Financial Management
Appendix E of HHS CFR Title 45, Part 74
Principles for Determining Costs Applicable to Research and Development
under Grants and Contracts with Hospitals
I. Purpose and Scope
A. 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.
B. 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:
1. 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.
2. 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.
3.
Each hospital in the fulfillment of its contractual obligations should
be expected to employ sound management practices.
4. The application
of the principles established herein shall be in conformance with the
generally accepted accounting practices of hospitals.
5. 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.
C. 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.
II. Definitions of Terms
A. 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.
B. 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.
C. 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.
D. 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.
E. 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 III D 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 V. A.) are properly allocable.
F. 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 IX B.23, it means the cost of these services applicable
to patients involved in research programs.
G. Allocation means the process
by which the indirect costs are assigned as between:
1. Organized research,
2. Patient care including departmental research.
3. Instruction and training, and
4. Other hospital activities.
H. 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.
I. 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.
J. 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 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.
K. 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.
L. 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.
III. Basic Considerations
A. 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 III - E.)
B. Factors affecting allowability of
costs. The tests of allowability of costs under these principles are:
1. They must be reasonable.
2. They must be assigned to research agreements under the standards and
methods provided herein.
3. They must be accorded consistent treatment through application of
those generally accepted accounting principles appropriate to the circumstances
(See paragraph I - E.5.) and
4. 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.
C. 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:
1. 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,
2. 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,
3. 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
4. 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.
D. Allocable costs.
1. 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.
2. 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.
E. Applicable credits.
1. 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 V - A. 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.
2. 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.
IV. Direct Costs
A. 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.
B. 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 V.
B4b); 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.
V. Indirect
Costs
A. 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.
B. Criteria for distribution --
1. Base period. A base period for distribution
of indirect costs is the period during which such costs 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.
2. Need for cost groupings. The overall
objective of the allocation process
is to distribute the indirect costs described in paragraph VI 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 V - A. 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 B3 below. While
this paragraph places primary emphasis on a step-down method of indirect
cost computation, paragraph VIII provides an alternate method which
may be
used under certain conditions.
3. 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 B2 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:
a. It can readily be expressed in terms of dollars or other quantitative
measure (total direct expenditures, direct salaries, manhours applied,
square feet utilized, hours of usage, number of documents processed,
population served, and the like); and
b. 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.
4. 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:
a. 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 B2 and B3 above.
b. Where any types
of expense ordinary treated as indirect cost as outlined in paragraph
V - A 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.
c. 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.
d.
Where organized activities (including identifiable segments of
organized research as well as the activities
cited in
paragraph II
- E) 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.
e. 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.
f. 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 VII - A.3)
5. 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.
C. Administration of
limitations on allowances for indirect costs.
1. 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:
a. The terms and amount authorized in each case conform with the
provisions of paragraphs III, V and IX of these principles as they
apply to matters
involving the consistent treatment and allowability of individual
items of cost; and
b. 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.
2. 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 C1 above, such alternative amounts should be determined in accordance
with the following guides:
a. 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
b. 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.
3. 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.
VI. Identification and Assignment of Indirect
Costs
A. Depreciation or use charge.
1. The expenses under this heading should
include depreciation (as defined in paragraph IX - B.9a) 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 IX - B.)
2. The expenses included in this category should be allocated to applicable
cost centers in a manner consistent with the guides set forth in
paragraph V - B, 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 estimates
will
suffice as a means for effecting distribution of the amounts involved.
B. Administration and general expenses.
1. 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.
2. 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 V - B.
C. Operation of plant.
1. 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.
2. The expenses included in this category should be
allocated to applicable cost centers in a manner consistent with
the guides provided in paragraph
V - B, on a basis that gives primary emphasis to space utilization.
The allocations should be developed as follows:
a. 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;
b. 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
c. 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.
D. Maintenance of plant.
1. The expenses under this heading should
include:
a. All salaries and wages pertaining to ordinary repair and
maintenance work performed by employees on the payroll of the hospital;
b. All supplies and parts used in the ordinary repairing and maintaining
of buildings and general equipment; and
c. Amounts paid to outside
concerns for the ordinary repairing and maintaining of buildings
and general equipment.
2. The expenses included
in this category should be allocated to applicable
cost centers in a manner consistent with the guides provided in paragraph
V - B. on a basis that gives primary emphasis to space utilization.
The allocations and apportionments should be developed as follows:
a. 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;
b. 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
c. 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.
E. Laundry and linen.
1. The expenses under this heading should include:
a. Salaries and wages
of laundry department employees, seamstresses, clean linen handlers,
linen delivery men, etc.;
b. Supplies used in connection with the
laundry operation and all linens purchased; and
c. Amounts paid
to outside concerns for purchased laundry and/or linen service.
2. The expense included in this category should be allocated
to related cost centers in a manner consistent with the guides provided
in paragraph
V - B. on a basis that gives primary emphasis to actual pounds of
linen used. The allocations should be developed as follows:
a. 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;
b. 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.
F. Housekeeping.
1. The expenses under this heading should include:
a. All salaries
and wages of the department head, foreman, maids, porters, janitors,
wall washers, and other housekeeping employees;
b. All supplies
used in carrying out the housekeeping functions; and
c. Amounts
paid to outside concerns for purchased services such as window
washing, insect extermination, etc.
2. The expenses included in this
category should be allocated to related cost centers in a manner consistent
with the guides provided in paragraph
V - B. on a basis that gives primary emphasis to space actually serviced
by the housekeeping department. The allocations and apportionments
should be developed as follows:
a. 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;
b. 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
c. 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.
G. Dietary.
1. 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.
2. 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 V - B. on a basis that gives primary
emphasis to number of employees.
H. Maintenance (housing) of personnel.
1. The expenses under this heading
should include:
a. The salaries and wages of matrons, clerks, and other
employees engaged in work in nurses' residences and other employees'
quarters;
b. All supplies used in connection with the operation of
such dormitories; and
c. Payments to outside agencies for the rental
of houses, apartments, or rooms used by hospital personnel.
2. The expenses included in
this category should be allocated to related cost centers in a manner
consistent with the guides provided
in paragraph
V - B. on a basis that gives primary emphasis to employee utilization
of housing facilities. The allocation should be developed as
follows:
a. Appropriate credit should be given for all payments received
from employees or otherwise to reduce the expense to be allocated;
b. A net cost per housed employee may then be computed; and
c. Allocation
should be made on a departmental basis based on the number of housed
employees in each respective department.
I. Medical
records and library.
1. The expenses under this heading should include:
a. The salaries and
wages of the records librarian, medical librarian, clerks, stenographers,
etc.; and
b. All supplies such as medical record forms, chart covers,
filing supplies, stationery, medical library books, periodicals, etc.
2. The expenses included in this category should be allocated to related
cost centers in a manner consistent with the guides
provided
in paragraph
V - B. 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.
VII. Determination and Application of Indirect Cost Rate or Rates
A.
Indirect cost pools.
1. Subject to (2) 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.
2. 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:
a. Such indirect cost rate differs
significantly from that which
would have obtained under (1) above; and
b. The volume of
research work to which such rate would apply is material in relation
to other government research at the
institution.
3. 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.
B. 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 VII - A. 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.
C. 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.
D. 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.
VIII. Simplified Method
for Small Institutions
A. General.
1. 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 VIII - B 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.
2. 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.
3. 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.
B. Abbreviated procedure.
1. 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 IX - B.4 and unallowable
costs as defined under various headings in paragraph
IX and paragraph III -
E.
2. Total expenditures as adjusted under the
foregoing will then be distributed among (a) expenditures
applicable to
administrative and
general overhead
functions, (b) expenditures applicable to all
other overhead functions, and (c) expenditures for all
other purposes.
The first
group shall
include amounts associated with the functional
categories, Administration and
General, and Dietary, as defined in paragraph
VI. 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 II -
E. 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
VI shall
be considered as expenditures for all other
purposes.
3. The expenditures distributed to the first
two groups in paragraph VIII - B.2 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 III
- E.1.
4. In applying the procedures in paragraphs
VIII - B.1 and B.2, 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.
When
they do not
include such
salaries, they should
be eliminated from the indirect cost rate
computation.
5. 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 VIII - B.2 and B.3 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 VIII - B.2 and B.3 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 VIII - B.2.
IX.
General Standards for Selected Items of Cost
A. 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:
1. Facilities costs, such as;
a. Depreciation
b. Rental
c. Use charges for fully depreciated assets
d. Idle facilities and idle capacity
e. Plant reconversion
f. Extraordinary or deferred maintenance
and repair
g. Acquisition of automatic data processing
equipment.
2. Preaward costs
3. Non-hospital professional activities
4. Self-insurance
5. Support services charged directly (computer
services, printing and duplicating
services, etc.)
6. Employee compensation, travel,
and other personnel costs, including;
a. 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
b. Morale,
health, welfare, and food service and dormitory
costs
c. Training and
education costs
d. Relocation costs,
including special or
mass personnel movement
B. Selected
items --
1. 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;
a. 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 IX - B.34.
b. The procurement
of scarce items for the performance of the research
agreement;
or
c. 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 IV and V are
observed.
2. 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.
3. Bonding costs.
a. 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.
b.
Costs of bonding required pursuant to the terms of
the research agreement
are
allowable.
c. 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.
4. 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.
5.
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.
6. Communication
costs. Costs incurred
for telephone
services,
local and
long distance
telephone calls,
telegrams, radiograms,
postage,
and the like are allowable.
7. Compensation for personal services --
a. 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
IX - B.10),
and pension
plan costs (see
paragraph IX
- B.25). 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
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.
b.
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 (c)
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:
(1) Patient care;
(2) organized
research; (3)
instruction and training;
(4) indirect
activities as defined in paragraph
V - A; or (5)
other hospital activities
as
defined
in paragraph
II - E.
c. 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.
d.
Preparation
of estimates
of effort.
Where required
under paragraph
(c)
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
(b) 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.
e.
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.
f. 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
(1)
hospital
activities,
and
(2) 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.
g.
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.
8.
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.
9. Depreciation
and use allowances.
a. 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.
b.
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.
c.
Normal
depreciation on a hospital's
plant,
equipment, and other
capital
facilities, except
as excluded
by (d)
below,
is an allowable
element
of research
cost provided
that
the amount
thereof
is computed:
1. 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
2. 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
3. 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
--
i.
The straight
line method;
ii.
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
(i) above;
iii.
The sum
of the
years-digits method;
and
iv.
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
(ii) above.
d.
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.
e.
Depreciation
on
idle or excess
facilities
shall
not
be allowed
except
on
such
facilities
as
are reasonably
necessary
for
standby purposes.
f.
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.
g.
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.
h.
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.
i.
Depreciation and/or
use charges
should usually
be allocated
to research
and other
activities as
an indirect
cost.
10. 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.
11.
Entertainment
costs. Except
as pertains
to 10 above,
costs incurred
for amusement,
social
activities,
entertainment,
and
any items relating
thereto, such
as
meals, lodging,
rentals, transportation,
and gratuities
are
unallowable.
12. 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.
13. 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.
14.
Insurance
and indemnification.
a. Costs of insurance
required
or
approved and maintained
pursuant
to
the research
agreement
are
allowable.
b.
Costs of
other insurance
maintained by
the hospital
in connection
with the
general conduct
of its
activities are
allowable subject
to the
following limitations:
1.
Types and
extent and
cost of
coverage must
be in
accordance with
sound institutional
practice;
2.
costs of
insurance or
of any
contributions to
any reserve
covering the
risk of
loss of
or damage
to government
owned property
are unallowable
except to
the extent
that the
Government has
specifically required
or approved
such costs;
3.
costs of
insurance on
the lives
of officers
or trustees
are unallowable
except where
such insurance
is part
of an
employee plan
which is
not unduly
restricted.
c.
Contributions to
a reserve for
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.
d.
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.
15.
Interest,
fund
raising
and
investment management
costs.
a. Costs
incurred for
interest on
borrowed capital
or temporary
use of
endowment funds,
however represented,
are unallowable.
b.
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.
c.
Costs of
investment counsel
and staff
and similar
expenses incurred
solely to
enhance income
from investments
are not
allowable.
d.
Costs related
to the
physical custody
and control
of monies
and securities
are allowable.
16. 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.
17.
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.
18.
Maintenance and
repair costs.
a.
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:
1.
Normal maintenance
and repair
costs are
allowable;
2.
Extraordinary maintenance
and repair
costs are
allowable, provided
they are
allocated to
the periods
to which
applicable for
purposes of
determining research
costs.
b.
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.
19.
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.
20.
Memberships, subscriptions
and professional
activity costs.
a.
Costs of
the hospital's
membership in
civic, business,
technical and
professional organizations
are allowable.
b.
Costs of
the hospital's
subscriptions to
civic, business,
professional and
technical periodicals
are allowable.
c.
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.
21.
Organization costs.
Expenditures such
as incorporation
fees, attorneys'
fees, accountants'
fees, brokers'
fees, fees
to promoters
and organizers
in connection
with (a)
organization or
reorganization of
a hospital,
or (b)
raising capital,
are unallowable.
22.
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.
23.
Patient care.
The cost
of routine
and ancillary
or special
services to
research patients
is an
allowable direct
cost of
research agreements.
a.
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.
b.
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.
c.
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
Section 23.c.ii.
d.
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.
24.
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 IX
- B.36.)
25.
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.
26.
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.
27.
Preresearch 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.
28.
Professional services
costs.
a.
Costs of
professional services
rendered by
the members
of a
particular profession
who are
not employees
of the
hospital are
allowable subject
to (b)
and (c)
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.
b.
Factors to
be considered
in determining
the allowability
of costs
in a
particular case
include (1)
the past
pattern of
such costs,
particularly in
the years
prior to
the award
of government
research agreements
on the
institution's total
activity; (2)
the nature
and scope
of managerial
services expected
of the
institution's own
organizations; and
(3) 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.
c.
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.
29.
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 other
capital assets,
including sales
or exchange
of either
short- or
long-term investments,
shall be
excluded in
computing research
agreement costs.
30.
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.
31.
Public information
services costs.
Costs of
news releases
pertaining to
specific research
or scientific
accomplishment are
unallowable unless
specifically authorized
by the
sponsoring agency.
32.
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.
33.
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.
34.
Recruiting costs.
a.
Subject to
(b), (c),
and (d)
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.
b.
In publications,
costs of
help wanted
advertising that
includes color,
includes advertising
material for
other than
recruitment purposes,
or is
excessive in
size (taking
into consideration
recruitment purposes
for which
intended and
normal institutional
practices in
this respect)
are unallowable.
c.
Costs of
help wanted
advertising, special
emoluments; fringe
benefits, and
salary allowances
incurred to
attract professional
personnel from
other institutions
that do
not meet
the test
of reasonableness
or do
not conform
with the
established practices
of the
institution are
unallowable.
d.
Where relocation
costs incurred
incident to
recruitment of
a new
employee have
been allowed
either as
an allocable
direct or
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.
35.
Rental costs
(including sale
and lease-back
of facilities).
a.
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.
b.
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.
c.
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.
36.
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.
37.
Severance pay.
a.
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.
b.
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.
c.
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.
38.
Specialized service
facilities operated
by a
hospital.
a.
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
(b) or
(c) below,
and otherwise
take into
account any
items of
income or
federal financing
that qualify
as applicable
credits under
paragraph III
- E.
b.
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 (1)
are designed
to recover
only actual
costs of
providing such
services, and
(2) 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.
c.
In the
absence of
an acceptable
arrangement for
direct costing
as provided
in (b)
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.
39.
Special administrative
costs. Costs
incurred for
general public
relations activities,
catalogs, alumni
activities, and
similar services
are unallowable.
40.
Staff and/or
employee benefits.
a.
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.
b.
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
IX -
B.25), 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
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.
41.
Taxes.
a.
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
(1) 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,
(2) special
assessments on
land which
represent capital
improvements, and
(3) Federal
Income Taxes.
b.
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.
42.
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.
43.
Travel costs.
a.
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.
b.
Travel costs
are allowable
subject to
(c) and
(d) 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.
c.
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:
1.
require circuitous
routing
2.
require travel
during unreasonable
hours
3.
greatly
increase
the duration
of the
flight
4.
result
in
additional
costs
which would
offset
the
transportation
savings,
or
5.
offer accommodations
which are
not reasonably
adequate for
the medical
needs of
the traveler.
d.
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.
44.
Termination costs
applicable to
contracts.
a.
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.
b.
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.
c.
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.
d.
Loss of
useful value
of special
tooling and
special machinery
and equipment
is generally
allowable, provided
(1) such
special tooling,
machinery or
equipment is
not reasonably
capable of
use in
the other
work of
the hospital;
(2) the
interest of
the Government
is protected
by transfer
of title
or by
other means
deemed appropriate
by the
contracting officer;
and (3)
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.
e.
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 (1)
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
(2) 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.
f.
Settlement
expenses
including
the
following
are
generally
allowable:
(1) 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
(2) 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.
g.
Subcontractor claims
including
the
allocable
portion
of claims
which
are
common
to
the contract
and
to
other work
of the
contractor
are
generally
allowable.
45.
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.
Last
revised:
June 15, 2004
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