to allegations, the supporting evidence and the 
proposed findings of research misconduct, if any.


Sec.  422.4  USDA Panel to determine appropriateness of research 
misconduct policy.

    Before USDA will rely on a research institution to conduct an 
inquiry, investigation, and adjudication of an allegation in accordance 
with this part, the research institution where the research misconduct 
is alleged must provide the ARIO its policies and procedures related to 
research misconduct at the institution. The research institution has 
the option of providing either a written copy of such policies and 
procedures or a Web site address where such policies and procedures can 
be accessed. The ARIO to whom the policies and procedures were made 
available shall convene a panel comprised of the USDA RIO and ARIOs 
from the Forest Service, the Agricultural Research Service, and the 
National Institute of Food and Agriculture. The Panel will review the 
research institution's policies and procedures for compliance with the 
OSTP Policy and render a decision regarding the research institution's 
ability to adequately resolve research misconduct allegations. The ARIO 
will inform the research institution of the Panel's determination that 
its inquiry, investigation, and adjudication procedures are sufficient. 
If the Panel determines that the research institution does not have 
sufficient policies and procedures in place to conduct inquiry, 
investigation, and adjudication proceedings, or that the research 
institution is in any way unfit or unprepared to handle the inquiry, 
investigation, and adjudication in a prompt, unbiased, fair, and 
independent manner, the ARIO will inform the research institution in 
writing of the Panel's decision. An appropriate USDA agency, as 
determined by the Panel, will then conduct the inquiry, investigation, 
and adjudication of research misconduct in accordance with this part. 
If an allegation of research misconduct is made regarding extramural 
research conducted at a Federal research institution (whether USDA or 
not), it is presumed that the Federal research institution has research 
misconduct procedures consistent with the OSTP Policy. USDA reserves 
the right to convene the Panel to assess the sufficiency of a Federal 
agency's research misconduct procedures, should there be any question 
whether the agency's procedures will ensure a fair, unbiased, 
equitable, and independent inquiry, investigation, and adjudication 
process.


Sec.  422.5  Reservation of right to conduct subsequent inquiry, 
investigation, and adjudication.

    (a) USDA reserves the right to conduct its own inquiry, 
investigation, and adjudication into allegations of research misconduct 
at a research institution conducting extramural research subsequent to 
the proceedings of the research institution related to the same 
allegation. This may be necessary if the USDA RIO or ARIO believes, in 
his or her sound discretion, that despite the Panel's finding that the 
research institution in question had appropriate and OSTP-compliant 
research misconduct procedures in place, the research institution 
conducting the extramural research at issue:
    (1) Did not adhere to its own research misconduct procedures;
    (2) Did not conduct research misconduct proceedings in a fair, 
unbiased, or independent manner; or
    (3) Has not completed research misconduct inquiry, investigation, 
or adjudication in a timely manner.
    (b) Additionally, USDA reserves the right to conduct its own 
inquiry,

[[Page 75995]]

investigation, and adjudication into allegations of research misconduct 
at a research institution conducting extramural research subsequent to 
the proceedings of the research institution related to the same 
allegation for any other reason that the USDA RIO or ARIO considers it 
appropriate to conduct research misconduct proceedings in lieu of the 
research institution's conducting the extramural research at issue. 
This right is subject to paragraph (c) of this section.
    (c) In cases where the USDA RIO or ARIO believes it is necessary 
for USDA to conduct its own inquiry, investigation, and adjudication 
subsequent to the proceedings of the research institution related to 
the same allegation, the USDA RIO or ARIO shall reconvene the Panel, 
which will determine whether it is appropriate for the relevant USDA 
agency to conduct the research misconduct proceedings related to the 
allegation(s) of research misconduct. If the Panel determines that it 
is appropriate for a USDA agency to conduct the proceedings, the ARIO 
will immediately notify the research institution in question. The 
research institution must then promptly provide the relevant USDA 
agency with documentation of the research misconduct proceedings the 
research institution has conducted to that point, and the USDA agency 
will conduct research misconduct proceedings in accordance with the 
Agency research misconduct procedures.


Sec.  422.6  Notification of USDA of allegations of research 
misconduct.

    (a) Research institutions that conduct USDA-funded extramural 
research must promptly notify OIG and the USDA RIO of all allegations 
of research misconduct involving USDA funds when the institution 
inquiry into the allegation warrants the institution moving on to an 
investigation.
    (b) Individuals at research institutions who suspect research 
misconduct at the institution should report allegations in accordance 
with the institution's research misconduct policies and procedures. 
Anyone else who suspects that researchers or research institutions 
performing Federally-funded research may have engaged in research 
misconduct is encouraged to make a formal allegation of research 
misconduct to OIG.
    (1) OIG may be notified using any of the following methods:
    (i) Via the OIG Hotline: Telephone: (202) 690-1622, (800) 424-9121, 
(202) 690-1202 (TDD).
    (ii) Email: usda_hotline@oig.usda.gov.
    (iii) U.S. Mail: United States Department of Agriculture, Office of 
Inspector General, P.O. Box 23399, Washington, DC 20026-3399.
    (2) The USDA RIO may be reached at: USDA Research Integrity 
Officer, 214W Whitten Building, Washington, DC 20250; telephone: 202-
720-5923; Email: researchintegrity@usda.gov.
    (c) To the extent known, the following details should be included 
in any formal allegation:
    (1) The name of the research projects involved, the nature of the 
alleged misconduct, and the names of the individual or individuals 
alleged to be involved in the misconduct;
    (2) The source or sources of funding for the research project or 
research projects involved in the alleged misconduct;
    (3) Important dates;
    (4) Any documentation that bears upon the allegation; and
    (5) Any other potentially relevant information.
    (d) Safeguards for informants give individuals the confidence that 
they can bring allegations of research misconduct made in good faith to 
the attention of appropriate authorities or serve as informants to an 
inquiry or an investigation without suffering retribution. Safeguards 
include protection against retaliation for informants who make good 
faith allegations, fair and objective procedures for the examination 
and resolution of allegations of research misconduct, and diligence in 
protecting the positions and reputations of those persons who make 
allegations of research misconduct in good faith. The identity of 
informants who wish to remain anonymous will be kept confidential to 
the extent permitted by law or regulation.


Sec.  422.7  Notification of ARIO during an inquiry or investigation.

    (a) Research institutions that conduct USDA-funded extramural 
research must promptly notify the ARIO should the institution become 
aware during an inquiry or investigation that:
    (1) Public health or safety is at risk;
    (2) The resources, reputation, or other interests of USDA are in 
need of protection;
    (3) Research activities should be suspended;
    (4) Federal action may be needed to protect the interest of a 
subject of the investigation or of others potentially affected;
    (5) A premature public disclosure of the inquiry into or 
investigation of the allegation may compromise the process;
    (6) The scientific community or the public should be informed; or
    (7) There is reasonable indication of possible violations of civil 
or criminal law.
    (b) If research misconduct proceedings reveal behavior that may be 
criminal in nature at any point during the proceedings, the institution 
must promptly notify the ARIO.


Sec.  422.8  Communication of research misconduct policies and 
procedures.

    Institutions that conduct USDA-funded extramural research are to 
maintain and effectively communicate to their staffs policies and 
procedures relating to research misconduct, including the guidelines in 
this part. The institution is to inform their researchers and staff 
members who conduct USDA-funded extramural research when and under what 
circumstances USDA is to be notified of allegations of research 
misconduct, and when and under what circumstances USDA is to be updated 
on research misconduct proceedings.


Sec.  422.9  Documents required.

    (a) A research institution that conducts USDA-funded extramural 
research must maintain the following documents related to an allegation 
of research misconduct at the research institution:
    (1) A written statement describing the original allegation;
    (2) A copy of the formal notification presented to the subject of 
the allegation;
    (3) A written report describing the inquiry stage and its outcome 
including copies of all supporting documentation;
    (4) A description of the methods and procedures used to gather and 
evaluate information pertinent to the alleged misconduct during inquiry 
and investigation stages;
    (5) A written report of the investigation, including the 
evidentiary record and supporting documentation;
    (6) A written statement of the findings; and
    (7) If applicable, a statement of recommended corrective actions, 
and any response to such a statement by the subject of the original 
allegation, and/or other interested parties, including any corrective 
action plan.
    (b) The research institution must retain the documents specified in 
paragraph (a) of this section for at least 3 years following the final 
adjudication of the alleged research misconduct.


Sec.  422.10  Reporting to USDA.

    Following completion of an investigation into allegations of 
research misconduct, the institution conducting extramural research 
must provide to the

[[Page 75996]]

ARIO a copy of the evidentiary record, the report of the investigation, 
recommendations made to the institution's adjudicating official, the 
adjudicating official's determination, the institution's corrective 
action taken or planned, and the written response of the individual who 
is the subject of the allegation to any recommendations.


Sec.  422.11  Research records and evidence.

    (a) A research institution that conducts extramural research 
supported by USDA funds, as the responsible legal entity for the USDA-
supported research, has a continuing obligation to create and maintain 
adequate records (including documents and other evidentiary matter) as 
may be required by any subsequent inquiry, investigation, finding, 
adjudication, or other proceeding.
    (b) Whenever an investigation is initiated, the research 
institution must promptly take all reasonable and practical steps to 
obtain custody of all relevant research records and evidence as may be 
necessary to conduct the research misconduct proceedings. This must be 
accomplished before the research institution notifies the researcher/
respondent of the allegation, or immediately thereafter.
    (c) The original research records and evidence taken into custody 
by the research institution shall be inventoried and stored in a secure 
place and manner. Research records involving raw data shall include the 
devices or instruments on which they reside. However, if deemed 
appropriate by the research institution or investigator, research data 
or records that reside on or in instruments or devices may be copied 
and removed from those instruments or devices as long as the copies are 
complete, accurate, and have substantially equivalent evidentiary value 
as the data or records have when the data or records reside on the 
instruments or devices. Such copies of data or records shall be made by 
a disinterested, qualified technician and not by the subject of the 
original allegation or other interested parties. When the relevant data 
or records have been removed from the devices or instruments, the 
instruments or devices need not be maintained as evidence.


Sec.  422.12  Remedies for noncompliance.

    USDA agencies' implementation procedures identify the 
administrative actions available to remedy a finding of research 
misconduct. Such actions may include the recovery of funds, correction 
of the research record, debarment of the researcher(s) that engaged in 
the research misconduct, proper attribution, or any other action deemed 
appropriate to remedy the instance(s) of research misconduct. The 
agency should consider the seriousness of the misconduct, including, 
but not limited to, the degree to which the misconduct was knowingly 
conducted, intentional, or reckless; was an isolated event or part of a 
pattern; or had significant impact on the research record, research 
subjects, other researchers, institutions, or the public welfare. In 
determining the appropriate administrative action, the appropriate 
agency must impose a remedy that is commensurate with the infraction as 
described in the finding of research misconduct.


Sec.  422.13  Appeals.

    (a) If USDA relied on an institution to conduct an inquiry, 
investigation, and adjudication, the alleged person(s) should first 
follow the institution's appeal policy and procedures.
    (b) USDA agencies' implementation procedures identify the appeal 
process when a finding of research misconduct is elevated to the 
agency.


Sec.  422.14  Relationship to other requirements.

    Some of the research covered by this part also may be subject to 
regulations of other governmental agencies (e.g., a university that 
receives funding from a USDA agency and also under a grant from another 
Federal agency). If more than one agency of the Federal Government has 
jurisdiction, USDA will cooperate with the other agency(ies) in 
designating a lead agency. When USDA is not the lead agency, it will 
rely on the lead agency following its policies and procedures in 
determining whether there is a finding of research misconduct. Further, 
USDA may, in consultation with the lead agency, take action to protect 
the health and safety of the public, to promote the integrity of the 
USDA-supported research and research process, or to conserve public 
funds. When appropriate, USDA will seek to resolve allegations jointly 
with the other agency or agencies.

TITLE 7--Agriculture

CHAPTER XXX--OFFICE OF THE CHIEF FINANCIAL OFFICER, DEPARTMENT OF 
AGRICULTURE

PARTS 3015, 3016, 3018, 3019, 3022, and 3052--[REMOVED]

0
6. Remove 7 CFR parts 3015, 3016, 3018, 3019, 3022, and 3052.

Farm Service Agency

    For the reasons discussed above in the common preamble, FSA amends 
7 CFR chapter VII and CCC amends 7 CFR chapter XIV as follows:

CHAPTER VII--FARM SERVICE AGENCY, DEPARTMENT OF AGRICULTURE

PART 761--GENERAL PROGRAM ADMINISTRATION

0
1. The authority citation for 7 CFR 761 continues to read as follows:

    Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.


Sec.  761.5  [Amended]

0
2. Amend 761.5 by removing the reference to ``7 CFR part 3018'' and 
adding the reference to ``2 CFR part 418'' in its place.

PART 785--CERTIFIED STATE MEDIATION PROGRAM

0
3. The authority citation for 7 CFR 785 continues to read as follows:

    Authority: 5 U.S.C. 301; 7 as follows: U.S.C. 1989; and 7 U.S.C. 
5104.


Sec.  785.4  [Amended]

0
4. Amend Sec.  785.4 as follows:
0
a. In paragraph (c)(1), remove ``as set forth or referenced in Sec.  
3016.22 of this title'' and add ``in 2 CFR part 200, subpart E'' in its 
place, and
0
b. In paragraph (c)(2)(iii), remove ``OMB Cost Principles found in part 
3015, subpart T, of this title and OMB Circular No. A-87'' and add ``2 
CFR part 200, subpart E'' in its place.
0
5. Revise Sec.  785.8(b) to read


Sec.  785.8  Reports by qualifying States receiving mediation grants.

* * * * *
    (b) Audits. Any qualifying State receiving a grant under this part 
is required to submit an audit report in compliance with 2 CFR part 
200, subpart F.

0
6. In Sec.  785.9, revise the introductory text to read as follows:


Sec.  785.9  Access to program records.

    The regulations in 2 CFR 200.333 through 200.337 provide general 
record retention and access requirements for records pertaining to 
grants. In addition, the State must maintain and provide the Government 
access to pertinent records regarding services delivered by the 
certified State mediation program for purposes of evaluation, audit and 
monitoring of the certified State mediation program as follows:
* * * * *


Sec.  785.11  [Amended]

0
7. Amend Sec.  785.11(b) by removing ``part 3017 of this title'' and 
adding ``2 CFR parts 180 and 417'' in its place.

[[Page 75997]]

CHAPTER XIV--COMMODITY CREDIT CORPORATION, DEPARTMENT OF AGRICULTURE

PART 1407--DEBARMENT AND SUSPENSION

0
8. The authority citation for 7 CFR 1407 continues to read as follows:

    Authority:  15 U.S.C. 714b.


Sec.  1407.2  [Amended]

0
9. Amend Sec.  1407.2(a) by removing ``7 CFR part 3017'' and adding ``2 
CFR parts 180 and 417'' in its place.

PART 1485--GRANT AGREEMENTS FOR THE DEVELOPMENT OF FOREIGN MARKETS 
FOR U.S. AGRICULTURAL COMMODITIES

0
10. The authority citation for 7 CFR 1485 continues to read as follows:

    Authority: 7 U.S.C. 5623, 5662-5664 and sec. 1302, Pub. L. 103-
66, 107 Stat. 330.

0
11. Amend Sec.  1485.10 as follows:
0
a. Revise paragraph (b)(1)(iv);
0
b. Remove paragraphs (b)(1)(v) and (vii) through (x);
0
c. Redesignate paragraph (b)(1)(vi) and (xi) as (b)(1)(v) and (viii) 
respectively; and
0
d. Add paragraphs (b)(1)(vi) and (vii).
    The revision and additions read as follows:


Sec.  1485.10  General purpose and scope.

* * * * *
    (b)(1) * * *
    (iv) 2 CFR part 200--Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards
* * * * *
    (vi) 2 CFR part 418--New Restrictions on Lobbying
    (vii) 2 CFR part 421--Requirements for Drug-Free Workplace 
(Financial Assistance)
* * * * *


Sec.  1485.19  [Amended]

0
12. Amend Sec.  1485.19 as follows:
0
a. In paragraph (b), first sentence, by removing ``set forth in the 
applicable parts of this title (e.g., 7 CFR parts 3015, 3016, and 
3019)'' and adding ``in 2 CFR part 200'' in their place.
0
b. In paragraph (c), second sentence, by removing ``in the applicable 
parts of this title apply (e.g., 7 CFR parts 3015, 3016, and 3019)'' 
and adding ``in 2 CFR part 200'' in their place.


Sec.  1485.21  [Amended]

0
13. Amend Sec.  1485.21(a) by removing ``set forth in the applicable 
parts of this title (e.g., 7 CFR parts 3015, 3016, and 3019)'' and 
adding ``in 2 CFR part 200'' in its place.


Sec.  1485.22  [Amended]

0
14. Amend Sec.  1485.22(e), first sentence, by removing ``OMB Circular 
A-133 audit in accordance with 7 CFR part 3052'' and adding ``audit in 
accordance with 2 CFR part 200'' in its place.


Sec.  1485.23  [Amended]

0
15. Amend Sec.  1485.23(d), introductory text, fifth sentence, by 
removing ``e.g., 7 CFR parts 3015, 3016, and 3019'' and adding ``for 
example, 2 CFR part 200'' in its place.


Sec.  1485.27  [Amended]

0
16. Amend Sec.  1485.27(b) by removing ``in the applicable parts of 
this title (e.g., 7 CFR parts 3015, 3016, and 3019)'' and adding ``in 2 
CFR part 200'' in its place.


Sec.  1485.28  [Amended]

0
17. Amend Sec.  1485.28(a), third sentence, by removing ``in the 
applicable parts of this title (e.g., 7 CFR parts 1485, 3015, 3016, 
3018, 3021, 3019, and 3052)'' and adding ``in 2 CFR parts 200 and 421 
and this part'' in its place.


Sec.  1485.29  [Amended]

0
18. Amend Sec.  1485.29 as follows:
0
a. In paragraph (b), first sentence, remove ``e.g., 7 CFR parts 3015, 
3016, and 3019'' and add ``for example, 2 CFR part 200'' in its place, 
and in the second sentence, remove ``7 CFR part 3019'' and add ``2 CFR 
part 200'' in its place, and
    b. In paragraph (d), seventh sentence, remove ``set forth in the 
applicable parts of this title (e.g., 7 CFR parts 3015, 306, 3019)'' 
and add ``in 2 CFR part 200'' in its place.


Sec.  1485.34  [Amended]

0
19. Amend Sec.  1485.34, first sentence by removing ``set forth in the 
applicable parts of this title (e.g., 7 CFR parts 3015, 3016, and 
3019)'' and adding ``in 2 CFR part 200'' in their place.

0
20. Revise Sec.  1485.35 to read as follows:


Sec.  1485.35  Suspension, termination, and closeout of agreements.

    A program agreement may be suspended or terminated in accordance 
with the suspension and termination procedures in 2 CFR part 200. If an 
agreement is terminated, the applicable regulations in 2 CFR part 200 
will apply to the closeout of the agreement.

Department of Agriculture

National Institute of Food and Agriculture (NIFA)

    For the reasons stated in the preamble, NIFA amends 7 CFR Part 
Chapter XXXIV as follows:

TITLE 7--AGRICULTURE

CHAPTER XXXIV--NATIONAL INSTITUTE OF FOOD AND AGRICULTURE

PART 3400--SPECIAL RESEARCH GRANTS PROGRAM

0
1. The authority for part 3400 continues to read as follows:

    Authority:  7 U.S.C. 450i(c).


Sec.  3400.6  [Amended]

0
2. In Sec.  3400.6(a) remove the words ``the Department's Uniform 
Federal Assistance Regulations'' and add in their place ``2 CFR part 
200.''

0
3. Revise Sec.  3400.8 to read as follows:


Sec.  3400.8  Other Federal statutes and regulations that apply.

    (a) The Office of Management and Budget (``OMB'') issued guidance 
on Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards at 2 CFR part 200 on December 26, 2013. 
In 2 CFR 400.1, the Department adopted OMB's guidance in subparts A 
through F of 2 CFR part 200, as supplemented by 2 CFR part 400, as the 
Department's policies and procedures for uniform administrative 
requirements, cost principles, and audit requirements for federal 
awards. As a result, this regulation contains references to 2 CFR part 
200 as it has regulatory effect for the Department's programs and 
activities.''
    (b) Several other Federal statutes and/or regulations apply to 
grant proposals considered for review or to research project grants 
awarded under this part. These include but are not limited to:
    2 CFR part 200--Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards.
    2 CFR part 180 and Part 417--OMB Guidelines to Agencies on 
Government-Wide Debarment and Suspension (Nonprocurement) and USDA 
Nonprocurement Debarment and Suspension.
    7 CFR part 1c--USDA Implementation of the Federal Policy for the 
Protection of Human Subjects.
    7 CFR 1.1--USDA Implementation of Freedom of Information Act.
    7 CFR part 3--USDA Implementation of OMB Circular A-129 Regarding 
Debt Collection.
    7 CFR part 15, subpart A--USDA Implementation of Title VI of the 
Civil Rights Act of 1964.
    7 CFR part 3407--NIFA procedures to implement the National 
Environmental Policy Act.
    29 U.S.C. 794, section 504--Rehabilitation Act of 1973, and 7 CFR

[[Page 75998]]

part 15B (USDA implementation of statute), prohibiting discrimination 
based upon physical or mental handicap in Federally assisted programs.
    35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of 
rights to inventions made by employees of small business firms and 
domestic nonprofit organizations, including universities, in Federally 
assisted programs (implementing regulations are contained in 37 CFR 
part 401).

PART 3401--RANGELAND RESEARCH GRANTS PROGRAM

0
4. The authority citation for part 3401 continues to read as follows:

    Authority:  Section 1470 of the National Agricultural Research, 
Extension and Teaching Policy Act of 1977 (7 U.S.C. 3316).


Sec.  3401.8  [Amended]

0
5. In the last sentence of Sec.  3401.8(a) remove the words ``the 
Department's Uniform Federal Assistance Regulations'' and add in their 
place ``2 CFR part 200.''

0
6. Revise Sec.  3401.10 to read as follows:


Sec.  3401.10  Other Federal Statutes and Regulations that Apply.

    (a) The Office of Management and Budget (``OMB'') issued guidance 
on Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards at 2 CFR part 200 on December 26, 2013. 
In 2 CFR 400.1, the Department adopted OMB's guidance in subparts A 
through F of 2 CFR part 200, as supplemented by 2 CFR part 400, as the 
Department's policies and procedures for uniform administrative 
requirements, cost principles, and audit requirements for federal 
awards. As a result, this regulation contains references to 2 CFR part 
200 as it has regulatory effect for the Department's programs and 
activities.''
    (b) Several other Federal statutes and/or regulations apply to 
grant proposals considered for review or to research project grants 
awarded under this part. These include but are not limited to:
    2 CFR part 200--Uniform Administrative Requirements, Cost 
Principles, And Audit Requirements For Federal Awards.
    2 CFR part 180 and Part 417--OMB Guidelines To Agencies On 
Government-Wide Debarment And Suspension (Nonprocurement) And USDA 
Nonprocurement Debarment And Suspension
    7 CFR part 1c--USDA implementation of the Federal Policy for the 
Protection of Human Subjects.
    7 CFR 1.1--USDA implementation of Freedom of Information Act.
    7 CFR part 3--USDA implementation of OMB Circular A-129 regarding 
debt collection.
    7 CFR part 15, subpart A--USDA implementation of Title VI of the 
Civil Rights Act of 1964.
    7 CFR part 3407--NIFA procedures to implement the National 
Environmental Policy Act;
    29 U.S.C. 794 (section 504, Rehabilitation Act of 1973) and 7 CFR 
part 15B (USDA implementation of statute)--prohibiting discrimination 
based upon physical or mental handicap in Federally assisted programs; 
and
    35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of 
rights to inventions made by employees of small business firms and 
domestic nonprofit organizations, including universities, in Federally 
assisted programs (implementing regulations are contained in 37 CFR 
part 401).

0
7. In Sec.  3401.14, add a sentence at the end of the section to read 
as follows:


Sec.  3401.14  Conflicts of interest.

    * * * Administration of the peer review group must be in accordance 
with the Department's conflict of interest policy, 2 CFR 400.2.

PART 3402--FOOD AND AGRICULTURAL SCIENCES NATIONAL NEEDS GRADUATE 
AND POSTGRADUATE FELLOWSHIP GRANTS PROGRAM

0
8. The authority citation for part 3402 continues to read as follows:

    Authority: 7 U.S.C. 3316.


Sec.  3402.19  [Amended]

0
9. In the last sentence of Sec.  3402.19, remove the words ``the 
Department's Uniform Federal assistance regulations (parts 3015 and 
3019 of 7 CFR)'' and add in their place ``2 CFR part 200.''

0
10. Revise Sec.  3402.20 to read as follows:


Sec.  3402.20  Other Federal Statutes and Regulations that Apply.

    (a) The Office of Management and Budget (``OMB'') issued guidance 
on Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards at 2 CFR part 200 on December 26, 2013. 
In 2 CFR 400.1, the Department adopted OMB's guidance in subparts A 
through F of 2 CFR part 200, as supplemented by 2 CFR part 400, as the 
Department's policies and procedures for uniform administrative 
requirements, cost principles, and audit requirements for federal 
awards. As a result, this regulation contains references to 2 CFR part 
200 as it has regulatory effect for the Department's programs and 
activities.
    (b) Several other Federal statutes and/or regulations apply to 
grant proposals considered for review or to research project grants 
awarded under this part. These include but are not limited to:
    2 CFR part 200--Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards.
    2 CFR part 180 and Part 417--OMB Guidelines to Agencies on 
Government-Wide Debarment And Suspension (Nonprocurement) And USDA 
Nonprocurement Debarment And Suspension
    7 CFR part 1c--USDA Implementation of the Federal Policy for the 
Protection of Human Subjects.
    7 CFR 1.1--USDA Implementation of Freedom of Information Act.
    7 CFR part 3--USDA Implementation of OMB Circular A-129 Regarding 
Debt Collection.
    7 CFR part 15, subpart A--USDA Implementation of Title VI of the 
Civil Rights Act of 1964.
    7 CFR part 3407--NIFA procedures to implement the National 
Environmental Policy Act;
    29 U.S.C. 794 (section 504, Rehabilitation Act of 1973) and 7 CFR 
part 15B (USDA implementation of statute)--prohibiting discrimination 
based upon physical or mental handicap in Federally assisted programs; 
and
    35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of 
rights to inventions made by employees of small business firms and 
domestic nonprofit organizations, including universities, in Federally 
assisted programs (implementing regulations are contained in 37 CFR 
part 401).

PART 3403--SMALL BUSINESS INNOVATION RESEARCH GRANTS PROGRAM

0
11. The authority citation for part 3403 continues to read as follows:

    Authority: 15 U.S.C. 638.


Sec.  3403.1  [Amended]

0
12. In the last sentence of Sec.  3403.1(a), remove the words ``the 
Office of Extramural Programs,'' before ``NIFA.''


Sec.  3403.12  [Amended]

0
13. In the last sentence of Sec.  3403.12, remove the words ``the 
Department's Uniform Federal Assistance Regulations (7 CFR part 3015)'' 
and add in their place ``2 CFR part 200.''

0
14. Revise Sec.  3403.15 to read as follows:

[[Page 75999]]

Sec.  3403.15  Other Federal statutes and regulations that apply.

    (a) The Office of Management and Budget (``OMB'') issued guidance 
on Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards at 2 CFR part 200 on December 26, 2013. 
In 2 CFR 400.1, the Department adopted OMB's guidance in subparts A 
through F of 2 CFR part 200, as supplemented by 2 CFR part 400, as the 
Department's policies and procedures for uniform administrative 
requirements, cost principles, and audit requirements for federal 
awards. As a result, this regulation contains references to 2 CFR part 
200 as it has regulatory effect for the Department's programs and 
activities.''
    (b) Several other Federal statutes and/or regulations apply to 
grant proposals considered for review or to research project grants 
awarded under this part. These include but are not limited to:
    2 CFR part 200--Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards.
    2 CFR part 180 and Part 417--OMB Guidelines to Agencies on 
Government-Wide Debarment and Suspension (Nonprocurement) and USDA 
Nonprocurement Debarment And Suspension
    7 CFR part 1c--USDA Implementation of the Federal Policy for the 
Protection of Human Subjects.
    7 CFR 1.1--USDA Implementation of Freedom of Information Act.
    7 CFR part 3--USDA Implementation of OMB Circular A-129 Regarding 
Debt Collection.
    7 CFR part 15, subpart A--USDA Implementation of Title VI of the 
Civil Rights Act of 1964.
    7 CFR part 3407--NIFA Procedures to Implement the National 
Environmental Policy Act;
    29 U.S.C. 794 (section 504, Rehabilitation Act of 1973) and 7 CFR 
part 15B (USDA implementation of statute)--prohibiting discrimination 
based upon physical or mental handicap in Federally assisted programs; 
and
    35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of 
rights to inventions made by employees of small business firms and 
domestic nonprofit organizations, including universities, in Federally 
assisted programs (implementing regulations are contained in 37 CFR 
part 401).

PART 3405--HIGHER EDUCATION CHALLENGE GRANTS PROGRAM

0
15. The authority citation for part 3405 continues to read as follows:

    Authority: Sec. 1470, National Agricultural Research, Extension, 
and Teaching Policy Act of 1977, as amended (7 U.S.C. 3316).


Sec.  3405.9  [Amended]

0
16. In the second sentence of Sec.  3405.9, remove the words ``OMB 
Circular No. A-21'' and add in their place ``2 CFR part 200.''


Sec.  3405.11  [Amended]

0
17. In Sec.  3405.11(g)(2)(v), remove the words ``OMB Circulars A-110, 
`Uniform Administrative Requirements for Grants and Agreements with 
Institutions of Higher Education, Hospitals and Other Non-Profit 
Organizations,' and A-21 `Cost Principles for Educational 
Institutions''' and add in their place ``2 CFR part 200 and Part 400.''


Sec.  3405.17  [Amended]

0
18. In Sec.  3405.17(a), remove the words ``the Department's Uniform 
Administrative Requirements for Grants and Agreements with Institutions 
of Higher Education, Hospitals and Other Non-Profit Organizations (7CFR 
part 3019)'' and replace with ``2 CFR part 200.''

0
19. Revise Sec.  3405.20 to read as follows:


Sec.  3405.20  Other Federal statutes and regulations that apply.

    (a) The Office of Management and Budget (``OMB'') issued guidance 
on Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards at 2 CFR part 200 on December 26, 2013. 
In 2 CFR 400.1, the Department adopted OMB's guidance in subparts A 
through F of 2 CFR part 200, as supplemented by 2 CFR part 400, as the 
Department's policies and procedures for uniform administrative 
requirements, cost principles, and audit requirements for federal 
awards. As a result, this regulation contains references to 2 CFR part 
200 as it has regulatory effect for the Department's programs and 
activities.''
    (b) Several other Federal statutes and/or regulations apply to 
grant proposals considered for review or to research project grants 
awarded under this part. These include but are not limited to:
    2 CFR part 200--Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards.
    2 CFR part 180 and Part 417--OMB Guidelines to Agencies on 
Government-Wide Debarment and Suspension (Nonprocurement) and USDA 
Nonprocurement Debarment and Suspension
    7 CFR part 1c--USDA Implementation of the Federal Policy for the 
Protection of Human Subjects.
    7 CFR 1.1--USDA Implementation of Freedom of Information Act.
    7 CFR part 3--USDA Implementation of OMB Circular A-129 Regarding 
Debt Collection.
    7 CFR part 15, subpart A--USDA Implementation of Title VI of the 
Civil Rights Act of 1964.
    7 CFR part 3407--NIFA Procedures To Implement The National 
Environmental Policy Act;
    29 U.S.C. 794 (section 504, Rehabilitation Act of 1973) and 7 CFR 
part 15B (USDA implementation of statute)--prohibiting discrimination 
based upon physical or mental handicap in Federally assisted programs; 
and
    35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of 
rights to inventions made by employees of small business firms and 
domestic nonprofit organizations, including universities, in Federally 
assisted programs (implementing regulations are contained in 37 CFR 
part 401).

PART 3406--1890 INSTITUTION CAPACITY BUILDING GRANTS PROGRAM

0
20. The authority citation for part 3406 continues to read as follows:

    Authority:  Sec. 1470, National Agricultural Research, 
Extension, and Teaching Policy Act of 1977, as amended (7 U.S.C. 
3316).


Sec.  3406.10  [Amended]

0
21. In Sec.  3406.10, remove the words ``OMB Circular No. A-21'' and 
add in their place ``2 CFR part 200''.


Sec.  3406.24  [Amended]

0
22. In Sec.  3406.24(a), remove the words ``the Department's Uniform 
Administrative Requirements for Grants and Agreements with Institutions 
of Higher Education, Hospitals and Other Non-Profit Organizations(7 CFR 
part 3019)'' and add in their place ``2 CFR part 200 and Part 400.''

0
23. Revise Sec.  3406.27 to read as follows:


Sec.  3406.27  Other Federal Statutes and Regulations that Apply.

    (a) The Office of Management and Budget (``OMB'') issued guidance 
on Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards at 2 CFR part 200 on December 26, 2013. 
In 2 CFR 400.1, the Department adopted OMB's guidance in subparts A 
through F of 2 CFR part 200, as supplemented by 2 CFR part 400, as the 
Department's policies and procedures for uniform

[[Page 76000]]

administrative requirements, cost principles, and audit requirements 
for federal awards. As a result, this regulation contains references to 
2 CFR part 200 as it has regulatory effect for the Department's 
programs and activities.''
    (b) Several other Federal statutes and/or regulations apply to 
grant proposals considered for review or to research project grants 
awarded under this part. These include but are not limited to:
    2 CFR part 200--Uniform Administrative Requirements, Cost 
Principles, And Audit Requirements For Federal Awards.
    2 CFR part 180 and Part 417--OMB Guidelines To Agencies On 
Government-Wide Debarment And Suspension (Nonprocurement) And USDA 
Nonprocurement Debarment And Suspension
    7 CFR part 1c--USDA implementation of the Federal Policy for the 
Protection of Human Subjects.
    7 CFR 1.1--USDA implementation of Freedom of Information Act.
    7 CFR part 3--USDA implementation of OMB Circular A-129 regarding 
debt collection.
    7 CFR part 15, subpart A--USDA implementation of Title VI of the 
Civil Rights Act of 1964.
    7 CFR part 3407--NIFA procedures to implement the National 
Environmental Policy Act;
    29 U.S.C. 794 (section 504, Rehabilitation Act of 1973) and 7 CFR 
part 15B (USDA implementation of statute)--prohibiting discrimination 
based upon physical or mental handicap in Federally assisted programs; 
and
    35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of 
rights to inventions made by employees of small business firms and 
domestic nonprofit organizations, including universities, in Federally 
assisted programs (implementing regulations are contained in 37 CFR 
part 401).

PART 3407--IMPLEMENTATION OF NATIONAL ENVIRONMENTAL POLICY ACT

0
24. The authority citation for part 3407 continues to read as follows:

    Authority:  National Environmental Policy Act of 1969, as 
amended, 42 U.S.C. 4321 et seq.; E.O. 11514, 34 FR 4247, as amended 
by E.O. 11991, 42 FR 26927; E.O. 12144, 44 FR 11957; 5 U.S.C. 301; 
40 CFR parts 1500-1508; and 7 CFR part 1b.


Sec.  3407.4  [Amended]

0
25. In the introductory text of Sec.  3407.4, correct the word 
``responsibe'' to read ``responsible''.

PART 3415--BIOTECHNOLOGY RISK ASSESSMENT RESEARCH GRANTS PROGRAM

0
26. The authority citation for part 3415 continues to read as follows:

    Authority: 5 U.S.C. 301 and 7 U.S.C. 5921.


Sec.  3415.6  [Amended]

0
27. In Sec.  3415.6(a), remove the words ``and the Department's 
assistance regulations (part 3015 and part 3016 of this title)'' and 
add in their place ``2 CFR part 200.''

0
28. Revise Sec.  3415.8 to read as follows:


Sec.  3415.8  Other Federal statutes and regulations that apply.

    (a) The Office of Management and Budget (``OMB'') issued guidance 
on Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards at 2 CFR part 200 on December 26, 2013. 
In 2 CFR 400.1, the Department adopted OMB's guidance in subparts A 
through F of 2 CFR part 200, as supplemented by 2 CFR part 400, as the 
Department's policies and procedures for uniform administrative 
requirements, cost principles, and audit requirements for federal 
awards. As a result, this regulation contains references to 2 CFR part 
200 as it has regulatory effect for the Department's programs and 
activities.''
    (b) Several other Federal statutes and/or regulations apply to 
grant proposals considered for review or to research project grants 
awarded under this part. These include but are not limited to:
    2 CFR part 200--Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards.
    2 CFR part 180 and Part 417--OMB Guidelines to Agencies on 
Government-Wide Debarment And Suspension (Nonprocurement) and USDA 
Nonprocurement Debarment And Suspension
    7 CFR part 1c--USDA Implementation of the Federal Policy for the 
Protection of Human Subjects.
    7 CFR 1.1--USDA Implementation of Freedom of Information Act.
    7 CFR part 3--USDA Implementation of OMB Circular A-129 Regarding 
Debt Collection.
    7 CFR part 15, subpart A--USDA Implementation of Title VI of the 
Civil Rights Act of 1964.
    7 CFR part 3407--NIFA Procedures To Implement the National 
Environmental Policy Act;
    29 U.S.C. 794 (section 504, Rehabilitation Act of 1973) and 7 CFR 
part 15B (USDA implementation of statute)--prohibiting discrimination 
based upon physical or mental handicap in Federally assisted programs; 
and
    35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of 
rights to inventions made by employees of small business firms and 
domestic nonprofit organizations, including universities, in Federally 
assisted programs (implementing regulations are contained in 37 CFR 
part 401).

PART 3430--COMPETITIVE AND NONCOMPETITIVE NON-FORMULA FEDERAL 
ASSISTANCE PROGRAMS--GENERAL AWARD ADMINISTRATIVE PROVISIONS

0
29. The authority citation for part 3430 continues to read as follows:

    Authority:  7 U.S.C. 3316; Pub. L. 106-107 (31 U.S.C. 6101 
note).


Sec.  3430.1  [Amended]

0
30. In Sec.  3430.1(a), remove the words ``7 CFR parts 3016 (State, 
local, and tribal governments), 3019 (institutions of higher education, 
hospitals, and nonprofits), and 3015 (all others)'' and add in their 
place ``2 CFR part 200, Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards.''


Sec.  3430.2  [Amended]

0
31. In Sec.  3430.2, remove the definitions of the terms ``State'' and 
``Third party in-kind contributions.''

0
32. Revise Sec.  3430.4 to read as follows:


Sec.  3430.4  Other Federal statutes and regulations that apply.

    (a) The Office of Management and Budget (``OMB'') issued guidance 
on Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards at 2 CFR part 200 on December 26, 2013. 
In 2 CFR 400.1, the Department adopted OMB's guidance in subparts A 
through F of 2 CFR part 200, as supplemented by 2 CFR part 400, as the 
Department's policies and procedures for uniform administrative 
requirements, cost principles, and audit requirements for federal 
awards. As a result, this regulation contains references to 2 CFR part 
200 as it has regulatory effect for the Department's programs and 
activities.''
    (b) Several other Federal statutes and/or regulations apply to 
grant proposals considered for review or to research project grants 
awarded under this part. These include but are not limited to:
    2 CFR part 200--Uniform Administrative Requirements, Cost 
Principles, And Audit Requirements For Federal Awards.
    2 CFR part 180 and Part 417--OMB Guidelines to Agencies on 
Government-

[[Page 76001]]

Wide Debarment and Suspension (Nonprocurement) and USDA Nonprocurement 
Debarment and Suspension
    7 CFR part 1c--USDA Implementation of the Federal Policy for the 
Protection of Human Subjects.
    7 CFR 1.1--USDA Implementation of Freedom of Information Act.
    7 CFR part 3--USDA Implementation of OMB Circular A-129 Regarding 
Debt Collection.
    7 CFR part 15, subpart A--USDA implementation of Title VI of the 
Civil Rights Act of 1964.
    7 CFR part 3407--NIFA Procedures to Implement the National 
Environmental Policy Act;
    29 U.S.C. 794 (section 504, Rehabilitation Act of 1973) and 7 CFR 
part 15B (USDA implementation of statute)--prohibiting discrimination 
based upon physical or mental handicap in Federally assisted programs; 
and
    35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of 
rights to inventions made by employees of small business firms and 
domestic nonprofit organizations, including universities, in Federally 
assisted programs (implementing regulations are contained in 37 CFR 
part 401).


Sec.  3430.12  [Amended]

0
33. In Sec.  3430.12(a), remove the words ``the Office of Management 
and Budget (OMB) policy directive 68 FR 37370-37379 (June 23, 2003)'' 
and replace with ``Appendix I to 2 CFR part 200''.


Sec.  3430.41  [Amended]

0
34. In Sec.  3430.41:
0
a. In paragraph (a), remove the words ``parts 3015, 3016, 3019 of 7 
CFR'' and add in their place``2 CFR part 200.''
0
b. In paragraph (b) introductory text, remove ``including, at a 
minimum, the following:'' and add in its place ``noted in section 210 
of 2 CFR part 200.''
0
c. Remove paragraphs (b)(1) through (10).


Sec.  3430.54  [Amended]

0
35. In Sec.  3430.54, remove the words ``the applicable assistance 
regulations and cost principles'' and add in their place ``2 CFR part 
200''.


Sec.  3430.59  [Amended]

0
36. Amend Sec.  3430.59 as follows:
0
a. Remove all references to ``the Office of Extramural Programs'' or 
``OEP'' and add in their place ``NIFA.''
0
b. In the last sentence of paragraph (c), remove the words ``subject to 
7 CFR part 3052'' and add in their place ``2 CFR 200.521.''
0
c. In paragraph (e), remove all references to ``OEP Assistant 
Director'' and add in their place ``Office of Grants and Financial 
Management (OGFM) Deputy Director.''


Sec.  3430.62  [Amended]

0
37. In Sec.  3430.62(c), remove all references to ``OEP Assistant 
Director'' and add in their place ``Office of Grants and Financial 
Management (OGFM) Deputy Director.''

PART 3431--VETERINARY MEDICINE LOAN REPAYMENT PROGRAM

0
38. The authority citation for part 3431 continues to read as follows:

    Authority:  7 U.S.C. 3151a; Pub. L. 106-107 (31 U.S.C. 6101 
note).


Sec.  3431.20  [Amended]

0
39. In Sec.  3431.20, in the first sentence remove the words ``Office 
of Extramural Programs (OEP)'' after ``NIFA,'' and in the second 
sentence remove ``OEP'' and add in its place ``NIFA.''

Department of Agriculture

Rural Development

    For the reasons set forth in the common preamble, chapters XVII, 
XVIII, XXXV and XLII of Subtitle B, title 7, Code of Federal 
Regulations are amended as follows:

CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE

PART 1703--RURAL DEVELOPMENT

0
1. The authority citation for part 1703 continues to read as follows:

    Authority:  7 U.S.C. 901 et seq. and 950aaa et seq.

Subpart D--Distance Learning and Telemedicine Loan and Grant 
Program--General

0
2. Amend Sec.  1703.106 by revising paragraph (a) to read as follows:


Sec.  1703.106  Disbursement of loans and grants.

    (a) For financial assistance of $100,000 or greater, prior to the 
disbursement of a grant and a loan, the recipient, if it is not a unit 
of government, will provide evidence of fidelity bond coverage as 
required by 2 CFR part 200, which is adopted by USDA through 2 CFR part 
400.
* * * * *

0
3. Amend Sec.  1703.108 by revising paragraph (b) to read as follows:


Sec.  1703.108  Audit requirements.

* * * * *
    (b) If the recipient is a State or local government, or non-profit 
organization, the recipient shall provide an audit in accordance with 
subpart F of 2 CFR part 200, as adopted by USDA through 2 CFR part 400.

Subpart E--Distance Learning and Telemedicine Grant Program

0
4. Amend Sec.  1703.125 by revising paragraphs (i)(5), (i)(6), (i)(7) 
and (l) to read as follows:


Sec.  1703.125  Completed application.

    (i) * * *
    (5) Drug-Free Workplace Act of 1998 (41 U.S.C. 8101 et. seq.), 2 
CFR part 421;
    (6) E.O.s 12549 and 12689, Debarment and Suspension, 2 CFR part 
180, which is adopted by USDA through 2 CFR part 417;
    (7) Byrd Anti-Lobbying Amendment (31 U.S.C. 1352), 2 CFR part 418.
* * * * *
    (l) Federal debt certification. The applicant must provide a 
certification that it is not delinquent on any obligation owed to the 
government (31 U.S.C. 3720B).
* * * * *

0
5. Amend Sec.  1703.127 by revising paragraph (g) to read as follows:


Sec.  1703.127  Application selection provisions.

* * * * *
    (g) Grantees shall comply with all applicable provisions of 2 CFR 
part 200, as adopted by USDA through 2 CFR part 400.

Subpart F--Distance Learning and Telemedicine Combination Loan and 
Grant Program

0
6. Amend Sec.  1703.134 by revising paragraphs (g)(5), (g)(6), (g)(7) 
and (j) to read as follows:


Sec.  1703.134  Completed application.

* * * * *
    (g) * * *
    (5) Drug-Free Workplace Act of 1998 (41 U.S.C. 8101 et. seq.), 2 
CFR part 421;
    (6) E.O.s 12549 and 12689, Debarment and Suspension, 2 CFR part 
180, which is adopted by USDA through 2 CFR part 417;
    (7) Byrd Anti-Lobbying Amendment (31 U.S.C. 1352), 2 CFR part 418.
* * * * *
    (j) Federal debt certification. The applicant must provide evidence 
that it is not delinquent on any obligation owed to the government (31 
U.S.C. 3720B).
* * * * *

[[Page 76002]]

Subpart G--Distance Learning and Telemedicine Loan Program

0
7. Amend Sec.  1703.144 by revising paragraphs (g)(5), (g)(6), (g)(7) 
and (j) to read as follows:


Sec.  1703.144  Completed application.

* * * * *
    (g) * * *
    (5) Drug-Free Workplace Act of 1998 (41 U.S.C. 8101 et. seq.), 2 
CFR part 421;
    (6) E.O.s 12549 and 12689, Debarment and Suspension, 2 CFR part 
180, which is adopted by USDA through 2 CFR part 417;
    (7) Byrd Anti-Lobbying Amendment (31 U.S.C. 1352), 2 CFR part 418.
* * * * *
    (j) Federal debt certification. The applicants must provide a 
certification that it is not delinquent on any obligation owed to the 
government (31 U.S.C. 3720B).
* * * * *

PART 1709--ASSISTANCE TO HIGH ENERGY COST COMMUNITIES

0
8. The authority citation for part 1709 continues to read as follows:

    Authority:  5 U.S.C. 301, 7 U.S.C. 901 et seq.

Subpart A--General Requirements

0
9. Amend Sec.  1709.12 by revising the introductory text to read as 
follows:


Sec.  1709.12  Reporting requirements.

    To support Agency monitoring of project performance and use of 
grant funds, Grantees shall file periodic reports, required under 2 CFR 
part 200, as adopted by USDA through 2 CFR part 400, as provided in 
this part, and the grant agreement as follows:
* * * * *

0
10. Amend Sec.  1709.13 by revising the second sentence to read as 
follows:


Sec.  1709.13  Grant administration.

    * * * Administration of RUS grants is governed by the provisions of 
this subpart and subpart B of this part, the terms of the grant 
agreement and, as applicable, the provisions of 2 CFR part 200, as 
adopted by USDA through 2 CFR part 400.

0
11. Amend Sec.  1709.16 by revising the second sentence to read as 
follows:


Sec.  1709.16  Performance reviews.

    * * * If the grantee does not comply with or does not meet the 
performance criteria set out in the grant agreement, the Administrator 
may require amendment of the grant agreement, or may suspend or 
terminate the grant pursuant to 2 CFR part 200, as adopted by USDA 
through 2 CFR part 400.

0
12. Amend Sec.  1709.19 by revising paragraph (a) through (e) and 
removing paragraph (f), to read as follows:


Sec.  1709.19  Other USDA regulations.

* * * * *
    (a) Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards, 2 CFR part 200, as adopted by USDA 
through 2 CFR part 400;
    (b) Drug-Free Workplace Act of 1998 (41 U.S.C. 8101 et. seq.), 2 
CFR part 421;
    (c) E.O.s 12549 and 12689, Debarment and Suspension, 2 CFR part 
180, which is adopted by USDA through 2 CFR part 417;
    (d) Byrd Anti-Lobbying Amendment (31 U.S.C. 1352), 2 CFR part 418; 
and
    (e) Subpart F of 2 CFR 200, as adopted by USDA through 2 CFR 400.

0
13. Amend Sec.  1709.21 by revising paragraph (b) to read as follows:


Sec.  1709.21  Audit requirements.

* * * * *
    (b) If the grantee is a State or local government, or a non-profit 
corporation (other than an RUS Electric or Telecommunication Borrower), 
the recipient shall provide an audit in accordance with subpart F of 2 
CFR part 200, as adopted by USDA through 2 CFR part 400.

Subpart B--RUS High Cost Energy Grant Program

0
14. Amend Sec.  1709.102 by revising paragraph (a) to read as follows:


Sec.  1709.102  Policy.

    (a) All high energy cost grants will be awarded competitively 
subject to the limited exceptions in 2 CFR 415.1(d).
* * * * *

Subpart G--Recovery of Financial Assistance Used for Unauthorized 
Purposes

0
15. Amend Sec.  1709.601 by revising the last sentence to read as 
follows:


Sec.  1709.601  Policy.

    * * * The Agency shall make full use of available authority and 
procedures, including but not limited to those available under 2 CFR 
part 200, as adopted by USDA through 2 CFR part 400.

PART 1710--GENERAL AND PRE-LOAN POLICIES AND PROCEDURES COMMON TO 
ELECTRIC LOANS AND GUARANTEES

0
16. The authority citation for part 1710 continues to read as follows:

    Authority:  7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.

Subpart C--Loan Purposes and Basic Policies

0
17. Revise Sec.  1710.123 to read as follows:


Sec.  1710.123  Debarment and Suspension.

    Borrowers are required to comply with certain requirements on 
debarment and suspension as set forth in 2 CFR part 180, as adopted by 
USDA through 2 CFR part 417.

0
18. Revise Sec.  1710.125 to read as follows:


Sec.  1710.125  Restrictions on lobbying.

    Borrowers are required to comply with certain requirements with 
respect to restrictions on lobbying activities. See 2 CFR part 418.

0
19. Revise Sec.  1710.127 to read as follows:


Sec.  1710.127  Drug free workplace.

    Borrowers are required to comply with the Drug Free Workplace Act 
of 1988 (41 U.S.C. 8101 et. seq.) and the Act's implementing 
regulations (2 CFR part 421) when a borrower receives a Federal grant 
or enters into a procurement contract awarded pursuant to the 
provisions of the Federal Acquisition Regulation (title 48 CFR) to sell 
to a Federal agency property or services having a value of $25,000 or 
more.

Subpart I--Application Requirements and Procedures for Loans

0
20. Amend Sec.  1710.501 by revising paragraphs (a)(10) and (a)(12) to 
read as follows:


Sec.  1710.501  Loan applications documents.

    (a) * * *
    (10) Form AD-1047, Certification Regarding Debarment, Suspension, 
and Other Responsibility Matters--Primary Covered Transactions. This 
statement certifies that the borrower will comply with certain 
regulations on debarment and suspension required by Executive Order 
12549, Debarment and Suspension (3 CFR, 1986 Comp., p. 189). See 2 CFR 
417, and Sec.  1710.123.
* * * * *
    (12) Lobbying. The following information on lobbying is required 
pursuant to 2 CFR 418, and Sec.  1710.125. Borrowers applying for both 
insured and guaranteed financing should consult RUS before submitting 
this information.

[[Page 76003]]

PART 1717--POST-LOAN POLICIES AND PROCEDURES COMMON TO INSURED AND 
GUARANTEED ELECTRIC LOANS

0
21. The authority citation for part 1717 continues to read as follows:

    Authority:  7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.

Subpart R--Lien Accommodations and Subordinations for 100 Percent 
Private Financing

0
22. Amend Sec.  1717.855 by revising paragraph (k) to read as follows:


Sec.  1717.855  Application contents: Advance approval--100 percent 
private financing of distribution, sub-transmission and headquarters 
facilities, and certain other community infrastructure.

* * * * *
    (k) Form AD-1047, Certification Regarding Debarment, Suspension, 
and Other Responsibility Matters--Primary Covered Transactions, as 
required by 2 CFR part 180, as adopted by USDA through 2 CFR part 417;
* * * * *

0
23. Amend Sec.  1717.857 by revising paragraph (c)(7) to read as 
follows:


Sec.  1717.857  Refinancing of existing secured debt--distribution and 
power supply borrowers.

    (c) * * *
    (7) Form AD-1047, Certification Regarding Debarment, Suspension, 
and Other Responsibility Matters--Primary Covered Transactions, as 
required by 2 CFR part 417:
* * * * *

0
24. Amend Sec.  1717.858 by revising paragraph (c)(9) to read as 
follows:


Sec.  1717.858  Lien subordination for rural development investments.

    (c) * * *
    (9) Form AD-1047, Certification Regarding Debarment, Suspension, 
and Other Responsibility Matters--Primary Covered Transactions, as 
required by 2 CFR part 180, as adopted by USDA through 2 CFR part 417;
* * * * *

0
25. Amend Sec.  1717.860 by revising paragraph (c)(2)(vi)(C) to read as 
follows:


Sec.  1717.860  Lien accommodations and subordinations under section 
306E of the RE Act.

    (c) * * *
    (2) * * *
    (vi) * * *
    (C) Form AD-1047, Certification Regarding Debarment, Suspension, 
and Other Responsibility Matters--Primary Covered Transactions, as 
required by 2 CFR part 180, adopted by USDA through 2 CFR part 417;
* * * * *

PART 1724--ELECTRIC ENGINEERING, ARCHITECTURAL SERVICES AND DESIGN 
POLICIES AND PROCEDURES

0
26. The authority citation for part 1724 continues to read as follows:

    Authority:  7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.

Subpart A--General

0
27. Revise Sec.  1724.7 to read as follows:


Sec.  1724.7  Debarment and suspension.

    Borrowers shall comply with the requirements on debarment and 
suspension in connection with procurement activities set forth in 2 CFR 
part 180, as adopted by USDA through 2 CFR part 417, particularly with 
respect to lower tier transactions, e.g., procurement contracts for 
goods or services.

0
28. Revise Sec.  1724.8 to read as follows:


Sec.  1724.8  Restrictions on lobbying.

    Borrowers shall comply with the restrictions and requirements in 
connection with procurement activities as set forth in 2 CFR part 418.

PART 1726--ELECTRIC SYSTEM CONSTRUCTION POLICIES AND PROCEDURES

0
29. The authority citation for part 1726 continues to read as follows:

    Authority:  7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.

0
30. Revise Sec.  1726.16 to read as follows:


Sec.  1726.16  Debarment and suspension.

    Borrowers are required to comply with certain requirements on 
debarment and suspension in connection with procurement activities set 
forth in 2 CFR part 180, as adopted by USDA through 2 CFR part 417, 
particularly with respect to lower tier transactions, e.g., procurement 
contracts for goods or services.

0
31. Revise Sec.  1726.17 to read as follows:


Sec.  1726.17  Restrictions on lobbying.

    Borrowers are required to comply with certain restrictions and 
requirements in connection with procurement activities as set forth in 
2 CFR part 418.

PART 1737--PRE-LOAN POLICIES AND PROCEDURES COMMON TO INSURED AND 
GUARANTEED TELECOMMUNICATIONS LOANS

0
32. The authority citation for part 1737 continues to read as follows:

    Authority:  7 U.S.C. 901 et seq., 1921 et seq.; Pub. L. 103-354, 
108 Stat. 3178 (7 U.S.C. 6941 et seq.).

Subpart C--The Loan Application

0
33. Amend Sec.  1737.22 by revising paragraph (b)(6) to read as 
follows:


Sec.  1737.22  Supplementary information.

* * * * *
    (b) * * *
    (6) Executed copy of Form AD-1047, ``Certification Regarding 
Debarment, Suspension, and Other Responsibility Matters--Primary 
Covered Transactions.''
* * * * *

Subpart E--Interim Financing of Construction of Telephone 
Facilities

0
34. Amend Sec.  1737.41 by revising paragraph (b)(2)(vi) to read as 
follows:


Sec.  1737.41  Procedure for obtaining approval.

* * * * *
    (b) * * *
    (2) * * *
    (vi) Executed copy of Form AD-1047, ``Certification Regarding 
Debarment, Suspension, and Other Responsibility Matters--Primary 
Covered Transactions.''
* * * * *

Subpart F--Review of Application Procedures

0
35. Amend Sec.  1737.50 by revising paragraphs (a)(2) and (b) to read 
as follows:


Sec.  1737.50  Loan approval requirements.

    (a) * * *
    (2) A completed certification Form AD-1047, ``Certification 
Regarding Debarment, Suspension, and Other Responsibility Matters--
Primary Covered Transactions;''
* * * * *
    (b) RUS shall review the completed loan application, particularly 
noting subscriber data, grades of service, extended area service (EAS), 
connecting company commitments, commercial facilities, system and 
exchange boundaries, and proposed acquisitions. RUS shall review the LD 
to determine that the system design is acceptable to RUS, that the 
design is technically correct, that the cost estimates are reasonable, 
and that the design provides

[[Page 76004]]

for area coverage service. RUS shall also review the population and 
incorporation status of all communities served or to be served by the 
borrower to determine if any nonrural areas are served and if municipal 
franchises are required. Any RUS lending for nonrural areas must be in 
accordance with 7 CFR part 1735. RUS shall also check the ``List of 
Parties Excluded from Federal Procurement of Nonprocurement Programs'', 
compiled, maintained and distributed by General Services 
Administration, to determine whether the borrower is debarred, 
suspended, ineligible, or voluntarily excluded (see 2 CFR 180.430).
* * * * *

PART 1738--RURAL BROADBAND ACCESS LOANS AND LOAN GUARANTEES

0
36. The authority citation for part 1738 continues to read as follows:

    Authority:  Pub. L. 107-171, 7 U.S.C. 901 et seq.

Subpart D--Direct Loan Terms

0
37. Amend Sec.  1738.156 to revise paragraphs (a)(10) and (11) to read 
as follows:


Sec.  1738.156  Other Federal requirements.

* * * * *
    (a) * * *
    (10) The regulations implementing E.O. 12549, Debarment and 
Suspension (2 CFR part 180, which is adopted by USDA through 2 CFR part 
417, including subpart C of 2 CFR part 417, ``Responsibilities of 
Participants Regarding Transactions,'' and 2 CFR 417.332.
    (11) The requirements regarding lobbying for Contracts, Grants, 
Loans and Cooperative Agreements in 31 U.S.C. 1352 (2 CFR part 418).
* * * * *

PART 1739--BROADBAND GRANT PROGRAM

0
38. The authority citation for part 1739 continues to read as follows:

    Authority:  Title III, Pub. L. 108-199, 118 Stat. 3.

Subpart A--Community Connect Grant Program

0
39. Amend Sec.  1739.15 as follows:
0
a. Revise the first sentence of the introductory text;
0
b. Revise paragraph (l)(2);
0
c. Revise paragraph (l)(4);
    The revisions read as follows:


Sec.  1739.15  Completed application.

    Applications should be prepared in conformance with the provisions 
of this part and all applicable regulations, including 2 CFR part 200, 
as adopted by USDA through 2 CFR part 400.
* * * * *
    (l) * * *
    (2) 2 CFR part 200, as adopted by USDA through 2 CFR part 400.
* * * * *
    (4) 2 CFR part 418--New Restrictions on Lobbying;
* * * * *

0
40. Amend Sec.  1739.20 by revising paragraph (b) to read as follows:


Sec.  1739.20  Audit requirements.

* * * * *
    (b) If the recipient is a Tribal, State or local government, or 
non-profit organization, the recipient shall provide an audit in 
accordance with subpart F of 2 CFR part 200, as adopted by USDA through 
2 CFR part 400.

PART 1740--PUBLIC TELEVISION STATION DIGITAL TRANSITION GRANT 
PROGRAM

0
41. The authority citation for part 1740 continues to read as follows:

    Authority:  Consolidated Appropriations Act, 2005; Title III: 
Rural Development Programs; Rural Utilities Service; Distance 
Learning, Telemedicine, and Broadband Program; Public Law 108-447.

Subpart A--Public Television Station Digital Transition Grant 
Program

0
42. Amend Sec.  1740.9 by revising paragraphs (j)(5), (j)(6), and 
(j)(7) to read as follows:


Sec.  1740.9  Grant application.

* * * * *
    (j) * * *
    (5) Drug-Free Workplace Act of 1998 (41 U.S.C. 8101 et. seq.), 2 
CFR part 421;
    (6) Executive Orders 12549 and 12689, Debarment and Suspension, 2 
CFR part 180, which is adopted by USDA through 2 CFR part 417; and
    (7) Byrd Anti-Lobbying Amendment (31 U.S.C. 1352), 2 CFR part 418.
* * * * *

PART 1773--POLICY ON AUDITS OF RUS BORROWERS

0
43. The authority citation for part 1773 continues to read as follows:

    Authority:  7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.

Subpart B--RUS Audit Requirements

0
44. Amend Sec.  1773.3 by revising paragraphs (d) and (e) to read as 
follows:


Sec.  1773.3  Annual audit.

* * * * *
    (d) A borrower that qualifies as a unit of state or local 
government or Indian tribe as such terms are defined in the Single 
Audit Act of 1984 (31 U.S.C. 7501 et seq.), the Single Audit Act 
Amendments of 1996 (31 U.S.C. 7505 et seq.) and OMB Circular A-133, 
Audits of States and Local Government, and Non Profit Organizations 
(which applies for audits of fiscal years beginning prior to December 
26, 2014) and Subpart F of 2 CFR 200, Uniform Administrative 
Requirements, Cost Principles, and Audit Requirements, as adopted by 
USDA though 2 CFR 400 (which applies for fiscal years beginning on or 
after December 26, 2014) must comply with this part as follows:
    (1) A borrower that expends $500,000 under OMB Circular A-133 (for 
audits of fiscal years beginning prior to December 26, 2014) and 
$750,000 under Subpart F of 2 CFR part 200, as adopted by USDA through 
2 CFR part 400 (for audits for fiscal years beginning after December 
26, 2014) or more in a year in Federal awards must have an audit 
performed and submit an auditor's report meeting the requirements of 
the respective Single Audit Act requirements
    (2) An entity with loans less than $500,000 under OMB Circular A-
133 (for audits of fiscal years beginning prior to December 26, 2014) 
and $750,000 under Subpart F of 2 CFR part 200, as adopted by USDA 
through 2 CFR part 400 (for audits for fiscal years beginning on or 
after December 26, 2014) in Federal awards during the year must have an 
audit performed in accordance with the requirements of this part.
    (3) A borrower must notify RUS, in writing, within 30 days of the 
as of audit date, of the total Federal awards expended during the year 
and must state whether it will have an audit performed in accordance 
with OMB Circular A-133 (for audits of fiscal years beginning prior to 
December 26, 2014) or Subpart F of 2 CFR part 200, as adopted by USDA 
through 2 CFR part 400 (for audits for fiscal years beginning on or 
after December 26, 2014) or this part.
    (i) A borrower that elects to comply with this part must select a 
CPA that meets the qualifications set forth in Sec.  1773.5.
    (ii) If an audit is performed in accordance with OMB Circular A-133 
(for audits of fiscal years beginning prior to December 26, 2014) or 
Subpart F of 2 CFR part 200, as adopted by USDA through 2 CFR part 400 
(for audits for fiscal years beginning after December 26, 2014, an 
auditor's report that meets

[[Page 76005]]

the requirements of the respective single Audit Act requirements, will 
be sufficient to satisfy that borrower's obligations under this part.
    (e) OMB Circular A-133 and Subpart F of 2 CFR part 200, as adopted 
by USDA through 2 CFR part 400 do not apply to audits of RUS electric 
and telecommunications cooperatives and commercial telecommunications 
borrowers.

PART 1774--SPECIAL EVALUATION ASSISTANCE FOR RURAL COMMUNITIES AND 
HOUSEHOLDS PROGRAM (SEARCH)

0
45. The authority citation for part 1774 continues to read as follows:

    Authority:  7 U.S.C. 1926(a)(2)(C)

Subpart A--General Provisions

0
46. Amend Sec.  1774.8 by revising paragraphs (f) through (j) and 
removing paragraphs (k) and (l) to read as follows:


Sec.  1774.8  Other Federal Statutes.

* * * * *
    (f) 2 CFR part 200, as adopted by USDA through 2 CFR part 400, 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal.
    (g) 2 CFR part 180, as adopted by USDA through 2 CFR part 417, 
Nonprocurement Debarment and Suspension, implementing Executive Order 
12549 on debarment and suspension.
    (h) 2 CFR part 418, New Restrictions on Lobbying, prohibiting the 
use of appropriated funds to influence Congress or a Federal agency in 
connection with the making of any Federal grant and other Federal 
contracting and financial transactions.
    (i) 2 CFR part 421, Requirements for Drug-Free Workplace (Financial 
Assistance), implementing the Drug-Free Workplace Act of 1988 (41 U.S.C 
8101 et. seq.).
    (j) 29 U.S.C. 794, section 504--Rehabilitation Act of 1973, and 7 
CFR part 15B (USDA implementation of statute), prohibiting 
discrimination based upon physical or mental handicap in Federally 
assisted programs.

Subpart B--Grant Application Processing

0
47. Amend Sec.  1774.13 by revising paragraph (g) to read as follows:


Sec.  1774.13  Limitations.

* * * * *
    (g) Pay for any other costs that are not allowable under 2 CFR part 
200, as adopted by USDA through 2 CFR part 400.
* * * * *

PART 1775--TECHNICAL ASSISTANCE GRANTS

0
48A. The authority citation for part 1775 continues to read as follows:

    Authority:  5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005.

Subpart A--General Provisions

0
48B. Amend Sec.  1775.5 by revising paragraph (h) to read as follows:


Sec.  1775.5  Limitations.

* * * * *
    (h) Pay for any other costs that are not allowable under 2 CFR part 
200, as adopted by USDA through 2 CFR part 400.
* * * * *

0
49. Amend Sec.  1775.8 by revising paragraphs (f) and (h) through (j), 
and by removing and reserving paragraphs (g) and (k) to read as 
follows:


Sec.  1775.  8 Other Federal statutes.

    (f) 2 CFR part 200, as adopted by USDA through 2 CFR part 400, 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal.
    (g) [Reserved]
    (h) 2 CFR part 180, as implemented by USDA through 2 CFR part 417, 
Nonprocurement Debarment and Suspension, implementing Executive Order 
12549 on debarment and suspension.
    (i) 2 CFR part 418, New Restrictions on Lobbying, prohibiting the 
use of appropriated funds to influence Congress or a Federal agency in 
connection with the making of any Federal grant and other Federal 
contracting and financial transactions.
    (j) 2 CFR 421, Requirements for Drug-Free Workplace (Financial 
Assistance), implementing the Drug-Free Workplace Act of 1988 (41 U.S.C 
701).
    (k) [Reserved]
* * * * *

Subpart B--Grant Application Processing

0
50. Amend Sec.  1775.10 by revising paragraph (c)(9) to read as 
follows:


Sec.  1775.10  Applications.

* * * * *
    (c) * * *
    (9) Indirect cost documentation such as cost rate proposals, cost 
allocation plans, or other election for indirect costs and appropriate 
certification of indirect costs in accordance with Cost Principles in 2 
CFR 200, subpart E, as adopted by USDA through 2 CFR part 400.
* * * * *

0
51. Amend Sec.  1775.20 by revising paragraphs (b) and (c) to read as 
follows:


Sec.  1775.20  Reporting.

* * * * *
    (b) SF-425,'' Federal Financial Report,'' and a project performance 
activity report will be required of all grantees on a quarterly basis, 
due 30 days after the end of each calendar quarter.
    (c) A final project performance report will be required with the 
last SF-425 due 90 days after the end of the last quarter in which the 
project is completed. The final report may serve as the last quarterly 
report.
* * * * *

0
52. Amend Sec.  1775.21 by revising paragraphs (a) and (b) as follows:


Sec.  1775.21  Audit or financial statement.

* * * * *
    (a) Grantees expending $750,000 or more Federal funds per fiscal 
year will submit an audit conducted in accordance with Subpart F of 2 
CFR part 200, as adopted by USDA through 2 CFR part 400. The audit will 
be submitted with 9 months of the grantee's fiscal year. Additional 
audits may be required if the project period covers more than one 
fiscal year.
    (b) Grantees expending less than $750,000 will provide annual 
financial statement covering the grant period, consisting of the 
organization's statement of income and expense and balance sheet signed 
by an appropriate official of the organization. Financial statement 
will be submitted within 90 days after the grantees fiscal year.

PART 1776--HOUSEHOLD WATER WELL SYSTEM GRANT PROGRAM

0
53. The authority citation for part 1776 continues to read as follows:

    Authority:  7 U.S.C. 1926e.

0
54. Revise Sec.  1776.2 to read as follows:


Sec.  1776.2  Uniform Federal Assistance Provisions.

    This program is subject to the general provisions that apply to all 
grants made by USDA and that are set forth in 2 CFR part 200, Uniform 
Administrative Requirements, Cost Principles, and Audit Requirements 
for Federal Awards, as adopted by USDA through 2 CFR part 400.

0
55. Amend Sec.  1776.13 by revising paragraph (d) to read as follows:


Sec.  1776.13  Administrative expenses.

* * * * *

[[Page 76006]]

    (d) Allowability of administrative expense costs shall be 
determined in accordance with 2 CFR part 200, as adopted by USDA 
through 2 CFR part 400.

PART 1778--EMERGENCY AND IMMINENT COMMUNITY WATER ASSISTANCE GRANTS

0
56. The authority citation for part 1778 continues to read as follows:

    Authority:  5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005.


0
57. Amend Sec.  1778.14 by revising paragraphs (e) and (f) to read as 
follows:


Sec.  1778.14  Other considerations.

* * * * *
    (e) Governmentwide debarment and suspension (nonprocurement) and 
requirements for drug-free work place. All projects must comply with 
the requirements set forth in the U.S. Department of Agriculture 
regulations 2 CFR part 417, 2 CFR part 421, and RD Instruction 1940-M.
    (f) Intergovernmental review. All projects funded under this part 
are subject to Executive Order 12372 (3 CFR, 1983 Comp., p. 197), which 
requires intergovernmental consultation with State and local officials. 
These requirements are found at 2 CFR part 415, subpart C, 
``Intergovernmental Review of Department of Agriculture Programs and 
Activities'' and RD Instruction 1970-I, `Intergovernmental Review,' 
available in any Agency office or on the Agency's Web site.

PART 1779--WATER AND WASTE DISPOSAL PROGRAMS GUARANTEE LOANS

0
58. The authority citation for part 1779 continues to read as follows:

    Authority:  5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005.


0
59. Amend Sec.  1779.42 by revising paragraph (e) to read as follows:


Sec.  1779.42  Design and construction requirements.

* * * * *
    (e) Administrative. When the Agency reviews the preliminary 
architectural and engineering reports or plans, they must also consider 
all applicable Federal laws such as the seismic requirements of 
Executive Order 12699 (55 FR 835, 3 CFR, 1990 Comp., p. 269), the 
debarment requirements of 2 CFR part 417, and the Copeland Anti-
Kickback Act (18 U.S.C. 874).

0
60. Amend Sec.  1779.63 by adding a sentence to the end of paragraph 
(b) to read as follows:


Sec.  1779.69  Loan servicing.

* * * * *
    (b) * * * Additionally, when applicable, the lender will require an 
audit in accordance with subpart F of 2 CFR part 200, as adopted by 
USDA through 2 CFR part 400.

PART 1780--WATER AND WASTE LOANS AND GRANTS

0
61. The authority citation for part 1780 continues to read as follows:

    Authority:  5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005.

Subpart A--General Policies and Requirements

0
62. Amend Sec.  1780.1 by adding paragraph (l) and (m) to read as 
follows:


Sec.  1780.1  General.

* * * * *
    (l) Applicants for grant assistance will be required to comply with 
the following requirements as applicable:
    (1) 2 CFR part 200, as adopted by USDA through 2 CFR part 400, '' 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards''.
    (2) 2 CFR part 415--General Program Administrative Regulations.
    (3) 2 CFR part 416- General Program Administrative Regulations for 
Grants and Cooperative Agreements to State and Local Governments.
    (4) 2 CFR part 417--Nonprocurement Debarment and Suspension.
    (5) 2 CFR part 418--New Restrictions on Lobbying.
    (m) Applicants for loan assistance will be required to comply with 
Subpart F of 2 CFR part 200, ``Audit Requirements.''

0
63. Amend Sec.  1780.47 by revising paragraphs (d) and (g) as follows:


Sec.  1780.47  Borrower accounting methods, management reporting and 
audits.

* * * * *
    (d) Audits. All audits are to be performed in accordance with the 
latest revision of the generally accepted government auditing standards 
(GAGAS), issued by the Comptroller General of the United States. In 
addition, the audits are also to be performed in accordance with 
subpart F of 2 CFR part 200, as adopted by USDA through 2 CFR part 400. 
The type of audit each borrower is required to submit will be 
designated by RUS. Further guidance on preparing an acceptable audit 
can be obtained from RUS. It is not intended that audits required by 
this part be separate and apart from audits performed in accordance 
with State and local laws. To the extent feasible, the audit work 
should be done in conjunction with those audits. Audits must be 
performed annually except as allowed under the provisions for biennial 
audits provided in subpart F of 2 CFR part 200. Audits are to be 
submitted to the processing office as soon as possible after receipt of 
the auditor's report but no later than nine months after the end of the 
audit period
* * * * *
    (g) Substitute for management reports. When RUS loans are secured 
by the general obligation of the public body or tax assessments which 
total 100 percent of the debt service requirements, the State program 
official may authorize an annual audit to substitute for other 
management reports if the audit is received within nine months after 
the end of the audit period.

PART 1782--SERVICING OF WATER AND WASTE PROGRAMS

0
64. The authority citation for part 1782 continues to read as follows:

    Authority:  5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005.


0
65. Revise Sec.  1782.7 to read as follows:


Sec.  1782.7  Grants.

    Servicing actions relating to Agency grants are governed by the 
provisions of several regulations and executive orders, including, but 
not limited to, 2 CFR part 200 as adopted by 2 CFR part 400, and 2 CFR 
parts 415, 416, 417, and 418 and Executive Order (E.O.) 12803. Grantees 
remain responsible for property acquired with grant funds in accordance 
with terms of a grant agreement and applicable regulations.

0
66. Revise Sec.  1782.10 to read as follows:


Sec.  1782.10  Audit requirements.

    Audits for loans will be required in accordance with Sec.  1780.47 
of this chapter. If the borrower becomes delinquent or is experiencing 
problems, the servicing official will require an audit or other 
documentation deemed necessary to resolve the delinquency. The 
provisions of Subpart F of 2 CFR part 200, as adopted by USDA through 2 
CFR part 400, address audit requirements for recipients of Federal 
assistance.

PART 1783--REVOLVING FUNDS FOR FINANCING WATER AND WASTEWATER 
PROJECTS (REVOLVING FUND PROGRAM)

0
67. The authority citation for part 1783 continues to read as follows:

    Authority:  7 U.S.C. 1926 (a)(2)(B).


[[Page 76007]]



0
68. Revise Sec.  1783.2 to read as follows:


Sec.  1783.2  What Uniform Federal Assistance Provisions apply to the 
Revolving Fund Program?

    (a) This program is subject to the general provisions that apply to 
all grants made by USDA and that are set forth in 2 CFR part 200, as 
adopted by USDA through 2 CFR part 400.
    (b) This program is subject to the uniform administrative 
requirements that apply to all grants made by USDA to non-profit 
organizations and that are set forth in 2 CFR part 415.

CHAPTER XVIII--RURAL HOUSING SERVICE, RURAL BUSINESS-COOPERATIVES 
SERVICE, RURAL UTILITIES SERVICE AND FARM SERVICE AGENCY

PART 1942--ASSOCIATIONS

0
69. The authority citation for part 1942 continues to read as follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989.

Subpart A--Community Facility Loans

0
70. Amend Sec.  1942.1 by adding paragraph (e) to read as follows:


Sec.  1942.1  General.

* * * * *
    (e) The Office of Management and Budget (OMB) issued guidance on 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards at 2 CFR part 200 on December 26, 2013. 
In 2 CFR 400.1, the Department adopted OMB's guidance in subparts A 
through F of 2 CFR part 200 as the Department's policies and procedures 
for uniform administrative requirements, cost principles, and audit 
requirements for federal awards. As a result, this regulation contains 
references to 2 CFR part 200 as it has regulatory effect for the 
Department's programs and activities.

0
71. Amend Sec.  1942.2 by revising the paragraph (a)(1)(iii) to read as 
follows:


Sec.  1942.2  Processing applications.

    (a) * * *
    (1) * * *
    (iii) State intergovernmental review comments and recommendations 
(clearinghouse comments), as outlined in 2 CFR part 400, if applicable.
* * * * *

0
72. Amend Sec.  1942.5 by revising paragraph (b)(1)(ii)(B) to read as 
follows:


Sec.  1942.5  Application review and approval.

* * * * *
    (b) * * *
    (1) * * *
    (ii) * * *
    (B) Applicable State Intergovernmental Review comments, if the 
program or activity has been selected under the State. RD Instruction 
1970-I, available in any Rural Development office.
* * * * *

0
73. Amend Sec.  1942.17 by revising paragraphs (j)(3)(iii) and 
(n)(2)(xi); adding paragraph (j)(3)(ii)(C); and revising paragraph (q) 
to read as follows:


Sec.  1942.17  Community facilities.

* * * * *
    (j) * * *
    (3) * * *
    (ii) * * *
    (C) Fidelity bonds must be obtained from companies holding 
certificates of authority as acceptable sureties, as prescribed in 31 
CFR part 223, ``Surety Companies doing Business with the United 
States.''
    (iii) Insurance. The following types of coverage must be maintained 
if appropriate for the type of project and entity involved. Insurance 
must be in amounts acceptable to the Agency and at least equivalent to 
coverage for real property and equipment acquired without Federal 
funds.
* * * * *
    (n) * * *
    (2) * * *
    (xi)(A) To place the proceeds of the loan on deposit in a manner 
approved by the Government. Funds must be deposited and maintained in 
insured accounts whenever possible. Funds must be maintained in 
interest bearing accounts, unless the following apply:
    (1) The borrower receives less than $120,000 in Federal awards per 
year;
    (2) The best reasonably available interest-bearing account would 
not be expected to earn interest in excess of $500 per year on Federal 
cash balances;
    (3) The depository would require an average or minimum balance so 
high that it would not be feasible within the expected Federal and non-
Federal cash resources; and,
    (4) A foreign government or banking system prohibits or precludes 
interest bearing accounts.
    (B) Interest earned on Federal payments deposited in interest-
bearing accounts must be remitted annually to the Department of Health 
and Human Services, Payment Management System, Rockville, MD 20852. 
Interest amounts up to $500 per year may be retained by the non-Federal 
entity for administrative expense.
* * * * *
    (q) Borrower accounting methods, management reporting and audits. 
(1) Annual financial statements. Borrowers are required to provide the 
Agency with annual financial statements for the life of the loan as 
outlined in the Letter of Conditions issued by the Agency. The 
financial statements are the responsibility of the borrower's governing 
body. The type of statement required is dependent on the amount of 
Federal financial assistance received during the borrower's fiscal 
year. Federal financial assistance includes Federal assistance that a 
non-Federal entity received or administered during the entity's fiscal 
year in the form of grants, loans, and loan guarantees. A Federal award 
is Federal financial assistance a non-Federal entity received directly 
from Federal awarding agencies or indirectly from pass-through 
entities. Federal awards expended generally pertain to events that 
require the non-Federal entity to comply with Federal Statues, 
regulations, and terms and conditions of federal awards, such as: 
expenditure/expense transactions associated with grants, cost-
reimbursement contracts, cooperative agreements, and direct 
appropriations; the disbursement of funds passed through to sub-
recipients; the use of loan proceeds under loan and loan guarantee 
programs; the receipt of property; the receipt of surplus property; the 
receipt or use of program income; the distribution or consumption of 
food commodities; the disbursement of amounts entitling the non-Federal 
entity to an interest subsidy; and, the period when insurance is in 
force.
    (2) Method of accounting and preparation of financial statements. 
Annual organization-wide financial statements must be prepared on the 
accrual basis of accounting, in accordance with Generally Accepted 
Accounting Principles (GAAP), unless State statute, tribal law or 
regulatory agencies provide otherwise, or an exception is granted by 
the Agency. An organization may maintain its accounting records on a 
basis other than accrual accounting, and make the necessary adjustments 
so that annual financial statements are presented on the accrual basis.
    (3) Record retention. Each Applicant will retain all records, 
books, and supporting material for 3 years after the issuance of the 
audit or management reports, or for a time period required by other 
agencies or common business practice, whichever is longer. Upon 
request, this material will be made available to Rural Development, 
OIG, USDA, the Comptroller General, or to their assignees.
    (4) Audits. Any applicant that expends $750,000 or more in Federal 
financial assistance during their fiscal

[[Page 76008]]

year must submit an audit report conducted in accordance with 2 CFR 
part 200, subpart F, ``Audit Requirements.'' Applicants expending less 
than $750,000 in Federal financial assistance per fiscal year are 
exempt from 2 CFR part 200 audit requirements. All audits are to be 
performed in accordance with the latest revision of the Generally 
Accepted Government Accounting Standards (GAGAS), developed by the 
Comptroller General of the United States. Further guidance on preparing 
an acceptable audit can be obtained from any Agency office. It is not 
intended that audits required by this part be separate and apart from 
audits performed in accordance with State and local laws. To the extent 
feasible, the audit work should be done in conjunction with those 
audits. Audits should be supplied to the Processing Official within the 
timeframes stated in paragraph (f) of this section. OMB Circulars and 
Agency Compliance Supplements are available in any USDA/Agency office 
or OMB's Web site. Any state, local government, or Indian tribe that is 
required by constitution or state statute, in effect on January 1, 
1987, to undergo its audits less frequently than annually, is permitted 
to undergo its audits biennially, pursuant to 2 CFR 200.504(a). This 
requirement must still be in effect for the biennial period. Any 
nonprofit organization that had biennial audits for all biennial 
periods ending between July 1, 1992, and January 1, 1995, is permitted 
to undergo its audits biennially, pursuant to 2 CFR 200.504(b). All 
biennial audits must cover both years within the biennial period.
    (5) Exemption from audits. Except as noted in 2 CFR 200.503, 
Relation to other audit requirement, public bodies or nonprofits 
expending less than $750,000 in Federal awards during its fiscal year, 
whose payments are current, and are having no signs of operational or 
financial difficulty may submit a management report. A management 
report, at a minimum, will include a balance sheet and income and 
expense statement. Financial information may be reported on Form RD 
442-2, ``Statement of Budget, Income and Equity'' and RD Form 442-3, 
``Balance Sheet'', or similar. The following management data will be 
submitted by the borrower to the servicing office. Records must be 
available for review or audit by appropriate officials of the Federal 
agency, pass-through entity, and Government Accountability Office 
(GAO).
    (i) Annual management reports. Thirty days prior to the beginning 
of each fiscal year the following will be submitted to the Servicing 
Official:
    (A) One copy of the proposed annual budget. The borrower will 
submit two copies of Form RD 442-2, or equivalent, Statement of Budget, 
Income and Equity, Schedule 1, page 1; and Schedule 2, Projected Cash 
Flow. The only data required at this time is Schedule 1, page 1, Column 
3, annual budget, and all of Schedule 2, Projected Cash Flow.
    (B) An annual audit report may be submitted in lieu of Forms RD 
442-2 and 442-3.
    (ii) [Reserved]
    (6) Deadlines for submitting audits and management reports. In 
accordance with 2 CFR part 200, audits must be submitted no later than 
9 months after the end of the fiscal year or 30 days after the 
borrower's receipt of the auditor's reports, whichever is earlier. 
Management reports must be submitted no later than 2 months after the 
end of the borrower's fiscal year.
    (7) Additional information to be submitted with audits and 
management reports. (i) Insurance. Agency borrowers will maintain 
adequate insurance coverage as required by the loan resolution and 
Sec.  1942.17(j)(3). The servicing official is required to monitor 
insurance annually after the initial insurance verification.
    (ii) Reserve account(s). Borrowers will provide documentation that 
the Agency required reserve account(s) is properly funded;
    (iii) Property tax information. If applicable, documentation that 
property taxes have been paid and are current.
    (iv) A list of directors and officers.
    (8) Quarterly reports. A quarterly management report will be 
required for the first full year of operations for new borrowers, and 
existing borrowers operating a new facility, starting a new type of 
operation or proposing a significant expansion of an existing facility. 
Borrowers should submit the following to the Servicing Official:
    (i) One copy of Form RD 442-2, or equivalent, Schedule 1, page 1, 
columns 4-6, as appropriate, and page 2. This information should be 
received in the Servicing Office 30 days after the end of each of the 
first three quarters of the fiscal year.
    (ii) The Servicing Office may request a borrower experiencing 
financial or management problems to submit quarterly copies of Form RD 
442-2, or equivalent, Schedule 1, pages 1 and 2.
0
74A. Amend Sec.  1942.18 by revising paragraph (k)(1) to read as 
follows:


Sec.  1942.18  Community Facilities--Planning, Bidding, Contracting, 
Constructing.

* * * * *
    (k) * * *
    (1) Small purchase procedures. Small purchase procedures are those 
relatively simple and informal procurement methods for securing 
services, supplies or other property, costing in the aggregate not more 
than the Simplified Acquisition Threshold. If small purchase procedures 
are used for a procurement, written price or rate quotations shall be 
obtained from an adequate number of qualified sources.
* * * * *

Subpart B--Housing Application Packaging Grants

0
74B. Amend Sec.  1944.66 by revising paragraphs (b), (d), (e)(1), 
(e)(2), and (f) to read as follows:


Sec.  1944.66  Administrative requirements.

* * * * *
    (b) The policies and regulations contained in RD Instruction 1940-Q 
(available in any Agency office), Departmental Regulation 2400-5, 2 CFR 
part 200 as adopted by USDA through 2 CFR part 400 apply to grantees 
under this subpart.
* * * * *
    (d) The grantee will retain records for 3 years from the date 
Standard Form (SF)-269A, ``Financial Status Report (Short Form),'' is 
submitted. These records will be accessible to RHS and other Federal 
officials in accordance with 2 CFR part 200 as adopted by USDA through 
2 CFR part 400.
    (e) * * *
    (1) States, State agencies, or units of general local government 
will complete an audit in accordance with 2 CFR part 200 as adopted by 
USDA through 2 CFR part 400 and OMB Circular A-128.
    (2) Nonprofit organizations will complete an audit in accordance 
with 2 CFR part 200 as adopted by USDA through 2 CFR part 400.
    (f) Performance reports, as required, will be submitted in 
accordance with 2 CFR part 200 as adopted by USDA through 2 CFR part 
400.

Subpart G--RBEG and Television Demonstration Grants

0
75. Amend Sec.  1942.304 by adding the definition for ``Conflict of 
interest'' in alphabetical order to read as follows:


Sec.  1942.304  Definitions.

    Conflict of interest. A situation in which a person or entity has 
competing personal, professional, or financial interests that make it 
difficult for the person or business to act impartially. Regarding use 
of both grant and matching funds, Federal procurement standards 
prohibit transactions that

[[Page 76009]]

involve a real or apparent conflict of interest for owners, employees, 
officers, agents, their immediate family members, partners, or an 
organization which is about to employ any of the parties indicated 
herein, having a financial or other interest in or tangible personal 
benefit from the outcome of the project; or that restrict open and free 
competition for unrestrained trade. Specifically, project funds may not 
be used for services or goods going to, or coming from, a person or 
entity with a real or apparent conflict of interest, including, but not 
limited to, owner(s) and their immediate family members.
* * * * *

0
76. Amend Sec.  1942.310 by revising paragraphs (d), (f), and (i) and 
adding paragraphs (j) and (k) to read as follows:


Sec.  1942.310  Other considerations.

* * * * *
    (d) Project Management. Grant recipients will be supervised as 
necessary to assure that projects are completed in accordance with 
approved plans and specifications and that funds are expended for 
approved purposes. Grants made under this subpart will be administered 
under and are subject to 2 CFR part 200, subpart D, as codified in 2 
CFR 400.1 and established Rural Development guidelines.
* * * * *
    (f) Uniform Relocation and Real Property Acquisition Policies Act. 
All projects must comply with the requirements set forth in Title 49 
CFR part 24, which are the implementing regulations for the Uniform 
Relocation Assistance and Real Property Acquisition Policies Act of 
1970, as amended (42 U.S.C. 4601 et seq.) and are referenced by 7 CFR 
part 21.
* * * * *
    (i) Close Out. The award will be closed out in accordance with 2 
CFR part 200 as codified in 2 CFR part 400. When the project purpose is 
for revolving loan funds, the grantee must maintain the fund into 
perpetuity. Once the grantee has provided loan assistance to projects, 
in an amount equal to the grant provided by Rural Development, the 
Agency will no longer consider the eligibility of new projects 
thereafter financed from the revolving fund as required by Sec.  
1942.313(b).
    (j) Intergovernmental Review. RBE/Television Demonstration grant 
projects are subject to the provisions of Executive Order 12372 and 2 
CFR 415, Subpart C, which requires intergovernmental consultation with 
State and local officials.
    (k) Conflict of Interest Policy for Non-Federal Entities. In 
accordance with 2 CFR 400.2 (b), the non-Federal entities (recipients) 
must disclose in writing any potential conflicts of interest to the 
USDA awarding agency or pass-through entity and maintain written 
standards of conduct covering conflicts of interest, including 
organizational conflicts of interest.

0
77. Amend Sec.  1942.311 by revising paragraph (a)(1) to read as 
follows:


Sec.  1942.311  Application processing.

    (a) * * *
    (1) The application review and approval procedures outlined in 
Sec.  1942.2 will be followed as appropriate. The applicant shall use 
Standard Form (SF) 424, ``Application for Federal Assistance,'' and SF 
424-A, ``Budget Information for Non-Construction Programs,'' and SF 
424-B, ``Assurance Agreement for Non-Construction Programs,'' or SF 
424-C, ``Budget Information for Construction Programs,'' and SF 424-D, 
``Assurance Agreement for Construction Programs,'' as applicable, when 
requesting financial assistance under this program.
* * * * *

0
78. Amend Sec.  1942.314 by adding paragraphs (f)(4) and (f)(5) to read 
as follows:


Sec.  1942.314  Grants to provide financial assistance to third 
parties, television demonstration projects, and technical assistance 
programs.

* * * * *
    (f) * * *
    (4) Form RD 400-1, ``Equal Opportunity Agreement.''
    (5) Form RD 400-4, ``Assurance Agreement (Under Title VI, Civil 
Rights Act of 1966).''
* * * * *

0
79. Amend Sec.  1942.315 by revising paragraph (b) to read as follows:


Sec.  1942.315  Docket preparation and Letter of Conditions.

* * * * *
    (b) The State Director or the State Director's designated 
representative will prepare a Letter of Conditions outlining the 
conditions under which the grant will be made. It will include those 
matters necessary to assure that the proposed development is completed 
in accordance with approved plans and specifications, that grant funds 
are expended for authorized purposes, and that the terms of the Scope 
of Work and requirements as prescribed in the Grant Agreement and 
Departmental Regulations, as currently codified in 2 CFR parts 400, 
415, 417, 418, and 421 are complied with. The Letter of Conditions will 
be addressed to the applicant, signed by the State Director or other 
designated Rural Development representative, and mailed or handed to 
appropriate applicant officials. Each Letter of Conditions will contain 
the following paragraphs.
    ``This letter establishes conditions which must be understood and 
agreed to by you before further consideration may be given to the 
application.''
    ``This letter is not to be considered as grant approval nor as a 
representation as to the availability of funds. The docket may be 
completed on the basis of a grant not to exceed $________--.''
    ``Please complete and return the attached Form RD 1942-46, `Letter 
of Intent to Meet Conditions,' if you desire further consideration be 
given your application.''
    Form RD 400-1, ``Equal Opportunity Agreement,'' if applicable.
    Form RD 400-4, ``Assurance Agreement (Under Title VI, Civil Rights 
Act of 1966).''

0
80. Amend Sec.  1942.316 by revising the section heading and adding 
paragraph (d) to read as follows:


Sec.  1942.316  Grant approval, fund obligation, third party financial 
assistance and grant servicing.

* * * * *
    (d) Grant servicing. Grants will be serviced in accordance with 7 
CFR part 1951, subparts E and O and the Departmental Grants and 
Agreements Regulations as currently codified in 2 CFR parts 400, 415, 
417, 418, and 421. The only exception is that the delegation of post-
award servicing does not require the prior approval of the 
Administrator.

PART 1944--HOUSING

0
81. The authority citation for part 1944 continues to read as follows:

    Authority:  5 U.S.C. 301; 42 U.S.C 1480.

Subpart I--Self-Help Technical Assistance Grants

0
82. Amend Sec.  1944.406 by revising paragraph (d) to read as follows:


Sec.  1944.406  Prohibited use of grant funds.

* * * * *
    (d) Paying for training of an employee as authorized by 2 CFR part 
200 as adopted by USDA through 2 CFR part 400.
* * * * *

0
83. Amend Sec.  1944.410 by revising paragraphs (a)(6) and (e)(8) to 
read as follows:


Sec.  1944.410  Processing preapplications, applications, and 
completing grant dockets.

    (a) * * *
    (6) A proposed budget which will be prepared on SF-424A, ``Budget

[[Page 76010]]

Information (Non-Construction Programs)'' will be completed to address 
applicable assurances as outlined in 2 CFR part 200 as adopted by USDA 
through 2 CFR part 400. State and local Government will include an 
assurance that the grantee shall comply with all applicable Federal 
statutes and regulations in effect with respect to the periods for 
which it receives grant funding. The State and local governments shall 
also comply with 2 CFR part 200 as adopted by USDA through 2 CFR part 
400.
* * * * *
    (e) * * *
    (8) Indirect or direct cost policy and proposed indirect cost rate 
developed in accordance with 2 CFR part 200 as adopted by USDA through 
2 CFR part 400.
* * * * *

0
84. Amend Sec.  1944.411 by revising paragraphs (c) and (e) to read as 
follows:


Sec.  1944.411  Conditions for approving a grant.

* * * * *
    (c) The grantee furnishes a signed statement that it complies with 
the requirements of the Departmental Regulations found in 2 CFR part 
200 as adopted by USDA through 2 CFR part 400.
    (d) * * *
    (e) The grantee has fidelity bonding as covered in 2 CFR part 200 
as adopted by USDA through 2 CFR part 400 if a nonprofit organization 
or, if a State or local government, to the extent required in 2 CFR 
part 200 as adopted by USDA through 2 CFR part 400.
* * * * *

0
85. Amend Sec.  1944.422 by revising the introductory text and 
paragraphs (a), (b) introductory text, (b)(1) and (b)(2) to read as 
follows:


Sec.  1944.422  Audit and other report requirements.

    The grantee must submit an audit to the appropriate Rural 
Development District Office annually (or biennially if a State or local 
government with authority to do a less frequent audit requests it) and 
within 90 days of the end of the grantee's fiscal year, grant period, 
or termination of the grant. The audit, conducted by the grantee's 
auditors, is to be performed in accordance with Generally Accepted 
Government Auditing Standards (GAGAS), using the publication 
``Standards for Audit of Governmental Organizations, Programs, 
Activities and Functions'' developed by the Comptroller General of the 
United States in 1981, and any subsequent revisions. In addition, the 
audits are also to be performed in accordance with 2 CFR part 200 as 
adopted by USDA through 2 CFR part 400 and Rural Development 
requirements as specified in this subpart. Audits of borrower loan 
funds will be required. The number of borrower accounts audited will be 
determined by the auditor. In incidences where it is difficult to 
determine the appropriate number of accounts to be audited, auditors 
should be authorized by the State Director to audit the lesser of 10 
loans or 10 percent of total loans.
    (a) Nonprofit organizations and others. If determined necessary, 
these organizations are to be audited in accordance with Rural 
Development requirements in accordance with 2 CFR part 200 as adopted 
by USDA through 2 CFR part 400. These requirements also apply to public 
hospitals, public colleges, and universities if they are excluded from 
the audit requirements of paragraph (b) of this section.
* * * * *
    (b) State and local governments and Indian tribes. These 
organizations are to be audited in accordance with this subpart and 2 
CFR part 200 as adopted by USDA through 2 CFR part 400. The grantee 
will forward completed audits to the appropriate Federal Cognizant 
agency and a copy to the Rural Development District Director. 
``Cognizant agency'' for audits is defined at 2 CFR 200.18 as the 
Federal agency designated to carry out the responsibilities described 
in Sec.  200.513 Responsibilities, paragraph (a). The cognizant agency 
for audit is not necessarily the same as the cognizant agency for 
indirect costs. A list of cognizant agencies for audit may be found at 
the FAC Web site. Within USDA, the OIG shall fulfill cognizant agency 
responsibilities. Smaller grantees not assigned a cognizant agency by 
OMB should contact the Federal agency that provided the most funds. 
When USDA is designated as the cognizant agency or when it has been 
determined by the borrower that Rural Development provided the major 
portion of Federal financial assistance, the State Director will 
contact the appropriate USDA OIG Regional Inspector General. Rural 
Development and the borrower shall coordinate all proposed audit plans 
with the appropriate USDA OIG.
    (1) State and local governments and Indian tribes that receive 
$25,000 or more a year in Federal financial assistance shall have an 
audit made in accordance with 2 CFR part 200 as adopted by USDA through 
2 CFR part 400.
    (2) State and local and Indian tribes that receive less than 
$25,000 a year in Federal financial assistance shall be exempt from 2 
CFR part 200 as adopted by USDA through 2 CFR part 400.
* * * * *

0
86. Amend Sec.  1944.426 by revising paragraph (c) to read as follows:


Sec.  1944.426  Grant closeout.

* * * * *
    (c) Grant suspension. When the grantee has failed to comply with 
the terms of the agreement, the District Director will promptly report 
the facts to the State Director. The State Director will consider 
termination or suspension of the grant usually only after a Grantee has 
been classified as ``high risk'' in accordance with Sec.  
1944.417(b)(2). When the State Director determines that the grantee has 
a reasonable potential to correct deficiencies the grant may be 
suspended. The State Director will request written authorization from 
the National Office to suspend a grantee. The suspension will adhere to 
2 CFR part 200 as adopted by USDA through 2 CFR part 400. The grantee 
will be notified of the grant suspension in writing by the State 
Director. The State Director will also promptly inform the grantee of 
its rights to appeal the decision by use of Exhibit B-3 of Subpart B of 
part 1900 of this chapter.
* * * * *

0
87. Amend Exhibit A to subpart I of part 1944 by revising paragraph (i) 
to read as follows:

Exhibit A to Subpart I of Part 1944--Self-Help Technical Assistance 
Grant Agreement.

* * * * *
    (i) Acquisition and disposal of personal, equipment and supplies 
should comply with Subpart R of 2 CFR part 200 as adopted by USDA 
through 2 CFR part 400.
* * * * *

Subpart K--Technical and Supervisory Assistance Grants

0
88. Amend Sec.  1944.526 by revising paragraph (c)(2) to read as 
follows:


Sec.  1944.526  Preapplication procedure.

    (c) * * *
    (2) Within 30 days of the closing date for receipt of 
preapplications as published in the Federal Register, the State 
Director will forward to the National Office the original 
preapplication(s) and supporting documents of the selected 
applicant(s), including any comments received in accordance with 2 CFR 
part 200 as adopted by USDA through 2 CFR part 400. See RD Instruction 
1970-I available in any Rural Development Office and

[[Page 76011]]

the comments and recommendations of the County Office(s), District 
Office(s), and the State Office. The State Office will submit the 
preapplication(s) in accordance with the annual notice provided for by 
Sec.  1944.525 (b).
* * * * *

0
89. Amend Sec.  1944.529 by revising paragraph (b)(9) to read as 
follows:


Sec.  1944.529  Project selection.

    (b) * * *
    (9) Any comments received in accordance with 2 CFR part 200 as 
adopted by USDA through 2 CFR part 400. See RD Instruction 1970-I, 
available in any Rural Development Office.
* * * * *

0
90. Amend Sec.  1944.531 by revising paragraph (c)(3) to read as 
follows:


Sec.  1944.531  Applications submission.

    (c) * * *
    (3) Any comments received in accordance with 2 CFR part 200 as 
adopted by USDA through 2 CFR part 400. See RD Instruction 1970-I, 
available in any Rural Development Office.
* * * * *

0
91. Amend Exhibit A to subpart K of part 1944 by revising paragraph 
(Part B)(8)(a), (Part C) (1), and (Part C) (14) to read as follows:

Exhibit A to Subpart K of Part 1944--Grant Agreement--Technical and 
Supervisory Assistance

    Part-B Terms of agreement.
* * * * *
    (8) * * *
    (a) In accordance with Treasury Circular 1075 (fourth revision) 
Part 205, Chapter II of title 31 of the Code of Federal Regulations, 
grant funds will be provided by Rural Development as cash advances 
on an as needed basis not to exceed one advance every 30 days. The 
advance will be made by direct Treasury check to the Grantee. The 
financial management system of the recipient organization shall 
provide for effective control over and accountability for all 
Federal funds as stated in 2 CFR part 200 as adopted by USDA through 
2 CFR part 400 for State and local governments and 2 CFR part 200 as 
adopted by USDA through 2 CFR part 400 for nonprofit organizations.
* * * * *
    Part--C Grantee Agrees.
    (1) To comply with property management standards for expendable 
and nonexpendable personal property established by Attachment N of 
OMB Circular A-102 or Attachment N of 2 CFR part 200 as adopted by 
USDA through 2 CFR part 400 for State and local governments or 
nonprofit organizations respectively. ``Personal property'' means 
property of any kind except real property. It may be tangible--
having physical existence--or intangible-having no physical 
existence, such as patents, inventions, and copyrights. 
``Nonexpendable personal property'' means tangible personal property 
having a useful life of more than one year and an acquisition cost 
of $300 or more per unit. A Grantee may use its own definition of 
nonexpendable personal property provided that such definition would 
at least include all tangible personal property as defined above. 
``Expendable personal property'' refers to all tangible personal 
property other than nonexpendable personal property. When 
nonexpendable tangible personal property is acquired by a Grantee 
with project funds, title shall not be taken by the Federal 
Government but shall vest in the Grantee subject to the following 
conditions:
* * * * *
    (14) That the Grantee shall abide by the policies promulgated in 
2 CFR part 200 as adopted by USDA through 2 CFR part 400 which 
provides standards for use by Grantees in establishing procedures 
for the procurement of supplies, equipment and other services with 
Federal grant funds.
* * * * *

Subpart N--Housing Preservation Grants

0
92-93. Amend Sec.  1944.658 by revising paragraph (a)(3) to read as 
follows:


Sec.  1944.658  Applicant eligibility.

    (a) * * *
    (3) Legally obligate itself to administer HPG funds, provide an 
adequate accounting of the expenditure of such funds in compliance with 
the terms of this regulation, the grant agreement, and 2 CFR part 200 
as adopted by USDA through 2 CFR part 400 (available in any Rural 
Development or its successor agency under Public Law 103-354 office), 
as appropriate, and comply with the grant agreement and Rural 
Development or its successor agency under Public Law 103-354 
regulations; and
* * * * *

0
94. Amend Sec.  1944.666 by revising paragraph (e) to read as follows:


Sec.  1944.666  Administrative activities and policies.

* * * * *
    (e) The policies, guidelines and requirements of 2 CFR part 200, as 
adopted by USDA through 2 CFR part 400, apply to the acceptance and use 
of HPG funds.

0
95. Amend Sec.  1944.670 by revising paragraph (a) to read as follows:


Sec.  1944.670  Project income.

    (a) Project income during the grant period from loans made to 
homeowners, owners of rental properties, and co-ops is governed by 2 
CFR part 200 as adopted by USDA through 2 CFR part 400. All income 
during the grant period, including amounts recovered by the grantee due 
to breach of agreements between the grantee and the HPG recipient, must 
be used under (and in accordance with) the requirements of the HPG 
program.
* * * * *

0
96. Amend Sec.  1944.676 by revising paragraph (b)(1)(x) to read as 
follows:


Sec.  1944.676  Preapplication procedures.

* * * * *
    (b) * * *
    (1) * * *
    (x) A copy of an indirect cost proposal as required in 2 CFR part 
200 as adopted by USDA through 2 CFR part 400, when the applicant has 
another source of federal funding in addition to the Rural Development 
or its successor agency under Public Law 103-354 HPG program;
* * * * *

0
97. Amend Sec.  1944.688 by revising paragraph (e) to read as follows:


Sec.  1944.688  Grant evaluation, closeout, suspension, and 
termination.

* * * * *
    (e) The grantee will have an audit performed upon termination or 
completion of the project in accordance with 2 CFR part 200 as adopted 
by USDA through 2 CFR part 400, as applicable. As part of its final 
report, the grantee will address and resolve all audit findings.

0
98. Amend Sec.  1944.689 by revising paragraph (a)(3) to read as 
follows:


Sec.  1944.689  Long-term monitoring by grantee.

    (a) * * *
    (3) All requirements noted in 2 CFR part 200 as adopted by USDA 
through 2 CFR part 400 during the effective period of the grant 
agreement.
* * * * *

0
99. Amend Exhibit A of subpart N of part 1944 by revising paragraphs 
(Part A)(3), (Part B)(9), (Part B)(18)(a)(ii), and (Part C)(13) to read 
as follows:

Exhibit A to Subpart N of Part 1944--Housing Preservation Grant 
Agreement

* * * * *
    Part A * * *
    (3) Disallowed costs are those charges to a grant which Rural 
Development or its successor agency under Public Law 103-354 
determines cannot be authorized in accordance with applicable 
Federal cost principles contained in Treasury Circular 74-4, ``Cost 
Principles Applicable to Grants and Contracts with State and Local 
Governments,'' OMB Circular A-87, ``Cost Principles for State and 
Local Governments,'' OMB Circular A-122, ``Cost Principles for 
Nonprofit Organizations,'' and other conditions contained in this 
Agreement and OMB Circular A-102 ``Uniform Requirements

[[Page 76012]]

for Grants to State and Local Governments,'' and OMB Circular A-110, 
``Grants and Agreements with Institutions of Higher Education, 
Hospitals and Other Nonprofit Organizations, Uniform Administrative 
Requirements,'' as appropriate, and 2 CFR part 200, as adopted by 
USDA through 2 CFR part 400.
* * * * *
    Part B * * *
    (9) In accordance with Treasury Circular 1075 (fourth revision) 
part 205, chapter II of title 31 of the Code of Federal Regulations, 
grant funds will be provided by Rural Development or its successor 
agency under Public Law 103-354 as cash advances on an as needed 
basis not to exceed one advance every 30 days. The advance will be 
made by direct Treasury check to the grantee. The financial 
management system of the recipient organization shall provide for 
effective control over and accountability for all Federal funds as 
stated to OMB Circular A-102 (42 FR 45828, September 12, 1977) for 
State and local governments and OMB Circular A-110 (41 FR 32016, 
July 30, 1976) for nonprofit organizations.
* * * * *
    (18) * * *
    (a) * * *
    (ii) The grantee will furnish to Rural Development or its 
successor agency under Public Law 103- 354 within 90 calendar days 
after the date of completion of the grant an SF-269 and all 
financial, performance, and other reports required as a condition of 
the grant, including an audit report.
* * * * *
    Part C * * *
* * * * *
    (13) That the grantee shall abide by the policies promulgated in 
OMB Circular A-102, Attachment O, or OMB Circular A-110, Attachment 
O, as applicable, which provides standards for use by Grantees in 
establishing procedures for the procurement of supplies, equipment, 
and other services with Federal grant funds.

PART 1951--SERVICING AND COLLECTIONS

0
100. The authority citation for part 1951 continues to read as follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1932 Note; 7 U.S.C. 1989; 31 
U.S.C. 3716; 42 U.S.C. 1480.

Subpart E--Servicing of Community and Insured Business Program 
Loans and Grants

0
101. Amend Sec.  1951.215 by revising paragraph (a) introductory text 
and removing paragraph (a)(3) to read as follows:


Sec.  1951.215  Grants.

* * * * *
    (a) Applicability of requirements. Servicing actions relating to 
Rural Development or its successor agency under Public Law 103-354 
grants are governed by the provisions of this subpart, the terms of the 
Grant Agreement and, if applicable, the provisions of 2 CFR parts 200, 
400, 415, 417, 418, and 421.
* * * * *

Subpart R--Rural Development Loan Servicing

0
102. Add Sec.  1951.872 to read as follows:


Sec.  1951.872  Other regulatory requirements.

    Intergovernmental consultation. The RDLF program is subject to the 
provisions of Executive Order 12372 which requires intergovernmental 
consultation with State and local officials. For each ultimate 
recipient to be assisted with a loan under this subpart and for which 
the State in which the ultimate recipient is to be located has elected 
to review the program under their intergovernmental review process, the 
State Point of Contact must be notified. Notification, in the form of a 
project description, can be initiated by the intermediary or the 
ultimate recipient. Any comments from the State must be included with 
the intermediary's request to use the loan funds for the ultimate 
recipient. Prior to Rural Development's decision on the request, 
compliance with the requirements of intergovernmental consultation must 
be demonstrated for each ultimate recipient. These requirements should 
be carried out in accordance with the requirements set forth in U.S. 
Department of Agriculture regulations 2 CFR part 415, subpart C, and RD 
Instruction 1970-I, `Intergovernmental Review,' available in any Agency 
office or on the Agency's Web site.

PART 1980--GENERAL

0
103. The authority citation for part 1980 continues to read as follows:

    Authority:  5 U.S.C. 301 and 7 U.S.C. 1989. Subpart E also 
issued under 7 U.S.C. 1932(a).

Subpart E--Business and Industrial Loan Program

0
104. Amend Sec.  1980.445 by revising paragraphs (a) and (e) to read as 
follows:


Sec.  1980.445  Periodic financial statements and audits.

* * * * *
    (a) Audited financial statements. Except as provided in paragraphs 
(d) and (e) of this section, all borrowers with a total principal and 
interest loan balance for loans under this subpart, at the end of the 
borrower's fiscal year, of more than $1 million must submit annual 
audited financial statements. The audit must be performed in accordance 
with generally accepted accounting principles (GAAP) and any other 
requirements specified in this subpart.
* * * * *
    (e) Public bodies and nonprofit corporations. Notwithstanding other 
provisions of this section, any public body or nonprofit corporation 
that receives a guarantee of a loan that meets the thresholds 
established by 2 CFR part 200, subpart F, as codified by 2 CFR 400.1, 
must provide an audit for the fiscal year of the borrower in which the 
Loan Note Guarantee is issued. If the loan is for development or 
purchases made in a previous fiscal year through interim financing, an 
audit will also be provided for the fiscal year in which the 
development or purchases occurred. Any audit provided by a public body 
or nonprofit corporation required by this paragraph will be considered 
adequate to meet the requirements of this section for that year.

0
105. Amend Sec.  1980.451 by revising paragraph (f)(8) to read as 
follows:


Sec.  1980.451  Filing and processing applications.

* * * * *
    (f) * * *
    (8) Intergovernmental consultation should be carried out in 
accordance with 2 CFR part 415, subpart C, ``Intergovernmental Review 
of Department of Agriculture Programs and Activities.''
* * * * *

CHAPTER XXXV--RURAL HOUSING SERVICE, DEPARTMENT OF AGRICULTURE

PART 3570--COMMUNITY PROGRAMS

0
106. The authority citation for part 3570 continues to read as follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989.

Subpart B--Community Facilities Grant Program

0
107. Amend Sec.  3570.51 by revising paragraph (g) and adding paragraph 
(j) to read as follows:


Sec.  3570.51  General.

* * * * *
    (g). Grants made under this subpart will be administered under, and 
are subject to, 2 CFR part 200 as adopted by USDA through 2 CFR part 
400, as appropriate.
* * * * *
    (j). The Office of Management and Budget (OMB) issued guidance on 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards at 2

[[Page 76013]]

CFR part 200 on December 26, 2013. In 2 CFR part 400.1, the Department 
adopted OMB's guidance in subparts A through F of 2 CFR part 200, as 
supplemented by 2 CFR part 400, as the Departments' policies and 
procedures for uniform administrative requirements, cost principles, 
and audit requirements for federal awards. As a result this regulation 
contains references to 2 CFR part 200 as it has regulatory effect for 
the Department's programs and activities.
* * * * *

0
108-109. Amend Sec.  3570.70 by revising paragraphs (b) and (c) to read 
as follows:


Sec.  3570.70  Other considerations.

* * * * *
    (b). Governmentwide debarment and suspension (nonprocurement) and 
requirements for drug-free workplace are applicable to CFG grants and 
grantees. See 2 CFR part 180, as implemented by USDA through 2 CFR part 
417, and RD Instruction 1940-M for further guidance.
    (c). Restrictions on lobbying. Grantees must comply with the 
lobbying restrictions set forth in 2 CFR part 418 subpart A.
* * * * *

0
110. Amend Sec.  3570.80 by revising paragraph (c) to read as follows:


Sec.  3570.80  Grant closing and delivery of funds.

* * * * *
    (c) Approval officials may require applicants to record liens or 
other appropriate notices of record to indicate that personal or real 
property has been acquired or improved with Federal grant funds and 
that use and disposition conditions apply to the property as provided 
by 2 CFR part 200 as adopted by USDA through 2 CFR part 400 as 
subsequently modified.
* * * * *

0
111. Amend Sec.  3570.83 by revising paragraph (a) to read as follows:


Sec.  3570.83  Audits.

    (a). An audit will be conducted in accordance with 2 CFR part 200 
subpart F, as adopted by USDA through 2 CFR part 400, except as 
provided in this section. The audit requirements apply only to the 
years in which grant funds are expended.
* * * * *

0
112. Revise Sec.  3570.84 to read as follows:


Sec.  3570.84  Grant servicing.

    Grants will be serviced in accordance with RD Instructions 1951-E 
and 1951-O and 2 CFR part 200 as applicable.

0
113. Revise Sec.  3570.87 to read as follows:


Sec.  3570.87  Grant suspension, termination, and cancellation.

    Grants may be suspended or terminated for cause or convenience in 
accordance with 2 CFR part 200 as adopted by USDA through 2 CFR part 
400, as applicable.

0
114. Revise Sec.  3570. 91 to read as follows:


Sec.  3570.91  Regulations.

    Grants under this part will be in accordance with 2 CFR part 200 as 
adopted by USDA through 2 CFR part 400, as applicable, and any 
conflicts between those parts and this part will be resolved in favor 
of applicable 2 CFR part 200 as adopted by USDA through 2 CFR part 400.

0
115. Add Sec.  3570.92 to read as follows:


Sec.  3570.92  Grant agreement.

    Form RD 3570-3 is a Grant Agreement which contains the procedures 
for making and servicing grants made under this part. Any property 
acquired or improved with CFG funds may have use and disposition 
conditions which apply to the property as provided by 2 CFR 200 as 
adopted by USDA through 2 CFR part 400 in effect at this time and as 
may be subsequently modified.

PART 3575--GENERAL

0
116. The authority citation for part 3575 continues to read as follows:

    Authority: 5 U.S.C. 301, 7 U.S.C. 1989.

Subpart A--Community Programs Guaranteed Loans

0
117. Amend Sec.  3575.1 by adding paragraph (c) to read as follows:


Sec.  3575.1  General.

* * * * *
    (c) The Office of Management and Budget (OMB) issued guidance on 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards at 2 CFR part 200 on December 26, 2013. 
In 2 CFR part 400, the Department adopted OMB's guidance in subparts A 
through F of 2 CFR part 200, as supplemented by 2 CFR part 400, as the 
Departments' policies and procedures for uniform administrative 
requirement, cost principles, and audit requirements for federal 
awards. As a result, this regulation contains references to 2 CFR part 
200 as it has regulatory effect for the Department's programs and 
activities.

0
118. Amend Sec.  3575.2 by revising the definition of ``State'' to read 
as follows:


Sec.  3575.2  Definitions.

* * * * *
    State. Any state of the United States, the District of Columbia, 
the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American 
Samoa, the Commonwealth of the Northern Mariana Islands, and an agency 
or instrumentality thereof exclusive of local governments.
* * * * *

0
119. Amend Sec.  3575.27 by revising paragraph (b) to read as follows:


Sec.  3575.27  Eligible lenders.

* * * * *
    (b) Conflict of interest. The lender and borrower must maintain 
written standards of conduct covering conflicts of interest and 
governing the performance of its employees in the selection, award and 
administration of Federal awards. No employee, officer or agent may 
participate in the selection, award or administration of a Federal 
award if they have a real or apparent conflict of interest. Such a 
conflict of interest would arise when the employee, officer, or agent, 
any member of his or her immediate family, his or her partner, or an 
organization which employs or is about to employ any of the parties 
indicated, has a financial or other interest in or a tangible personal 
benefit from a non-Federal entity considered for a Federal award. The 
lender may set standards for situations in which the financial interest 
is not substantial or the gift is an unsolicited item of nominal value. 
The standards must provide for disciplinary actions to be applied for 
violations of such standards. If the lender has a parent, affiliate, or 
subsidiary organization that is not a state, local government, or 
Indian tribe, the lender or borrower, written standards of conduct 
covering organizational conflict of interest must also be maintained. 
Organizational conflicts of interest means that because of the 
relationships with a parent company, affiliate, or subsidiary 
organization, the lender or borrower is unable or appears to be unable 
to be impartial in conducting a Federal award action involving a 
related organization. The lender or borrower must disclose such 
business or ownership relationships in writing. The Agency will 
determine if such relationships are likely to result in a conflict of 
interest. This does not preclude lender officials from being on the 
borrower's board of directo