Proposed revisions to OMB Circular A-122, ``Cost Principles for Non-Profit Organizations''.
OFFICE OF MANAGEMENT AND BUDGET
Cost Principles for Non-Profit Organizations; Proposed Revisions
AGENCY: Office of Management and Budget.
ACTION: Proposed revisions to OMB Circular A-122, ``Cost Principles for
Non-Profit Organizations''.
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SUMMARY: This notice proposes changes to OMBCircular A-122, ``Cost
Principles for Non-Profit Organizations,'' to revise the definition of
equipment, to make certain additional costs unallowable, to modify the
multiple allocation base method for computing indirect cost rate(s),
and to place a ceiling on the administrative portion of indirect costs
for organizations with Federal funding over $10 million. The proposed
changes provide consistency across OMB's cost principles Circulars A-
122; A-87, ``Cost Principles for State and Local Governments;'' and A-
21, ``Cost Principles for Educational Institutions.''
DATES: Comments on these proposals are due December 5, 1995.
ADDRESSES: Comments should be mailed to Financial Standards and
Reporting Branch, Office of Federal Financial Management, Office of
Management and Budget, 725 17th Street, N.W., Room 6025, Washington, DC
20503. Comments up to three pages in length may be submitted via
facsimile to 202-395-3952. Electronic mail comments may be submitted
via Internet to TRAN__H@A1.EOP.GOV. Please include the full body of
electronic mail comments in the text and not as an attachment. Please
include the name, title, organization, postal address, and E-mail
address in the text of the message.
FOR FURTHER INFORMATION CONTACT: Non-Federal organizations should
contact the organization's cognizant Federal agency. Federal agencies
should contact Gilbert Tran, Financial Standards and Reporting Branch,
Office of Federal Financial Management, Office of Management and
Budget, (202) 395-3993.
SUPPLEMENTARY INFORMATION: In this issue of the Federal Register, the
Office of Management and Budget (OMB) issued a final revision to OMB
Circular A-122, ``Cost Principles for Non-Profit Organizations,''
regarding interest allowability. The revision was made in a continuing
effort to provide consistency across OMB's cost principles Circulars A-
122; A-87, ``Cost Principles for State and Local Governments;'' and A-
21, ``Cost Principles for Educational Institutions,'' to ensure more
comparable treatment of various types of institutions when seeking
support from the Federal Government, and to promote cost effective
funding decisions on the part of the Federal Government and non-profit
organizations. Circular A-122 consists of the Circular as originally
issued in 1980 (45 FR 46022; July 8, 1980), with amendments in 1984 (49
FR 18260; April 27, 1984), in 1987 (52 FR 19788; May 27, 1987) and in
this issue. See also 60 FR 36316 (July 14, 1995) regarding equipment
capitalization threshold waivers.
To further the goals stated previously, OMB proposes herein to
revise the definition for equipment, to make certain additional types
of costs unallowable, to modify the multiple allocation base method for
computing indirect cost rate(s), and to place an upper-limit on
payments for administrative expenses. The following describes each of
the four proposals.
First, in the equipment definition in Attachment B, section 15, OMB
is proposing to raise the threshold amount to $5000 in conformance with
the threshold established in Circular A-110, ``Uniform Administrative
Requirements for Grants and Agreements with Institutions of Higher
Education, Hospitals, and Other Non-Profit Organizations'' (58 FR
62992; November 29, 1993). This revision will decrease burdens
associated with accounting for property.
Second, OMB is proposing additional unallowable items. Some
proposed unallowable costs, items (1) to (10), are already unallowable
under Circulars A-87 and/or A-21 (See Circular A-87 (60 FR 26484; May
17, 1995) and Circular A-21 (56 FR 50224; October 1, 1991)) and/or the
Federal Acquisition Regulation (at 48 CFR Part 31). These unallowable
costs include:
(1) Advertising and public relations costs.
(2) Alcoholic beverages.
(3) Organization-furnished automobiles for personal use.
(4) Defense and prosecution of criminal and civil proceedings,
claims, appeals and patent infringements.
(5) Goods and services for personal uses.
(6) Housing and living expenses of an organization's officers.
(7) Insurance against defects.
(8) Memberships in any civic, community or social organization or
country club.
(9) Selling or marketing of goods or services.
(10) Trustees' travel.
OMB is proposing to make changes to items (11) to (17) for
consistency with amendments made by the Federal Acquisition
Streamlining Act of 1994 (FASA), Public Law 103-355. Section 2151 of
FASA, by amending section 306 of the Federal Property and
Administrative Services Act of 1949 (41 U.S.C. 256), specified certain
items of costs as not allowable under Federal covered contracts. While
most of the unallowable cost items listed in FASA are precisely
identical or substantively the same as are currently in Circular A-122,
some of the cost items differ. They are:
(11) Payments of fines and penalties resulting from violations of,
or failure to comply with, foreign laws and regulations.
(12) Costs of membership in any social, dining, or country club or
organization.
(13) Costs incurred in certain severance pay package (commonly
known as a ``golden parachute'' payment).
(14) Costs of severance pay to foreign nationals in excess of
customary or prevailing practices.
(15) Costs of severance pay to foreign nationals in the case of
termination due to closing of, or the curtailment of activities at, a
United States facility in that country.
(16) Costs of advertising designed to promote the organization or
its products.
(17) Costs of commercial insurance that protects against the costs
for correction of defects in materials or workmanship.
OMB is proposing to add items (1) through (17) to the costs in
Attachment B that are unallowable under Circular A-122.
Third, OMB is proposing a revision to Attachment A under which an
organization receiving more than $10 million of Federal funding will be
required to compute its indirect cost rate based on a modified total
direct cost basis using the ``multiple allocation method,'' and its
rate should be determined separately for the two major categories:
``Facilities'' and ``Administration.'' This proposed change would
provide a standard and uniform method to calculate indirect cost
rate(s) for organizations receiving more than $10 million of Federal
funding. This method is consistent with that required for colleges and
universities with direct costs funding covered by Circular A-21 of more
than $10 million. Where the Federal funding covered in this Circular of
an organization does not exceed $10 million in a fiscal year, the
organization will be able to use one of the three allocation methods
described in Section D of Attachment A, Allocation of Indirect Costs
and Determination of Indirect Costs Rates.
Fourth and finally, OMB is proposing an upper limit of 26 percent
on the ``Administration'' component of the rate in Attachment A for an
organization receiving more than $10 million of Federal funding. The
administrative cap is consistent with the one implemented for colleges
and universities on October 1, 1991, under Circular A-21 (56 FR 50224).
Organizations with an administrative component rate at or less than 26
percent will continue to recover at the current negotiated rate.
The effective date for the first, second and fourth proposals will
be at the start of the next accounting period beginning on or after the
first issuance of the revised Circular for which the organization has
not yet established a predetermined indirect cost rate. The effective
date for the second proposal is as follows. For costs charged directly,
the effective date for the proposed unallowable costs will be 30 days
after the final issuance of the revised Circular. For costs charged
indirectly, the effective date will be at the start of the next
accounting period beginning on or after the final issuance of the
revised Circular for which the organization has not established a
predetermined indirect cost rate.
G. Edward DeSeve,
Controller.
Proposed Revisions
Revise Attachments A and B of Circular A-122, as follows.
A. Attachment A
1. Add Subsection 3 to Section C, Indirect Costs.
3. For organizations receiving more than $10 million of Federal
funding covered under this Circular, the indirect costs shall be
classified within two broad categories: ``Facilities'' and
``Administration.'' ``Facilities'' is defined as depreciation and use
allowances, interest on debt associated with certain buildings,
equipment and capital improvements, and operations and maintenance
expenses. ``Administration'' is defined as general administration and
general expenses such as the director's office, accounting, personnel,
project administration (when it is not directly charged to projects),
and all other types of expenditures not listed specifically under one
of the subcategories of Facilities (including cross allocations from
other pools).
2. Add Subsections f and g to Section D.1., Allocation of Indirect
Costs and Determination of Indirect Cost Rates, General:
f. Where the Federal funding covered by this Circular of an
organization does not exceed $10 million in a fiscal year, the
organization can use one of the three allocation methods herein
described as: simple, multiple or direct allocation method. The
distribution base may be total direct costs (excluding capital
expenditures and other distorting items, such as major subgrants or
subgrants above $25,000 of each subgrant or subcontract, regardless of
the period covered by the subgrant or subcontract), direct salaries and
wages, or modified total direct costs (MTDC). MTDC consists of all
salaries and wages, fringe benefits, materials and supplies, services,
travel, and subgrants and subcontracts up to the first $25,000 of each
subgrant or subcontract. Equipment, capital expenditures, charges for
patient care, rental costs and the portion in excess of $25,000 shall
be excluded from MTDC. Other items may only be excluded when the
Federal cost cognizant agency determines that an exclusion is necessary
to avoid a serious inequity in the distribution of indirect costs.
g. Where the Federal funding covered by this Circular of an
organization exceeds $10 million in a fiscal year, the
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organization shall use the multiple allocation method. The distribution
base shall be MTDC as described in subsection f.
3. Replace Section D.2.c. with the following:
c. The distribution basis shall comply with the conditions
described in Section D.1.
4. Replace Section D.3 with the following:
3. Multiple Allocation Base Method
a. General. Where an organization receives more than $10 million of
Federal funding in a fiscal year covered under this Circular or where
an organization's indirect costs benefit its major functions in varying
degrees, such costs shall be accumulated into separate cost groupings,
as described in subsection b. Each grouping shall then be allocated
individually to benefitting functions by means of a base which best
measures the relative benefits. The default bases by cost pool are
described in subsection c.
b. Identification of indirect costs. Cost groupings shall be
established so as to permit the allocation of each grouping on the
basis of benefits provided to the major functions. Each grouping shall
constitute a pool of expenses that are of like character in terms of
functions they benefit and in terms of the allocation base which best
measures the relative benefits provided to each function. The groupings
are classified within the two broad categories: ``Facilities'' and
``Administration,'' as described in Section C.3. The indirect cost
pools are defined as follows:
(1) Depreciation and use allowances. The expenses under this
heading are the portion of the costs of the organization's buildings,
capital improvements to land and buildings, and equipment which are
computed in accordance with Section 11 (``Depreciation and use
allowance'').
(2) Interest. Interest on debt associated with certain buildings,
equipment and capital improvements are computed in accordance with
Section 23 (``Interest, fund raising, and investment management
costs'').
(3) Operation and maintenance expenses. The expenses under this
heading are those that have been incurred for the administration,
operation, maintenance, preservation, and protection of the
organization's physical plant. They include expenses normally incurred
for such items as: janitorial and utility services; repairs and
ordinary or normal alterations of buildings, furniture and equipment;
care of grounds; maintenance and operation of buildings and other plant
facilities; security; earthquake and disaster preparedness;
environmental safety; hazardous waste disposal; property, liability and
other insurance relating to property; space and capital leasing;
facility planning and management; and, central receiving. The operation
and maintenance expenses category shall also include its allocable
share of fringe benefit costs, depreciation and use allowance, and
interest costs.
(4) General administration and general expenses. The expenses under
this heading are those that have been incurred for the overall general
executive and administrative offices of the organization and other
expenses of a general nature which do not relate solely to any major
function of the organization. This category shall also include its
allocable share of fringe benefit costs, operation and maintenance
expense, depreciation and use allowances, and interest costs. Examples
of this category include central offices, such as the director's
office, the office of finance, business services, budget and planning,
personnel, safety and risk management, general counsel, and management
information systems.
In developing this cost pool, special care should be exercised to
ensure that costs incurred for the same purpose in like circumstances
are treated consistently as either direct or indirect costs. For
example, salaries of technical staff, project supplies, project
publication, telephone toll charges, computer costs, travel costs, and
specialized services costs shall be treated as direct costs wherever
identifiable to a particular program. The salaries and wages of
administrative and pooled clerical staff should normally be treated as
indirect costs. Direct charging of these costs may be appropriate where
a major project or activity explicitly budgets for administrative or
clerical services and other individuals involved can be identified with
the program or activity. Items such as office supplies, postage, local
telephone costs, periodicals and memberships should normally be treated
as indirect costs.
c. Allocation bases. Actual conditions shall be taken into account
in selecting the base to be used in allocating the expenses in each
grouping to benefitting functions. The essential consideration in
selecting a method or a base is that it be the one best suited for
assigning the pool of costs to cost objectives in accordance with
benefits derived; a traceable cause and effect relationship; or logic
and reason, where neither the cause nor the effect of the relationship
is determinable. When an allocation can be made by assignment of a cost
grouping directly to the function benefited, the allocation shall be
made in that manner. When the expenses in a cost grouping are more
general in nature, the allocation shall be made through the use of a
selected base which produces results that are equitable to both the
Federal Government and the organization. The distribution shall be made
in accordance with the bases described herein unless it can be
demonstrated that the use of a different base would result in a more
equitable allocation of the costs, or that a more readily available
base would not increase the costs charged to sponsored agreements. The
results of special cost studies (such as an engineering utility study)
shall not be used to determine and allocate the indirect costs to
sponsored agreements.
(1) Depreciation and use allowance. Depreciation and use allowance
expenses shall be allocated in the following manner:
(a) Depreciation and use allowances on buildings used exclusively
in the conduct of a single function, and on capital improvements and
equipment used in such buildings, shall be assigned to that function.
(b) Depreciation and use allowances on buildings used for more than
one function, and on capital improvements and equipment used in such
buildings, shall be allocated to the individual functions performed in
each building on the basis of usable square feet of space, excluding
common areas, such as hallways, stairwells, and restrooms.
(c) Depreciation and use allowances on buildings, capital
improvements and equipment related space (e.g., individual rooms, and
laboratories) used jointly by more than one function (as determined by
the users of the space) shall be treated as follows. The cost of each
jointly used unit of space shall be allocated to the benefitting
functions on the basis of:
(i) the employee full-time equivalents (FTEs) or salaries and wages
of those individual functions benefitting from the use of that space;
or
(ii) organization-wide employee FTEs or salaries and wages
applicable to the benefitting functions of the organization.
(d) Depreciation or use allowances on certain capital improvements
to land, such as paved parking areas, fences, sidewalks, and the like,
not included in the cost of buildings, shall be allocated to user
categories of employees on a FTE basis and distributed to major
functions in proportion to the salaries and wages of all employees
applicable to the functions.
(2) Interest. Interest costs shall be allocated in the same manner
as the depreciation or use allowance on the buildings, equipment and capital
equipments to which the interest relates.
(3) Operations and maintenance expenses. Operations and maintenance
expenses shall be allocated in the same manner as the depreciation and
use allowance.
(4) General administration and general expenses. General
administration and general expenses shall be allocated to benefitting
functions based on MTDC, as described in Section D.1.f. The expenses
included in this category could be grouped first according to major
functions of the organization to which they render services or provide
benefits. The aggregate expenses of each group shall then be allocated
to benefitting functions based on MTDC.
d. Order of distribution.
(1) Indirect cost categories consisting of depreciation and use
allowance, interest, operation and maintenance, and general
administration and general expenses shall be allocated in that order to
the remaining indirect cost categories as well as to the major
functions of the organization. Other cost categories could be allocated
in the order determined to be most appropriate by the organization.
When cross allocation of costs is made as provided in subsection (2),
this order of allocation does not apply.
(2) Normally, an indirect cost category will be considered closed
once it has been allocated to other cost objectives, and costs shall
not be subsequently allocated to it. However, a cross allocation of
costs between two or more indirect costs categories could be used if
such allocation will result in a more equitable allocation of costs. If
a cross allocation is used, an appropriate modification to the
composition of the indirect cost categories is required.
e. Application of indirect cost rate or rates. Except where a
special indirect cost rate(s) is required in accordance with Section
D.5, the separate groupings of indirect costs allocated to each major
function shall be aggregated and treated as a common pool for that
function. The costs in the common pool shall then be distributed to
individual awards included in that function by use of a single indirect
cost rate.
f. Distribution basis. Indirect costs shall be distributed to
applicable sponsored agreements and other benefitting activities within
each major function on the basis of MTDC, as described in Section
D.1.f. An indirect cost rate shall be determined for each separate
indirect cost pool developed. The rate in each case shall be stated as
the percentage which the amount of the particular indirect cost pool is
of the distribution base identified with that pool. Each indirect cost
rate negotiation or determination shall include development of the rate
for each indirect cost pool as well as the overall indirect cost rate.
The indirect cost pools shall be classified within two broad
categories: ``Facilities'' and ``Administration,'' as described in
Section C.3.
g. Limitation on reimbursement of administrative costs.
(1) The administrative costs charged to sponsored agreements
awarded or amended (including continuation and renewal awards) with
effective dates beginning on or after the start of the organization's
first fiscal year which begins on or after October 1, 1995, shall be
limited to 26 percent of MTDC (as defined in Section D.1.f) for the
administration costs (including their allocable share of depreciation
and/or use allowance, interest costs, operation and maintenance, and
fringe benefits) and all other types of expenditures not listed
specifically under one of the subcategories of facilities in Section
C.3.
(2) For organizations that already established predetermined rates
beyond October 1, 1995, the limitation shall be at the start of the
next fiscal year beginning on or after October 1, 1995, for which the
organization has not yet established an indirect cost rate.
(3) Organizations shall not change their accounting or cost
allocations methods which were in effect on September 30, 1995, if the
effect is to change the charging of a particular cost from indirect to
direct to avoid the limitation on administrative costs. Cognizant
Federal agencies are authorized to permit changes where an
organization's charging practices are at variance with acceptable
practices followed by a substantial majority of other similar
organizations.
B. Attachment B
Revise the following cost items in Attachment B to Circular A-122
(``Selected Items of Cost'').
1. Revise the Table of Contents for Attachment B to read:
1. Advertising and public relations costs
2. Alcoholic beverages
3. Bad debts
4. Bid and proposal costs (reserved)
5. Bonding costs
6. Communication costs
7. Compensation for personal services
8. Contingency provisions
9. Contributions
10. Defense and prosecution of criminal and civil proceedings,
claims, appeals and patent infringement
11. Depreciation and use allowances
12. Donations
13. Employee morale, health and welfare costs and credits
14. Entertainment costs
15. Equipment and other capital expenditures
16. Fines and penalties
17. Fringe benefits
18. Goods or services for personal use
19. Housing and personal living expenses
20. Idle facilities and idle capacity
21. Independent research and development (reserved)
22. Insurance and indemnification
23. Interest, fund raising, and investment management costs
24. Labor relations costs
25. Lobbying costs
26. Losses on other awards
27. Maintenance and repair costs
28. Materials and supplies
29. Meetings and conferences
30. Memberships, subscriptions, and professional activity costs
31. Organization costs
32. Overtime, extra-pay shift, and multi-shift premiums
33. Page charges in professional journals
34. Participant support costs
35. Patent costs
36. Pension plans
37. Plant security costs
38. Pre-award costs
39. Professional service costs
40. Profits and losses on disposition of depreciable property or
other capital assets
41. Public information service costs
42. Publication and printing costs
43. Rearrangement and alteration costs
44. Reconversion costs
45. Recruiting costs
46. Relocation costs
47. Rental costs
48. Royalties and other costs for use of patents and copyrights
49. Selling and marketing
50. Severance pay
51. Specialized service facilities
52. Taxes
53. Termination costs
54. Training and education costs
55. Transportation costs
56. Travel costs
57. Trustees
2. Revise and retitle Section 1 to read:
1. Advertising and public relations costs.
a. The term advertising costs means the costs of advertising media
and corollary administrative costs. Advertising media include
magazines, newspapers, radio and television programs, direct mail,
exhibits, and the like.
b. The term public relations includes community relations and means
those activities dedicated to maintaining the image of the organization
or maintaining or promoting understanding and favorable relations with
the community or public at large or any segment of the public.
c. The only allowable advertising costs are those which are solely
for:
(1) The recruitment of personnel required for the performance by
the organization of obligations arising under a sponsored agreement,
when considered in conjunction with all other recruitment costs, as set
forth in Section 45 (``Recruiting costs'');
(2) The procurement of goods and services for the performance of a
sponsored agreement;
(3) The disposal of scrap or surplus materials acquired in the
performance of a sponsored agreement except when organizations are
reimbursed for disposal costs at a predetermined amount in accordance
with OMB Circular A-110, paragraph ______. 34, ``Equipment''; or
(4) Other specific purposes necessary to meet the requirements of
the sponsored agreement.
d. The only allowable public relations costs are:
(1) Costs specifically required by sponsored agreements;
(2) Costs of communicating with the public and press pertaining to
specific activities or accomplishments which result from performance of
sponsored agreements; or
(3) Costs of conducting general liaison with news media and
government public relations officers, to the extent that such
activities are limited to communication and liaison necessary to keep
the public informed on matters of public concern, such as notices of
contract/grant awards, financial matters, etc.
e. Costs identified in subsections c. and d. if incurred for more
than one sponsored agreement or for both sponsored work and other work
of the organization, are allowable to the extent that the principles in
Sections B (``Direct Costs'') and C (``Indirect Costs'') are observed.
f. Unallowable advertising and public relations costs include the
following:
(1) All advertising and public relations costs other than as
specified in subsections c., d., and e.;
(2) Costs of meeting or other events related to fund raising or
other organizational activities including:
(i) Costs of displays, demonstrations, and exhibits;
(ii) Costs of meeting rooms, hospitality suites, and other special
facilities used in conjunction with shows and other special events; and
(iii) Salaries and wages of employees or cost of services engaged
in setting up and displaying exhibits, making demonstrations, and
providing briefings;
(3) Costs of promotional items and memorabilia, including models,
gifts, and souvenirs;
(4) Costs of advertising and public relations designed solely to
promote the organization.
3. Renumber current sections 2 through 8 as sections 3 through 9,
respectively.
4. Add the following new section 2:
2. Alcoholic beverages. Costs of alcoholic beverages are
unallowable.
5. In section 7 (``Compensation for personal services''), as
renumbered above in item 3, rename the current subsection g, Pension
costs, as subsection h. Add a new subsection g:
g. Organization-furnished automobiles. That portion of the cost of
organization-furnished automobiles that relates to personal use by
employees (including transportation to and from work) is unallowable
regardless of whether the cost is reported as taxable income to the
employees.
6. Renumber current sections 9 through 15 as sections 11 through
17, respectively.
7. Add new section 10:
10. Defense and prosecution of criminal and civil proceedings,
claims, appeals and patent infringement.
a. Definitions.
(1) Conviction, as used herein, means a judgment or a conviction of
a criminal offense by any court of competent jurisdiction, whether
entered upon as a verdict or a plea, including a conviction due to a
plea of nolo contendere.
(2) Costs include, but are not limited to: administrative and
clerical expenses; the cost of legal services, whether performed by in-
house or private counsel; and the costs of the services of accountants,
consultants, or others retained by the organization to assist it; costs
of employees, officers and trustees, and any similar costs incurred
before, during, and after commencement of a judicial or administrative
proceeding that bears a direct relationship to the proceedings.
(3) Fraud, as used herein, means (i) acts of fraud corruption or
attempts to defraud the Federal Government or to corrupt its agents,
(ii) acts that constitute a cause for debarment or suspension (as
specified in agency regulations), and (iii) acts which violate the
False Claims Act, 31 U.S.C., sections 3729-3731, or the Anti-Kickback
Act, 41 U.S.C., sections 51 and 54.
(4) Penalty does not include restitution, reimbursement, or
compensatory damages.
(5) Proceeding includes an investigation.
b. (1) Except as otherwise described herein, costs incurred in
connection with any criminal, civil or administrative proceeding
(including filing of a false certification) commenced by the Federal
Government, or a State, local or foreign government, are not allowable
if the proceeding: (1) relates to a violation of, or failure to comply
with, a Federal, State, local or foreign statute or regulation by the
organization (including its agents and employees), and (2) results in
any of the following dispositions:
(a) In a criminal proceeding, a conviction.
(b) In a civil or administrative proceeding involving an allegation
of fraud or similar misconduct, a determination of organizational
liability.
(c) In the case of any civil or administrative proceeding, the
imposition of a monetary penalty.
(d) A final decision by an appropriate Federal official to debar or
suspend the organization, to rescind or void an award, or to terminate
an award for default by reason of a violation or failure to comply with
a law or regulation.
(e) A disposition by consent or compromise, if the action could
have resulted in any of the dispositions described in (a), (b), (c) or
(d).
(2) If more than one proceeding involves the same alleged
misconduct, the costs of all such proceedings shall be unallowable if
any one of them results in one of the dispositions shown in subsection
b.(1).
c. If a proceeding referred to in subsection b. is commenced by the
Federal Government and is resolved by consent or compromise pursuant to
an agreement entered into by the organization and the Federal
Government, then the costs incurred by the organization in connection
with such proceedings that are otherwise not allowable under subsection
b. may be allowed to the extent specifically provided in such
agreement.
d. If a proceeding referred to in subsection b. is commenced by a
State, local or foreign government, the authorized Federal official may
allow the costs incurred by the organization for such proceedings, if
such authorized official determines that the costs were incurred as a
result of (1) a specific term or condition of a federally-sponsored
agreement, or (2) specific written direction of an authorized official
of the sponsoring agency.
e. Costs incurred in connection with proceedings described in
subsection b., but which are not made unallowable by that subsection,
may be allowed by the Federal Government, but only to the extent that:
(1) The costs are reasonable in relation to the activities required
to deal with the proceeding and the underlying cause of action;
(2) Payment of the costs incurred, as allowable and allocable
costs, is not prohibited by any other provision(s) of the sponsored
agreement;
(3) The costs are not otherwise recovered from the Federal
Government or a third party, either directly as a result of the
proceeding or otherwise; and,
(4) The percentage of costs allowed does not exceed the percentage
determined by an authorized Federal official to be appropriate,
considering the complexity of procurement litigation, generally
accepted principles governing the award of legal fees in civil actions
involving the United States as a party, and such other factors as may
be appropriate. Such percentage shall not exceed 80 percent. However,
if an agreement reached under subsection c. has explicitly considered
this 80 percent limitation and permitted a higher percentage, then the
full amount of costs resulting from that agreement shall be allowable.
f. Costs incurred by the organization in connection with the
defense of suits brought by its employees or ex-employees under section
2 of the Major Fraud Act of 1988 (Pub. L. 100-700), including the cost
of all relief necessary to make such employee whole, where the
organization was found liable or settled, are unallowable.
g. Costs of legal, accounting, and consultant services, and related
costs, incurred in connection with defense against Federal Government
claims or appeals, or the prosecution of claims or appeals against the
Federal Government, are unallowable.
h. Costs of legal, accounting, and consultant services, and related
costs, incurred in connection with patent infringement litigation, are
unallowable unless otherwise provided for in the sponsored agreements.
i. Costs which may be unallowable under this section, including
directly associated costs, shall be segregated and accounted for by the
organization separately. During the pendency of any proceeding covered
by subsections b. and f. of this section, the Federal Government shall
generally withhold payment of such costs. However, if in the best
interests of the Federal Government, the Federal Government may provide
for conditional payment upon provision of adequate security, or other
adequate assurance, and agreements by the organization to repay all
unallowable costs, plus interest, if the costs are subsequently
determined to be unallowable.
8. In section 15 (``Equipment and other capital expenditures''), as
renumbered in item 6 above, replace subsection 15.a.(1):
(1) ``Equipment'' means an article of nonexpendable, tangible
personal property having a useful life of more than one year and an
acquisition cost which equals or exceeds the lesser of (a) the
capitalization level established by the organization for the financial
statement purposes, or (b) $5000.
9. Renumber current sections 16 through 44 as sections 20 through
48, respectively.
10. Add new section 18:
18. Goods or services for personal use. Costs of goods or services
for personal use of the organization's employees are unallowable
regardless of whether the cost is reported as taxable income to the
employees.
11. Add new section 19:
19. Housing and personal living expenses.
a. Costs of housing (e.g., depreciation, maintenance, utilities,
furnishings, rent, etc.), housing allowances and personal living
expenses for/of the organization's officers are unallowable regardless
of whether the cost is reported as taxable income to the employees.
b. The term ``officers'' includes current and past officers.
12. Add to renumbered section 22 (``Insurance and
indemnification'') subsections (f) and (g) to section 22.a.(2):
(f) Insurance against defects. Costs of insurance with respect to
any costs incurred to correct defects in the organization's materials
or workmanship are unallowable.
(g) Medical liability (malpractice) insurance is an allowable cost
of research programs only to the extent that the research involves
human subjects. Medical liability insurance costs shall be treated as a
direct cost and shall be assigned to individual projects based on the
manner in which the insurer allocates the risk to the population
covered by the insurance.
13. Revise section 30, as renumbered in item 9, to read:
30. Memberships, subscriptions and professional activity costs.
a. Costs of the organization's membership in business, technical,
and professional organizations are allowable.
b. Costs of the organization's subscriptions to 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.
d. Costs of membership in any civic or community organization are
unallowable.
e. Costs of membership in any country club or social or dining club
or organization are unallowable.
14. Revise section 45, as renumbered in item 9, to read:
45. Recruiting costs.
a. Subject to subsections b., c., and d., 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 the organization uses employment
agencies, costs that are 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 organizational
practices in this respect), are unallowable.
c. Costs of help wanted advertising, special emoluments, fringe
benefits, and salary allowances incurred to attract professional
personnel from other organizations that do not meet the test of
reasonableness or do not conform with the established practices of the
organization, 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 being hired, the organization will
be required to refund or credit such relocation costs to the Federal
Government.
15. Current sections 45 through 51 are renumbered as sections 50
through 56, respectively.
16. Add new section 49:
49. Selling and marketing. Costs of selling and marketing any
products or services of the organization (unless
allowed under section 1) are unallowable.
17. In section 50 (``Severance pay''), as renumbered in item 15,
subsection a. is amended and new subsections c. and d. are added, as
follows:
a. Severance pay, also commonly referred to as dismissal wages, is
a payment in addition to regular salaries and wages, by organizations
to workers whose employment is being terminated. Costs of severance pay
are allowable only to the extent that in each case, they are required
by: (i) law; (ii) employer-employee agreement in effect at time of
establishment of the contract or grant, or at commencement of
employment; (iii) preexisting established policy that constitutes, in
effect, an implied agreement on the organization's part; or (iv)
circumstances of the particular employment.
Costs incurred in certain severance pay packages (commonly known as
``a golden parachute'' payment) which are in an amount in excess of the
normal severance pay paid by the organization to an employee upon
termination of employment and are paid to the employee contingent upon
a change in management control over, or ownership of, the
organization's assets are unallowable.
c. Severance payments to foreign nationals employed by the
organization outside the United States, to the extent that the amount
exceeds the customary or prevailing practices for the organization in
the United States are unallowable.
d. Severance payments to foreign nationals employed by the
organization outside the United States due to the termination of the
foreign national as a result of the closing of, or curtailment of
activities by, the organization in that country, are unallowable.
18. Add new section 57:
57. Trustees. Travel and subsistence costs of trustees, regardless
of the purpose of the trip, are unallowable.