$1-15.701-1 Objectives.

This subpart sets forth principles for determining the allowable costs of programs administered by State, local, and federally recognized Indian tribal governments under contracts with the Federal Government. The principles are for the purpose of cost determination and are not intended to identify the circumstances or dictate the extent of Federal and State or local participation in the financing of a particular contract. They are designed to provide that federally assisted programs bear their fair share of costs recognized under these principles, except where restricted or prohibited by law. No provision for profit or other increment above cost is intended.

[46 FR 61129, Dec. 15, 1981]

§1-15.701-2 Policy guides.

The application of these principles is based on the fundamental premises that:

(a) State, local, and federally recognized Indian tribal governments are responsible for the efficient and effective administration of contract programs through the application of sound management practices.

(b) The contractor assumes the responsibility for ensuring that federally assisted program funds have been expended and accounted for consistent with underlying agreements and program objectives.

(c) Each contractor organization, in recognition of its own unique combination of staff facilities and experience,

These principles will be applied as provided in § 1-15.108. Although the subsequent language of this Subpart 1-15.7 addresses both grants and contracts, the Federal Procurement Regulations (FPR) apply the provisions only to contracts. Language addressing grants became a part of this Subpart 1-15.7 because it was adopted from OMB Circular A-87, dated January 15, 1981 (and its predecessor, Financial Management Circular 74-4), which apply to grants, contracts, and other agreements, but were written in a style primarily addressing grants. Thus, where grants or grantees are specifically addressed, for purposes of this regulation, the direction should be interpreted as pertaining to contracts and contractors. The language addressing grants was retained to maintain uniformity with OMB Circular A87, and the structure of Subparts 115.3 and 1-15.6, and to assist those agencies which deal with both contracts and grants.

[46 FR 61129, Dec. 15, 1981]

As used in this subpart, words and phrases shall have the meanings set forth in the subsections of this section; provided however with respect to contracts subject to the regulations and standards of the Cost Accounting Standards Board (CASB) (see Subpart 1-3.12), definitions established by the CASB apply (see § 1-15.109).

[40 FR 14916, Apr. 3, 1975)

§ 1-15.702-1 Approval or authorization of the grantor Federal agency.

"Approval or authorization of the grantor Federal agency" means documentation evidencing consent prior to incurring specific cost.

§ 1-15.702-5 Federal agency.

"Federal agency” means any department, agency, commission, or instrumentality in the executive branch of the Federal Government which makes grants to or contracts with State, local, or federally recognized Indian tribal governments.

[46 FR 61129, Dec. 15, 1981]

§ 1-15.702-6 Federally recognized Indian tribal government.

"Federally recognized Indian tribal government" means the governing body or a governmental agency of any Indian tribe, band, nation, or other organized group or community (including any native village as defined in section 3 of the Alaska Native Claims Settlement Act, 85 Stat. 688) certified by the Secretary of the Interior as eligible for the special programs and services provided by the Secretary through the Bureau of Indian Affairs. [46 FR 61130, Dec. 15, 1981]

§ 1-15.702-7 Grant.

“Grant” means an agreement between the Federal Government and a State, local, or federally recognized Indian tribal government whereby the Federal Government provides funds or

aid in kind to carry out specified programs, services, or activities. The principles and policies stated in this Subpart 1-15.7 as applicable to grants in general also apply to any federally sponsored cost-reimbursement type of agreement performed by a State, local, or federally recognized Indian tribal government.

[46 FR 61130, Dec. 15, 1981]

§ 1-15.702-8 Grant program.

"Grant program" means those activities and operations of the grantee which are necessary to carry out the purposes of the grant, including any portion of the program financed by the grantee.

[46 FR 61130, Dec. 15, 1981]

§ 1-15.702-9 Grantee.

"Grantee" means the department or agency of State, local, or federally recognized Indian tribal government which is responsible for administration of the grant.

[46 FR 61130, Dec. 15, 1981]

§ 1-15.702-10 Local unit.

"Local unit" means any political subdivision of government below the State level.

[46 FR 61130, Dec. 15, 1981]

§ 1-15.702-11 Other State or local agencies.

"Other State or local agencies" means departments or agencies of the State or local unit which provide goods, facilities, and services to a grantee.

[46 FR 61130, Dec. 15, 1981]

§1-15.702-12 Services.

"Services" as used herein means goods and facilities, as well as services. [46 FR 61130, Dec. 15, 1981]

§ 1-15.702-13 Supporting services.

"Supporting services" means auxil iary functions necessary to sustain the direct effort involved in administering a grant program or an activity providing service to the grant program. These services may be centralized in

the grantee department or in some other agency, and include procurement, payroll, personnel functions, maintenance and operation of space, data processing, accounting, budgeting, auditing, mail and messenger service, and the like.

[46 FR 61130, Dec. 15, 1981]

$1-15.703 Basic guidelines.

$1-15.703-1 Factors affecting ability of costs.

To be allowable under a grant program, costs must meet the following general criteria:

(a) Be necessary and reasonable for proper and efficient administration of the grant programs, be allocable thereto under these principles, and except as specifically provided herein, not be a general expense required to carry out the overall responsibilities of State, local, or federally recognized Indian tribal governments;

(b) Be authorized or not prohibited under State or local laws or regulations;

(c) Conform to any limitations or exclusions set forth in these principles, Federal laws, or other governing limitations as to types or amounts of cost items;

(d) Be consistent with policies, regulations, and procedures that apply uniformly to both federally assisted and other activities of the unit of government of which the grantee is a part;

(e) Be accorded consistent treatment through application of generally accepted accounting principles appropriate to the circumstances;

(f) Not be allocable to or included as a cost of any other federally financed program in either the current or a prior period; and

(g) Be net of all applicable credits. [35 FR 18798, Dec. 11, 1970, as amended at 46 FR 61130, Dec. 15, 1981]

$1-15.703-2 Allocable costs.

(a) A cost is allocable to a particular cost objective to the extent of benefits received by such objective.

(b) Any cost allocable to a particular grant or cost objective under the principles provided for in this subpart may not be shifted to other Federal grant programs to overcome fund deficien

cies, avoid restrictions imposed by law or grant agreements, or for other rea

sons.

(c) Where an allocation of joint cost will ultimately result in charges to a grant program, an allocation plan will be required as prescribed in § 1-15.709. § 1-15.703-3 Applicable credits.

(a) Applicable credits refer to those receipts or reduction of expendituretype transactions which offset or reduce expense items allocable to grants as direct or indirect costs. Examples of such transactions are: Purchase discounts; rebates or allowances; recoveries or indemnities on losses; sale of publications, equipment, and scrap; income from personal or incidental services; and adjustments of overpayments or erroneous charges.

(b) Applicable credits may also arise when Federal funds are received or are available from sources other than the grant program involved to finance operations or capital items of the grantee. This includes costs arising from the use or depreciation of items donated or financed by the Federal Government to fulfill matching requirements under another grant program. These types of credits should likewise be used to reduce related expenditures in determining the rates or amounts applicable to a given grant.

§ 1-15.704 Composition of cost.

§ 1-15.704-1 Total cost.

The total cost of a grant program is comprised of the allowable direct cost incident to its performance plus its allocable portion of allowable indirect costs, less applicable credits.

81-15.704-2 Classification of costs.

There is no universal rule for classifying certain costs as either direct or indirect under every accounting system. A cost may be direct with respect to some specific service or function, but indirect with respect to the grant or other ultimate cost objective. It is essential, therefore, that each item of cost be treated consistently either as a direct or an indirect cost. Specific guides for determining direct and indirect costs allocable under

§ 1-15.705-2 Application.

Typical direct costs chargeable to grant programs are:

(a) Compensation of employees for the time and effort devoted specifically to the execution of grant programs;

(b) Cost of materials acquired, consumed, or expended specifically for the purpose of the grant;

(c) Equipment and other approved capital expenditures;

(d) Other items of expense incurred specifically to carry out the grant agreement; and

(e) Services furnished specifically for the grant program by other agencies, provided that such charges are consistent with criteria outlined in § 115.707 of these principles.

Indirect costs are those (a) incurred for a common or joint purpose benefiting more than one cost objective, and (b) not readily assignable to the cost objectives specifically benefited, without effort disproportionate to the results achieved. The term "indirect costs," as used herein, applies to costs of this type originating in the grantee department, as well as those incurred by other departments in supplying goods, services, and facilities, to the grantee department. To facilitate equitable distribution of indirect expenses to the cost objectives served, it may be necessary to establish a number of pools of indirect cost within a grantee department or in other agencies pro

viding services to a grantee department. Indirect cost pools should be distributed to benefiting cost objectives on bases which will produce an equitable result in consideration of relative benefits derived.

§ 1-15.706-2 Grantee departmental indirect costs.

All grantee departmental indirect costs, including the various levels of supervision, are eligible for allocation to grant programs provided they meet the conditions set forth in this Subpart 1-15.7. In lieu of determining the actual amount of grantee departmental indirect costs allocable to a grant program, the following methods may be used:

(a) Predetermined fixed rates for indirect costs. A predetermined fixed rate for computing indirect costs applicable to a grant may be negotiated annually in situations where the cost experience and other pertinent facts available are deemed sufficient to enable the contracting parties to reach an informed judgment (1) as to the probable level of indirect costs in the grantee department during the period to be covered by the negotiated rate, and (2) that the amount allowable under the predetermined rate would not exceed actual indirect cost.

(b) Negotiated lump sum for overhead. A negotiated fixed amount in lieu of indirect costs may be appropriate under circumstances where the benefits derived from a grantee department's indirect services cannot be readily determined as in the case of a small self-contained or isolated activity. When this method is used, a determination should be made that the amount negotiated will be approximately the same as the actual indirect cost that may be incurred. Such amounts negotiated in lieu of indirect costs will be treated as an offset to total indirect expenses of the grantee department before allocation to remaining activities. The base on which such remaining expenses are allocated should be appropriately adjusted.

§ 1-15.706-3 Limitation on indirect costs.

(a) Federal grants may be subject to laws that limit the amount of indirect

costs that may be allowed. Agencies that sponsor grants of this type will establish procedures which will assure that the amount actually allowed for indirect costs under each such grant does not exceed the maximum allowable under the statutory limitation or the am otherwise allowable under this Subpart 1-15.7, whichever is the smaller.

(b) When the amount allowable under a statutory limitation is less than the amount otherwise allocable as indirect costs under this Subpart 115.7, the amount not recoverable as indirect costs under a grant may not be shifted to another federally sponsored grant program or contract.

The cost of service provided by other agencies may only include allowable direct costs of the service plus a pro rata share of allowable supporting costs (§ 1-15.702-12) and supervision directly required in performing the service, but not supervision of a general nature such as that provided by the head of a department and his staff assistants not directly involved in operations. However, supervision by the head of a department or agency whose sole function is providing the service furnished would be an eligible cost. Supporting costs include those furnished by other units of the supplying department or by other agencies.

§1-15.707-2 Alternative methods of determining indirect cost.

In lieu of determining actual indirect cost related to a particular service furnished by another agency, either of the following alternative methods may be used, provided only one method is used for a specific service during the fiscal year involved.

(a) Standard indirect rate. An amount equal to 10 percent of direct labor cost in providing the service performed by another State agency (excluding overtime, shift, or holiday premiums, and fringe benefits) may be allowed in lieu of actual allowable indirect cost for that service.

§ 1-15.709-1 General.

A plan for allocation of costs will be required to support the distribution of any joint costs related to the grant program. All costs included in the plan will be supported by formal accounting records which will substantiate the propriety of eventual charges.

§ 1-15.709-2 Requirements.

The allocation plan of the grantee department should cover all joint costs of the department as well as costs to be allocated under plans of other agencies or organizational units which are to be included in the costs of federally sponsored programs. The cost allocation plans of all the agencies rendering services to the grantee department, to the extent feasible, should be presented in a single document. The allocation plan should contain, but not necessarily be limited to, the following:

(a) The nature and extent of services provided and their relevance to the federally sponsored programs;

(b) The items of expense to be included; and

(c) The methods to be used in distributing cost.

§ 1-15.709-3 Instructions for preparation of cost allocation plans.

The Department of Health and Human Services, in consultation with the other Federal agencies concerned, will be responsible for developing and issuing the instructions for use by grantees in preparation of cost allocation plans. This responsibility applies to both central support services at the