45 CFR Part 74[Code of Federal Regulations]
[Title 45, Volume 1, Parts 1 to 199]
[Revised as of October 1, 1999]
From the U.S. Government Printing Office via GPO Access
[CITE: 45CFR74]
[Page 186-233]
TITLE 45--PUBLIC WELFARE
AND HUMAN SERVICES
PART 74--UNIFORM ADMINISTRATIVE REQUIREMENTS FOR AWARDS AND SUBAWARDS TO INSTITUTIONS OF HIGHER EDUCATION, HOSPITALS, OTHER NONPROFIT ORGANIZATIONS,
AND COMMERCIAL ORGANIZATIONS; AND CERTAIN GRANTS AND AGREEMENTS WITH STATES, LOCAL GOVERNMENTS AND INDIAN TRIBAL GOVERNMENTS
Subpart A--General
Sec.
74.1 Purpose and applicability.
74.2 Definitions.
74.3 Effect on other issuances.
74.4 Deviations.
74.5 Subawards.
Subpart B--Pre-Award Requirements
74.10 Purpose.
74.11 Pre-award policies.
74.12 Forms for applying for HHS financial assistance.
74.13 Debarment and suspension.
74.14 Special award conditions.
74.15 Metric system of measurement.
74.16 Resource Conservation and Recovery Act (RCRA, Section 6002 of
Pub. L. No. 94-580 (Codified at 42 U.S.C. 6962)).
74.17 Certifications and representations.
Subpart C--Post-Award Requirements
Financial and Program Management
74.20 Purpose of financial and program management.
74.21 Standards for financial management systems.
74.22 Payment.
74.23 Cost sharing or matching.
74.24 Program income.
74.25 Revision of budget and program plans.
74.26 Non-Federal audits.
74.27 Allowable costs.
74.28 Period of availability of funds.
Property Standards
74.30 Purpose of property standards.
74.31 Insurance coverage.
74.32 Real property.
74.33 Federally-owned and exempt property.
74.34 Equipment.
74.35 Supplies.
74.36 Intangible property.
74.37 Property trust relationship.
Procurement Standards
74.40 Purpose of procurement standards.
74.41 Recipient responsibilities.
74.42 Codes of conduct.
74.43 Competition.
74.44 Procurement procedures.
74.45 Cost and price analysis.
74.46 Procurement records.
74.47 Contract administration.
74.48 Contract provisions.
Reports and Records
74.50 Purpose of reports and records.
74.51 Monitoring and reporting program performance.
74.52 Financial reporting.
74.53 Retention and access requirements for records.
Termination and Enforcement
74.60 Purpose of termination and enforcement.
74.61 Termination.
74.62 Enforcement.
Subpart D--After-the-Award Requirements
74.70 Purpose.
74.71 Closeout procedures.
74.72 Subsequent adjustments and continuing responsibilities.
74.73 Collection of amounts due.
[[Page 187]]
Subpart E--Special Provisions for Awards to Commercial Organizations
74.80 Scope of subpart.
74.81 Prohibition against profit.
74.82 Program income.
Subpart F--Disputes
74.90 Final decisions in disputes.
74.91 Alternative dispute resolution.
Appendix A to Part 74--Contract Provisions
Appendixes B--D to Part 74 [Reserved]
Appendixes E to Part 74--Principles for Determining Costs Applicable to
Research and Development Under Grants and Contracts With
Hospitals
Appendixes F--H to Part 74 [Reserved]
Authority: 5 U.S.C. 301; OMB Circular A-110 (58 FR 62992, November
29, 1993).
Subpart A--General
Source: 59 FR 43760, Aug. 25, 1994, unless otherwise noted.
Sec. 74.1 Purpose and applicability.
(a) Unless inconsistent with statutory requirements, this part
establishes uniform administrative requirements governing:
(1) Department of Health and Human Services' (HHS) grants and
agreements awarded to institutions of higher education, hospitals, other
nonprofit organizations and commercial organizations;
(2) Subgrants or other subawards awarded by recipients of HHS grants
and agreements to institutions of higher education, hospitals, other
nonprofit organizations and commercial organizations, including
subgrants or other subawards awarded under HHS grants and agreements
administered by State, local and Indian Tribal governments; and
(3) HHS grants and agreements, and any subawards under such grants
and agreements, awarded to carry out the entitlement programs identified
at 45 CFR Part 92, Sec. 92.4(a)(3), (a)(7), and (a)(8), except that
Secs. 74.12, 74.23, 74.25, and 74.52 of this part do not apply. Under
these programs, requests to HHS from Governors or other duly constituted
State authorities for waiver of single State agency requirements in
accordance with 31 U.S.C. 6501-6508 will be given expeditious handling.
Whenever possible, such requests will be granted.
(b) Nonprofit organizations that implement HHS programs for the
States are also subject to state requirements.
(c) HHS shall not impose additional or inconsistent requirements
except as provided in Secs. 74.4 and 74.14, or unless specifically
required by Federal statute or executive order.
[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, 11747, Mar. 22,
1996]
Sec. 74.2 Definitions.
Accrued expenditures mean the charges incurred by the recipient
during a given period requiring the provision of funds for: (1) Goods
and other tangible property received; (2) services performed by
employees, contractors, subrecipients, and other payees; and, (3) other
amounts becoming owed under programs for which no current services or
performance is required.
Accrued income means the sum of: (1) Earnings during a given period
from (i) services performed by the recipient, and (ii) goods and other
tangible property delivered to purchasers; and (2) amounts becoming owed
to the recipient for which no current services or performance is
required by the recipient.
Acquisition cost of equipment means the net invoice price of the
equipment, including the cost of modifications, attachments,
accessories, or auxiliary apparatus necessary to make the property
usable for the purpose for which it was acquired. Other charges, such as
the cost of installation, transportation, taxes, duty or protective in-
transit insurance, shall be included or excluded from the unit
acquisition cost in accordance with the recipient's regular accounting
practices.
Advance means a payment made by Treasury check or other appropriate
payment mechanism to a recipient upon its request either before
outlaysare made by the recipient or through the use of predetermined
payment schedules.
Award means financial assistance that provides support or
stimulation to accomplish a public purpose. Awards include grants and
other agreements in the form of money or property in lieu of money, by
the Federal Government
[[Page 188]]
to an eligible recipient. The term does not include: technical
assistance, which provides services instead of money; other assistance
in the form of loans, loan guarantees, interest subsidies, or insurance;
direct payments of any kind to individuals; and, contracts which are
required to be entered into and administered under Federal procurement
laws and regulations.
Cash contributions mean the recipient's cash outlay, including the
outlay of money contributed to the recipient by third parties.
Closeout means the process by which the HHS awarding agency
determines that all applicable administrative actions and all required
work of the award have been completed by the recipient and HHS.
Contract means a procurement contract under an award or subaward,
and a procurement subcontract under a recipient's or subrecipient's
contract.
Cost sharing or matching means that portion of project or program
costs not borne by the Federal Government.
Current accounting period means, with respect to Sec. 74.27(b), the
period of time the recipient chooses for purposes of financial
statements and audits.
Date of completion means the date on which all work under an award
is completed or the date on the award document, or any supplement or
amendment thereto, on which HHS awarding agency sponsorship ends.
Departmental Appeals Board means the independent office established
in the Office of the Secretary with delegated authority from the
Secretary to review and decide certain disputes between recipients of
HHS funds and HHS awarding agencies under 45 CFR part 16 and to perform
other review, adjudication and mediation services as assigned.
Disallowed costs mean those charges to an award that the HHS
awarding agency determines to be unallowable, in accordance with the
applicable Federal cost principles or other terms and conditions
contained in the award.
Discretionary award means an award made by an HHS awarding agency in
keeping with specific statutory authority which enables the agency to
exercise judgment (``discretion'') in selecting the applicant/recipient
organization through a competitive award process.
Equipment means tangible nonexpendable personal property, including
exempt property, charged directly to the award having a useful life of
more than one year and an acquisition cost of $5000 or more per unit.
However, consistent with recipient policy, lower limits may be
established.
Excess property means property under the control of any HHS awarding
agency that, as determined by the head of the awarding agency or his/her
delegate, is no longer required for the agency's needs or the discharge
of its responsibilities.
Exempt property means tangible personal property acquired in whole
or in part with Federal funds, where the HHS awarding agency has
statutory authority to vest title in the recipient without further
obligation to the Federal Government. An example of exempt property
authority is contained in the Federal Grant and Cooperative Agreement
Act, 31 U.S.C. 6306, for property acquired under an award to conduct
basic or applied research by a nonprofit institution of higher education
or nonprofit organization whose principal purpose is conducting
scientific research.
Federal funds authorized mean the total amount of Federal funds
obligated by the HHS awarding agency for use by the recipient. This
amount may include any authorized carryover of unobligated funds from
prior funding periods when permitted by the HHS awarding agency's
implementing instructions or authorized by the terms and conditions of
the award.
Federal share of real property, equipment, or supplies means that
percentage of the property's or supplies' acquisition costs and any
improvement expenditures paid with Federal funds. This will be the same
percentage as the Federal share of the total costs under the award for
the funding period in which the property was acquired (excluding the
value of third party in-kind contributions).
Federally recognized Indian Tribal government means the governing
body of any Indian tribe, band, nation, or other organized group or
community (including any Native village as defined in
[[Page 189]]
section 3 of the Alaska Native Claims Settlement Act certified by the
Secretary of the Interior as eligible for the special programs and
services provided by him through the Bureau of Indian Affairs.
Funding period means the period of time when Federal funding is
available for obligation by the recipient.
Government means a State or local government or a federally
recognized Indian tribal government.
HHS means the U.S. Department of Health and Human Services.
HHS awarding agency means any organization component of HHS that is
authorized to make and administer awards.
Intangible property and debt instruments mean, but are not limited
to, trademarks, copyrights, patents and patent applications and such
property as loans, notes and other debt instruments, lease agreements,
stock and other instruments of property ownership, whether considered
tangible or intangible.
Local government means a local unit of government, including
specifically a county, municipality, city, town, township, local public
authority, school district, special district, intra-state district,
council of governments (whether or not incorporated as a nonprofit
corporation under State law), any other regional or interstate entity,
or any agency or instrumentality of local government.
Obligations mean the amounts of orders placed, contracts and grants
awarded, services received and similar transactions during a given
period that require payment by the recipient during the same or a future
period.
OGAM means the Office of Grants and Acquisition Management, which is
an organizational component within the Office of the Secretary, HHS, and
reports to the Assistant Secretary for Management and Budget.
OMB means the U.S. Office of Management and Budget.
Outlays or expenditures mean charges made to the project or program.
They may be reported on a cash or accrual basis. For reports prepared on
a cash basis, outlays are the sum of cash disbursements for direct
charges for goods and services, the amount of indirect expense charged,
the value of third party in-kind contributions applied and the amount of
cash advances and payments made to subrecipients. For reports prepared
on an accrual basis, outlays are the sum of cash disbursements for
direct charges for goods and services, the amount of indirect expense
incurred, the value of in-kind contributions applied, and the net
increase (or decrease) in the amounts owed by the recipient for goods
and other property received, for services performed by employees,
contractors, subrecipients and other payees and other amounts becoming
owed under programs for which no current services or performance are
required.
Personal property means property of any kind except real property.
It may be tangible, having physical existence, or intangible, having no
physical existence, such as copyrights, patents, or securities.
Prior approval means written approval by an authorized HHS official
evidencing prior consent.
Program income means gross income earned by the recipient that is
directly generated by a supported activity or earned as a result of the
award (see exclusions in Sec. 74.24 (e) and (h)). Program income
includes, but is not limited to, income from fees for services
performed, the use or rental of real or personal property acquired under
federally-funded projects, the sale of commodities or items fabricated
under an award, license fees and royalties on patents and copyrights,
and interest on loans made with award funds. Interest earned on advances
of Federal funds is not program income. Except as otherwise provided in
the terms and conditions of the award, program income does not include
the receipt of principal on loans, rebates, credits, discounts, etc., or
interest earned on any of them. Furthermore, program income does not
include taxes, special assessments, levies, and fines raised by
governmental recipients.
Project costs means all allowable costs, as set forth in the
applicable Federal cost principles (see Sec. 74.27), incurred by a
recipient and the value of the contributions made by third parties in
accomplishing the objectives of the award during the project period.
[[Page 190]]
Project period means the period established in the award document
during which HHS awarding agency sponsorship begins and ends.
Property means, unless otherwise stated, real property, equipment,
intangible property and debt instruments.
Real property means land, including land improvements, structures
and appurtenances thereto, but excludes movable machinery and equipment.
Recipient means an organization receiving financial assistance
directly from an HHS awarding agency to carry out a project or program.
The term includes public and private institutions of higher education,
public and private hospitals, commercial organizations, and other quasi-
public and private nonprofit organizations such as, but not limited to,
community action agencies, research institutes, educational
associations, and health centers. The term may include foreign or
international organizations (such as agencies of the United Nations)
which are recipients, subrecipients, or contractors or subcontractors of
recipients or subrecipients at the discretion of the HHS awarding
agency. The term does not include government-owned contractor-operated
facilities or research centers providing continued support for mission-
oriented, large-scale programs that are government-owned or controlled,
or are designated as federally-funded research and development centers.
For entitlement programs listed at 45 CFR 92.4(a)(3), (a)(7), and (a)(8)
``recipient'' means the government to which an HHS awarding agency
awards funds and which is accountable for the use of the funds provided.
The recipient in this case is the entire legal entity even if only a
particular component of the entity is designated in the award document.
Research and development means all research activities, both basic
and applied, and all development activities that are supported at
universities, colleges, hospitals, other nonprofit institutions, and
commercial organizations. ``Research'' is defined as a systematic study
directed toward fuller scientific knowledge or understanding of the
subject studied. ``Development'' is the systematic use of knowledge and
understanding gained from research directed toward the production of
useful materials, devices, systems, or methods, including design and
development of prototypes and processes. The term research also includes
activities involving the training of individuals in research techniques
where such activities utilize the same facilities as other research and
development activities and where such activities are not included in the
instruction function.
Small awards means a grant or cooperative agreement not exceeding
the simplified acquisition threshold fixed at 41 U.S.C. 403(11)
(currently $100,000).
State means any of the several States of the United States, the
District of Columbia, the Commonwealth of Puerto Rico, any territory or
possession of the United States, or any agency or instrumentality of a
State exclusive of local governments.
Subaward means an award of financial assistance in the form of
money, or property in lieu of money, made under an award by a recipient
to an eligible subrecipient or by a subrecipient to a lower tier
subrecipient. The term includes financial assistance when provided by
any legal agreement, even if the agreement is called a contract, but
does not include procurement of goods and services nor does it include
any form of assistance which is excluded from the definition of
``award'' in this section.
Subrecipient means the legal entity to which a subaward is made and
which is accountable to the recipient for the use of the funds provided.
The term may include foreign or international organizations (such as
agencies of the United Nations) at the discretion of the HHS awarding
agency.
Supplies means all personal property excluding equipment, intangible
property, and debt instruments as defined in this section, and
inventions of a contractor conceived or first actually reduced to
practice in the performance of work under a funding agreement (``subject
inventions''), as defined in 37 CFR part 401, ``Rights to Inventions
Made by Nonprofit Organizations and Business Firms Under Government
Grants, Contracts, and Cooperative Agreements.''
[[Page 191]]
Suspension means an action by the HHS awarding agency that
temporarily withdraws the agency's financial assistance sponsorship
under an award, pending corrective action by the recipient or pending a
decision to terminate the award.
Suspension of an award is a separate action from suspension under
HHS regulations (45 CFR part 76) implementing E.O.s 12549 and 12689,
``Debarment and Suspension.''
Termination means the cancellation of HHS awarding agency
sponsorship, in whole or in part, under an agreement at any time prior
to the date of completion. For the entitlement programs listed at 45 CFR
92.4 (a)(3), (a)(7), and (a)(8), ``termination'' shall have that meaning
assigned at 45 CFR 92.3.
Third party in-kind contributions means the value of non-cash
contributions provided by non-Federal third parties. Third party in-kind
contributions may be in the form of real property, equipment, supplies
and other expendable property, and the value of goods and services
directly benefiting and specifically identifiable to the project or
program.
Unliquidated obligations, for financial reports prepared on a cash
basis, mean the amount of obligations incurred by the recipient that has
not been paid. For reports prepared on an accrued expenditure basis,
they represent the amount of obligations incurred by the recipient for
which an outlay has not been recorded.
Unobligated balance means the portion of the funds authorized by the
HHS awarding agency that has not been obligated by the recipient and is
determined by deducting the cumulative obligations from the cumulative
funds authorized.
Unrecovered indirect cost means the difference between the amount
awarded and the amount which could have been awarded under the
recipient's approved negotiated indirect cost rate.
Working capital advance means a procedure whereby funds are advanced
to the recipient to cover its estimated disbursement needs for a given
initial period.
[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, Mar. 22, 1996;
62 FR 41878, Aug. 4, 1997]
Sec. 74.3 Effect on other issuances.
This part supersedes all administrative requirements of codified
program regulations, program manuals, handbooks and other nonregulatory
materials which are inconsistent with the requirements of this part,
except to the extent they are required by Federal statute, or authorized
in accordance with the deviations provision in Sec. 74.4.
[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, Mar. 22, 1996]
Sec. 74.4 Deviations.
(a) After consultation with OMB, the HHS OGAM may grant exceptions
to HHS awarding agencies for classes of awards or recipients subject to
the requirements of this part when exceptions are not prohibited by
statute. However, in the interest of maximum uniformity, exceptions from
the requirements of this part shall be permitted only in unusual
circumstances. HHS awarding agencies may apply more restrictive
requirements to a class of awards or recipients when approved by the
OGAM, after consultation with the OMB. HHS awarding agencies may apply
less restrictive requirements without approval by the OGAM when making
small awards except for those requirements which are statutory.
Exceptions on a case-by-case basis may also be made by HHS awarding
agencies without seeking prior approval from the OGAM. OGAM will
maintain a record of all requests for exceptions from the provisions of
this part that have been approved for classes of awards or recipients.
(b) As a matter of Departmental policy, requests for individual case
deviations will be considered favorably by HHS and its awarding agencies
whenever the deviation will facilitate comprehensive or integrated
service delivery, or multiple-source consolidated awards, unless the
deviation would impair the integrity of the program.
[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, Mar. 22, 1996]
Sec. 74.5 Subawards.
(a) Unless inconsistent with statutory requirements, this part
(except for Sec. 74.12 and the forms prescribed in Sec. 74.22) shall
apply to--
[[Page 192]]
(1) Except for subawards under block grants (45 CFR part 96), all
subawards received by institutions of higher education, hospitals, other
nonprofit organizations, and commercial organizations from any recipient
of an HHS award, including any subawards received from States, local
governments, and Indian tribal governments covered by 45 CFR part 92;
and
(2) All subawards received from States by any entity, including a
government entity, under the entitlement programs identified at 45 CFR
part 92, Sec. 92.4 (a), (a)(7), and (a)(8), except that Secs. 74.12 and
74.25 of this part shall not apply.
(b) Except as provided in paragraph (a)(2) of this section, when
State, local, and Indian Tribal government recipients of HHS awards make
subawards to a government entity, they shall apply the regulations at 45
CFR part 92, ``Uniform Administrative Requirements for Grants and
Cooperative Agreements to State and Local Governments,'' or State rules,
whichever apply, to such awards.
[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, Mar. 22, 1996]
Subpart B--Pre-Award Requirements
Source: 59 FR 43760, Aug. 25, 1994, unless otherwise noted.
Sec. 74.10 Purpose.
Sections 74.11 through 74.17 prescribe forms and instructions and
other pre-award matters to be used in applying for HHS awards.
Sec. 74.11 Pre-award policies.
(a) Use of Grants and Cooperative Agreements, and Contracts. The
Federal Grant and Cooperative Agreement Act, 31 U.S.C. 6301-08, governs
the use of grants, cooperative agreements and contracts. A grant or
cooperative agreement shall be used only when the principal purpose of a
transaction is to accomplish a public purpose of support or stimulation
authorized by Federal statute. The statutory criterion for choosing
between grants and cooperative agreements is that for the latter,
``substantial involvement is expected between the executive agency and
the State, local government, or other recipient when carrying out the
activity contemplated in the agreement.'' Contracts shall be used when
the principal purpose is acquisition of property or services for the
direct benefit or use of the HHS awarding agency.
(b) HHS awarding agencies shall notify the public of funding
priorities for discretionary grant programs, unless funding priorities
are established by Federal statute.
Sec. 74.12 Forms for applying for HHS financial assistance.
(a) HHS awarding agencies shall comply with the applicable report
clearance requirements of 5 CFR part 1320, ``Controlling Paperwork
Burdens on the Public,'' with regard to all forms used in place of or as
a supplement to the Standard Form 424 (SF-424) series. However, HHS
awarding agencies should use the SF-424 series and its program narrative
whenever possible.
(b) Applicants shall use the SF-424 series or those forms and
instructions prescribed by the HHS awarding agency. Applicants shall
submit the original and two copies of any applications unless additional
copies are required pursuant to 5 CFR part 1320.
(c) For Federal programs covered by E.O. 12372, as amended by E.O.
12416, ``Intergovernmental Review of Federal Programs,'' the applicant
shall complete the appropriate sections of the SF-424 (Application for
Federal Assistance) indicating whether the application was subject to
review by the State Single Point of Contact (SPOC). The name and address
of the SPOC for a particular State can be obtained from the HHS awarding
agency or the Catalog of Federal Domestic Assistance. The SPOC shall
advise the applicant whether the program for which application is made
has been selected by that State for review. (See also 45 CFR part 100.)
(d) HHS awarding agencies that do not use the SF-424 form will
indicate on the application form they prescribe whether the application
is subject to review by the State under E.O. 12372.
[[Page 193]]
(e) This section does not apply to applications for subawards.
[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, Mar. 22, 1996]
Sec. 74.13 Debarment and suspension.
Recipients are subject to the nonprocurement debarment and
suspension common rule implementing E.O.s 12549 and 12689, ``Debarment
and Suspension,'' 45 CFR part 76. This common rule restricts subawards
and contracts with certain parties that are debarred, suspended or
otherwise excluded from or ineligible for participation in Federal
assistance programs or activities.
Sec. 74.14 Special award conditions.
(a) The HHS awarding agency may impose additional requirements as
needed, without regard to Sec. 74.4, above, if an applicant or
recipient:
(1) Has a history of poor performance;
(2) Is not financially stable;
(3) Has a management system that does not meet the standards
prescribed in this part;
(4) Has not conformed to the terms and conditions of a previous
award; or
(5) Is not otherwise responsible.
(b) When it imposes any additional requirements, the HHS awarding
agency must notify the recipient in writing as to the following:
(1) The nature of the additional requirements;
(2) The reason why the additional requirements are being imposed;
(3) The nature of the corrective actions needed;
(4) The time allowed for completing the corrective actions; and
(5) The method for requesting reconsideration of the additional
requirements imposed.
(c) The HHS awarding agency will promptly remove any additional
requirements once the conditions that prompted them have been corrected.
Sec. 74.15 Metric system of measurement.
The Metric Conversion Act, as amended by the Omnibus Trade and
Competitiveness Act, 15 U.S.C. 205, declares that the metric system is
the preferred measurement system for U.S. trade and commerce. The Act
requires each Federal agency to establish a date or dates in
consultation with the Secretary of Commerce, when the metric system of
measurement will be used in the agency's procurements, grants, and other
business-related activities. Metric implementation may take longer where
the use of the system is initially impractical or likely to cause
significant inefficiencies in the accomplishment of federally-funded
activities. HHS awarding agencies will follow the provisions of E.O.
12770, ``Metric Usage in Federal Government Programs.''
Sec. 74.16 Resource Conservation and Recovery Act (RCRA, Section 6002
of Pub. L. No. 94-580 (Codified at 42 U.S.C. 6962)).
Under the Act, any State agency or agency of a political subdivision
of a State which is using appropriated Federal funds must comply with
section 6002 of the RCRA. This section requires that preference be given
in procurement programs to the purchase of specific products containing
recycled materials identified in guidelines developed by the
Environmental Protection Agency (EPA) (40 CFR parts 247-254).
Accordingly, State and local institutions of higher education,
hospitals, and other nonprofit organizations that receive direct HHS
awards or other Federal funds shall give preference in their procurement
programs funded with Federal funds to the purchase of recycled products
pursuant to the EPA guidelines.
Sec. 74.17 Certifications and representations.
Unless prohibited by statute or codified regulation, each HHS
awarding agency is authorized and encouraged to allow recipients to
submit certifications and representations required by statute, executive
order, or regulation on an annual basis, if the recipients have ongoing
and continuing relationships with the HHS awarding agency. Annual
certifications and representations shall be signed by the responsible
official(s) with the authority to ensure recipients' compliance with the
pertinent requirements.
[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, Mar. 22, 1996]
[[Page 194]]
Subpart C--Post-Award Requirements
Source: 59 FR 43760, Aug. 25, 1994, unless otherwise noted.
Financial and Program Management
Sec. 74.20 Purpose of financial and program management.
Sections 74.21 through 74.28 prescribe standards for financial
management systems, methods for making payments, and rules for
satisfying cost sharing and matching requirements, accounting for
program income, budget revision approvals, making audits, determining
allowability of cost, and establishing fund availability.
Sec. 74.21 Standards for financial management systems.
(a) Recipients shall relate financial data to performance data and
develop unit cost information whenever practical. For awards that
support research, unit cost information is usually not appropriate.
(b) Recipients' financial management systems shall provide for the
following:
(1) Accurate, current and complete disclosure of the financial
results of each HHS-sponsored project or program in accordance with the
reporting requirements set forth in Sec. 74.52. If the HHS awarding
agency requires reporting on an accrual basis from a recipient that
maintains its records on other than an accrual basis, the recipient
shall not be required to establish an accrual accounting system. These
recipients may develop such accrual data for their reports on the basis
of an analysis of the documentation on hand.
(2) Records that identify adequately the source and application of
funds for HHS-sponsored activities. These records shall contain
information pertaining to Federal awards, authorizations, obligations,
unobligated balances, assets, outlays, income and interest.
(3) Effective control over and accountability for all funds,
property and other assets. Recipients shall adequately safeguard all
such assets and assure they are used solely for authorized purposes.
(4) Comparison of outlays with budget amounts for each award.
Whenever appropriate, financial information should be related to
performance and unit cost data. (Unit cost data are usually not
appropriate for awards that support research.)
(5) Written procedures to minimize the time elapsing between the
transfer of funds to the recipient from the U.S. Treasury and the
issuance or redemption of checks, warrants or payments by other means
for program purposes by the recipient. To the extent that the provisions
of the Cash Management Improvement Act (CMIA) (Pub. L. 101-453) and its
implementing regulations, ``Rules and Procedures for Funds Transfers,''
(31 CFR part 205) apply, payment methods of State agencies,
instrumentalities, and fiscal agents shall be consistent with CMIA
Treasury-State Agreements, or the CMIA default procedures codified at 31
CFR 205.9(f).
(6) Written procedures for determining the reasonableness,
allocability and allowability of costs in accordance with the provisions
of the applicable Federal cost principles and the terms and conditions
of the award.
(7) Accounting records, including cost accounting records, that are
supported by source documentation.
(c) Where the Federal Government guarantees or insures the repayment
of money borrowed by the recipient, the HHS awarding agency, at its
discretion, may require adequate bonding and insurance if the bonding
and insurance requirements of the recipient are not deemed adequate to
protect the interest of the Federal Government.
(d) The HHS awarding agency may require adequate fidelity bond
coverage where the recipient lacks sufficient coverage to protect the
Federal Government's interest.
(e) Where bonds are required in the situations described in
Sec. 74.21 (c) and (d), the bonds shall be obtained from companies
holding certificates of authority as acceptable sureties, as prescribed
in 31 CFR part 223, ``Surety Companies Doing Business with the United
States.''
[[Page 195]]
Sec. 74.22 Payment.
(a) Unless inconsistent with statutory program purposes, payment
methods shall minimize the time elapsing between the transfer of funds
from the U.S. Treasury and the issuance or redemption of checks,
warrants, or payment by other means by the recipients. Payment methods
of State agencies or instrumentalities shall be consistent with
Treasury-State CMIA agreements, or the CMIA default procedures codified
at 31 CFR 205.9, to the extent that either applies.
(b)(1) Recipients will be paid in advance, provided they maintain or
demonstrate the willingness to maintain:
(i) Written procedures that minimize the time elapsing between the
transfer of funds and disbursement by the recipient; and
(ii) Financial management systems that meet the standards for fund
control and accountability as established in Sec. 74.21.
(2) Unless inconsistent with statutory program purposes, cash
advances to a recipient organization shall be limited to the minimum
amounts needed and be timed to be in accordance with the actual,
immediate cash requirements of the recipient organization in carrying
out the purpose of the approved program or project. The timing and
amount of cash advances shall be as close as is administratively
feasible to the actual disbursements by the recipient organization for
direct program or project costs and the proportionate share of any
allowable indirect costs.
(c) Whenever possible, advances will be consolidated to cover
anticipated cash needs for all awards made by all HHS awarding agencies
to the recipient.
(1) Advance payment mechanisms include electronic funds transfer,
with Treasury checks available on an exception basis.
(2) Advance payment mechanisms are subject to 31 CFR part 205.
(3) Recipients may submit requests for advances and reimbursements
at least monthly when electronic fund transfers are not used.
(d) Requests for Treasury check advance payment shall be submitted
on PMS-270, ``Request for Advance or Reimbursement,'' or other forms as
may be authorized by HHS. This form is not to be used when Treasury
check advance payments are made to the recipient automatically through
the use of a predetermined payment schedule or if precluded by special
HHS-wide instructions for electronic funds transfer.
(e) Reimbursement is the preferred method when the requirements in
paragraph (b) of this section cannot be met. The HHS awarding agency may
also use this method on any construction agreement, or if the major
portion of the construction project is accomplished through private
market financing or Federal loans, and the HHS assistance constitutes a
minor portion of the project.
(1) When the reimbursement method is used, HHS will make payment
within 30 days after receipt of the billing, unless the billing is
improper.
(2) Recipients may submit a request for reimbursement at least
monthly when electronic funds transfers are not used.
(f) If a recipient cannot meet the criteria for advance payments and
the HHS awarding agency has determined that reimbursement is not
feasible because the recipient lacks sufficient working capital, HHS may
provide cash on a working capital advance basis. Under this procedure,
HHS advances cash to the recipient to cover its estimated disbursement
needs for an initial period generally geared to the recipient's
disbursing cycle. Thereafter, HHS reimburses the recipient for its
actual cash disbursements. The working capital advance method of payment
will not be used for recipients unwilling or unable to provide timely
advances to their subrecipient to meet the subrecipient's actual cash
disbursements.
(g) Unless inconsistent with statutory program purposes, to the
extent available, recipients shall disburse funds available from
repayments to and interest earned on a revolving fund, program income,
rebates, refunds, contract settlements, audit recoveries and interest
earned on such funds before requesting additional cash payments.
(h) Unless otherwise required by statute, the HHS awarding agency
will not
[[Page 196]]
withhold payments for proper charges made by recipients at any time
during the project period unless paragraph (h) (1) or (2) of this
section applies:
(1) A recipient has failed to comply with the project objectives,
the terms and conditions of the award, or HHS awarding agency reporting
requirements.
(2) The recipient or subrecipient is delinquent in a debt to the
United States. Under such conditions, the HHS awarding agency may, upon
reasonable notice, inform the recipient that payments shall not be made
for obligations incurred after a specified date until the conditions are
corrected or the indebtedness to the Federal Government is liquidated.
(See 45 CFR part 30).
(i) Standards governing the use of banks and other institutions as
depositories of funds advanced under awards are as follows.
(1) Except for situations described in paragraph (i)(2) of this
section, HHS will not require separate depository accounts for funds
provided to a recipient or establish any eligibility requirements for
depositories for funds provided to a recipient. However, recipients must
be able to account for the receipt, obligation and expenditure of funds.
(2) Advances of Federal funds shall be deposited and maintained in
insured accounts whenever possible.
(j) Consistent with the national goal of expanding the opportunities
for women-owned and minority-owned business enterprises, recipients are
encouraged to use women-owned and minority-owned banks (a bank which is
owned at least 50 percent by women or minority group members).
(k) Recipients shall maintain advances of Federal funds in interest
bearing accounts, unless one of the following conditions apply:
(1) The recipient receives less than $120,000 in Federal awards per
year.
(2) The best reasonably available interest bearing account would not
be expected to earn interest in excess of $250 per year on Federal cash
balances.
(3) The depository would require an average or minimum balance so
high that it would not be feasible within the expected Federal and non-
Federal cash resources.
(l) For those entities where CMIA and its implementing regulations
do not apply (see 31 CFR part 205), interest earned on Federal advances
deposited in interest bearing accounts shall be remitted annually to the
Department of Health and Human Services, Payment Management System, P.O.
Box 6021, Rockville, MD 20852. Recipients with Electronic Funds Transfer
capability should use an electronic medium such as the FEDWIRE Deposit
System. Interest amounts up to $250 per year may be retained by the
recipient for administrative expense. State universities and hospitals
shall comply with CMIA, as it pertains to interest. If an entity subject
to CMIA uses its own funds to pay pre-award costs for discretionary
awards without prior written approval from the HHS awarding agency, it
waives its right to recover the interest under CMIA. (See
Sec. 74.25(d)).
(m) PMS-270, Request for Advance or Reimbursement. Recipients shall
use the PMS-270 to request advances or reimbursement for all programs
when electronic funds transfer or predetermined advance methods are not
used. HHS shall not require recipients to submit more than an original
and two copies.
(n) Recipients and subrecipients are not required to use forms PMS-
270 and 272 in connection with subaward payments.
[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, Mar. 22, 1996]
Sec. 74.23 Cost sharing or matching.
(a) To be accepted, all cost sharing or matching contributions,
including cash and third party in-kind, shall meet all of the following
criteria:
(1) Are verifiable from the recipient's records;
(2) Are not included as contributions for any other federally-
assisted project or program;
(3) Are necessary and reasonable for proper and efficient
accomplishment of project or program objectives;
(4) Are allowable under the applicable cost principles;
(5) Are not paid by the Federal Government under another award,
except where authorized by Federal statute to be used for cost sharing
or matching;
(6) Are provided for in the approved budget; and
[[Page 197]]
(7) Conform to other provisions of this part, as applicable.
(b) Unrecovered indirect costs may be included as part of cost
sharing or matching.
(c) Values for recipient contributions of services and property
shall be established in accordance with the applicable cost principles.
If the HHS awarding agency authorizes recipients to donate buildings or
land for construction/facilities acquisition projects or long-term use,
the value of the donated property for cost sharing or matching shall be
the lesser of:
(1) The certified value of the remaining life of the property
recorded in the recipient's accounting records at the time of donation;
or
(2) The current fair market value. However, when there is sufficient
justification, the HHS awarding agency may approve the use of the
current fair market value of the donated property, even if it exceeds
the certified value at the time of donation to the project.
(d) Volunteer services furnished by professional and technical
personnel, consultants, and other skilled and unskilled labor may be
counted as cost sharing or matching if the service is an integral and
necessary part of an approved project or program. Rates for volunteer
services shall be consistent with those paid for similar work in the
recipient's organization. In those instances in which the required
skills are not found in the recipient's organization, rates shall be
consistent with those paid for similar work in the labor market in which
the recipient competes for the kind of services involved. In either
case, fringe benefits consistent with those paid that are reasonable,
allowable, and allocable may be included in the valuation.
(e) When an employer other than the recipient furnishes the services
of an employee, these services shall be valued at the employee's regular
rate of pay (plus an amount of fringe benefits that are reasonable,
allowable, and allocable, but exclusive of overhead costs), provided
these services are in the same skill for which the employee is normally
paid.
(f) Donated supplies may include such items as expendable property,
office supplies, laboratory supplies or workshop and classroom supplies.
Value assessed to donated supplies included in the cost sharing or
matching share shall be reasonable and shall not exceed the fair market
value of the property at the time of the donation.
(g) The method used for determining cost sharing or matching for
donated equipment, buildings and land for which title passes to the
recipient may differ according to the purpose of the award, if paragraph
(g)(1) or (2) of this section applies:
(1) If the purpose of the award is to assist the recipient in the
acquisition of equipment, buildings or land, the total value of the
donated property may be claimed as cost sharing or matching.
(2) If the purpose of the award is to support activities that
require the use of equipment, buildings or land, normally only
depreciation or use charges for equipment and buildings may be made.
However, the full value of equipment or other capital assets and fair
rental charges for land may be allowed, provided that the HHS awarding
agency has approved the charges.
(h) The value of donated property shall be determined in accordance
with the usual accounting policies of the recipient, with the following
qualifications.
(1) The value of donated land and buildings shall not exceed its
fair market value at the time of donation to the recipient as
established by an independent appraiser (e.g., certified real property
appraiser or General Services Administration representative) and
certified by a responsible official of the recipient.
(2) The value of donated equipment shall not exceed the fair market
value of equipment of the same age and condition at the time of
donation.
(3) The value of donated space shall not exceed the fair rental
value of comparable space as established by an independent appraisal of
comparable space and facilities in a privately-owned building in the
same locality.
(4) The value of loaned equipment shall not exceed its fair rental
value.
(i) The following requirements pertain to the recipient's supporting
records for in-kind contributions from third parties.
[[Page 198]]
(1) Volunteer services shall be documented and, to the extent
feasible, supported by the same methods used by the recipient for its
own employees, including time records.
(2) The basis for determining the valuation for personal service,
material, equipment, buildings and land shall be documented.
[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, Mar. 22, 1996]
Sec. 74.24 Program income.
(a) The standards set forth in this section shall be used to account
for program income related to projects financed in whole or in part with
Federal funds.
(b) Except as provided below in paragraph (h) of this section,
program income earned during the project period shall be retained by the
recipient and, in accordance with the terms and conditions of the award,
shall be used in one or more of the following ways:
(1) Added to funds committed to the project or program, and used to
further eligible project or program objectives;
(2) Used to finance the non-Federal share of the project or program;
or
(3) Deducted from the total project or program allowable cost in
determining the net allowable costs on which the Federal share of costs
is based.
(c) When the HHS awarding agency authorizes the disposition of
program income as described in paragraph (b)(1) or (b)(2) of this
section, program income in excess of any limits stipulated shall be used
in accordance with paragraph (b)(3) of this section.
(d) In the event that the HHS awarding agency does not specify in
the terms and conditions of the award how program income is to be used,
paragraph (b)(3) of this section shall apply automatically to all
projects or programs except research. For awards that support
performance of research work, paragraph (b)(1) of this section shall
apply automatically unless:
(1) The HHS awarding agency indicates in the terms and conditions of
the award another alternative; or
(2) The recipient is subject to special award conditions under
Sec. 74.14; or
(3) The recipient is a commercial organization (see Sec. 74.82).
(e) Unless the terms and conditions of the award provide otherwise,
recipients shall have no obligation to the Federal Government regarding
program income earned after the end of the project period.
(f) Costs incident to the generation of program income may be
deducted from gross income to determine program income, provided these
costs have not been charged to the award.
(g) Proceeds from the sale of property shall be handled in
accordance with the requirements of the Property Standards. (See
Secs. 74.30 through 74.37, below).
(h) The Patent and Trademark Laws Amendments, 35 U.S.C. section 200-
212, apply to inventions made under an award for performance of
experimental, developmental, or research work. Unless the terms and
conditions for the award provide otherwise, recipients shall have no
obligation to HHS with respect to program income earned from license
fees and royalties for copyrighted material, patents, patent
applications, trademarks, and inventions made under an award. However,
no scholarship, fellowship, training grant, or other funding agreement
made primarily to a recipient for educational purposes will contain any
provision giving the Federal agency rights to inventions made by the
recipient.
Sec. 74.25 Revision of budget and program plans.
(a) The budget plan is the financial expression of the project or
program as approved during the award process. It may include either the
sum of the Federal and non-Federal shares, or only the Federal share,
depending upon HHS awarding agency requirements. It shall be related to
performance for program evaluation purposes whenever appropriate.
(b) Recipients are required to report deviations from budget and
program plans, and request prior approvals for budget and program plan
revisions, in accordance with this section. Except as provided at
Secs. 74.4, 74.14, and this section, HHS awarding agencies may not
impose other prior approval requirements for specific items.
(c) For nonconstruction awards, recipients shall obtain prior
approvals from the HHS awarding agency for one
[[Page 199]]
or more of the following program or budget related reasons.
(1) Change in the scope or the objective of the project or program
(even if there is no associated budget revision requiring prior written
approval).
(2) Change in the project director or principal investigator or
other key persons specified in the application or award document.
(3) The absence for more than three months, or a 25 percent
reduction in time devoted to the project, by the approved project
director or principal investigator.
(4) The need for additional Federal funding.
(5) The inclusion, unless waived by the HHS awarding agency, of
costs that require prior approval in accordance with OMB Circular A-21,
``Cost Principles for Educational Institutions;'' OMB Circular A-122,
``Cost Principles for Nonprofit Organizations;'' or appendix E of this
part, ``Principles for Determining Costs Applicable to Research and
Development under Grants and Contracts with Hospitals,'' or 48 CFR part
31, ``Contract Cost Principles and Procedures,'' as applicable.
(6) The transfer of funds allotted for training allowances (direct
payment to trainees) to other categories of expense.
(7) Unless described in the application and funded in the approved
award, the subaward, transfer or contracting out of any work under an
award. This provision does not apply to the purchase of supplies,
material, equipment or general support services.
(8) The inclusion of research patient care costs in research awards
made for the performance of research work.
(d) Except for requirements listed in paragraphs (c)(1) and (c)(4)
of this section, the HHS awarding agency is authorized, at its option,
to waive cost-related and administrative prior written approvals
required by this part and its appendixes. Additional waivers may be
granted authorizing recipients to do any one or more of the following:
(1) Incur pre-award costs up to 90 calendar days prior to award, or
more than 90 calendar days with the prior approval of the HHS awarding
agency. However, all pre-award costs are incurred at the recipient's
risk: the HHS awarding agency is under no obligation to reimburse such
costs if for any reason the applicant does not receive an award or if
the award to the recipient is less than anticipated and inadequate to
cover such costs.
(2) Initiate a one-time extension of the expiration date of the
award of up to 12 months unless one or more of the conditions identified
at paragraphs (d)(2)(i), (ii), and (iii) of this section apply. For one-
time extensions, the recipient must notify the HHS awarding agency in
writing, with the supporting reasons and revised expiration date, at
least 10 days before the date specified in the award. This one-time
extension may not be exercised either by recipients or HHS awarding
agencies merely for the purpose of using unobligated balances. Such
extensions are not permitted where:
(i) The terms and conditions of award prohibit the extension; or
(ii) The extension requires additional Federal funds; or
(iii) The extension involves any change in the approved objectives
or scope of the project.
(3) Carry forward unobligated balances to subsequent funding
periods.
(4) For awards that support performance of research work, unless the
HHS awarding agency provides otherwise in the award, or the award is
subject to Sec. 74.14 or subpart E of this Part, the prior approval
requirements described in paragraphs (d) (1)-(3) of this section are
automatically waived (i.e., recipients need not obtain such prior
approvals). However, extension of award expiration dates must be
approved by the HHS awarding agency if one of the conditions in
paragraph (d)(2) of this section applies.
(e) The HHS awarding agencies may not permit any budget changes in a
recipient's award that would cause any Federal appropriation to be used
for purposes other then those consistent with the original purpose of
the authorization and appropriation under which the award was funded.
(f) For construction awards, recipients shall obtain prior written
approval promptly from the HHS awarding agency for budget revisions
whenever:
[[Page 200]]
(1) The revision results from changes in the scope or the objective
of the project or program;
(2) The need arises for additional Federal funds to complete the
project; or
(3) A revision is desired which involves specific costs for which
prior written approval requirements apply in keeping with the applicable
cost principles listed in Sec. 74.27.
(g) When an HHS awarding agency makes an award that provides support
for both construction and nonconstruction work, it may require the
recipient to obtain prior approval before making any fund or budget
transfers between the two types of work supported.
(h) For both construction and nonconstruction awards, recipients
shall notify the HHS awarding agency in writing promptly whenever the
amount of Federal authorized funds is expected to exceed the needs of
the recipient for the project period by more than $5000 or five percent
of the Federal award, whichever is greater. This notification shall not
be required if an application for additional funding is submitted for a
continuation award.
(i) Within 30 calendar days from the date of receipt of the request
for budget revisions, HHS awarding agencies shall notify the recipient
whether its requested budget revisions have been approved. If the
requested revision is still under consideration at the end of 30
calendar days, the HHS awarding agency must inform the recipient in
writing of the date when the recipient may expect a decision.
(j) When requesting approval for budget changes, recipients shall
make their requests in writing.
(k) All approvals granted in keeping with the provisions of this
section shall not be valid unless they are in writing, and signed by at
least one of the following HHS officials:
(1) The Head of the HHS Operating or Staff Division that made the
award or subordinate official with proper delegated authority from the
Head, including the Head of the Regional Office of the HHS Operating or
Staff Division that made the award; or
(2) The responsible Grants Officer of the HHS Operating or Staff
Division that made the award or an individual duly authorized by the
Grants Officer.
(l) No other prior approval requirements for specific items may be
imposed unless a class deviation has been approved by OMB.
[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, Mar. 22, 1996]
Sec. 74.26 Non-Federal audits.
(a) Recipients and subrecipients that are institutions of higher
education or other non-profit organizations (including hospitals) shall
be subject to the audit requirements contained in the Single Audit Act
Amendments of 1996 (31 U.S.C. 7501-7507) and revised OMB Circular A-133,
``Audits of States, Local Governments, and Non-Profit Organizations.''
(b) State and local governments shall be subject to the audit
requirements contained in the Single Audit Act Amendments of 1996 (31
U.S.C. 7501-7507) and revised OMB Circular A-133, ``Audits of States,
Local Governments, and Non-Profit Organizations.''
(c) For-profit hospitals not covered by the audit provisions of
revised OMB Circular A-133 shall be subject to the audit requirements of
the Federal awarding agencies.
(d)(1) Recipients and subrecipients that are commercial
organizations (including for-profit hospitals) have two options
regarding audits:
(i) A financial related audit (as defined in the Government Auditing
Standards, GPO Stock #020-000-00-265-4) of a particular award in
accordance with Government Auditing Standards, in those cases where the
recipient receives awards under only one HHS program; or, if awards are
received under multiple HHS programs, a financial related audit of all
HHS awards in accordance with Government Auditing Standards; or
(ii) An audit that meets the requirements contained in OMB Circular
A-133.
(2) Commercial organizations that receive annual HHS awards totaling
less than OMB Circular A-133's audit requirement threshold are exempt
from requirements for a non-Federal audit for that year, but records
must be
[[Page 201]]
available for review by appropriate officials of Federal agencies.
[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, Mar. 22, 1996;
61 FR 15564, Apr. 8, 1996; 62 FR 41878, Aug. 4, 1997; 62 FR 45939,
45945, Aug. 29, 1997]
Sec. 74.27 Allowable costs.
(a) For each kind of recipient, there is a particular set of Federal
principles that applies in determining allowable costs. Allowability of
costs shall be determined in accordance with the cost principles
applicable to the entity incurring the costs. Thus, allowability of
costs incurred by State, local or federally-recognized Indian tribal
governments is determined in accordance with the provisions of OMB
Circular A-87, ``Cost Principles for State and Local Governments.'' The
allowability of costs incurred by nonprofit organizations (except for
those listed in Attachment C of Circular A-122) is determined in
accordance with the provisions of OMB Circular A-122, ``Cost Principles
for Nonprofit Organizations'' and paragraph (b) of this section. The
allowability of costs incurred by institutions of higher education is
determined in accordance with the provisions of OMB Circular A-21,
``Cost Principles for Educational Institutions.'' The allowability of
costs incurred by hospitals is determined in accordance with the
provisions of appendix E of this part, ``Principles for Determining
Costs Applicable to Research and Development Under Grants and Contracts
with Hospitals.'' The allowability of costs incurred by commercial
organizations and those nonprofit organizations listed in Attachment C
to Circular A-122 is determined in accordance with the provisions of the
Federal Acquisition Regulation (FAR) at 48 CFR part 31, except that
independent research and development costs are unallowable.
(b) OMB Circular A-122 does not cover the treatment of bid and
proposal costs or independent research and development costs. The
following rules apply to these costs for nonprofit organizations subject
to that Circular.
(1) Bid and proposal costs. Bid and proposal costs are the immediate
costs of preparing bids, proposals, and applications for Federal and
non-Federal awards, contracts, and other agreements, including the
development of scientific, cost, and other data needed to support the
bids, proposals, and applications. Bid and proposal costs of the current
accounting period are allowable as indirect costs. Bid and proposal
costs of past accounting periods are unallowable in the current period.
However, if the recipient's established practice is to treat these costs
by some other method, they may be accepted if they are found to be
reasonable and equitable. Bid and proposal costs do not include
independent research and development costs covered by paragraph (b)(2)
of this section, or pre-award costs covered by OMB Circular A-122,
Attachment B, paragraph 33 and Sec. 74.25(d)(1).
(2) Independent Research and Development costs. Independent research
and development is research and development which is conducted by an
organization, and which is not sponsored by Federal or non-Federal
awards, contracts, or other agreements. Independent research and
development shall be allocated its proportionate share of indirect costs
on the same basis as the allocation of indirect costs to sponsored
research and development. The cost of independent research and
development, including their proportionate share of indirect costs, are
unallowable.
Sec. 74.28 Period of availability of funds.
Where a funding period is specified, a recipient may charge to the
award only allowable costs resulting from obligations incurred during
the funding period and any pre-award costs authorized by the HHS
awarding agency pursuant to Sec. 74.25(d)(1).
Property Standards
Sec. 74.30 Purpose of property standards.
Sections 74.31 through 74.37 set forth uniform standards governing
management and disposition of property furnished by HHS or whose cost
was charged directly to a project supported by an HHS award. The HHS
awarding agency may not impose additional requirements, unless
specifically required to do so by Federal statute. The recipient may use
its own property management standards and procedures
[[Page 202]]
provided they meet the provisions of Secs. 74.31 through 74.37.
Sec. 74.31 Insurance coverage.
Recipients shall, at a minimum, provide the equivalent insurance
coverage for real property and equipment acquired with HHS funds as
provided to other property owned by the recipient.
Sec. 74.32 Real property.
(a) Title to real property shall vest in the recipient subject to
the condition that the recipient shall use the real property for the
authorized purpose of the project as long as it is needed and shall not
encumber the property without approval of the HHS awarding agency.
(b) The recipient shall obtain written approval from the HHS
awarding agency for the use of real property in other federally-
sponsored projects when the recipient determines that the property is no
longer needed for the purpose of the original project. Use in other
projects shall be limited to those under federally-sponsored projects
(i.e., awards) or programs that have purposes consistent with those
authorized for support by the HHS awarding agency.
(c) When the real property is no longer needed as provided in
paragraphs (a) and (b) of this section, the recipient shall request
disposition instructions from the HHS awarding agency or its successor.
The HHS awarding agency must provide one or more of the following
disposition instructions:
(1) The recipient may be permitted to retain title without further
obligation to the Federal Government after it compensates the Federal
Government for that percentage of the current fair market value of the
property attributable to the Federal share in the project.
(2) The recipient may be directed to sell the property under
guidelines provided by the HHS awarding agency and pay the Federal
Government for that percentage of the current fair market value of the
property attributable to the Federal share in the project (after
deducting actual and reasonable selling and fix-up expenses, if any,
from the sales proceeds). When the recipient is authorized or required
to sell the property, proper sales procedures shall be established that
provide for competition to the extent practicable and result in the
highest possible return.
(3) The recipient may be directed to transfer title to the property
to the Federal Government or to an eligible third party provided that,
in such cases, the recipient shall be entitled to compensation for its
attributable percentage of the current fair market value of the
property.
Sec. 74.33 Federally-owned and exempt property.
(a)(1) Title of federally-owned property remains vested in the
Federal Government. Recipients shall submit annually an inventory
listing of federally-owned property in their custody to the HHS awarding
agency. Upon completion of the award or when the property is no longer
needed, the recipient shall report the property to the HHS awarding
agency for further agency utilization.
(2) If the HHS awarding agency has no further need for the property,
it shall be declared excess and reported to the General Services
Administration, unless the HHS awarding agency has statutory authority
to dispose of the property by alternative methods (e.g., the authority
provided by the Federal Technology Transfer Act, 15 U.S.C. 3710(I), to
donate research equipment to educational and nonprofit organizations in
accordance with E.O. 12821, ``Improving Mathematics and Science
Education in Support of the National Education Goals''). Appropriate
instructions shall be issued to the recipient by the HHS awarding
agency.
(b) For research awards to certain types of recipients, 31 U.S.C.
6306 authorizes HHS to vest title to property acquired with Federal
funds in the recipient without further obligation to the Federal
government and under conditions that HHS considers appropriate. Such
property is ``exempt property''. Exempt property shall not be subject to
the requirements of Sec. 74.34, except that it shall be subject to
paragraphs (h)(1), (2), and (4) of that section
[[Page 203]]
concerning the HHS awarding agency's right to require transfer.
[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11747, Mar. 22, 1996]
Sec. 74.34 Equipment.
(a) Title to equipment acquired by a recipient with HHS funds shall
vest in the recipient, subject to the conditions of this section.
(b)(1) The recipient shall not use equipment acquired with HHS funds
to provide services to non-Federal organizations for a fee that is less
than private companies charge for equivalent services, unless
specifically authorized by Federal statute, for so long as the Federal
Government retains an interest in the equipment.
(2) If the equipment is owned by the Federal Government, use on
other activities not sponsored by the Federal Government shall be
permissible if authorized by the HHS awarding agency.
(3) User charges shall be treated as program income, in keeping with
the provisions of Sec. 74.24.
(c) The recipient shall use the equipment in the project or program
for which it was acquired as long as needed, whether or not the project
or program continues to be supported by Federal funds and shall not
encumber the property without approval of the HHS awarding agency. When
no longer needed for the original project or program, the recipient
shall use the equipment in connection with its other federally-sponsored
activities, if any, in the following order of priority:
(1) Programs, projects, or activities sponsored by the HHS awarding
agency;
(2) Programs, projects, or activities sponsored by other HHS
awarding agencies; then
(3) Programs, project, or activities sponsored by other Federal
agencies.
(d) During the time that equipment is used on the program, project,
or activity for which it was acquired, the recipient shall make it
available for use on other projects or programs if such other use will
not interfere with the work on the program, project, or activity for
which the equipment was originally acquired. First preference for such
other use shall be given to other programs, projects, or activities
sponsored by the HHS awarding agency. Second preference shall be given
to programs, projects, or activities sponsored by other HHS awarding
agencies. Third preference shall be given to programs, projects, or
activities sponsored by other Federal agencies.
(e) When acquiring replacement equipment, the recipient may use the
equipment to be replaced as trade-in or sell the equipment and use the
proceeds to offset the costs of the replacement equipment subject to the
approval of the HHS awarding agency.
(f) The recipient's property management standards for equipment
acquired with Federal funds and federally-owned equipment shall include
all of the following:
(1) Equipment records shall be maintained accurately and shall
include the following information:
(i) A description of the equipment;
(ii) Manufacturer's serial number, model number, Federal stock
number, national stock number, or other identification number;
(iii) Source of the equipment, including the award number;
(iv) Whether title vests in the recipient or the Federal Government;
(v) Acquisition date (or date received, if the equipment was
furnished by the Federal Government) and cost;
(vi) Information from which one can calculate the percentage of
HHS's share in the cost of the equipment (not applicable to equipment
furnished by the Federal Government);
(vii) Location and condition of the equipment and the date the
information was reported;
(viii) Unit acquisition cost; and
(ix) Ultimate disposition data, including date of disposal and sales
price or the method used to determine current fair market value where a
recipient compensates the HHS awarding agency for its share.
(2) Equipment owned by the Federal Government shall be identified to
indicate Federal ownership.
(3) The recipient shall take a physical inventory of equipment and
the results reconciled with the equipment records at least once every
two years. Any differences between quantities determined by the physical
inspection and those shown in the accounting
[[Page 204]]
records shall be investigated to determine the causes of the difference.
The recipient shall, in connection with the inventory, verify the
existence, current utilization, and continued need for the equipment.
(4) recipient shall maintain a control system to insure adequate
safeguards to prevent loss, damage, or theft of the equipment. Any loss,
damage, or theft of equipment shall be investigated and fully
documented; if the equipment was owned by the Federal Government, the
recipient shall promptly notify the HHS awarding agency.
(5) The recipient shall implement adequate maintenance procedures to
keep the equipment in good condition.
(6) Where the recipient is authorized or required to sell the
equipment, proper sales procedures shall be established which provide
for competition to the extent practicable and result in the highest
possible return.
(g) When the recipient no longer needs the equipment, it may use the
equipment for other activities in accordance with the following
standards. For equipment with a current per unit fair market value of
$5000 or more, the recipient may retain the equipment for other uses
provided that compensation is made to the original HHS awarding agency
or its successor. The amount of compensation shall be computed by
applying the percentage of HHS's share in the cost of the original
project or program to the current fair market value of the equipment. If
the recipient has no need for the equipment, the recipient shall request
disposition instructions from the HHS awarding agency; such instructions
must be issued to the recipient no later than 120 calendar days after
the recipient's request and the following procedures shall govern:
(1) If so instructed or if disposition instructions are not issued
within 120 calendar days after the recipient's request, the recipient
shall sell the equipment and reimburse the HHS awarding agency an amount
computed by applying to the sales proceeds the percentage of HHS share
in the cost of the original project or program. However, the recipient
shall be permitted to deduct and retain from the HHS share $500 or ten
percent of the proceeds, whichever is less, for the recipient's selling
and handling expenses.
(2) If the recipient is instructed to ship the equipment elsewhere,
the recipient shall be reimbursed by the HHS awarding agency by an
amount which is computed by applying the percentage of the recipient's
share in the cost of the original project or program to the current fair
market value of the equipment, plus any reasonable shipping or interim
storage costs incurred.
(3) If the recipient is instructed to otherwise dispose of the
equipment, the recipient will be reimbursed by the HHS awarding agency
for such costs incurred in its disposition.
(4) If the recipient's project or program for which or under which
the equipment was acquired is still receiving support from the same HHS
program, and if the HHS awarding agency approves, the net amount due may
be used for allowable costs of that project or program. Otherwise the
net amount must be remitted to the HHS awarding agency by check.
(h) The HHS awarding agency reserves the right to order the transfer
of title to the Federal Government or to a third party named by the
awarding agency when such third party is otherwise eligible under
existing statutes. Such transfer shall be subject to the following
standards:
(1) The equipment shall be appropriately identified in the award or
otherwise made known to the recipient in writing.
(2) The HHS awarding agency may require submission of a final
inventory that lists all equipment acquired with HHS funds and
federally-owned equipment.
(3) If the HHS awarding agency fails to issue disposition
instructions within 120 calendar days after receipt of the inventory,
the recipient shall apply the standards of paragraph (g)(1) of this
section as appropriate.
(4) When the HHS awarding agency exercises its right to order the
transfer of title to the Federal Government, the equipment shall be
subject to the rules for federally-owned equipment. (See Sec. 74.34(g)).
[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11747, Mar. 22, 1996]
[[Page 205]]
Sec. 74.35 Supplies.
(a) Title to supplies shall vest in the recipient upon acquisition.
If there is a residual inventory of unused supplies exceeding $5000 in
total aggregate value upon termination or completion of the project or
program and the supplies are not needed for any other federally-
sponsored project or program, the recipient shall retain the supplies
for use on non-federally sponsored activities or sell them, but shall,
in either case, compensate the Federal Government for its share. The
amount of compensation shall be computed in the same manner as for
equipment. (See Sec. 74.34(g)).
(b)(1) The recipient shall not use supplies acquired with Federal
funds to provide services to non-Federal organizations for a fee that is
less than private companies charge for equivalent services, unless
specifically authorized by Federal statute as long as the Federal
Government retains an interest in the supplies.
(2) If the supplies are owned by the Federal Government, use on
other activities not sponsored by the Federal Government shall be
permissible if authorized by the HHS awarding agency.
(3) User charges shall be treated as program income, in keeping with
the provisions of Sec. 74.24.
[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11747, Mar. 22, 1996]
Sec. 74.36 Intangible property.
(a) The recipient may copyright any work that is subject to
copyright and was developed, or for which ownership was purchased, under
an award. The HHS awarding agency reserves a royalty-free, nonexclusive
and irrevocable right to reproduce, publish, or otherwise use the work
for Federal purposes, and to authorize others to do so.
(b) Recipients are subject to applicable regulations governing
patents and inventions, including government-wide regulations issued by
the Department of Commerce at 37 CFR part 401, ``Rights to Inventions
Made by Nonprofit Organizations and Small Business Firms Under
Government Grants, Contracts and Cooperative Agreements.''
(c) The Federal Government has the right to:
(1) Obtain, reproduce, publish or otherwise use the data first
produced under an award; and
(2) Authorize others to receive, reproduce, publish, or otherwise
use such data for Federal purposes.
(d) Title to intangible property and debt instruments purchased or
otherwise acquired under an award or subaward vests upon acquisition in
the recipient. The recipient shall use that property for the
originally--authorized purpose, and the recipient shall not encumber the
property without approval of the HHS awarding agency. When no longer
needed for the originally authorized purpose, disposition of the
intangible property shall occur in accordance with the provisions of
Sec. 74.34 (g) and (h).
Sec. 74.37 Property trust relationship.
Real property, equipment, intangible property and debt instruments
that are acquired or improved with Federal funds shall be held in trust
by the recipients as trustee for the beneficiaries of the project or
program under which the property was acquired or improved, and shall not
be encumbered without the approval of the HHS awarding agency.
Recipients shall record liens or other appropriate notices of record to
indicate that real property has been acquired or constructed or, where
applicable, improved with Federal funds, and that use and disposition
conditions apply to the property.
Procurement Standards
Sec. 74.40 Purpose of procurement standards.
Sections 74.41 through 74.48 set forth standards for use by
recipients in establishing procedures for the procurement of supplies
and other expendable property, equipment, real property and other
services with Federal funds. These standards are established to ensure
that such materials and services are obtained in an effective manner and
in compliance with the provisions of applicable Federal statutes and
executive orders. The standards apply where the cost of the procurement
is treated as a direct cost of an award.
[[Page 206]]
Sec. 74.41 Recipient responsibilities.
The standards contained in this section do not relieve the
recipients of the contractual responsibilities arising under its
contract(s). The recipient is the responsible authority, without
recourse to the HHS awarding agency, regarding the settlement and
satisfaction of all contractual and administrative issues arising out of
procurements entered into in support of an award or other agreement.
This includes disputes, claims, protests of award, source evaluation or
other matters of a contractual nature. Matters concerning violation of
statute are to be referred to such Federal, State or local authority as
may have proper jurisdiction.
Sec. 74.42 Codes of conduct.
The recipient shall maintain written standards of conduct governing
the performance of its employees engaged in the award and administration
of contracts. No employee, officer, or agent shall participate in the
selection, award, or administration of a contract supported by Federal
funds if a real or apparent conflict of interest would be involved. Such
a conflict would arise when the employee, officer, or agent, or any
member of his or her immediate family, his or her partner, or an
organization which employs or is about to employ any of the parties
indicated herein, has a financial or other interest in the firm selected
for an award. The officers, employees, and agents of the recipient shall
neither solicit nor accept gratuities, favors, or anything of monetary
value from contractors, or parties to subagreements. However, recipients
may set standards for situations in which the financial interest is not
substantial or the gift is an unsolicited item of nominal value. The
standards of conduct shall provide for disciplinary actions to be
applied for violations of such standards by officers, employers, or
agents of the recipients.
Sec. 74.43 Competition.
All procurement transactions shall be conducted in a manner to
provide, to the maximum extent practical, open and free competition. The
recipient shall be alert to organizational conflicts of interest as well
as noncompetitive practices among contractors that may restrict or
eliminate competition or otherwise restrain trade. In order to ensure
objective contractor performance and eliminate unfair competitive
advantage, contractors that develop or draft grant applications, or
contract specifications, requirements, statements of work, invitations
for bids and/or requests for proposals shall be excluded from competing
for such procurements. Awards shall be made to the bidder or offeror
whose bid or offer is responsive to the solicitation and is most
advantageous to the recipient, price, quality and other factors
considered. Solicitations shall clearly set forth all requirements that
the bidder or offeror shall fulfill in order for the bid or offer to be
evaluated by the recipient. Any and all bids or offers may be rejected
when it is in the recipient's interest to do so.
Sec. 74.44 Procurement procedures.
(a) All recipients shall establish written procurement procedures.
These procedures shall provide for, at a minimum, that:
(1) Recipients avoid purchasing unnecessary items;
(2) Where appropriate, an analysis is made of lease and purchase
alternatives to determine which would be the most economical and
practical procurement for the recipient and the Federal Government; and
(3) Solicitations for goods and services provide for all of the
following:
(i) A clear and accurate description of the technical requirements
for the material, product or service to be procured. In competitive
procurements, such a description shall not contain features which unduly
restrict competition.
(ii) Requirements which the bidder/offeror must fulfill and all
other factors to be used in evaluating bids or proposals.
(iii) A description, whenever practicable, of technical requirements
in terms of functions to be performed or performance required, including
the range of acceptable characteristics or minimum acceptable standards.
[[Page 207]]
(iv) The specific features of ``brand name or equal'' descriptions
that bidders are required to meet when such items are included in the
solicitation.
(v) The acceptance, to the extent practicable and economically
feasible, of products and services dimensioned in the metric system of
measurement.
(vi) Preference, to the extent practicable and economically
feasible, for products and services that conserve natural resources and
protect the environment and are energy efficient.
(b) Positive efforts shall be made by recipients to utilize small
businesses, minority-owned firms, and women's business enterprises,
whenever possible. Recipients of HHS awards shall take all of the
following steps to further this goal.
(1) Ensure that small businesses, minority-owned firms, and women's
business enterprises are used to the fullest extent practicable.
(2) Make information on forthcoming opportunities available and
arrange time frames for purchases and contracts to encourage and
facilitate participation by small businesses, minority-owned firms, and
women's business enterprises.
(3) Consider in the contract process whether firms competing for
larger contracts intend to subcontract with small businesses, minority-
owned firms, and women's business enterprises.
(4) Encourage contracting with consortiums of small businesses,
minority-owned firms and women's business enterprises when a contract is
too large for one of these firms to handle individually.
(5) Use the services and assistance, as appropriate, of such
organizations as the Small Business Administration and the Department of
Commerce's Minority Business Development Agency in the solicitation and
utilization of small businesses, minority-owned firms and women's
business enterprises.
(c) The type of procuring instruments used (e.g., fixed price
contracts, cost reimbursable contracts, purchase orders, and incentive
contracts) shall be determined by the recipient but shall be appropriate
for the particular procurement and for promoting the best interest of
the program or project involved. The ``cost-plus-a-percentage-of-cost''
or ``percentage of construction cost'' methods of contracting shall not
be used.
(d) Contracts shall be made only with responsible contractors who
possess the potential ability to perform successfully under the terms
and conditions of the proposed procurement. Consideration shall be given
to such matters as contractor integrity, record of past performance,
financial and technical resources or accessibility to other necessary
resources. In certain circumstances, contracts with certain parties are
restricted by agencies' implementation of E.O.s 12549 and 12689,
``Debarment and Suspension.'' (See 45 CFR part 76.)
(e) Recipients shall, on request, make available for the HHS
awarding agency, pre-award review, procurement documents such as
requests for proposals or invitations for bids, independent cost
estimates, etc., when any of the following conditions apply:
(1) A recipient's procurement procedures or operation fails to
comply with the procurement standards in this Part.
(2) The procurement is expected to exceed the simplified acquisition
threshold fixed at 41 U.S.C. 403(11) (currently $100,000) and is to be
awarded without competition or only one bid or offer is received in
response to a solicitation.
(3) The procurement, which is expected to exceed the simplified
acquisition threshold specifies a ``brand name'' product.
(4) The proposed award over the simplified acquisition threshold is
to be awarded to other than the apparent low bidder under a sealed bid
procurement.
(5) A proposed contract modification changes the scope of a contract
or increases the contract amount by more than the amount of the
simplified acquisition threshold.
[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11747, Mar. 22, 1996;
62 FR 41878, Aug. 4, 1997; 62 FR 51377, Oct. 1, 1997]
Sec. 74.45 Cost and price analysis.
Some form of cost or price analysis shall be made and documented in
the procurement files in connection with
[[Page 208]]
every procurement action. Price analysis may be accomplished in various
ways, including the comparison of price quotations submitted, market
prices and similar indicia, together with discounts. Cost analysis is
the review and evaluation of each element of cost to determine
reasonableness, allocability and allowability.
Sec. 74.46 Procurement records.
Procurement records and files for purchases in excess of the
simplified acquisition threshold shall include the following at a
minimum: (a) Basis for contractor selection, (b) justification for lack
of competition when competitive bids or offers are not obtained, and (c)
basis for award cost or price.
[59 FR 43760, Aug. 25, 1994, as amended at 62 FR 41878, Aug. 4, 1997]
Sec. 74.47 Contract administration.
A system for contract administration shall be maintained to ensure
contractor conformance with the terms, conditions and specifications of
the contract and to ensure adequate and timely follow up of all
purchases. Recipients shall evaluate contractor performance and
document, as appropriate, whether contractors have met the terms,
conditions and specifications of the contract.
Sec. 74.48 Contract provisions.
The recipient shall include, in addition to provisions to define a
sound and complete agreement, the following provisions in all contracts.
The following provisions shall also be applied to subcontracts:
(a) Contracts in excess of the simplified acquisition threshold
shall contain contractual provisions or conditions that allow for
administrative, contractual, or legal remedies in instances in which a
contractor violates or breaches the contract terms, and provide for such
remedial actions as may be appropriate.
(b) All contracts in excess of the simplified acquisition threshold
(currently $100,000) shall contain suitable provisions for termination
by the recipient, including the manner by which termination shall be
effected and the basis for settlement. In addition, such contracts shall
describe conditions under which the contract may be terminated for
default as well as conditions where the contract may be terminated
because of circumstances beyond the control of the contractor.
(c) Except as otherwise required by statute, an award that requires
the contracting (or subcontracting) for construction or facility
improvements shall provide for the recipient to follow its own
requirements relating to bid guarantees, performance bonds, and payment
bonds unless the construction contract or subcontract exceeds $100,000.
For those contracts or subcontracts exceeding $100,000, the HHS awarding
agency may accept the bonding policy and requirements of the recipient,
provided the HHS awarding agency has made a determination that the
Federal Government's interest is adequately protected. If such a
determination has not been made, the minimum requirements shall be as
follows:
(1) A bid guarantee from each bidder equivalent to five percent of
the bid price. The ``bid guarantee'' shall consist of a firm commitment
such as a bid bond, certified check, or other negotiable instrument
accompanying a bid as assurance that the bidder shall, upon acceptance
of his bid, execute such contractual documents as may be required within
the time specified.
(2) A performance bond on the part of the contractor for 100 percent
of the contract price. A ``performance bond'' is one executed in
connection with a contract to secure fulfillment of all the contractor's
obligations under such contract.
(3) A payment bond on the part of the contractor for 100 percent of
the contract price. A ``payment bond'' is one executed in connection
with a contract to assure payment as required by statute of all persons
supplying labor and material in the execution of the work provided for
in the contract.
(4) Where bonds are required in the situations described herein, the
bonds shall be obtained from companies holding certificates of authority
as acceptable sureties pursuant to 31 CFR part 223, ``Surety Companies
Doing Business with the United States.''
[[Page 209]]
(d) All negotiated contracts (except those for less than the
simplified acquisition threshold) awarded by recipients shall include a
provision to the effect that the recipient, the HHS awarding agency, the
U.S. Comptroller General, or any of their duly authorized
representatives, shall have access to any books, documents, papers and
records of the contractor which are directly pertinent to a specific
program for the purpose of making audits, examinations, excerpts and
transcriptions.
(e) All contracts, including small purchases, awarded by recipients
and their contractors shall contain the procurement provisions of
appendix A to this part, as applicable.
[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11747, Mar. 22, 1996;
62 FR 41878, Aug. 4, 1997]
Reports and Records
Sec. 74.50 Purpose of reports and records.
Sections 74.51 through 74.53 set forth the procedures for monitoring
and reporting on the recipient's financial and program performance and
the necessary standard reporting forms. They also set forth record
retention requirements.
Sec. 74.51 Monitoring and reporting program performance.
(a) Recipients are responsible for managing and monitoring each
project, program, subaward, function or activity supported by the award.
Recipients shall monitor subawards to ensure that subrecipients have met
the audit requirements as set forth in Sec. 74.26.
(b) The HHS awarding agency will prescribe the frequency with which
the performance reports shall be submitted. Except as provided in
paragraph (f) of this section, performance reports will not be required
more frequently than quarterly or, less frequently than annually. Annual
reports shall be due 90 calendar days after the award year; quarterly or
semi-annual reports shall be due 30 days after the reporting period. The
HHS awarding agency may require annual reports before the anniversary
dates of multiple year awards in lieu of these requirements. The final
performance reports are due 90 calendar days after the expiration or
termination of the award.
(c) If inappropriate, a final technical or performance report will
not be required after completion of the project.
(d) Performance reports shall generally contain, for each award,
brief information on each of the following:
(1) A comparison of actual accomplishments with the goals and
objectives established for the period, the findings of the investigator,
or both. Whenever appropriate and the output of programs or projects can
be readily quantified, such quantitative data should be related to cost
data for computation of unit costs.
(2) Reasons why established goals were not met, if appropriate.
(3) Other pertinent information including, when appropriate,
analysis and explanation of cost overruns or high unit costs.
(e) Recipients shall submit the original and two copies of
performance reports.
(f) Recipients shall immediately notify the HHS awarding agency of
developments that have a significant impact on the award-supported
activities. Also, notification shall be given in the case of problems,
delays, or adverse conditions which materially impair the ability to
meet the objectives of the award. This notification shall include a
statement of the action taken or contemplated, and any assistance needed
to resolve the situation.
(g) HHS may make site visits, as needed.
(h) The HHS awarding agency complies with the applicable report
clearance requirements of 5 CFR part 1320, ``Controlling Paperwork
Burdens on the Public,'' when requesting performance data from
recipients.
Sec. 74.52 Financial reporting.
(a) The following forms are used for obtaining financial information
from recipients:
(1) SF-269 or SF-269A, Financial Status Report.
(i) The HHS awarding agency will require recipients to use either
the SF-269 (long form) or SF-269A to report the status of funds for all
nonconstruction projects or programs. The SF-269 shall always be used if
income has been
[[Page 210]]
earned. The awarding agency may, however, waive the SF-269 or SF-269A
requirement when the PMS-270, Request for Advance or Reimbursement, or
PMS-272, Report of Federal Cash Transactions, will provide adequate
information to meet its needs, except that a final SF-269 or SF-269A
shall be required at the completion of the project when the PMS-270 is
used only for advances.
(ii) If the HHS awarding agency requires accrual information and the
recipient's accounting records are not normally kept on the accrual
basis, the recipient shall not be required to convert its accounting
system, but shall develop such accrual information through best
estimates based on an analysis of the documentation on hand.
(iii) The HHS awarding agency will determine the frequency of the
Financial Status Report for each project or program, considering the
size and complexity of the particular project or program. However, the
report will not be required more frequently than quarterly or less
frequently than annually except under Sec. 74.14. A final report shall
be required at the completion of the agreement.
(iv) Recipients shall submit the SF-269 and SF-269A (an original and
two copies) no later than 30 days after the end of each specified
reporting period for quarterly and semi-annual reports, and 90 calendar
days for annual and final reports. Extensions of reporting due dates may
be approved by the HHS awarding agency upon request of the recipient.
(2) PMS-272, Report of Federal Cash Transactions.
(i) When funds are advanced to recipients, the HHS awarding agency
requires each recipient to submit the PMS-272 and, when necessary, its
continuation sheet, PMS-272A through G. The HHS awarding agency uses
this report to monitor cash advanced to recipients and to obtain
disbursement information for each agreement with the recipients.
(ii) The HHS awarding agency may require forecasts of Federal cash
requirements in the ``Remarks'' section of the report.
(iii) Recipients shall submit the original and two copies of the
PMS-272 15 calendar days following the end of each quarter. The HHS
awarding agency may require a monthly report from those recipients
receiving advances totaling $1 million or more per year.
(iv) The HHS awarding agency may waive the requirement for
submission of the PMS-272 for any one of the following reasons: (A) When
monthly advances do not exceed $25,000 per recipient, provided that such
advances are monitored through other forms contained in this section;
(B) If, in HHS' opinion, the recipient's accounting controls are
adequate to minimize excessive Federal advances; or, (C) When the
electronic payment mechanisms provide adequate data.
(b) When the HHS awarding agency needs additional information or
more frequent reports, the following shall be observed.
(1) When additional information is needed to comply with legislative
requirements, the HHS awarding agency will issue instructions to require
recipients to submit that information under the ``Remarks'' section of
the reports.
(2) When HHS determines that a recipient's accounting system does
not meet the standards in Sec. 74.21, additional pertinent information
to further monitor awards may be obtained, without regard to Sec. 74.4,
upon written notice to the recipient until such time as the system is
brought up to standard. In obtaining this information, the HHS awarding
agencies comply with report clearance requirements of 5 CFR part 1320,
``Controlling Paperwork Burdens on the Public.''
(3) The HHS awarding agency may accept the identical information
from a recipient in machine readable format or computer printouts or
electronic outputs in lieu of prescribed formats.
(4) The HHS awarding agency may provide computer or electronic
outputs to recipients when such action expedites or contributes to the
accuracy of reporting.
Sec. 74.53 Retention and access requirements for records.
(a) This section sets forth requirements for record retention and
access to records for awards to recipients.
[[Page 211]]
(b) Financial records, supporting documents, statistical records,
and all other records pertinent to an award shall be retained for a
period of three years from the date of submission of the final
expenditure report or, for awards that are renewed quarterly or
annually, from the date of the submission of the quarterly or annual
financial report. The only exceptions are the following:
(1) If any litigation, claim, financial management review, or audit
is started before the expiration of the 3-year period, the records shall
be retained until all litigation, claims or audit findings involving the
records have been resolved and final action taken.
(2) Records for real property and equipment acquired with Federal
funds shall be retained for 3 years after final disposition.
(3) When records are transferred to or maintained by the HHS
awarding agency, the 3-year retention requirement is not applicable to
the recipient.
(4) Indirect cost rate proposals, cost allocations plans, etc., as
specified in Sec. 74.53(g).
(c) Copies of original records may be substituted for the original
records if authorized by the HHS awarding agency.
(d) The HHS awarding agency will request transfer of certain records
to its custody from recipients when it determines that the records
possess long term retention value. However, in order to avoid duplicate
recordkeeping, the HHS awarding agency may make arrangements for
recipients to retain any records that are continuously needed for joint
use.
(e) HHS awarding agencies, the HHS Inspector General, the U.S.
Comptroller General, or any of their duly authorized representatives,
have the right of timely and unrestricted access to any books,
documents, papers, or other records of recipients that are pertinent to
the awards, in order to make audits, examinations, excerpts, transcripts
and copies of such documents. This right also includes timely and
reasonable access to a recipient's personnel for the purpose of
interview and discussion related to such documents. The rights of access
in this paragraph are not limited to the required retention period, but
shall last as long as records are retained.
(f) Unless required by statute, the HHS awarding agency will not
place restrictions on recipients that limit public access to the records
of recipients that are pertinent to an award, except when the HHS
awarding agency can demonstrate that such records shall be kept
confidential and would have been exempted from disclosure pursuant to
the Freedom of Information Act, 5 U.S.C. 552, if the records had
belonged to the HHS awarding agency.
(g) Paragraphs (g)(1) and (g)(2) of this section apply to the
following types of documents, and their supporting records: Indirect
cost rate computations or proposals, cost allocation plans, and any
similar accounting computations of the rate at which a particular group
of costs is chargeable (such as computer usage chargeback rates or
composite fringe benefit rates).
(1) If the recipient submits to the Federal Government or the
subrecipient submits to the recipient the proposal, plan, or other
computation to form the basis for negotiation of the rate, then the 3-
year retention period for its supporting records starts on the date of
such submission.
(2) If the recipient is not required to submit to the Federal
Government or the subrecipient is not required to submit to the
recipient the proposal, plan, or other computation for negotiation
purposes, then the 3-year retention period for the proposal, plan, or
other computation and its supporting records starts at the end of the
fiscal year (or other accounting period) covered by the proposal, plan,
or other computation.
Termination and Enforcement
Sec. 74.60 Purpose of termination and enforcement.
Sections 74.61 and 74.62 set forth uniform suspension, termination
and enforcement procedures.
Sec. 74.61 Termination.
(a) Awards may be terminated in whole or in part only if paragraph
(a) (1), (2), or (3) of this section applies.
[[Page 212]]
(1) By the HHS awarding agency, if a recipient materially fails to
comply with the terms and conditions of an award.
(2) By the HHS awarding agency with the consent of the recipient, in
which case the two parties shall agree upon the termination conditions,
including the effective date and, in the case of partial termination,
the portion to be terminated.
(3) By the recipient upon sending to the HHS awarding agency written
notification setting forth the reasons for such termination, the
effective date, and, in the case of partial termination, the portion to
be terminated. However, if the HHS awarding agency determines in the
case of partial termination that the reduced or modified portion of the
award will not accomplish the purposes for which the award was made, it
may terminate the award in its entirety.
(b) If costs are allowed under an award, the responsibilities of the
recipient referred to in Sec. 74.71(a), including those for property
management as applicable, shall be considered in the termination of the
award, and provision shall be made for continuing responsibilities of
the recipient after termination, as appropriate.
Sec. 74.62 Enforcement.
(a) If a recipient materially fails to comply with the terms and
conditions of an award, whether stated in a Federal statute or
regulation, an assurance, an application, or a notice of award, the HHS
awarding agency may, in addition to imposing any of the special
conditions outlined in Sec. 74.14, take one or more of the following
actions, as appropriate in the circumstances:
(1) Temporarily withhold cash payments pending correction of the
deficiency by the recipient or more severe enforcement action by the HHS
awarding agency.
(2) Disallow (that is, deny both use of funds and any applicable
matching credit for) all or part of the cost of the activity or action
not in compliance.
(3) Wholly or partly suspend or terminate the current award.
(4) Withhold further awards for the project or program.
(5) Take any other remedies that may be legally available.
(b) In taking an enforcement action, the HHS awarding agency will
provide the recipient or subrecipient an opportunity for such hearing,
appeal, or other administrative proceeding to which the recipient or
subrecipient is entitled under any statute or regulation applicable to
the action. (See also 45 CFR parts 16 and 95.)
(c) Costs to a recipient resulting from obligations incurred by the
recipient during a suspension or after termination of an award are not
allowable unless the HHS awarding agency expressly authorizes them in
the notice of suspension or termination or subsequently. Other recipient
costs during suspension or after termination which are necessary and not
reasonably avoidable are allowable if:
(1) The costs result from obligations which were properly incurred
by the recipient before the effective date of suspension or termination,
are not in anticipation of it, and in the case of a termination, are
noncancellable; and
(2) The costs would be allowable if the award were not suspended or
expired normally at the end of the funding period in which the
termination takes effect.
(d) The enforcement remedies identified in this section, including
suspension and termination, do not preclude a recipient from being
subject to debarment and suspension under E.O.s 12549 and 12689 and the
HHS implementing regulations at Sec. 74.13 of this part and 45 CFR part
76.
[59 FR 43760, Aug. 25, 1994, as amended at 62FR 38218, July 17, 1997]
Subpart D--After-the-Award Requirements
Source: 59 FR 43760, Aug. 25, 1994, unless otherwise noted.
Sec. 74.70 Purpose.
Sections 74.71 through 74.73 contain closeout procedures and other
procedures for subsequent disallowances and adjustments.
[[Page 213]]
Sec. 74.71 Closeout procedures.
(a) Recipients shall submit, within 90 calendar days after the date
of completion of the award, all financial, performance, and other
reports as required by the terms and conditions of the award. The HHS
awarding agency may approve extensions when requested by the recipient.
(b) Unless the HHS awarding agency authorizes an extension, a
recipient shall liquidate all obligations incurred under the award not
later than 90 calendar days after the funding period or the date of
completion as specified in the terms and conditions of the award or in
agency implementing instructions.
(c) HHS will make prompt payments to a recipient for allowable
reimbursable costs under the award being closed out.
(d) The recipient shall promptly refund any balances of unobligated
cash that HHS has advanced or paid and that is not authorized to be
retained by the recipient for use in other projects. 45 CFR part 30
governs unreturned amounts that become delinquent debts.
(e) When authorized by the terms and conditions of the award, HHS
will make a settlement for any upward or downward adjustments to the
Federal share of costs after closeout reports are received.
(f) The recipient shall account for any real and personal property
acquired with HHS funds or received from the Federal Government in
accordance with Secs. 74.31 through 74.37.
(g) In the event a final audit has not been performed prior to the
closeout of an award, HHS retains the right to recover an appropriate
amount after fully considering the recommendations on disallowed costs
resulting from the final audit.
Sec. 74.72 Subsequent adjustments and continuing responsibilities.
(a) The closeout of an award does not affect any of the following:
(1) The right of the HHS awarding agency to disallow costs and
recover funds on the basis of a later audit or other review.
(2) The obligation of the recipient to return any funds due as a
result of later refunds, corrections, or other transactions.
(3) Audit requirements in Sec. 74.26.
(4) Property management requirements in Secs. 74.31 through 74.37.
(5) Records retention requirements in Sec. 74.53.
(b) After closeout of an award, a relationship created under an
award may be modified or ended in whole or in part with the consent of
the HHS awarding agency and the recipient, provided the responsibilities
of the recipient referred to in Sec. 74.72(a), including those for
property management as applicable, are considered and provisions made
for continuing responsibilities of the recipient, as appropriate.
Sec. 74.73 Collection of amounts due.
(a) Any funds paid to a recipient in excess of the amount to which
the recipient is finally determined to be entitled under the terms and
conditions of the award constitute a debt to the Federal Government. If
not paid within a reasonable period after the demand for payment, the
HHS awarding agency may reduce the debt by paragraph (a) (1), (2), or
(3) of this section:
(1) Making an administrative offset against other requests for
reimbursements.
(2) Withholding advance payments otherwise due the recipient.
(3) Taking other action permitted by statute.
(b) Except as otherwise provided by law, HHS awarding agencies will
charge interest on an overdue debt in accordance with 4 CFR ch. II,
``Federal Claims Collection Standards.'' (See 45 CFR part 30.)
Subpart E--Special Provisions for Awards to Commercial Organizations
Source: 59 FR 43760, Aug. 25, 1994, unless otherwise noted.
Sec. 74.80 Scope of subpart.
This subpart contains provisions that apply to awards to commercial
organizations. These provisions are in addition to other applicable
provisions of this part, or they make exceptions
[[Page 214]]
from other provisions of this part for awards to commercial
organizations.
Sec. 74.81 Prohibition against profit.
Except for awards under the Small Business Innovation Research
(SBIR) and Small Business Technology Transfer Research (STTR) programs
(15 U.S.C. 638), no HHS funds may be paid as profit to any recipient
even if the recipient is a commercial organization. Profit is any amount
in excess of allowable direct and indirect costs.
[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11747, Mar. 22, 1996]
Sec. 74.82 Program income.
The additional costs alternative described in Sec. 74.24(b)(1) may
not be applied to program income earned by a commercial organization
except in the SBIR and STTR programs.
Subpart F--Disputes
Source: 59 FR 43760, Aug. 25, 1994, unless otherwise noted.
Sec. 74.90 Final decisions in disputes.
(a) HHS attempts to promptly issue final decisions in disputes and
in other matters affecting the interests of recipients. However, final
decisions adverse to the recipient are not issued until it is clear that
the matter cannot be resolved through further exchange of information
and views.
(b) Under various HHS statutes or regulations, recipients have the
right to appeal from, or to have a hearing on, certain final decisions
by HHS awarding agencies. (See, for example, subpart D of 42 CFR part
50, and 45 CFR part 16). Paragraphs (c) and (d) of this section set
forth the standards HHS expects its member agencies to meet in issuing a
final decision covered by any of the statutes or regulations.
(c) The decision may be brief but must contain:
(1) A complete statement of the background and basis of the awarding
agency's decision, including reference to the pertinent statutes,
regulations, or other governing documents; and
(2) Enough information to enable the recipient to understand the
issues and the position of the HHS awarding agency.
(d) The following or similar language (consistent with the
terminology of the applicable statutes or regulations) should appear at
the end of the decision: ``This is the final decision of the (title of
grants officer or other official responsible for the decision). It shall
be the final decision of the Department unless, within 30 days after
receiving this decision, you deliver or mail (you should use registered
or certified mail to establish the date) a written notice of appeal to
(name and address of appropriate contact, e.g., the office responsible
for awarding agency preliminary appeal process or, where none, the
Departmental Appeals Board, Department of Health and Human Services,
Washington, DC 20201). You shall attach to the notice a copy of this
decision, note that you intend an appeal, state the amount in dispute,
and briefly state why you think that this decision is wrong. You will be
notified of further procedures.''
[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11747, Mar. 22, 1996;
62 FR 38218, July 17, 1997]
Sec. 74.91 Alternative dispute resolution.
HHS encourages its awarding agencies and recipients to try to
resolve disputes by using alternative dispute resolution (ADR)
techniques. ADR often is effective in reducing the cost, delay and
contentiousness involved in appeals and other traditional ways of
handling disputes. ADR techniques include mediation, neutral evaluation
and other consensual methods. Information about ADR is available from
the HHS Dispute Resolution Specialist at the Departmental Appeals Board,
U.S. Department of Health and Human Services, Washington, DC 20201.
Appendix A to Part 74--Contract Provisions
All contracts awarded by a recipient, including small purchases,
shall contain the following provisions as applicable where the cost of
the contract is treated as a direct cost of an award:
1. Equal Employment Opportunity-- All contracts shall contain a
provision requiring compliance with E.O. 11246, ``Equal Employment
Opportunity,'' as amended by E.O.
[[Page 215]]
11375, ``Amending Executive Order 11246 Relating to Equal Employment
Opportunity,'' and as supplemented by regulations at 41 CFR part 60,
``Office of Federal Contract Compliance Programs, Equal Employment
Opportunity, Department of Labor.''
2. Copeland ``Anti-Kickback'' Act (18 U.S.C. 874 and 40 U.S.C.
276c)-- All contracts and subgrants in excess of $2,000 for construction
or repair awarded by recipients and subrecipients shall include a
provision for compliance with the Copeland ``Anti-Kickback'' Act, 18
U.S.C. 874, as supplemented by Department of Labor regulations, 29 CFR
part 3, ``Contractors and Subcontractors on Public Building or Public
Work Financed in Whole or in Part by Loans or Grants from the United
States.'' The Act provides that each contractor or subrecipient shall be
prohibited from inducing, by any means, any person employed in the
construction, completion, or repair of public work, to give up any part
of the compensation to which he is otherwise entitled. The recipient
shall report all suspected or reported violations to the Federal
awarding agency.
3. Davis-Bacon Act, as amended (40 U.S.C. 276a to a-7)-- When
required by Federal program legislation, all construction contracts
awarded by the recipients and subrecipients of more than $2000 shall
include a provision for compliance with the Davis-Bacon Act, 40 U.S.C.
276a to a-7, and as supplemented by Department of Labor regulations, 29
CFR part 5, ``Labor Standards Provisions Applicable to Contracts
Governing Federally Financed and Assisted Construction.'' Under this
Act, contractors shall be required to pay wages to laborers and
mechanics at a rate not less than the minimum wages specified in a wage
determination made by the Secretary of Labor. In addition, contractors
shall be required to pay wages not less than once a week. The recipient
shall place a copy of the current prevailing wage determination issued
by the Department of Labor in each solicitation and the award of a
contract shall be conditioned upon the acceptance of the wage
determination. The recipient shall report all suspected or reported
violations to the HHS awarding agency.
4. Contract Work Hours and Safety Standards Act (40 U.S.C. 327-
333)-- Where applicable, all contracts awarded by recipients in excess
of $100,000 for construction contracts and for other contracts that
involve the employment of mechanics or laborers shall include a
provision for compliance with sections 102 and 107 of the Contract Work
Hours and Safety Standards Act, 40 U.S.C. 327-333, as supplemented by
Department of Labor regulations, 29 CFR part 5. Under section 102 of the
Act, each contractor shall be required to compute the wages of every
mechanic and laborer on the basis of a standard work week of 40 hours.
Work in excess of the standard work week is permissible provided that
the worker is compensated at a rate of not less than 1\1/2\ times the
basic rate of pay for all hours worked in excess of 40 hours in the work
week. Section 107 of the Act is applicable to construction work and
provides that no laborer or mechanic shall be required to work in
surroundings or under working conditions which are unsanitary, hazardous
or dangerous. These requirements do not apply to the purchases of
supplies or materials or articles ordinarily available on the open
market, or contracts for transportation or transmission of intelligence.
5. Rights to Inventions Made Under a Contract or Agreement--
Contracts or agreements for the performance of experimental,
developmental, or research work shall provide for the rights of the
Federal Government and the recipient in any resulting invention in
accordance with 37 CFR part 401, ``Rights to Inventions Made by
Nonprofit Organizations and Small Business Firms Under Government
Grants, Contracts and Cooperative Agreements,'' and any further
implementing regulations issued by HHS.
6. Clean Air Act (42 U.S.C. 7401 et seq.) and the Federal Water
Pollution Control Act as amended (33 U.S.C. 1251 et seq.)-- Contracts
and subgrants of amounts in excess of $100,000 shall contain a provision
that requires the recipient to agree to comply with all applicable
standards, orders or regulations issued pursuant to the Clean Air Act,
42 U.S.C. 7401 et seq., and the Federal Water Pollution Control Act, as
amended 33 U.S.C. 1251 et seq. Violations shall be reported to the HHS
and the appropriate Regional Office of the Environmental Protection
Agency.
7. Byrd Anti-Lobbying Amendment (31 U.S.C. 1352)-- Contractors who
apply or bid for an award of more than $100,000 shall file the required
certification. Each tier certifies to the tier above that it will not
and has not used Federal appropriated funds to pay any person or
organization for influencing or attempting to influence an officer or
employee of any Federal agency, a member of Congress, officer or
employee of Congress, or an employee of a member of Congress in
connection with obtaining any Federal contract, grant or any other award
covered by 31 U.S.C. 1352. Each tier shall also disclose any lobbying
with non-Federal funds that takes place in connection with obtaining any
Federal award. Such disclosures are forwarded from tier to tier up to
the recipient. (See also 45 CFR part 93).
8. Debarment and Suspension (E.O.s 12549 and 12689)-- Certain
contracts shall not be made to parties listed on the nonprocurement
portion of the General Services Administration's ``Lists of Parties
Excluded from Federal Procurement or Nonprocurement Programs'' in
accordance with E.O.s 12549 and 12689, ``Debarment and Suspension.''
(See 45 CFR part 76.) This list contains the names of parties debarred,
suspended, or otherwise
[[Page 216]]
excluded by agencies, and contractors declared ineligible under
statutory authority other than E.O. 12549. Contractors with awards that
exceed the simplified acquisition threshold shall provide the required
certification regarding their exclusion status and that of their
principals prior to award.
[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11747, Mar. 22, 1996;
62 FR 41878, Aug. 4, 1997]
Appendixes B--D to Part 74 [Reserved]
Appendix E to 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
[[Page 217]]
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
[[Page 218]]
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
[[Page 219]]
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
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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
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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;
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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
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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
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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
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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)
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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
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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,
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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;
and (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
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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.)
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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.
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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
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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
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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.
Appendixes F-H to Part 74 [Reserved]
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