THE DEPARTMENT OF ARCHAEOLOGY AND HISTORIC PRESERVATION’S HISTORIC PRESERVATION FUND GRANTS MANUAL AND APPLICATION Federal Fiscal Year 2015 October 1, 2014 – September 30, 2015
TABLE OF CONTENTS

Introduction

History of the Program	1 - 2

Process for Awarding Historic Preservation Fund Grants

Historic Preservation Fund Grants Competitively Awarded	3

Standards Applicable to Subgrantees	3

Program Priorities for Funding	4

Criteria for Evaluation	4-5

Annual Apportionment and Match Requirements	5

Grant Period	5

The Contracting Process	7

Instructions for Completing an Application for a CLG Grant

General Instructions	8-10

Certified Local Government Grant Application	11-15

Application Checklist	16

Grant Completion

Grant Project Timeline	17

Documentation Required for Reimbursement	17-19

Completion Checklist	20

Attachments	21

Attachment #1

Statement of Understanding for Grant Management Requirements	A-1

Attachment #2

Civil Rights Assurance	A-2

Attachment #3

Certification Regarding Debarment, Suspension, Ineligibility and

Voluntary Exclusion	A-3

Appendices

Appendix 1

Sample Project Budget

Appendix 2

Standards for Allowability of Costs

Appendix 3

OMB Circular No. A-87

Appendix 4

OMB Circular No. A-122

Appendix 5

Code of Federal Requirements - 36CFR61 - Procedures For

State, Tribal, And Local Government Historic Preservation Programs

Appendix 6

The Washington State Office of Financial Management Competitive Procurement Methods

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INTRODUCTION

History of the Program

When Congress passed the National Historic Preservation Act in 1966, it provided funding for historic preservation. This law created a program of matching grants to the states and created the National Register of Historic Places, administered by the National Park Service, U.S. Department of the Interior. To provide a regular source of revenue, the law established the Historic Preservation Fund in the U.S. Treasury with proceeds derived from the federal leasing of offshore oil drilling sites. These funds are distributed to State Historic Preservation Offices on an annual basis.

In Washington, responsibility for the state’s role in the program was delegated to the Department of Archaeology and Historic Preservation (DAHP). The state applies for and has received federal preservation grants every year since the program has been in existence.

States use the funds for the historic preservation activities specified in federal laws and regulations. Among these are conducting surveys to identify historically, architecturally, archaeologically, and culturally significant resources, nominating these to the National Register of Historic Places, and carrying out a program of comprehensive preservation planning. Because these activities are also intended to meet local historic preservation needs, states are authorized to award 10% of their annual grant from the Historic Preservation Fund to grantees interested in participating in the state programs through the Certified Local Government Program. The 10% pass through grant funds are awarded on a competitive basis.

The Certified Local Government Program (CLG) helps local governments toward preserving Washington’s irreplaceable historic and cultural resources as assets for the future. This unique nationwide program of financial and technical assistance was established by the National Historic Preservation Act as amended. In Washington, the CLG program is implemented and administered by the Department of Archaeology and Historic Preservation.

Local governments that establish a historic preservation program meeting federal and state standards are eligible to apply to the State Historic Preservation Officer for certification. A local government that receives such certification is known as a "Certified Local Government" or "CLG."

Responsibilities of a CLG include maintaining a historic preservation commission, surveying local historic properties, enforcing state or local preservation laws, and providing for public participation in the historic preservation process.

Obtaining status as a CLG may help a local government encourage, develop, and maintain its local preservation efforts in coordination with local land use planning. In addition, CLG’s may apply for special grants from the SHPO; receive recognition for their preservation expertise by local, state, and federal agencies; obtain technical assistance and training from the SHPO; participate in the review of nominations to the National Register of Historic Places; participate in the national historic preservation assistance network; regularly exchange information with the SHPO; and participate in statewide preservation programs and planning.

Many local units of government use the Historic Preservation Fund grants to conduct architectural and historical or archaeological surveys to accumulate data for comprehensive planning. Frequently, their motivation is to identify significant districts and individual properties to aid in complying with federal and state historic preservation regulations and planning requirements. Some municipalities conduct prehistoric or historic surveys and/or sponsor the preparation of National Register historic district nominations in order to enable property owners to take advantage of the federal tax credits and/or state Special Tax Valuation program that can result from National Register listing. CLGs also use grant funds to develop design guidelines for locally designated resources and historic districts. HPF grants can also be used for preservation planning activities. Other communities use the grant funds to educate property owners about historic preservation through brochures, web sites, school curriculum development and walking tours. **FY 2015 grant applications, survey proposals of under-represented communities, eg. Asian Americans, Latinos, African Americans, etc. will be given special consideration.

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PROCESS FOR AWARDING HISTORIC PRESERVATION FUND GRANTS

Historic Preservation Fund (HPF) grants are competitively awarded.

The grant application process is initiated by the distribution of the application information to Certified Local Governments (CLGs) across the state. Each CLG in good standing is afforded the opportunity to apply for the HPF grant funds. Grant applications are reviewed by DAHP staff and then by an independent committee, the Grants Advisory Committee (GAC). The GAC is made up of at least one member of the Washington State Advisory Council on Historic Preservation as well as professionals in historic preservation or a closely related field. HPF applicants may present their projects at a meeting of the GAC. The committee then evaluates the applications and develops a list of projects recommended for funding. The State Historic Preservation Officer makes the final selections after reviewing both staff and GAC recommendations. Notice of awards will be sent to applicants at the conclusion of the review period.

Standards Applicable to Subgrantees. It is essential that applicants be responsible and capable of successfully administering sometimes complex grant and contractual agreements. To qualify a subgrantee as responsible, the State Historic Preservation Officer must be assured that a subgrantee will have access to appropriate technical and financial management assistance in order to meet and maintain, for the period of the grant award, the following standards as they relate to the scope of a particular project:

Have adequate financial resources for performance, the necessary experience, organization, technical qualifications, and facilities; or a firm commitment, arrangement, or ability to obtain such (including proposed subagreements);

Be able to comply with the proposed or required completion schedule for the project;

Have a satisfactory record of integrity, judgment, and performance, especially with prior performance on grants and contracts;

3 Have an adequate accounting system and auditing procedures to provide effective accountability and control of property, funds, and assets sufficient to meet project needs and audit requirements (see Attachment 1 for signature);

Abide by federal procurement standards in compliance with those described in Appendix 5;

Maintain a property management system for the acquisition, maintenance, safeguarding, and disposition of property;

Conform with the debarment requirements (see Attachment 3 for signature);

Conform with the civil rights, equal employment opportunity, and labor law requirements of federal grants (see Attachment 2 for signature); and

Be otherwise qualified and eligible to receive a grant award under applicable laws and regulations.

Program Priorities for Funding. The following program area priorities have been established for FY 2015 HPF grants.

Survey and Inventory: Activities that result in the identification of historic properties. With the recent development of the Statewide Historic Property Inventory Database, survey and inventory projects will be submitted in an electronic format using the online HPI system.

Sample Projects:

Survey proposals of under-represented communities, eg. Asian Americans, Latinos, African Americans, etc. will be given special consideration.

Conduct geographic and thematic surveys in areas not yet surveyed using the DAHP Historic Property Inventory Online Submission System.

Update a survey where existing data is out of date or incomplete using the DAHP Historic Property Inventory Online Submission System.

Update or add existing hard copy inventory forms onto the DAHP Historic Property Inventory Online Submission System.

Nomination: Activities that result in the listing of properties in the National Register of Historic Places and/or the CLG’s local register of historic places.

Sample Projects:

Prepare National Register nominations.

Amend and update National Register nominations with special priority given to updates of National Register Districts.

Prepare Local Register nominations with priority given to district creation.

Planning: Activities that produce tools resulting in the long-range preservation of historic properties. Examples include development of a local historic preservation plan or a historic preservation planning element of a local comprehensive plan; a preservation plan for a historic property; integration of preservation data with Geographic Information Systems; or, development of design standards.

Sample Projects:

Develop and implement systems or ordinances for incorporating information from historic sites inventory into zoning and other land use planning processes.

Developing GIS layers for historic property inventory, locally listed properties, and archaeological sites.

Conduct predictive modeling for potential archaeological sites.

4 Education: Activities that produce tools for reaching a large audience about properties listed in the National Register of Historic Places, historic preservation in general or archaeological study. Examples include brochures, videos, web sites, and workshops.

Sample Projects:

Develop workshops, seminars, trainings or conferences on historic preservation and/or archaeology issues in Washington state.

Develop products including lesson plans, videos, booklets, curriculum, etc. that relate directly to the NPS Teaching with Historic Places program.

Develop educational materials that highlight historic properties within a city or county, such as historic walking or driving tour brochures/maps.

Develop educational materials on survey & inventory and/or land-use planning information such as Open Space Taxation. Develop educational materials on National Register and local register property owners' legal rights, benefits, tax incentives, or regulatory protections.

Participate in training opportunities for CLGs to maintain levels of expertise, meet and communicate with other CLGs, and receive specialized training or opportunities to travel to specialized training to increase levels of expertise.

Special Projects: Activities that make a direct impact on a historic structure or district. At this time, DAHP will not make grants available specifically for construction projects, however the following types of projects will be considered for funding:

Create historic structure reports on locally listed historic properties.

Use Historic Preservation Fund monies to seed façade improvement programs involving locally listed historic properties.

Conduct feasibility studies for adaptive re-use of locally listed historic structures.

Criteria for Evaluation. When reviewing CLG grant applications, DAHP and the Grants Advisory Committee use the criteria spelled out within the CLG Three-Year Plan. All projects will be evaluated as to the criteria addressed, and effectiveness with which they are addressed. When evaluating project proposals, reviewers will consider the following:

1. Project Description (30 Points)

Are the goals and objectives of the local government’s preservation program including in the application?

Does the project description accurately describe the methodology that will be employed to achieve the desired objectives?

Is the impact of the project described clearly?

Will the outcomes and/or products provide tangible results?

5 Can this project serve as a model for other communities in the state?

Does the application adequately explain the role of any consultants that will be hired?

2. Statement of Need (20 Points)

Does the application accurately describe the problem the proposed project will solve or the need it will meet in relation to the goals and objectives of the local government’s preservation program?

Are there any threats to cultural resources that the project responds to?

Is there evidence of responsiveness to broader community needs or issues?

Is there evidence that opportunities will be missed if funding is not available?

Does the applicant demonstrate a clear understanding of preservation needs?

3. Project Objectives (20 Points)

Does the project description accurately describe clear and measurable objectives?

Are the objectives quantifiable?

Is the project part of an overall community, governmental or organizational plan? Does the application specifically address the State’s Preservation Plan and identify the goal(s) the project relates to?

Does the project involve the application or development of new preservation methods, tools or technologies that have potential for broad applications beyond the specific project?

Will community partnerships be formed as a result of the project?

4. Schedule for Project Completion (15 Points)

Is the “Schedule for Project Completion” adequately filled out?

Do the activities included directly relate to the stated objectives and project description? Are there key steps missing from the schedule?

Is the schedule well thought out? Are all dates included on the schedule within the grant period of October 1, 2014 to September 30, 2015?

Does the Schedule include two draft submittal dates of May 14 and July 16, 2015?

Does the Schedule include the final product submittal of August 31, 2015?

Does the project seem likely to be completed in a timely fashion and succeed in its goals?

Budget and Cost Effectiveness (10 Points)

Has the proposed project budget sheet been submitted clearly and accurately?

6 Is the budget consistent with the planned objectives?

Are the costs reasonable compared with the products?

Overall Quality of Application (5 Points)

Is the application free of spelling and punctuation errors?

Are all required materials included?

Is the application clear and concise? Is it detailed enough to make an appropriate evaluation of the proposed project?

BONUS POINTS (10 points)

Survey or Nomination proposals of under-represented communities, eg. Asian Americans, Latinos, African Americans, etc. will be given special consideration.

Annual HPF Apportionment and Match Requirements. The National Historic Preservation Act requires the annual apportionment to the State Historic Preservation Office to be matched by non-federal funds, with the one exception of Community Development Block Grant funds which may be used as match (HPF Grants Manual 1997, Chapter 14, L 2 b). This applies both to the Department of Archaeology and Historic Preservation and its subgrantees. Currently, DAHP matches its annual HPF grant through state general funds as well as through match provided by pass-through grants to local governments. For CLG grants, DAHP normally requires a match of 60/40, with the DAHP portion equaling a maximum of 60% and a local government minimum match of 40% - however, due to the allotment of state funds to DAHP for the current Biennium in the form of barn and courthouse grants, our match to our federal grant has been met and we will not require CLG matching funds for FY 2015.

F.	Grant Period. The grant period is twelve months, from October 1 to September 30. For FY15, the product due date will be Monday, August 31, 2015 and all reimbursement requests must be in by September 30, 2015.

The Contracting Process

Once the Grants Advisory Committee has made its recommendation to the State Historic Preservation Officer, it is the SHPO’s responsibility to select the grant projects that will be funded for the following grant cycle. The decision will be finalized in June 2014 and notifications are made to award recipients immediately following the decision. This begins the contracting process.

The next step at DAHP is for the Certified Local Government Coordinator to develop a Scope of Work and budget based on the grant application for the subgrantee’s approval. Once the Scope of Work and budget have been agreed upon, the contract is developed. When the contract is completed, four (4) copies are sent to the subgrantee for signature. All four copies should be carefully reviewed then signed by an individual authorized by the jurisdiction to execute such documents. Once signed, all four copies must be returned to DAHP. The Grants Manager will then secure the SHPO’s signature on the contracts and send the subgrantee a final completed copy.

It is our goal to have all contracts complete by September for projects beginning on October 1.

Instructions for Completing an Application for a

Certified Local Government Grant

General Instructions

Before completing the Certified Local Government Grant application, please read the application instructions with care. The sections introduced by Roman numerals in the application instructions correspond to the sections introduced by Roman numerals in the Certified Local Government Grant application.

Provide all information on the application form.

Use only 11 or 12 point type size on your application.

Submit five copies (one copy unstapled, one sided) of your application no later than 4:00 pm, Thursday, April 24, 2014.

Submit an electronic version of your application by email by Thursday, April 24, 2014.

Applicant

Name of Local Government

This is the name of the qualified municipality applying for the HPF grant.

Contact Person

This should be the individual most knowledgeable about the application and who will be available for questions and discussions about the grant.

Grant Amount Requested

This is the total amount of federal money being requested from the Department of Archaeology and Historic Preservation.

Matching Funds (not required for FY 2015 grants)

Match may be cash, in-kind contributions or a combination of the two. Total all matching funds and enter that amount in the space provided. Remember that HPF grants cannot be matched with other federal monies.

Total Project Cost

This is the sum total of Grant Requested.

II. Project Summary

Concisely 8 summarize the project for which you are requesting funds. This is essentially an abstract and will be used when DAHP creates your Scope of Work should you receive an award.

III. Grant Category

Check the grant category that best describes the type of work for which you are requesting funds. You may check more than one category.

IV. Project Description (please see the “criteria” section on page 5)

This is the most important section of the grant application. It is the section to which grant reviewers pay the most attention. It is the applicant’s only opportunity to convince DAHP staff reviewers of the merit of the proposed project. While the applicant does have an opportunity to present the project to the Grants Advisory Committee in person, the project description section of the application will inevitably be instrumental in the GAC member’s opinion for grant selection. Using the two pages provided, address each of the following points clearly and in as much detail as possible.

Introduction

Briefly describe the goals and objectives of the local government’s existing historic preservation program.

Specific Project Discussion

Clearly describe the activities to be conducted to achieve the desired objectives. State the reason for selection of activities. Present a reasonable scope of activities that can be conducted within the time frame and resources of the program. Will the product be able to serve as a model for other communities? Are future phases anticipated? If you are subcontracting for consultant services, explain the consultant’s role and how they will be selected. There must be an open competitive process for hiring consultants.

For survey projects, identify the methodology by identifying the type of survey (architectural, historical, archaeo-logical), the level of documentation to be produced (intensive or reconnaissance) and the estimated number of historic properties to be surveyed.

For National Register nominations, state the type of nomination (individual, district, thematic, multiple resource), estimated number of nominations to be prepared and estimated number of contributing pro-perties to be contained in the nominations. For multiple resource nominations, at least one National Register nomination must accompany the context statement.

For educational projects, clearly describe the product and anticipated benefits to the public.

List all work products that will be submitted to DAHP.

Project Statement and Needs Assessment

Based on the goals and objectives of the local government’s preservation program, specifically describe what problem the proposed project will solve or what need it will meet. Does the project respond to broader community needs or issues? Are there any threats to cultural resources that the project responds to? If full funding of the project is not possible, will the project be able to proceed? If so, what aspect of the proposal will not be accomplished?

Project Objectives

Describe clear, measurable objectives that are attainable within the funding period. Describe their impact and expected tangible results. Are there any innovative aspects of the project? Are there any opportunities that might be missed if the project is not funded?

Schedule for Project Completion

9 Use Section V to provide an accurate and detailed schedule of activities and docu-mentation of when specific work products will be submitted to DAHP. Applicant should allow time for review of draft work products by DAHP staff (generally 30 days). Schedule must include the dates of May 15, 2015 and July 17, 2015 as the two draft submittal dates for the project. The FY09 grants will also have a product due date of August 29, 2015 which must be included on the schedule sheet. All reimbursement requests must be received by DAHP no later than Friday, September 30, 2015. Grant recipients should feel free to submit drafts to DAHP throughout the grant period.

Project Budget

While DAHP recognizes that proposed budgets are estimates, these projections should be as accurate as possible since project costs and budgets are carefully reviewed during the evaluation process and are the basis of the final budget developed for the contract.

Provide a detailed proposed budget by the following categories: “Element/Object” which may include the salaries of local government employees, indirect costs, and volunteer services; “Goods & Services” which includes contract services such as consultant fees, contractor fees, and materials such as copies, photography, printing costs, construction materials, computer equipment, software, etc.

Please see Appendix 1 of this manual for a Sample Project Budget.

The following categories are located on the Project Budget sheet:

Element/Object

Salaries: List by title or position the employee who will be contributing time to the project. Note the rate of pay per hour, number of hours and total dollar amount. Time must be documented by time sheets, payroll records or other DAHP approved method. General supervision not directly related to the project is not allowable as time contributed to the project.

A volunteer’s time should be valued at $20.25/hour unless a higher rate is documented and is approved in writing by DAHP staff. All volunteer services must be substantiated by time sheets that are assigned by both the volunteer and his/her supervisor. Such records must show the actual hours worked, the rate of pay and the specific duties performed. The records should also indicate the basis for determining the rate of the volunteer’s contribution and such documentation must be available for audit. A written justification of volunteer rates must accompany the grant application. If a volunteer is a professional and is performing professional duties for the project, then their normal rate of pay will be accepted.

Indirect %: Indirect costs may not be included unless the applicant has a federally approved rate. Written supporting docu-mentation must be included with the application. For FY14, only use this category if you plan to use federal funds to pay part of the indirect rate.

Goods & Services

Consultant and Contract Services: Consultants may not be pre-selected by the applicant because federal regulations require an open selection process. The applicant should list by function (e.g., archaeologist, historic architect, architectural historian, preservation specialist, etc.) any contractors who will be associated with the project. Show the estimated total amount of money you plan to budget for each consultant. Note: professional hourly rates are capped by the National Park Service each Federal fiscal year, for FY 2015, the cap is set at $82.49/hour (subject to change). For contract services such as printers, sign makers, etc., submit bids from more than two prospective vendors.

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Materials/Supplies/Equipment: List major items or categories (e.g., office supplies, film, maps, etc.) and cost per category. List use or purchase of equipment. Include rental costs if applicable. Any article with a unit cost of $5000 or more requires prior written approval from DAHP. Attach a letter from DAHP approving purchase of equipment, if applicable.

Travel: The mileage rate charged to the project should be the applicant’s usual rate but may not exceed the current state rate of 56 cents per mile. Indicate the total number of miles, cost per mile and total estimated cost for travel.

Other: Any other costs necessary to the project. Any items under this category must be described. No project funds can be used to pay the salary, travel or other expenses of any grantee, personnel or agent acting on behalf of the grantee to engage in any activity designed to influence legislation or appropriations pending before the United States Congress or the Washington State Legislature.

Hard and Soft Match (no match required for FY 2015)

Hard match is a cash contribution from the local government. Hard match can be in the form of staff salaries or any other expenditure that requires the payment for services by the local government. Cash equals new dollars brought to the project. Hard matches are encouraged and are considered favorably in the review process. Identify the amount of cash used to match the grant and the source (e.g., Community Development Block Grant). Note: federal grant funds are not allowable as match with the exception of Community Development Block Grants funds (HPF Grants Manual 1997, Chapter 14, L 2 b). Soft match consists of all donated goods and services used in the course of the grant completion.

The values of donated services, equipment and material are allowable costs when these expenses are identified in project records as not having been donated by the federal government, not having been purchased with federal funds and not having been included as donations comprising all or part of the share under any other federally assisted project.

Values assigned to donated material may not exceed current market values at the time the donation is assigned to the project. Similarly, the value of loaned equipment and donated office space may not exceed fair market rental value. Grant recipients must maintain documentation of their reasoning for determining current market values. Grantees must also maintain records to support their reimbursement claims as to the actual use of donated equipment (e.g., number of hours, miles or other measurement factor and records showing the age of the equipment and the source of acquisition).

For questions about how to complete the project budget, please contact Loren Doolittle, Grants Manager, at 360-586-3072.

Checklist

A checklist for submission is part of the application. Please use it to make sure that the application is complete.

CERTIFIED LOCAL GOVERNMENT GRANT APPLICATION

DUE IN OFFICE THURSDAY, APRIL 24TH BY 4:00 PM

(also send electronic copy to CLG Coordinator)

APPLICANT

(Please carefully review the “Application Instructions” before beginning work)

A. Name of Local Government

B. Address

City	State	Zip code

C. Contact Person for Grant

D. Telephone Number for Contact Person

E. Email Address for Contact Person

F. Grant Amount Requested

$

H. Total Project Cost

$

II. PROJECT SUMMARY (Use only the space provided – description section follows)

11

III. GRANT CATEGORY (check those that are appropriate)

A. Survey & Inventory

Reconnaissance Level	# of new or updated forms:	Intensive Level

B. National Register Nominations

C. Preservation Planning

D. Educational and Interpretive Programs

E. Special Projects

IV. PROJECT DESCRIPTION (Use only the space provided)

Organize your description in the following order (see instructions for more info):

Introduction (includes local government goals & objectives)

Project Description

Statement of Need

d. Project Objectives

IV. PROJECT DESCRIPTION (Continued)

ATTACHMENT 6

V. Schedule for Project Completion

List each proposed grant activity separately estimating the start and completion dates. This should be a complete listing of all potential activities associated with the grant including the two draft submittal dates of May 14, 2015 and July 16, 2015. This year’s grant products are due on Monday, August 31, 2015. A start date and completion date are not sufficient for the Schedule of Project Completion.

WORK TO BE ACCOMPLISHED	Estimated Starting Date	Estimated Completion Date

ATTACHMENT 1 VI. PROJECT BUDGET

ELEMENT/OBJECT

Salaries (include each position- volunteer or staff – and attach hourly wage justification if needed)	Federal Dollars (CLG grant requested)	Hard Match* (Local government cash match)	Soft Match* (Donated goods and services)	Total

Indirect % (*Include justification for indirect %)

Total Element/Object:

GOODS & SERVICES

Contract Services	Federal Dollars (CLG grant requested)	Hard Match (Local government cash match)	Soft Match (Donated goods and services)	Total

Materials/Supplies/Equipment

Travel

Other

Total Goods & Services:

Federal Dollars	Hard Match	Soft Match	Total Project Cost
Total Funding Request

*No match required for FY15 CLG grants

VII. CHECKLIST

To assure that your grant proposal is complete, please check off that you have included the following:

Five completed copies of the application (One of the five copies must be an unstapled, ONE-SIDED copy of the application along with the three original attachments with signature – the four additional copies should NOT include the signature attachments).

***One digital copy of your application emailed to Megan Duvall at megan.duvall@dahp.wa.gov ***

Written documentation for federally approved indirect cost rate, if applicable.

Written justification for volunteer rates, if applicable.

One signed original Statement of Understanding for Grant Management Requirements (Attachment 1) – not stapled to the application.

One signed original Assurance of Compliance with the U.S. Department of the Interior Regulations under Title VI of the Civil Rights Act of 1964 (Attachment 2) – not stapled to the application.

One signed original Certification Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion Form (Attachment 3) – not stapled to the application.

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GRANT COMPLETION

Grant Project Timeline

The grant period for Historic Preservation Fund grants runs on the federal fiscal year from October 1 to September 30. Federal Fiscal Year 2015 begins on October 1, 2014. Final grant projects are due on Monday, August 31, 2015. DAHP requires two draft submittal dates for FY15 grant projects – May 14 and July 16, 2015. These draft submittals are extremely important since they are DAHP’s official opportunity to comment on the project. DAHP is afforded a 30-day review period to comment on your draft. DAHP will attempt to comment on every project, however, if you do not hear from us within 30-days, it is assumed that we do not have any comment on your draft and you may proceed with your project. The change involving two draft submittals has occurred as a result of several late submittals of grant products and last minute contract amendments for time extensions. With the May submittal, we are hoping to identify problems earlier in the grant period to avoid delays and missed deadlines at the end of the project. All contract amendments must be requested at least 60 days prior to the end date of the contract. You are encouraged to check in with DAHP often during the grant cycle for guidance concerning your project.

As stated above, the final grant product is due on Monday, August 31, 2015. This is a change from earlier policy when grant products were due on September 30. Due to deadlines to provide end-of-year reports to the National Park Service, DAHP is pulling the product and reimbursement submissions back by a month. Once the product submission occurs, it is distributed to the appropriate Program Manager at DAHP for review of the final project. The Program Manager will compare the submitted product with the Scope of Work from the subgrantee’s contract. It is with the Program Manager’s signed “Subgrant Payment Approval Checklist” that reimbursement may occur. After product submission on August 31, 2015, grantees will have the next 30 days to gather and submit reimbursement materials to DAHP. Reimbursement requests and completion reports must be received at DAHP by September 30, 2015.

The completion report and all grant related paperwork should be submitted to DAHP’s Grants Manager no later than Wednesday, September 30, 2015, although earlier submittals are allowable and encouraged. This allows for the Grants Manager to review the items submitted and contact the subgrantee for any additional information or paperwork required for reimbursement.

Documentation Required for Reimbursement

The process of submitting documentation for grant reimbursement is often confusing, complicated, and frustrating for subgrantees. By including this section, it is our hope that some of the mystery involved will be lessened. We have included a checklist at the end of this section to guide you in completing the reimbursement paperwork.

It is worth noting that your project budget as stated in your contract will be the guiding document when DAHP is processing your submittals for reimbursement. It is extremely important that all of your reported expenses relate directly back to that budget. If you anticipate a change within a budgeted category of more than 15%, a contract amendment must be submitted.

A.	A-19 Invoice Voucher Form. Your invoice to DAHP should be submitted on the state A-19 form. There is a hard copy of the A-19 form attached to your contract, or feel free to download an electronic version from our website under the Certified Local Government section at http://www.dahp.wa.gov/certified-local-government-grants. The A-19 form must include an original signature from someone in your agency authorized to make billings. The A-19 form must also be dated before September 30, 2015. Think of the A-19 form as your table of contents for the rest of your reimbursement paperwork. Everything on the A-19 form must be detailed in your supporting documentation.

B.	Timesheets. If you and/or other local government staff charged time to the project in direct fulfillment of the project, you must provide copies of all of the timesheets documenting time you charged to the grant. The timesheets must be signed by you and whoever reviews and signs your timesheets (supervisor, personnel officer, etc.). The timesheets must clearly identify the month, date, and the hours spent on the project for which time is charged. You must also identify the hourly pay rate (including benefits) of each employee charging time to the grant so that expenditures can be verified. Be sure to take into account changes in pay rate that may have occurred during the term of the contract. Finally, be sure that the work performed is within the contract period of October 1, 2014 to September 30, 2015. Any expenditures of time beyond those dates cannot be reimbursed.

C.	Consultants. Please provide copies of invoice vouchers from consultants. The invoice vouchers should clearly identify the time period during which the work was performed and the hourly rate at which work is charged, again so that expenditures can be verified. Remember that DAHP can only reimburse wages at not more than an hourly rate as directed by the National Park Service each federal fiscal year. For fiscal year 2015 grants, the rate is $82.49/hour. The invoices from your consultant(s) must include their signature and must also be within the contract time period.

D.	Other Expenditures. Please provide copies of invoice vouchers and/or receipts for other expenditures related to the project (i.e. paper, printing, film, film development, etc.). These expenditures must be identified in your project budget to be allowable for reimbursement. Again, the expenditures must be within the contract period in order to be reimbursed.

E.	Proof of Payment. For staff time, consultant fees, and other expenditures, please provide documentation that payment was indeed made. This typically includes documentation from your accounting office such as computer printouts or warrants.

18 F.	Procurement Documentation. Please include proof of a competitive process for procuring consulting, construction and contract services. This can be fulfilled through completion of Attachment 7 of your contract or by providing copies of advertisements and other documents associated with the procurement process. For consultants performing historic preservation activities such as surveys or National Register nominations, please submit a copy of their resume, vitae, or other description that documents that they meet the Secretary of the Interior’s Professional Qualification Standards of 1983. The consultant should have been approved as meeting the Secretary’s Professional Standards before the project began. For contract services, such as printing, please include bids from two or more suppliers.

G.	Volunteer Services. To document volunteer services that are used as project match, please use Attachment 5a found in your contract. The Report of Services form needs to be completed for each volunteer with original signatures from both the volunteer (must sign both 5a and 5b) and the person supervising the volunteer’s work. The wage rate for the volunteer activities must also be identified and justified. For example, if an archaeologist who sits on the local historic preservation commission volunteers his time as an archaeologist for the grant project and his typical hourly wage is $50, then the hourly wage shown as a volunteer should be $50/hour. However, if that archaeologist is volunteering to stuff envelopes for a mailing, the hourly wage should reflect what one could reasonably expect to make stuffing envelopes. The form should also identify the month, date, and number of hours worked. Again, this is used to document and verify the value of volunteer services and contributed match.

H.	Mileage. Please submit mileage logs to document miles driven in support of the project. Allowable mileage reimbursement rate is 56 cents/mile. Only mileage driven during the contract period is reimbursable.

Remember to use the project budget from your contract as a guide to the documentation you will need at reimbursement time. Make sure that everything is signed and dated and ALWAYS within the contract period. Use the checklist that follows as a guide to your completion report.

If there are questions, don’t hesitate to contact DAHP’s Grants Manager, Loren Doolittle at 360-586-3072.

20

Grant Completion Checklist

A-19 form

Is it filled out correctly and completed with an original signature?

Timesheets

Have they been signed by you or other government staff working on the project and whoever reviews timesheets in your jurisdiction?

Do they clearly identify the day, month, and hours spent on the grant project?

Have you identified the hourly rate (including benefits) at which the work is being charged?

Was the work completed during the contract period (October 1, 2014 to September 30, 2015)?

Consultant Services

Have you enclosed the invoice voucher from the consultant?

Does the invoice voucher clearly indicate the time period in which the work was performed?

Is the hourly rate evident (DAHP can reimburse only up to the allowable Federally approved rate of $82.49/hr)?

Has the invoice been signed by the consultant?

Was the work performed during the contract period?

Other Expenditures

Were these expenditures identified in your original project budget?

Were these expenditures within the contract period?

Have you included copies of all receipts/invoices? Are they clearly identified?

Proof of Payment

Have you included documentation that shows payment was indeed made for each of the above categories?

Procurement Documentation

Have you included documentation that shows you used a competitive process to hire a consultant?

Did you include a copy of the professional consultant’s resume, vitae or other description that shows they meet professional qualification standards for historic preservation?

Volunteer Services

Has each volunteer completed a “Report of Services” (Attachment 5A) form?

Are there original signatures on the “Report of Services” form from both the volunteer and the volunteer’s supervisor?

Is the wage rate identified and justified (Attachment 5B)?

Is the month, day and hours worked identified on the form?

Was the work performed during the contract period?

Mileage

Have you submitted mileage logs showing the miles driven were in support of the project?

Was the mileage driven during the contract period?

DAHP can reimburse only up to the allowable federally approved rate (56 cents).

Other

21

ATTACHMENTS

Table of Contents

Attachment 3A - Civil Rights Assurance

Attachment 3B - Statement of Understanding for Grant Management Requirements

Attachment 3C - Certification Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion

ATTACHMENT 3B

STATEMENT OF UNDERSTANDING FOR GRANT MANAGEMENT REQUIREMENTS

CLGs receiving HPF grant assistance must fulfill the terms of their grant agreement with the state and adhere to all requirements of the National Register Programs Manual. This requirement includes compliance with Title VI of the Civil Rights Act of 1964, 78 Stat. 241, as amended, which provides that no person on the grounds of age, race, color, or national origin shall be excluded from participation in, be denied the benefits of, or be subject to discrimination under any activity receiving Federal financial assistance.

Local financial management systems shall be in accordance with the standards specified in OMB Circular A-128, “Standards for Grantee Financial Management Systems.”

Indirect costs may be charged as part of the CLG grant only if the CLG subgrantee meets the requirements of the manual. Unless the CLG has a current indirect cost rate approved by the cognizant federal agency, only direct costs may be charged.

Grant recipients must maintain auditable financial records in accordance with the General Accounting Office’s Standards for Audit of Governmental Organizations, Programs, Activities, and Functions.

The CLG subgrantee will provide, with request for reimbursement, documentation to support billings (time sheets, front and back canceled checks, etc.) for federal and non-federal share claimed.

Repayment will be made to the SHPO organization if terms and conditions of the subgrant agreement are not followed or costs claimed are disallowed following audit.

CLG
SIGNATURE OF APPLICANT
TITLE
DATE

A - 1

ATTACHMENT 3A

u. s. department of the interior

CIVIL RIGHTS ASSURANCE

As the authorized representative of the applicant, I certify that the applicant agrees that, as a condition to receiving any Federal financial assistance from the Department of the Interior, it will comply with all Federal laws relating to nondiscrimination. These laws include, but are not limited to: (a) Title VI of Civil Rights Act of 1964 (42 U.S.C. 2000d-1), which prohibits discrimination on the basis of race, color, or national origin; (b) Section 504 of the Rehabilitation Act of 1973, as amended (29 U.S.C. 794), which prohibits discrimination on the basis of handicap; (c) the Age Discrimination Act of 1975, as amended (42 U.S.C. 6101 et. seq.), which prohibits discrimination on the basis of age; and applicable regulatory requirements to the end that no person in the United States shall, on the grounds of race, color, national origin, handicap or age, be excluded from participation in, be denied the benefits of, or be otherwise subjected to discrimination under any program or activity conducted by the applicant. THE APPLICANT HEREBY GIVES ASSURANCE THAT it will immediately take any measures necessary to effectuate this agreement.

THIS ASSURANCE shall apply to all aspects of the applicant’s operations including those parts that have not received or benefited from Federal financial assistance.

If any real property or structure thereon is provided or improved with the aid of Federal financial assistance extended to the Applicant by the Department, this assurance shall obligate the Applicant, or in the case of any transfer of such property, any transferee, for the period during which the real property or structure is sued for a purpose for which the Federal financial assistance is extended or for another purpose involving the provision of similar services or benefits. If any personal property is so provided, this assurance shall obligate the Applicant for the period during which it retains ownership or possession of the property. In all other cases, this assurance shall obligate the Applicant for the period during which the Federal financial assistance is extended to it by the Department.

THIS ASSURANCE is given in consideration of and for the purpose of obtaining any and all Federal grants, loans, contracts, property, discounts or other Federal financial assistance extended after the date hereof to the Applicant by the Department, including installment payments after such date on account of applicants for Federal financial assistance which were approved before such date.

The Applicant recognizes and agrees that such Federal financial assistance will be extended in reliance on the representations and agreements made in this assurance, and that the United States shall have the right to seek judicial enforcement of the assurance. This assurance is binding on the Applicant, its successors, transferees, assignees, and subrecipients and the person whose signature appears below who is authorized to sign this assurance on behalf of the Applicant.

signature of authorized certifying official	title
applicant/organization	date submitted
applicant/organization mailing address	bureau or office extending assistance

DI-1350

(REV 6/91)

A - 2

ATTACHMENT 3C

U.S. Department of the Interior

Certification Regarding

Debarment, Suspension, Ineligibility and

Voluntary Exclusion

Lower Tier Covered Transactions

_____________________________________________________________

This certification is required by the regulations implementing Executive Order 12549, Debarment and Suspension, 43 CFR Part 12, Section 12.500, Participants’ responsibilities. The regulations were published as Part VII of the May 26, 1988 Federal Register (pages 19160-19211). Copies of the regulations are included in the proposal package. For further assistance in obtaining a copy of the regulations, contact the U.S. Department of the Interior, Acquisition and Assistance Division, Office of Acquisition and Property Management, 18th and C Streets, N.W., Washington, D.C. 20240.

(BEFORE COMPLETING CERTIFICATION, READ INSTRUCTIONS ON REVERSE)

(1)	The prospective lower tier participant certifies, by submission of this proposal that neither it nor its principals is presently debarred, suspended, proposed for debarment, declared ineligible, or voluntarily excluded from participation in this transaction by any Federal department or agency.

(2)	Where the prospective lower tier participant is unable to certify to any of the statements in this certification, such prospective participant shall attach an explanation to this proposal.

_____________________________________________________________

Name and Title of Authorized Representative

_____________________________________________________________

A - 3 Signature	Date

Instructions for Certification

By signing and submitting this proposal, the prospective lower tier participant is providing the certification set out below.

The certification in this clause is a material representation of fact upon which reliance was placed when this transaction was entered into. If it is later determined that the prospective lower tier participant knowingly rendered and erroneous certification, in addition to other remedies available to the Federal Government, the department or agency with which this transaction originated may pursue available remedies, including suspension and/or debarment.

The prospective lower tier participant shall provide immediate written notice to the person to which this proposal is submitted if at any time the prospective lower tier participant learns that its certification was erroneous when submitted or has become erroneous by reason of changed circumstances.

The terms “covered transaction,” “debarred,” “suspended,” “ineligible,” “lower tier covered transaction,” “participant,” “person,” “primary covered transaction,” “principal,” “proposal,” and “voluntarily excluded,” as used in this clause, have the meanings set out in the Definitions and Coverage sections of rules implementing Executive Order 12549. You may contact the person to which this proposal is submitted for assistance in obtaining a copy of those regulations.

The prospective lower tier participant agrees by submitting this proposal that, should the proposed covered transaction be entered into, it shall not knowingly enter into any lower tier covered transaction with a person who is debarred, suspended, declared ineligible, or voluntarily excluded from participation in this covered transaction, unless authorized by the department or agency with which this transaction originated.

The prospective lower tier participant further agrees by submitting this proposal that it will include this clause titled “Certification Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion-Lower Tier Covered Transaction,” without modification, in all lower tier covered transactions and in all solicitations for lower tier covered transactions.

A participant in a covered transaction may rely upon a certification of a prospective participant in a lower tier covered transaction that it is not debarred, suspended, ineligible, or voluntarily excluded from the covered transaction, unless it knows that the certification is erroneous. A participant may decide the method and frequency by which it determines the eligibility of its principals. Each participant may, but is not required to, check the Nonprocurement List (Tel.#).

Nothing contained in the foregoing shall be construed to require establishment of a system of records in order to render in good faith the certification required by this clause. The knowledge and information of a participant is not required to exceed that which is normally possessed by a prudent person in the ordinary course of business dealings.

9.	Except for transactions authorized under paragraph 5 of these instructions, if a participant in a covered transaction knowingly enters into a lower tier covered transaction with a person who is suspended, debarred, ineligible, or voluntarily excluded from participation in this transaction, in addition to other remedies available to the Federal Government, the department or agency with which this transaction originated may pursue available remedies, including suspension and/or debarment.

A - 4

APPENDICES

TABLE OF CONTENTS

Appendix 1

Sample Project Budget

Appendix 2

Standards for Allowability of Costs

Appendix 3

OMB Circular No. A-87

Attachment A

Attachment B

Attachment C

Attachment D

Attachment E

Appendix 4

OMB Circular No. A-122

Attachment A

Attachment B

Attachment C

Appendix 5

Code of Federal Requirements - 36CFR61

Procedures For State, Tribal, And Local Government Historic Preservation Programs

Remember that no match is required for FY 13 grants. Although we have not removed the match categories, you will not need to submit match information on your application.

APPENDIX 1

ELEMENT/OBJECT

Salaries (include each position- volunteer or staff – and attach hourly wage justification)	Federal Dollars (CLG grant requested)	Hard Match (Local government cash match)	Soft Match (Donated goods and services)	Total
Preservation Planner	111 hrs/ $32.45/hr $3601.95	$3601.95
Planning Department Assistant	10 hrs/$12/hr $120	$120.00
GIS Analyst	15hrs/$30.23/hr $453.45	$453.45
Preservation Commissioners	300hrs/$10/hr $3000	$3000.00

Indirect % (*Include justification for indirect %)

Total Element/Object:	$4175.40	$3000.00	$7175.40

GOODS & SERVICES

Contract Services	Federal Dollars (CLG grant requested)	Hard Match (Local government cash match)	Soft Match (Donated goods and services)	Total
Preservation Associates, Inc.	$10,000	$10,000

Materials/Supplies/Equipment
Copies	1500 @ $.15/per $225.00	$225.00
Room Rental	$250.00	$250.00

Travel
Mileage	322 miles – 40.5/per mile $130.41	$130.41
National Trust Conference	$1641.80	$1641.80

Other

Total Goods & Services:	$11,641.80	$605.41	$12,247.21

Federal Dollars 60%	Hard Match 40%*	Soft Match	Total Match	Total Project Cost – 100%
Total Funding Request	$11,641.80	$4175.40	$3605.41	$7780.81	$19,422.61

*The local government share must equal at least 40% of the total project cost. The 40% can be made up of a combination of hard and soft match.

APPENDIX 2

Standards for Allowability of Costs

Purpose and Applicability.

This Chapter provides standards for determining the allowability of selected items of cost in accordance with Office of Management and Budget Circulars A-87 and A-122. It also includes additional cost items specific to the Historic Preservation Fund program. Subgrantees that are educational institutions shall be governed by Circular A-21 and the HPF-specific items in this Chapter. Note that certain listed costs are allowable (Section B), other costs are allowable with the prior written approval of NPS (Section C), and other costs are unallowable (Section D). The costs not specifically addressed in the Circulars are preceded by an asterisk.

These standards will apply irrespective of whether a particular item of cost is treated as a direct or an indirect cost, or as part of either the Federal or nonfederal matching share of grant assistance. This listing of cost items is not all inclusive. Failure to mention a particular item of cost in these standards is not intended to imply that it is either allowable or unallowable, rather a determination of allowability in each case will be based on the treatment of standards provided for similar or related items of cost. The allowability of the selected items of cost is subject to the policies and principles stated in “Cost Principles,” particularly Section C.

Allowable Costs.

Accounting Costs. The cost of establishing and maintaining accounting and other fiscal information systems is allowable.

*Acquisition Costs. Acquisition costs incurred to obtain title or to purchase a preservation easement on a property individually in the National Register of Historic Places, or a contributing property in a National Register District, are allowable when the acquisition complies with the Secretary of the Interior’s Standards for the Treatment of Historic Properties and with Section L of Chapter 6 (of the Historic Preservation Fund Grants Manual). Appraisal costs incurred to obtain an appraisal of the property’s current fair market value by a licensed appraiser, title search and recordation fees, property surveys, title insurance, legal fees, broker’s commissions, and purchase price for an amount equal to or less than the appraised value are allowable for an acquisition of real property that meets the requirements of Chapter 6 (of the Historic Preservation Fund Grants Manual). The boundary of the HPF acquisition project must not exceed the boundaries described in the National Register nomination. (Costs such as annual property taxes, escrow fees, and loan interest or points are not allowable costs.)

*Administrative Costs. Under Section 102 (e) of the National Historic Preservation Act as amended, the total direct administrative costs and any state indirect costs charged for carrying out state projects may not exceed 25% of the aggregate costs. See Chapter 7, Exhibit 7-B (of the Historic Preservation Fund Grants Manual), and Chapter 12, Section F4 (of the Historic Preservation Fund Grants Manual) for guidance.

Advertising and Public Relations Costs. Advertising media include newspapers, magazines, radio and television programs, direct mail, exhibits, and the like.

Allowable advertising costs are those which are solely for: recruitment of personnel necessary for the grant program; the procurement of goods and services required for the performance of the HPF grant agreement; and notices required by Federal or State regulations pertaining to the HPF program.

Public relations costs are allowable when: (1) specifically required by the Federal award and then only as a direct cost; (2) incurred to communicate with the public and press pertaining to specific activities or accomplishments that result from performance of the Federal award and then only as a direct cost; or (3) necessary to conduct 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 Federal contract/grant awards, financial matters, etc. (Also see Public Information Costs, Section B.36 below)

Advisory Councils. Costs incurred by advisory councils or committees established pursuant to Federal requirements to carry out programs, such as State Review Boards, are allowable. The costs of like organizations, such as local review boards established by “certified local governments” is allowable when provided for in an approved subgrant agreement, and when in compliance with the cost allowability provisions of this Chapter. (See Section B.42)

*Appraisals. The cost of necessary appraisals by a licensed appraiser is allowable. (See Chapter 6 Section L of the Historic Preservation Fund Manual).

Audit Service. The costs of audits necessary for the administration and management of functions related to grant programs are allowable, provided that the audits were performed in accordance with the requirements of the Single Agency Audit Act and of OMB circular A-133 implementing it (see Chapter 23 of the Historic Preservation Fund Grants Manual). Generally, the percentage of costs charged to Federal awards for a single audit shall not exceed the percentage derived by dividing Federal funds expended by total funds expended by the recipient or subrecipient (including program matching funds) during the fiscal year. The percentage may be exceeded only if appropriate documentation demonstrates higher actual costs. Other audit costs are allowable if specifically approved by the awarding or cognizant agency as a direct cost to an award, or included as an indirect cost in a cost allocation plan or rate.

Automatic Electronic Data Processing. The cost of data processing services is allowable (also see Section B.17 regarding equipment).

Bonding. Costs of bonding employees and officials are allowable for HPF grantees. In addition, costs of such bonds as bid, performance, payment, advance payment, infringement, and fidelity are allowable if required pursuant to the terms of the HPF award, and if such bonding is in accordance with sound business practice. (See unallowable insurance costs in Section D.22)

Budgeting. Costs incurred for the development, preparation, presentation and execution of HPF-assisted program and project budgets are allowable.

Communications. Communication costs incurred for telephone calls or service, mail, messenger, and similar communication expenses necessary for and directly related to HPF grant program operations are allowable.

Compensation for Personal Services (including Fringe Benefits).

General. For state and local governments, compensation for personal services includes all remuneration, paid currently or accrued, for services rendered during the period of performance under the grant agreement, including but not necessarily limited to wages, salaries and fringe benefits. Such compensation is allowable to the extent that it satisfies the specific requirements of the OMB Cost Principles and that the total compensation for individual employees:

Is reasonable for the services rendered, and conforms to the established policy of the governmental unit consistently applied to both Federal and non-Federal activities;

Follows an appointment made in accordance with state, local, or Indian tribal government laws and rules and which meets other requirements required by Federal law, where applicable;

Is determined and supported as provided in b., below.

Reasonableness. Compensation for employees engaged in work on HPF grant-assisted activities will be considered reasonable to the extent that it is consistent with that paid for similar work in other activities of the state or local government. In cases where the kinds of employees required for Federal awards are not found in the other activities of the state or local government, compensation will be considered reasonable to the extent that it is comparable to that paid for similar work in the labor market in which the employing government competes for the kind of employees involved. Compensation surveys providing data representative of the labor market involved will be an acceptable basis for evaluating reasonableness.

Unallowable Costs. Cost which are unallowable under the provisions of this Chapter shall not be allowable solely on the basis that they constitute personal compensation.

Fringe Benefits. Allowability is subject to the following considerations: (1) Fringe benefits are allowances and services provided by employers to their employees as compensation in addition to regular salaries and wages. Fringe benefits include, but are not limited to, the costs of leave, employee insurance, pensions, and unemployment benefit plans. Except as provided elsewhere in the OMB Cost Principles, the costs of fringe benefits are allowable to the extent that the benefits are reasonable and are required by law, governmental unit employee agreement, or an established policy of the governmental unit. (2) The cost of fringe benefits in the form of regular compensation paid to employees during periods of authorized absences from the job, such as for annual leave, sick leave, holidays, court leave, military leave, and other similar benefits, are allowable if: (a) they are provided under established written leave policies; (b) the costs are equitably allocated to all related activities, including Federal awards; (c) the accounting basis (cash or accrual) selected for costing each type of leave is consistently followed by the governmental unit. (4) The accrual basis may be only used for those types of leave for which a liability as defined by Generally Accepted Accounting Principles (GAAP) exists when the leave is earned. When a governmental unit uses the accrual basis of accounting, in accordance with GAAP, allowable leave costs are the lesser of the amount accrued or funded. (5) The cost of fringe benefits in the form of employer contributions or expenses for social security; employee life, health, unemployment, and worker’s compensation insurance (except as indicated in Section B.21); pension plan costs (see subsection e., below); and other similar benefits, whether treated as indirect costs or direct costs, shall be allocated to Federal awards and all other activities in a manner consistent with the pattern of benefits attributable to the individuals or group(s) of employees whose salaries and wages are chargeable to such Federal awards and other activities.

Pension Plan Costs. Pension plan costs may be computed using a pay-as-you-go method or an acceptable actuarial cost method in accordance with established written policies of the governmental unit. (1) For pension plans financed on a pay-as-you-go method, allowable costs will be limited to those representing actual payments to retirees or their beneficiaries. (2) Pension costs calculated using an actuarial cost-based method recognized by GAAP are allowable for a given fiscal year if they are funded for that year within six months after the end of that year. Costs funded after the six-month period (or a later period agreed to by the cognizant agency) are allowable in the year funded. The cognizant agency may agree to an extension of the six-month period if an appropriate adjustment is made to compensate for the timing of the charges to the Federal government and related Federal reimbursement and the governmental unit’s contribution to the pension fund. Adjustments may be made by cash refund or other equitable procedures to compensate the Federal Government for the time value of Federal reimbursements in excess of the contributions to the pension fund. (3) Amounts funded by the governmental unit in excess of the actually determined amount for a fiscal year may be used as the governmental unit’s contribution in future periods. (4) When a governmental unit converts to an acceptable actuarial cost method, as defined by GAAP, and funds pension costs in accordance with this method, the unfunded liability at the time of conversion shall be allowable is amortized over a period of years in accordance with GAAP. (5) The Federal government shall receive an equitable share of any previously allowed pension costs (including earnings thereon) which revert or inure to the governmental unit in the form of a refund, withdrawal, or other credit.

Post-retirement Health Benefits. Post-retirement health benefits (PRHB) refers to costs of health insurance or health services not included in a pension plan covered by subsection e., above, for retirees and their spouses, dependents, and survivors. PRHB costs may be computed using a pay-as-you-go method or an actuarial cost method in accordance the established written policies of the governmental unit. (1) For PRHB financed on a pay-as-you-go method, allowable costs will be limited to those representing actual payments to retirees or their beneficiaries. (2) PRHB costs calculated using an actuarial cost method recognized by GAAP are allowable if they are funded for that year within six months after the end of that year. Costs funded after the six month period (or a later period agreed to by the cognizant agency) are allowable in the year funded. The cognizant agency may agree to an extension of the six-month period if an appropriate adjustment is made to compensate for the timing of the charges to the Federal government and related Federal reimbursements and the governmental unit’s contributions to the PRHB fund. Adjustments may be made by cash refund, reduction in current year’s PRHB costs, or other equitable procedures to compensate the Federal government for the time value of Federal reimbursements in excess of contributions to the PRHB fund. (3) Amounts funded in excess of the actuarially determined amount for a fiscal year may be used as the government’s contribution in a future period. (4) When a governmental unit converts to an acceptable actuarial cost method and funds PRHB costs in accordance with this method, the initial unfunded liability attributable to prior years shall be allowable if amortized over a period of years in accordance with GAAP, or, if no such GAAP period exists, over a period negotiated with the cognizant agency. (5) To be allowable in the current year, the PRHB costs must be paid either to: (a) an insurer or other benefit provider as current year costs or premiums, or (b) an insurer or trustee to maintain a trust fund or reserve for the sole purpose of providing post-retirement benefits to retirees and other beneficiaries. (6) the Federal government shall receive an equitable share of any amounts of previously allowed post-retirement benefit costs (including earnings thereon) which revert or inure to the governmental unit in the form of a refund, withdrawal, or other credit.

Severance Pay. (1) Payments in addition to regular salaries and wages made to workers whose employment is being terminated are allowable to the extent that, in each case, they are required by: (a) law, (b) employer-employee agreement, or (c) established written policy. (2) Severance payments (but not accruals) associated with normal turnover are allowable. (3) Abnormal or mass severance pay will be considered on a case-by-case basis and is allowable only if approved by the cognizant Federal agency.

Distribution of Time for Salaries and Wages. Charges to Federal awards for salaries and wages, whether treated as direct or indirect costs, must be based upon payrolls documented in accordance with generally accepted practice of the governmental unit and approved by a responsible official(s) of the grantee. No further documentation is required for the salaries and wages of employees who work in a single indirect cost activity. Where employees are expected to work solely on a single Federal award or cost objective, charges for their salaries and wages will be supported by periodic certifications that the employees worked solely on that program for the period covered by the certification. These certifications will be prepared at least semi-annually and will be signed by the employee or supervisory official having first-hand knowledge of the work performed by the employee. Where employees work on multiple activities or cost objectives, a distribution of their salaries or wages will be supported by personnel activity reports or equivalent documentation which meets standards for personnel activity records (a) through (e) below, unless a statistical sampling system (see below) or other substitute system has been approved by the cognizant Federal agency.

Documentary support for time distribution will be required where employees work on: (a) more than one Federal award, (b) a Federal award and a nonfederal award, (c) an indirect cost activity and a direct cost activity, (d) two or more indirect cost activities which are allocated using different allocation bases, or (e) an unallowable activity and a direct or indirect cost activity. The time distribution method used must account for the total salaried effort of the persons covered. A system which provides for the reporting only of effort applicable to federally sponsored activities is not acceptable. Time should be accounted for in units no longer than working days, and a brief description linking work performed to a specific approved project or activity should be used. (For example, “Consulted with subgrantee’s architect on project XX-0001” would be acceptable; “Grant activities” would not.)

Salaries and wages of employees used in meeting cost sharing or matching requirements of Federal awards must be supported in the same manner as those claimed as allowable costs under Federal awards.

Personnel activity reports or equivalent documentation must meet the following standards: (a) they must reflect an after-the-fact distribution of the actual activity of each employee; (b) they must account for the total activity for which each employee is compensated; (c) they must be prepared at least monthly and must coincide with one or more pay periods; and (d) they must be signed by the employee. Note that budget estimates or other distribution percentages determined before the services are performed do not qualify as support for charges to Federal awards but may be used for interim accounting purposes, provided that: (i) the grantee’s system for establishing the estimates produces reasonable approximations of the activity actually performed; (ii) at least quarterly, comparisons of actual costs to budgeted distributions based on the monthly activity reports are made. Costs charged to Federal awards to reflect adjustments made as a result of the activity actually performed may be recorded annually if the quarterly comparisons show the differences between budgeted and actual costs are less than ten percent; and (iii) the budget estimates or other distribution percentages are revised at least quarterly, if necessary, to reflect changed circumstances.

Substitute systems for allocating salaries and wages to Federal awards may be used in place of activity reports. These systems are subject to approval if required by the cognizant agency. [See OMB Circular A-87, Item B.11h.(6).]

Donated Services. Donated or volunteer services may be furnished to a grantee by professional and technical personnel, consultants, and other skilled and unskilled labor. The value of these services is not reimbursable either as a direct or indirect cost. However, the value of donated services may be used to meet cost sharing or matching requirements in accordance with the provisions in Chapter 14 (of the Historic Preservation Fund Grant Manual). The value of donated services used in the performance of a direct cost activity shall, when material in amount, be considered in the determination of the grantee’s indirect costs or rate(s) and, accordingly, shall be allocated a proportionate share of applicable indirect costs. To the extent feasible, donated services will be supported by the same methods used by the grantee to support the allocability of regular personnel services.

Nonprofit Organizations. For nonprofit organizations, charges for personal services must comply with the requirements of OMB Circular A-122, Attachment B, Item 6.

Educational Institutions. For educational institutions, charges for personal services must comply with the requirements of OMB Circular A-21, Item J.6.

13.	Depreciation and Use Allowances.

Grantees may be compensated for the use of buildings, capital improvements, and equipment used in grant program operations through use allowances or depreciation. Use allowances are the means of providing compensation in lieu of depreciation or other equivalent costs. A combination of the two methods may not be used in connection with a single class of fixed assets (e.g. buildings, office equipment, computer equipment, etc.).

The computation of depreciation or use allowance shall be based on acquisition cost of the assets involved. Where actual cost records have not been maintained, a reasonable estimate of the original acquisition cost may be used. The computation of depreciation or use allowances will exclude the cost of any portion of the cost of buildings and equipment borne or donated by the Federal Government, irrespective of where title was originally vested or where it presently resides; and any portion of the cost of buildings or equipment which has been contributed by or for the grantee or its governmental unit in satisfaction of a matching share requirement.

Where the depreciation method is followed, adequate property records must be maintained and any generally accepted method of computing depreciation may be used. However, the method of computing depreciation must be consistently applied for any specific asset or class of assets for all affected federally sponsored programs and must result in equitable charges considering the extent of the use of the assets for the benefit of such programs.

In lieu of depreciation, a use allowance for buildings and improvements may be computed at an annual rate not exceeding two percent (2%) of the acquisition cost. The use allowance for equipment (excluding items properly capitalized as building cost) will be computed at an annual rate not exceeding 6 2/3 percent (i.e., 6.67 percent) of the acquisition cost of usable equipment.

No depreciation or use charge may be allowed on any assets that would be considered as full depreciated, provided, however, that reasonable use charges may be negotiated for any such assets if warranted after taking into consideration the amount of any depreciation previously charged to the government, the estimated useful life remaining at time of negotiation, the effect of any increased maintenance charges, decreased efficiency due to age, and any other factors pertinent to the utilization of the facility or item for the purpose contemplated. Use allowances or depreciation applicable to the asset shall not exceed the total acquisition cost of the asset, or its fair market value at the time of its donation.

Charges for use allowances or depreciation must be supported by adequate property records. Physical inventories must be taken at least once every two years (a statistical sampling approach is acceptable) to ensure that assets exist, and are in use. Governmental units will manage equipment in accordance with state laws and procedures. When the depreciation method is followed, records indicating the amount of depreciation taken each period must be maintained.

For nonprofit grantees, see OMB Circular A-122, Item 9.

14.	Development Costs. Development costs incurred by subgrant, contract or force account as follows are allowable when such work complies with the Secretary of the Interior’s Standards for the Treatment of Historic Properties and with the provisions of Section K of Chapter 6 of the Historic Preservation Fund Grants Manual:

Costs of exterior work, structural work, and necessary improvements in wiring, plumbing, and other utilities;

Costs of interior restoration if the public is to have access to the interior in accordance with public benefit policies.

15.	Disbursing Service. The cost of disbursing grant program funds by the Treasurer or other designated officer is allowable.

16.	Employee Morale, Health and Welfare Costs. The costs of health or first-aid clinics and/or infirmaries, recreational facilities, employees’ counseling services, employee information publications, and any related expense incurred in accordance with general state, local or Indian tribal government policy, are allowable. Income generated from any of these activities will be offset against expenses. For nonprofit grantees, see OMB Circular A-122, Item 11.

17.	Equipment and Other Capital Expenditures. Any article of nonexpendable tangible personal property having a useful life of more than one (1) year and an acquisition cost of $5000 or less is defined as supplies, and is allowable as a direct cost, without specific prior NPS, if necessary for the performance of the HPF grant. (See Section C.2 of this Chapter for prior approval of items costing more than $5000.) When replacing equipment purchased with Federal funds, the grantee may use the equipment to be replaced as a trade-in or sell the property and use the proceeds to offset the cost of the replacement equipment. Capital expenditures which are not charged directly to a Federal award may be recovered through use allowances, or depreciation (See Section B.13).

18.	Exhibits. Costs of temporary exhibits relating specifically to HPF grant-assisted program operations, accomplishments, or results are allowable. (See Section D.29 for unallowable exhibition costs).

19.	Furnishings. The cost of project furnishings is allowable as part of a development project when such furnishings are original pieces of furniture or permanently attached items that are integral to building construction or documented historic design or reconstruction based upon documented original furnishings. Some rehabilitation projects may involve furnishings when such furnishings are essential to major objectives of the project. (Replicas of furnishings are not eligible for HPF grant assistance.).

20.	General Conditions for Construction Contracts. This term, used in construction cost estimates, bids, and construction administration documents, refers to provisions by the general contractor of miscellaneous requirements to other contractors and subcontractors, thereby eliminating the duplication and expense of each trade providing its own temporary facilities. General conditions including, but not limited to, temporary heat, power, lighting, water, sanitary facilities, scaffolding, elevators, walkways and railings, construction office space and storage, as well as cleanup, security, and required insurance, permits, and surety bonds, are allowable when identified as a line item in the project application. (See Section D.9 for contingency costs, and D.22 for insurance costs, which are unallowable.).

21.	Indirect Costs. Indirect costs are allowable only in accordance with the applicable indirect cost principles and when based on a current approved or provisional rate awarded by the cognizant Federal agency. (See Chapter 12 of the Historic Preservation Fund Grants Manual; also see Section D.21).

22.	Insurance and Indemnification. Costs of hazard and liability insurance to cover personnel or property directly connected with the HPF-assisted program or project site required or approved and maintained pursuant to the grant agreement are allowable during the grant period. Costs of other insurance in connection with the general conduct of activities are allowable if maintained in accordance with sound business practice, except that the types and extent and cost of coverage or of contributions to any reserve covering the risk of loss of, or damage to, Federal Government property are unallowable except to the extent that the NPS has specifically required or approved such costs. (See OMB Circular A-87, Item B.25, for the allowability of self-insurance reserves.) For nonprofit grantees, see OMB Circular A-122, Item 18. (Also see Section D.22 for certain unallowable insurance costs.)

23.	Interest. Financing costs (including interest) paid or incurred on or after September 1, 1995, associated with the otherwise allowable costs of office building acquisition, construction, or fabrication, reconstruction or remodeling completed on or after October 1, 1980, is allowable, subject to the following conditions: (1) the financing is provided (by other than tax or use fee sources) by a bona fide third party external to the grantee; (2) the assets are used in support of Federal award; (3) earnings on debt service reserve funds or interest earned on borrowed funds pending payment of construction or acquisition costs are used to offset the current period’s cost or the capitalized interest, as appropriate. Earnings subject to being reported to the Federal Internal Revenue Service under arbitrage requirements are excludable; (4) Governmental units will negotiate the amount of allowable interest whenever cash payments (interest, depreciation, use allowances, and contributions) exceed the grantee’s cash payments and other contributions attributable to that portion of real property used for Federal awards.

24.	Interpretive Signs. The costs of purchasing and installing (but not maintaining) a minimum number of interpretive or informational markers or signs at grant-assisted historic buildings and structures and archeological sites are allowable. (See Section D.24 below.)

25.	Labor Relations Costs. For nonprofit grantees, see OMB Circular A-122, Item 20.

26.	Landscaping. Costs of landscaping are allowable as follows:

Restoration, rehabilitation, stabilization, or protection of a well-documented historic landscape listed in the National Register of Historic Places either individually, or as a contributing element to a National Register District;

Grading for purposes of drainage, building or site safety, and protection of a National Register listed property;

Improvements necessary to facilitate access for the disabled to a National Register listed property; or

Revegetation to stabilize and protect an archeological site or other National Register property.

(Note: Non-historic features such as parking lots, street paving, street lamps, and benches are not eligible for HPF grant assistance.)

27.	Legal Expenses. The cost of legal expenses required in the administration of HPF grant programs is allowable. (Legal expenses for the prosecution of claims against the Federal Government are not allowable.)

28.	Maintenance, Operations, and Repair. Costs of utilities, insurance, security, janitorial services, elevator service, upkeep of grounds, necessary maintenance, normal repairs and alterations, and the like for office space are allowable to the extent that they: (1) keep the property in efficient operating condition, (2) do not add to the permanent value of property or appreciably prolong its intended life, and (3) are not otherwise included in rental or other charges for space. Costs which add to the permanent value of property or appreciably prolong its intended life shall be treated as capital expenditures (see Section B.17, above and Section C.2, below). However, costs of ongoing maintenance and administration of real property assisted with HPF monies are unallowable (see D.26). For nonprofit grantees, see OMB Circular A-122, Items 22, 38, and 39.

29.	Materials and Supplies. The cost of materials and supplies necessary to carry out the HPF grant program is allowable. Purchases made specifically for the grant program should be charged at their actual prices after deducting all cash discounts, trade discounts, rebates, and allowances received. Withdrawals from general stores or stockrooms should be charged at cost under any recognized method of pricing, consistently applied. Incoming transportation charges are a proper part of materials and supplies costs.

30.	Memberships, Subscriptions, and Professional Activities.

Memberships. The cost of the grantee organization’s membership in civic, business, technical and professional organizations (dues) is allowable provided: (1) the benefit from the membership is directly related to achieving grant program objectives; (2) the expenditure is for agency membership; (3) the cost of the membership is reasonably related to the value of the services or benefits received; and (4) the expenditure is not for membership in organizations substantially engaged in lobbying.

Note: The Lobbying Disclosure Act of 1995 explicitly defines organizations of state government officials as not being lobbying organizations. Therefore, payment of dues to the National Conference of Historic Preservation Officers is an allowable grant cost. (See Section D.25 for ineligible lobbying costs which cannot be charged to the HPF grant.) For nonprofit grantees, see OMB Circular A-122, Item 21.

Reference Material. The cost of the grantee organization’s subscriptions to business, technical, and professional periodicals is allowable when necessary to accomplish grant program purposes.

Meetings and Conferences. Costs are allowable when the primary purpose of the meeting is the dissemination of technical information relating to the grant program. The costs of meals, transportation, rental of meeting facilities, and other incidental costs are allowable. For nonprofit grantees, see OMB Circular A-122, Item 25.

31.	Motor pools. The costs of a service organization which provides automobiles to grantee agencies at a mileage or fixed rate and/or provides vehicle maintenance, inspection, and repair services are allowable.

32.	Page Charges in Scientific or Professional Journals. Page charges for scientific or professional publications are allowable as a necessary part of grant cost where: the papers report work supported by the HPF grant and acknowledge the grant; the charges are levied impartially on all papers published by the journal, whether by non-Government or by Government authors; and there will be a significant and direct benefit to the achievement of HPF grant program objectives.

33.	Plans and Specifications. Costs of architectural plans and specifications, shop drawings, and/or other materials required to document and plan development project work according to the Secretary’s Standards for the Treatment of Historic Properties are allowable.

34.	Professional and Consultant Service Costs.

Costs of professional and consultant services rendered by persons or organizations that are members of a particular profession or possess a special skill, whether or not officers or employees of the grantee, are allowable, subject to the provisions of Chapter 5 of the Historic Preservation Fund Grants Manual and subject to the subsections below, when reasonable in relation to the services rendered, and when not contingent upon recovery of the costs from the Government (i.e., contingent fees are prohibited).

Factors to be considered in determining the allowability of costs in a particular case include:1) the nature and scope of the service rendered in relation to the service required; 2) the necessity of contracting for the service, considering the grantee organization’s capability in a particular area; 3) the impact of HPF grants on the grantee organization; 4) the qualifications of the individual or concern rendering the service and the customary fees charged, especially on non-government contracts and grants; and 5) the adequacy of the contractual agreement for the service (i.e., description of the service and products to be provided, estimate of time required, rate of compensation, and termination provisions).

Retainer fees supported by evidence of bona fide services available or rendered are allowable.

Costs of legal, accounting, and consulting services, and related costs incurred in the prosecution of claims against the Government are unallowable. (See Section D.33.)

Written agreements shall be executed between the parties which detail the responsibilities, standards, and fees.

Compensation for Consultants. No person employed as a consultant, or by a firm providing consultant services, shall receive more than a reasonable rate of compensation for personal services paid with HPF funds, or when such services are contributed as nonfederal share. This rate shall not exceed the maximum daily rate of compensation in the Federal Civil Service equal to 120 percent of a GS-15, step 10 salary.

When consultant services rates exceed this rate, only the amount up to that rate can be charged to the HPF grant, or be claimed as nonfederal matching share costs. Where consultants are hired at salaries above that rate, the excess costs must be paid outside the historic preservation grant (and nonfederal share).

For nonprofit grantees, also see OMB Circular A-122, Item 35.

35.	Protective Devices. Costs of burglar and fire alarm systems and other protective devices or protective measures for HPF programs, projects, and records are allowable.

Public Information Services Costs. Public information services costs include the costs associated with newsletters, pamphlets, news releases, films, videotapes, and other forms of historic preservation related information services.

Allowable costs are those normally incurred to: 1) inform or instruct individuals, groups, or the general public about specific historic preservation activities, accomplishments, and issues that result from performance of the HPF grant; 2) interest individuals and organizations in participating in HPF grant-supported programs of the grantee and the achievement of NPS approved work program objectives; 3) provide necessary stewardship reports to state and local government agencies, contributing organization, and the like; or to 4) disseminate the results of grantee-sponsored activities to preservation professionals, interested organizations, and the general public.

Within the foregoing parameters, public information services which (1) are not directly related to historic preservation or NPS approved activities, or (2) are costs related to fundraising appeals are unallowable. Public information costs are allowable as direct costs only. For nonprofit organizations, see OMB Circular A-122, Item 37.

37.	Publication and Printing Costs. Costs of printing and reproduction services necessary for grant administration, including but not limited to forms, manuals, the State Comprehensive Historic Preservation Plan, annual subgrant application instructions, and informational literature, are allowable. Publication costs of reports or other media relating to HPF grant program accomplishments or results are allowable when necessary to comply with grant-supported program or project requirements, such as Final Project reports, publications undertaken at the written direction of NPS, as well as other publications necessary for grant-assisted program administration. See Chapter 3, Section D.3 of the Historic Preservation Grant Fund Manual. In addition, for nonprofit organizations, see OMB Circular A-122, Item 38.

38.	Recruiting Costs. For nonprofit grantees, see OMB Circular A-122, Item 41.

39.	Relocation Assistance. Costs of relocation assistance payments made under the requirements of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended by the Surface Transportation and Uniform Relocation Assistance Act of 1987 (43 U.S.C. 4601; see 49 CFR 24), are allowable. See Chapter 20 for details and limits. (In addition, for nonprofit organizations, see OMB Circular A-122, Item 42.)

40.	Rental Costs. Rental of office space is allowable, subject to the provisions of Chapter 12, Section C of the Historic Preservation Grant Fund Manual, and OMB Circular A-87, Item B.38. The cost of the office space in privately or publicly owned buildings used for the benefit of the grant program is allowable subject to the following conditions: (1) the total cost of space, in a privately or publicly owned building, may not exceed the rental cost of comparable space and facilities in a privately owned building in the same locality; (2) the cost of space procured for grant program usage may not be charged to the program for periods of non-occupancy without authorization of NPS. For nonprofit organizations, see OMB Circular A-122, Item 43.

41.	Research. Costs of historical, architectural, and archeological research necessary for project accomplishment are allowable. Purely archival research is unallowable. (See Section D.1. below.)

Review Boards. Costs incurred by state review boards or committees established and acting pursuant to NPS requirements are allowable. Members of the state review board may receive subsistence, travel allowances, and compensation while serving on the business of the review board. In accordance with state law, regulations, and practice applicable to persons performing comparable duties and services for the state.

43.	Royalties and Other Costs for Use of Patents and Copyrights. See Chapters 16 and 19 of the Historic Preservation Grant Fund Manual. In addition, for nonprofit grantees, refer to OMB Circular A-110 and Circular A-122, Item 44. Payment of royalties is allowable unless patent or copyright is invalid or the Federal Government has a right of royalty-free use (which is a requirement for all grant-assisted publications).

44.	Severance Pay. For nonprofit grantees, refer to OMB Circular A-122, Item 45.

45.	Signs. Costs of signs acknowledging HPF assistance at construction project sites during the grant period are allowable. [See Chapter 6, Section K.2.b.3]

46.	Specialized Service Facilities. For nonprofit grantees, see Circular A-122, Item 46.

47.	Taxes. In general, taxes or payments in lieu of taxes which the grantee agency is legally required to pay are allowable. In no case are Federal income taxes an allowable grant cost. In addition, for nonprofit grantees, refer to OMB Circular A-122, Item 47. (Also see Item D.35 for unallowable costs.)

Termination Cost. For nonprofit grantees, see OMB Circular A-122, Item 48.

Training and Education. The cost of training for employee development is allowable. For nonprofit grantees, see OMB Circular A-122, Item 49.

Travel. Travel costs are allowable for expenses for transportation, lodging, subsistence, and related items incurred by employees traveling on official business incident to the HPF grant program. 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 results in charges consistent with those normally allowed in like circumstances in non-federally sponsored activities. Lodging costs must be documented by a receipt in order to be eligible for reimbursement under the HPF grant.

The difference in cost between first-class air accommodations and less-than-first-class accommodation is unallowable except when less-than-first-class accommodations are not reasonably available, and the provisions of OMB Circular A-87, Item B.41(c) are met. Foreign travel costs are allowable only with the prior written approval of NPS. (See Section C.4 below.) Notwithstanding the provisions of section D.17, travel costs of officials covered by those subsections, when specifically and directly related to the HPF grant program, are allowable with the prior written authorization of NPS. For nonprofit grantees, see OMB Circular A-122, Item 50. The maximum allowable mileage rate that can be charged to the HPF grant as of November 2001 is 34.5 cents per mile.

Costs Allowable with Approval of NPS.

1.	Automatic Data Processing. The cost of data processing services for the HPF grant program is allowable. This cost may include rental of equipment or depreciation on grantee-owned equipment. The acquisition of equipment with a unit acquisition cost over $5,000, whether by outright purchase, rental purchase agreement, or other method of purchase, is allowable only upon specific prior approval of NPS. (See Section C.2.)

2.	Equipment and Other Capital Expenditures. The cost of facilities, equipment, other capital assets, and repairs or improvements which materially increase the value or useful life of capital assets is allowable when such procurement is specifically justified in writing and specifically approved in writing by NPS. When assets acquired with HPF grant funds are sold, no longer available for use in the NPS-sponsored program, or used for purposes not authorized by the NPS, the NPS equity in any assets with a current fair market value over $5000 will be refunded in the same proportion as Federal participation in its cost. In case any assets are traded on new items, only the net cost after trade-in allowances of the newly acquired assets is allowable. Articles with a unit cost of more than $5000 and a useful life of more than one year are allowable when specifically approved by NPS as a direct cost. (See Section B.17 regarding articles costing less than $5000.)

3.	Extended Training. Costs of out-of-service training involving extended periods of time (more than a month of time away from work) is allowable only when specifically authorized in writing by NPS.

4.	Foreign Travel. Foreign travel costs are allowable only when the travel has received specific prior written approval from NPS. Each separate foreign trip must be specifically approved and justified on the basis of direct benefits to the HPF grant program. For purposes of this provision, foreign travel is defined as “any travel outside of Canada or any jurisdiction defined as a state by the National Historic Preservation Act, as amended.”

5.	Moving Historic Structures or Objects. Costs of moving or reconstructing properties are allowable only if the project meets NPS criteria and if the property remains listed in the National Register, either individually listed or as a contributing property to a historic district. The Keeper of the National Register must give prior written approval for the move in accordance with 36 CGR 60.14b. If the Keeper does not concur that the property will remain on the National Register after the move, then no costs of moving the property are eligible for HPF grant assistance (see Chapter 6, Section J.2.c).

6.	Overtime. For nonprofit grantees, see OMB Circular A-122, Item 28.

7.	Participant Support Costs. For nonprofit grantees, see OMB Circular A-122, Item 30.

8.	Preagreement Costs. Costs incurred prior to the effective date of the grant award, whether or not they would have been allowable if incurred after such date, are allowable only with prior written approval of NPS and when specifically provided for in the grant agreement. See additional requirements for nonprofit grantees in OMB Circular A-122, Item 34.

9.	Proposal Costs. Costs of preparing proposals for potential Federal Government grant agreements are allowable as direct costs when specifically provided for in the grant agreement. (Proposal costs should normally be treated as indirect costs.)

10.	Rearrangements and Alterations. Costs incurred for special rearrangements and alterations of facilities required specifically for the grant program are allowable when specifically approved in writing by NPS. (See Section C.2.)

11.	Revolving Fund Costs. The costs of planned financial assistance by a grantee through a revolving fund mechanism are unallowable except with prior written NPS approval (see Chapter 8, Section F.2.h. of the Historic Preservation Fund Grants Manual).

Unallowable Costs.

1.	Archival Research. Costs of purely archival research are unallowable. Grant-assisted research must directly relate to achieving the purposes of the HPF grant program.

Acquisition of Previously Assisted Properties. Costs of an acquisition of real property which has previously received HPF assistance for development (or acquisition) are not allowable during the term of the covenant or preservation agreement.

Alcoholic Beverages. Costs of alcoholic beverages are unallowable.

Archeological Salvage. Costs of data recovery unrelated to increasing an understanding of a National Register property are unallowable. (See Chapter 6, Section K.4.d. of the Historic Preservation Grants Manual.)

Bad Debts. Any losses arising from uncollectible accounts and other claims, and related collection costs are unallowable.

Certified Historic Structures. Unless otherwise stipulated by NPS, grantees my not provide HPF development assistance for projects which have been accorded Federal preservation tax benefits for that same work. Similarly, HPF development grant assistance used for any portion of a building by an owner and/or lessee from obtaining the Federal tax incentives for historic preservation contained in the Internal Revenue Code for that portion of the building.

Church-owned Property. Costs of acquiring and/or repairing church-owned property are unallowable because of the Administration’s policy on maintaining the separation or church and state. (See Chapter 6, Section D.6 for allowable technical assistance and planning costs.)

Conditional Donations. Any donation of real property containing a reversionary provision to the donor which can be exercised during the term of the covenant is not eligible as matching share.

Contingencies. Contributions to a contingency reserve or any similar provision made for events the occurrence of which cannot be foretold with certainty as to time, or intensity, or with an assurance of their happening, are unallowable. (The term “contingency reserve” excludes self-insurance, pension plan, and post-retirement health benefit reserves computed using acceptable actuarial cost methods; see Section B.12.)

Contributions and Donations.

Charitable contributions and donations of grant funds, property, or grant-assisted services are unallowable. For nonprofit grantees, see OMB Circular A-122, Item 8, and see discussion of donations in A-122, Item 10.

The value of services donated by employees or other persons paid with HPF grant funds or other Federal funds is unallowable.

Donated goods (i.e., expendable personal property/supplies and donated use of space) may be furnished to a grantee, subgrantee, or grant-supported contractor. The value of the goods and space is not reimbursable as a direct or indirect cost. However, the value of the donations may be used to meet matching share requirements when determined in accordance with the conditions described in Chapter 14.

Curation. Costs of curation or exhibition of artifacts or other materials after the project end date are unallowable.

Entertainment. Costs of entertainment, including amusements, social activities, and any costs directly associated with such costs (such as tickets to shows or sporting events, meals, lodging, rentals, transportation, and gratuities) are unallowable. For nonprofit grantees, see OMB Circular A-122, Item 12.

Equipment. Equipment and other capital expenditures are unallowable as indirect costs. (See Section B.13, for the allowability of use allowances or depreciation on buildings, capital improvement, and equipment.)

Federal Properties. Costs related to federally owned properties are not eligible for HPF assistance. (However, see Chapter 6, Section H.3.i., for allowable costs for surveys on Federal lands.) Note that the Consolidated Rail Corporation is not an instrumentality of the Federal Government and is therefore eligible for grant assistance. (See 45 U.S.C. 741b.)

Fines and Penalties. Fines, penalties, damages, and other settlements resulting from violations (or alleged violations) of, or failure of the grantee to comply with, Federal, state, local, or Indian tribal laws and regulations are unallowable, except when incurred as a result of compliance with specific provisions of the Federal award or written instructions by NPS authorizing in advance such payments. For nonprofit grantees, see OMB Circular A-122, Item 14.

Fundraising and Investment Management Costs. Expenses and costs of organized fundraising, including financial campaigns, endowment drives, solicitation of gifts and bequests, investment counsel, and similar expenses incurred to raise capital or obtain contributions are unallowable. For nonprofit grantees, see OMB Circular A-122, Item 19 for other unallowable fundraising costs.

General Government Expenses. The salaries and expenses of the Office of the Governor of a State or the chief executive of a political subdivision or the chief executives of a Federally recognized Indian tribal government are considered a cost of general state or local government and are unallowable. For a federally recognized Indian tribal government, only that portion of the salaries and expenses of the office of the chief executive that is a cost of general government is unallowable; the portion of salaries and expenses directly attributable to managing and operating historic preservation programs by the chief tribal executive and his staff is allowable. Salaries and expenses of state legislatures, tribal councils, county supervisor or board, city council, school boards, etc., are unallowable.

HABS/HAER Costs for Federal Supervision. Payments of HPF grant funds to Federal officials supervising or otherwise administering HABS/HAER projects are not allowable. See exception for temporary limited employees in Chapter 6, Section E.7 in the Historic Preservation Grants Manual.

Honoria. Payments of HPF grant funds for honoraria are not allowable when the primary intent is to confer distinction on, or to symbolize respect, esteem, or admiration for, a recipient. (Payments for services rendered, such as a speaker’s fee at a grant-assisted workshop, are allowable.)

Idle Facilities and Idle Capacity. For state and local government grantees, the provisions of OMB Circular A-87, Item B.24 are applicable. For nonprofit grantees, the provisions of OMB Circular A-122, Item 16, are applicable.

Indirect Costs to Individuals. Indirect costs to individuals under grantee-awarded subgrants and contracts are not allowable. “Overhead” or administrative support costs must be charged on a direct cost basis and documented by appropriate supporting documentation.

Insurance and Indemnification. 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 grant agreement. However, costs incurred because of losses not covered under nominal deductible insurance coverage provided in keeping with sound management practice, 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. Indemnification includes securing the grantee against liabilities to third persons and other losses not compensated by insurance or otherwise. The Federal Government is obligated to indemnify the grantee only to the extent expressly provided for in the Federal award. Costs of commercial insurance that protects against the costs of the contractor for correction of the contractor’s own defects in materials or workmanship are unallowable.

Interest and Other Financial Costs. Costs incurred for interest on borrowed capital or the use of a grantee’s own funds, however represented, are unallowable, except as specifically provided in Item B.23 of this Chapter, or when authorized by Federal legislation. For nonprofit organizations, costs incurred for interest on borrowed capital or temporary use of endowment funds, however represented, are unallowable, except to acquire capital assets and equipment by purchase or lease agreements on assets acquired after September 29, 1995. (See OMB Circular A-122, Item 19.)

Interpretive Expenses. Interpretive expenses, such as staff salaries or maintenance of interpretive devices (with the exception of purchase and installation costs for such devices in accordance with Section B.24 above) are unallowable.

Lobbying. The cost of certain activities associated with obtaining grants, contracts, cooperative agreements, or loans is an unallowable cost. Lobbying with respect to HPF grants, contracts, cooperative agreements, and loans shall be governed by 31 U.S.C. 1352 and the provisions of the Common Rule “New Restrictions on Lobbying,” published in the Federal Register (55 FR 6736) on February 26, 1990, as well as the Office of Management and Budget’s “Governmentwide Guidance for New Restrictions on Lobbying” and the associated notices published in the Federal Register at 54 FR 52306 (December 20, 1989), at 55 FR 24540 (June 15, 1990), and at 57 FR 1772 (January 15, 1992). The costs associated with activities or any form of communication designed to influence in any manner a Member of Congress to favor or oppose any legislation or appropriation are unallowable. In addition, all recipients of Federal grant assistance over $100,000 must certify on the DI-2012 Form that they will not use grant funds for lobbying expenses. (See Chapter 7, Exhibit 7-D of the Historic Preservation Fund Grants Manual, for the DI-2012 form.)

The costs of membership in the National Conference of State Historic Preservation Officers is an allowable cost (see explanation in Chapter 13, Section B.30 of the Historic Preservation Fund Grants Manual).

a.	Lobbying Provisions for Nonprofit Organizations. For nonprofit organizations, notwithstanding other provisions of OMB Circular A-122, costs associated with the following activities are unallowable:

Attempts to influence the outcomes of any Federal, state, or local election, referendum, initiative, or similar procedure, through in-kind or cash contributions, endorsements, publicity, or similar activity;

Establishing, administering, contributing to, or paying the expenses of a political party, campaign, political action committee, or other organization established for the purpose of influencing the outcomes of elections;

Any attempt to influence: the introduction of Federal or state legislation; or the enactment or modification of any pending Federal or state legislation:

through communication with any member or employee of the Congress or state legislature (including efforts to influence State or local officials to engage in similar lobbying activity), or with any government official or employee in connection with a decision to sign or veto enrolled legislation; or

by preparing, distributing or using publicity or propaganda, or by urging members of the general public or any segment thereof to contribute to or participate in any mass demonstration, march, rally, fundraising drive, lobbying campaign, letter writing or telephone campaign; or

Legislative liaison activities, including attendance at legislative sessions or committee hearings, gathering information regarding legislation, and analyzing the effect of legislation, when such activities are carried on in support of or in knowing preparation for an effort to engage in unallowable lobbying.

b.	Exceptions. The following activities are excepted from the provisions detailed above:

Providing a technical and factual presentation of information on a topic directly related to the performance of a grant, contract or other agreement through hearing testimony, statements or letters to the Congress or a state legislature, or subdivision, member, or cognizant staff member thereof, in response to a documented request in accordance with the stipulations of OMB Circular A-122, Attachment B, Item 21.b.

Any lobbying made unallowable by subsection a.3), above, to influence state legislation in order to directly reduce the cost, or to avoid material impairment of the organization’s authority or perform the grant, contract, or other agreement.

Any activity specifically authorized by statute to be undertaken with funds from the grant, contract, or other agreement.

c.	Indirect Costs.

When an organization seeks reimbursement for indirect costs, total lobbying costs shall be separately identified in the indirect cost rate proposal, and thereafter treated as other unallowable activity costs in accordance with the procedures or paragraph B.3 of Attachment A of OMB Circular A-122.

Organizations shall submit as part of their annual indirect cost rate proposal a certification that the requirements and standards of this paragraph have been complied with.

Organizations shall maintain adequate records to demonstrate that the determination of costs as being allowable or unallowable pursuant to paragraph B.21 of Attachment A of OMB Circular A-122 complies with the requirements of that Circular.

Time logs, calendars, or similar records shall not be required to be created for the purposes of complying with this section during any particular calendar month when: (1) the employee engages in lobbying, as defined in subsection a. and b. above, 25% or less of the employee’s compensated hours of employment during that calendar month, and (2) within the preceding five-year period, the organization has not materially misstated allowable or unallowable costs of any nature, including legislative lobbying costs. When conditions (1) and (2) above are met, organizations are not required to establish records to support the allowability of claimed costs in addition to records already required or maintained. Also, when conditions (1) and (2) above are met, the absence of time logs, calendars, or similar records will not serve as a basis for disallowing costs by contesting estimates of lobbying time spent by employees during a calendar month.

Maintenance and Administration. Costs of ongoing maintenance and administration of properties following HPF grant assistance are not allowable, in accordance with Section 102(a)(5) of the Act, as amended. This prohibition is not applicable to the National Trust.

Meals. Costs of meals for grantee employees, Review Board members (including any other state oversight or advisory boards), or CLG Commission members are unallowable except as per diem when such persons are on travel status in conjunction with activities eligible for HPF assistance.

Mitigation Expenses. Costs of mitigation activities performed as a condition or pre-condition for obtaining a Federal permit or license or funding by other Federal programs are not allowable.

Museums. Costs of museum exhibits, staff salaries, and other administrative expenses, including maintenance, are unallowable, if they are not directly related to HPF-eligible activities. (See Section B.18.)

Nonconformance with Applicable Secretary of the Interior’s Standards. Work performed under grants, subgrants, or other contractual arrangements that do not conform to the applicable Secretary’s Standards are unallowable costs.

Organization Costs. For nonprofit grantees, see OMB Circular A-122, Item 27.

Profits and Losses on Disposition of Depreciable Property or Other Capital Assets. For state and local government and Indian tribe grantees, see OMB Circular A-87, Item B.22. For nonprofit grantees, see OMB Circular A-122, Item 36.

Prohibition on Compensating Intervenors. Compensation to any person intervening in any proceeding under the Act is unallowable due to the provisions of Section 101(f) of the National Historic Preservation Act. (See Legal Expenses in Section B.27.)

Purchase Price. The purchase price of real property is not allowable as an eligible development project cost. (It is an allowable cost for an acquisition project because it is a direct and necessary contribution to achieve acquisition project purposes.)

Taxes. Taxes or tax penalties which the organization involved would not have been liable to pay under prudent management are unallowable. This includes payroll tax penalties or interest paid on late taxes. (See Section B.47 for allowable taxes.)

Under-recovery of Cost Under Grant Agreements. Any excess cost not covered by the Federal contribution under one grant agreement is unallowable as a cost under any other Federal agreement. This includes, but is not limited to, the grantee’s contributed portion of cost sharing agreements, or any under-recoveries through negotiation of lump sum for, or ceilings on, indirect costs. For nonprofit grantees, see OMB Circular A-122, Item B.22.

APPENDIX 3

OMB CIRCULAR A-87 (REVISED 5/4/95, As Further Amended 8/29/97)

CIRCULAR NO. A-87
Revised

TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS

SUBJECT: Cost Principles for State, Local, and Indian Tribal Governments

1.	Purpose. This Circular establishes principles and standards for determining costs for Federal awards carried out through grants, cost reimbursement contracts, and other agreements with State and local governments and federally-recognized Indian tribal governments (governmental units).

2.	Authority. This Circular is issued under the authority of the Budget and Accounting Act of 1921, as amended; the Budget and Accounting Procedures Act of 1950, as amended; the Chief Financial Officers Act of 1990; Reorganization Plan No. 2 of 1970; and Executive Order No. 11541 ("Prescribing the Duties of the Office of Management and Budget and the Domestic Policy Council in the Executive Office of the President").

3.	Background. An interagency task force was established in 1987 to review existing cost principles for Federal awards to State, local, and Indian tribal governments. The task force studied Inspector General reports and recommendations, solicited suggestions for changes to the Circular from governmental units, and compared for consistency the provisions of other OMB cost principles circulars covering non-profit organizations and universities. A proposed revised Circular reflecting the results of those efforts was issued on October 12, 1988, and August 19, 1993. Extensive comments on the proposed revisions, discussions with interest groups, and related developments were considered in developing this revision.

4.	Rescissions. This Circular rescinds and supersedes Circular A-87, issued January 15, 1981.

5.	Policy. This Circular establishes principles and standards to provide a uniform approach for determining costs and to promote effective program delivery, efficiency, and better relationships between governmental units and the Federal Government. The principles are for determining allowable costs only. They are not intended to identify the circumstances or to dictate the extent of Federal and governmental unit participation in the financing of a particular Federal award. Provision for profit or other increment above cost is outside the scope of this Circular.

6.	Definitions. Definitions of key terms used in this Circular are contained in Attachment A, Section B.

7.	Required Action. Agencies responsible for administering programs that involve cost reimbursement contracts, grants, and other agreements with governmental units shall issue codified regulations to implement the provisions of this Circular and its Attachments by September 1, 1995.

8.	OMB Responsibilities. The Office of Management and Budget (OMB) will review agency regulations and implementation of this Circular, and will provide policy interpretations and assistance to insure effective and efficient implementation. Any exceptions will be subject to approval by OMB. Exceptions will only be made in particular cases where adequate justification is presented.

9.	Information Contact. Further information concerning this Circular may be obtained by contacting the Office of Federal Financial Management, Financial Standards and Reporting Branch, Office of Management and Budget, Washington, DC 20503, telephone 202-395-3993.

10.	Policy Review Date. OMB Circular A-87 will have a policy review three years from the date of issuance.

11.	Effective Date. This Circular is effective as follows:

- For costs charged indirectly or otherwise covered by the cost allocation plans described in Attachments C, D and E, this revision shall be applied to cost allocation plans and indirect cost proposals submitted or prepared for a governmental unit's fiscal year that begins on or after September 1, 1995.

- For other costs, this revision shall be applied to all awards or amendments, including continuation or renewal awards, made on or after September 1, 1995.

Attachments

ATTACHMENT A
Circular No. A-87

GENERAL PRINCIPLES FOR DETERMINING
ALLOWABLE COSTS

TABLE OF CONTENTS

A. Purpose and Scope

1. Objectives

2. Policy guides

3. Application

B. Definitions

1. Approval or authorization of the awarding or cognizant Federal agency

2. Award

3. Awarding agency

4. Central service cost allocation plan

5. Claim

6. Cognizant agency

7. Common rule

8. Contract

9. Cost

10. Cost allocation plan

11. Cost objective

12. Federally-recognized Indian tribal government

13. Governmental unit

14. Grantee department or agency

15. Indirect cost rate proposal

16. Local government

17. Public assistance cost allocation plan

18. State

C. Basic Guidelines

1. Factors affecting allowability of costs

2. Reasonable costs

3. Allocable costs

4. Applicable credits

D. Composition of Cost

1. Total cost

2. Classification of costs

E. Direct Costs

1. General

2. Application

3. Minor items

F. Indirect Costs

1. General

2. Cost allocation plans and indirect cost proposals

3. Limitation on indirect or administrative costs

G. Interagency Services

H. Required Certifications

A.	Purpose and Scope

1.	Objectives. This Attachment establishes principles for determining the allowable costs incurred by State, local, and federally-recognized Indian tribal governments (governmental units) under grants, cost reimbursement contracts, and other agreements with the Federal Government (collectively referred to in this Circular as "Federal awards"). The principles are for the purpose of cost determination and are not intended to identify the circumstances or dictate the extent of Federal or governmental unit participation in the financing of a particular program or project. The principles are designed to provide that Federal awards bear their fair share of cost recognized under these principles except where restricted or prohibited by law. Provision for profit or other increment above cost is outside the scope of this Circular.

2.	Policy guides.

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

(1)	Governmental units are responsible for the efficient and effective administration of Federal awards through the application of sound management practices.

(2)	Governmental units assume responsibility for administering Federal funds in a manner consistent with underlying agreements, program objectives, and the terms and conditions of the Federal award.

(3)	Each governmental unit, in recognition of its own unique combination of staff, facilities, and experience, will have the primary responsibility for employing whatever form of organization and management techniques may be necessary to assure proper and efficient administration of Federal awards.

b.	Federal agencies should work with States or localities which wish to test alternative mechanisms for paying costs for administering Federal programs. The Office of Management and Budget (OMB) encourages Federal agencies to test fee-for-service alternatives as a replacement for current cost-reimbursement payment methods in response to the National Performance Review's (NPR) recommendation. The NPR recommended the fee-for-service approach to reduce the burden associated with maintaining systems for charging administrative costs to Federal programs and preparing and approving cost allocation plans. This approach should also increase incentives for administrative efficiencies and improve outcomes.

3.	Application.

a.	These principles will be applied by all Federal agencies in determining costs incurred by governmental units under Federal awards (including subawards) except those with (1) publicly-financed educational institutions subject to OMB Circular A-21, "Cost Principles for Educational Institutions," and (2) programs administered by publicly-owned hospitals and other providers of medical care that are subject to requirements promulgated by the sponsoring Federal agencies. However, this Circular does apply to all central service and department/agency costs that are allocated or billed to those educational institutions, hospitals, and other providers of medical care or services by other State and local government departments and agencies.

b.	All subawards are subject to those Federal cost principles applicable to the particular organization concerned. Thus, if a subaward is to a governmental unit (other than a college, university or hospital), this Circular shall apply; if a subaward is to a commercial organization, the cost principles applicable to commercial organizations shall apply; if a subaward is to a college or university, Circular A-21 shall apply; if a subaward is to a hospital, the cost principles used by the Federal awarding agency for awards to hospitals shall apply, subject to the provisions of subsection A.3.a. of this Attachment; if a subaward is to some other non-profit organization, Circular A-122, "Cost Principles for Non-Profit Organizations," shall apply.

c.	These principles shall be used as a guide in the pricing of fixed price arrangements where costs are used in determining the appropriate price.

d.	Where a Federal contract awarded to a governmental unit incorporates a Cost Accounting Standards (CAS) clause, the requirements of that clause shall apply. In such cases, the governmental unit and the cognizant Federal agency shall establish an appropriate advance agreement on how the governmental unit will comply with applicable CAS requirements when estimating, accumulating and reporting costs under CAS-covered contracts. The agreement shall indicate that OMB Circular A-87 requirements will be applied to other Federal awards. In all cases, only one set of records needs to be maintained by the governmental unit.

e.	Conditional exemptions.

(1)	OMB authorizes conditional exemption from OMB administrative requirements and cost principles circulars for certain Federal programs with statutorily-authorized consolidated planning and consolidated administrative funding, that are identified by a Federal agency and approved by the head of the Executive department or establishment. A Federal agency shall consult with OMB during its consideration of whether to grant such an exemption.

(2)	To promote efficiency in State and local program administration, when Federal non-entitlement programs with common purposes have specific statutorily-authorized consolidated planning and consolidated administrative funding and where most of the State agency's resources come from non-Federal sources, Federal agencies may exempt these covered State-administered, non-entitlement grant programs from certain OMB grants management requirements. The exemptions would be from all but the allocability of costs provisions of OMB Circulars A-87 (Attachment A, subsection C.3), "Cost Principles for State, Local, and Indian Tribal Governments," A-21 (Section C, subpart 4), "Cost Principles for Educational Institutions," and A-122 (Attachment A, subsection A.4), "Cost Principles for Non-Profit Organizations," and from all of the administrative requirements provisions of OMB Circular A-110, "Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations," and the agencies' grants management common rule.

(3)	When a Federal agency provides this flexibility, as a prerequisite to a State's exercising this option, a State must adopt its own written fiscal and administrative requirements for expending and accounting for all funds, which are consistent with the provisions of OMB Circular A-87, and extend such policies to all subrecipients. These fiscal and administrative requirements must be sufficiently specific to ensure that: funds are used in compliance with all applicable Federal statutory and regulatory provisions, costs are reasonable and necessary for operating these programs, and funds are not be used for general expenses required to carry out other responsibilities of a State or its subrecipients.

B. Definitions

1.	"Approval or authorization of the awarding or cognizant Federal agency" means documentation evidencing consent prior to incurring a specific cost. If such costs are specifically identified in a Federal award document, approval of the document constitutes approval of the costs. If the costs are covered by a State/local-wide cost allocation plan or an indirect cost proposal, approval of the plan constitutes the approval.

2.	"Award" means grants, cost reimbursement contracts and other agreements between a State, local and Indian tribal government and the Federal Government.

3.	"Awarding agency" means (a) with respect to a grant, cooperative agreement, or cost reimbursement contract, the Federal agency, and (b) with respect to a subaward, the party that awarded the subaward.

4.	"Central service cost allocation plan" means the documentation identifying, accumulating, and allocating or developing billing rates based on the allowable costs of services provided by a governmental unit on a centralized basis to its departments and agencies. The costs of these services may be allocated or billed to users.

5.	"Claim" means a written demand or written assertion by the governmental unit or grantor seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of award terms, or other relief arising under or relating to the award. A voucher, invoice or other routine request for payment that is not a dispute when submitted is not a claim. Appeals, such as those filed by a governmental unit in response to questioned audit costs, are not considered claims until a final management decision is made by the Federal awarding agency.

6.	"Cognizant agency" means the Federal agency responsible for reviewing, negotiating, and approving cost allocation plans or indirect cost proposals developed under this Circular on behalf of all Federal agencies. OMB publishes a listing of cognizant agencies.

7.	"Common Rule" means the "Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments; Final Rule" originally issued at 53 FR 8034-8103 (March 11, 1988). Other common rules will be referred to by their specific titles.

8.	"Contract" means a mutually binding legal relationship obligating the seller to furnish the supplies or services (including construction) and the buyer to pay for them. It includes all types of commitments that obligate the government to an expenditure of appropriated funds and that, except as otherwise authorized, are in writing. In addition to bilateral instruments, contracts include (but are not limited to): awards and notices of awards; job orders or task orders issued under basic ordering agreements; letter contracts; orders, such as purchase orders, under which the contract becomes effective by written acceptance or performance; and, bilateral contract modifications. Contracts do not include grants and cooperative agreements covered by 31 U.S.C. 6301 et seq.

9.	"Cost" means an amount as determined on a cash, accrual, or other basis acceptable to the Federal awarding or cognizant agency. It does not include transfers to a general or similar fund.

10.	"Cost allocation plan" means central service cost allocation plan, public assistance cost allocation plan, and indirect cost rate proposal. Each of these terms are further defined in this section.

11.	"Cost objective" means a function, organizational subdivision, contract, grant, or other activity for which cost data are needed and for which costs are incurred.

12.	"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 through the Bureau of Indian Affairs.

13.	"Governmental unit" means the entire State, local, or federally-recognized Indian tribal government, including any component thereof. Components of governmental units may function independently of the governmental unit in accordance with the term of the award.

14.	"Grantee department or agency" means the component of a State, local, or federally-recognized Indian tribal government which is responsible for the performance or administration of all or some part of a Federal award.

15.	"Indirect cost rate proposal" means the documentation prepared by a governmental unit or component thereof to substantiate its request for the establishment of an indirect cost rate as described in Attachment E of this Circular.

16.	"Local government" means a county, municipality, city, town, township, local public authority, school district, special district, intrastate district, council of governments (whether or not incorporated as a non-profit corporation under State law), any other regional or interstate government entity, or any agency or instrumentality of a local government.

17.	"Public assistance cost allocation plan" means a narrative description of the procedures that will be used in identifying, measuring and allocating all administrative costs to all of the programs administered or supervised by State public assistance agencies as described in Attachment D of this Circular.

18.	"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.

C.	Basic Guidelines

1.	Factors affecting allowability of costs. To be allowable under Federal awards, costs must meet the following general criteria:

a.	Be necessary and reasonable for proper and efficient performance and administration of Federal awards.

b.	Be allocable to Federal awards under the provisions of this Circular.

c.	Be authorized or not prohibited under State or local laws or regulations.

d.	Conform to any limitations or exclusions set forth in these principles, Federal laws, terms and conditions of the Federal award, or other governing regulations as to types or amounts of cost items.

e.	Be consistent with policies, regulations, and procedures that apply uniformly to both Federal awards and other activities of the governmental unit.

f.	Be accorded consistent treatment. A cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost.

g.	Except as otherwise provided for in this Circular, be determined in accordance with generally accepted accounting principles.

h.	Not be included as a cost or used to meet cost sharing or matching requirements of any other Federal award in either the current or a prior period, except as specifically provided by Federal law or regulation.

i.	Be the net of all applicable credits.

j.	Be adequately documented.

2.	Reasonable costs. A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. The question of reasonableness is particularly important when governmental units or components are predominately federally- funded. In determining reasonableness of a given cost, consideration shall be given to:

a.	Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the governmental unit or the performance of the Federal award.

b.	The restraints or requirements imposed by such factors as: sound business practices; arms length bargaining; Federal, State and other laws and regulations; and, terms and conditions of the Federal award.

c.	Market prices for comparable goods or services.

d.	Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the governmental unit, its employees, the public at large, and the Federal Government.

e.	Significant deviations from the established practices of the governmental unit which may unjustifiably increase the Federal award's cost.

3.	Allocable costs.

a.	A cost is allocable to a particular cost objective if the goods or services involved are chargeable or assignable to such cost objective in accordance with relative benefits received.

b.	All activities which benefit from the governmental unit's indirect cost, including unallowable activities and services donated to the governmental unit by third parties, will receive an appropriate allocation of indirect costs.

c.	Any cost allocable to a particular Federal award or cost objective under the principles provided for in this Circular may not be charged to other Federal awards to overcome fund deficiencies, to avoid restrictions imposed by law or terms of the Federal awards, or for other reasons. However, this prohibition would not preclude governmental units from shifting costs that are allowable under two or more awards in accordance with existing program agreements.

d.	Where an accumulation of indirect costs will ultimately result in charges to a Federal award, a cost allocation plan will be required as described in Attachments C, D, and E.

4.	Applicable credits.

a.	Applicable credits refer to those receipts or reduction of expenditure-type transactions that offset or reduce expense items allocable to Federal awards as direct or indirect costs. Examples of such transactions are: purchase discounts, rebates or allowances, recoveries or indemnities on losses, insurance refunds or rebates, and adjustments of overpayments or erroneous charges. To the extent that such credits accruing to or received by the governmental unit relate to allowable costs, they shall be credited to the Federal award either as a cost reduction or cash refund, as appropriate.

b.	In some instances, the amounts received from the Federal Government to finance activities or service operations of the governmental unit should be treated as applicable credits. Specifically, the concept of netting such credit items (including any amounts used to meet cost sharing or matching requirements) should be recognized in determining the rates or amounts to be charged to Federal awards. (See Attachment B, item 15, "Depreciation and use allowances," for areas of potential application in the matter of Federal financing of activities.)

D.	Composition of Cost

1.	Total cost. The total cost of Federal awards is comprised of the allowable direct cost of the program, plus its allocable portion of allowable indirect costs, less applicable credits.

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 Federal award or other final cost objective. Therefore, it is essential that each item of cost be treated consistently in like circumstances either as a direct or an indirect cost. Guidelines for determining direct and indirect costs charged to Federal awards are provided in the sections that follow.

E.	Direct Costs

1.	General. Direct costs are those that can be identified specifically with a particular final cost objective.

2.	Application. Typical direct costs chargeable to Federal awards are:

a.	Compensation of employees for the time devoted and identified specifically to the performance of those awards.

b.	Cost of materials acquired, consumed, or expended specifically for the purpose of those awards.

c.	Equipment and other approved capital expenditures.

d.	Travel expenses incurred specifically to carry out the award.

3.	Minor items. Any direct cost of a minor amount may be treated as an indirect cost for reasons of practicality where such accounting treatment for that item of cost is consistently applied to all cost objectives.

F.	Indirect Costs

1.	General. 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 facilitate equitable distribution of indirect expenses to the cost objectives served, it may be necessary to establish a number of pools of indirect costs within a governmental unit department or in other agencies providing services to a governmental unit department. Indirect cost pools should be distributed to benefited cost objectives on bases that will produce an equitable result in consideration of relative benefits derived.

2.	Cost allocation plans and indirect cost proposals. Requirements for development and submission of cost allocation plans and indirect cost rate proposals are contained in Attachments C, D, and E.

3.	Limitation on indirect or administrative costs.

a.	In addition to restrictions contained in this Circular, there may be laws that further limit the amount of administrative or indirect cost allowed.

b.	Amounts not recoverable as indirect costs or administrative costs under one Federal award may not be shifted to another Federal award, unless specifically authorized by Federal legislation or regulation.

G.	Interagency Services. The cost of services provided by one agency to another within the governmental unit may include allowable direct costs of the service plus a pro rate share of indirect costs. A standard indirect cost allowance equal to ten percent of the direct salary and wage cost of providing the service (excluding overtime, shift premiums, and fringe benefits) may be used in lieu of determining the actual indirect costs of the service. These services do not include centralized services included in central service cost allocation plans as described in Attachment C.

H.	Required Certifications. Each cost allocation plan or indirect cost rate proposal required by Attachments C and E must comply with the following:

1.	No proposal to establish a cost allocation plan or an indirect cost rate, whether submitted to a Federal cognizant agency or maintained on file by the governmental unit, shall be acceptable unless such costs have been certified by the governmental unit using the Certificate of Cost Allocation Plan or Certificate of Indirect Costs as set forth in Attachments C and E. The certificate must be signed on behalf of the governmental unit by an individual at a level no lower than chief financial officer of the governmental unit that submits the proposal or component covered by the proposal.

2.	No cost allocation plan or indirect cost rate shall be approved by the Federal Government unless the plan or rate proposal has been certified. Where it is necessary to establish a cost allocation plan or an indirect cost rate and the governmental unit has not submitted a certified proposal for establishing such a plan or rate in accordance with the requirements, the Federal Government may either disallow all indirect costs or unilaterally establish such a plan or rate. Such a plan or rate may be based upon audited historical data or such other data that have been furnished to the cognizant Federal agency and for which it can be demonstrated that all unallowable costs have been excluded. When a cost allocation plan or indirect cost rate is unilaterally established by the Federal Government because of failure of the governmental unit to submit a certified proposal, the plan or rate established will be set to ensure that potentially unallowable costs will not be reimbursed.

ATTACHMENT B
Circular No. A-87

SELECTED ITEMS OF COST

TABLE OF CONTENTS

1. Accounting
2. Advertising and public relations costs
3. Advisory councils
4. Alcoholic beverages
5. Audit services
6. Automatic electronic data processing
7. Bad debts
8. Bonding costs
9. Budgeting
10. Communications
11. Compensation for personnel services
a. General
b. Reasonableness
c. Unallowable costs
d. Fringe benefits
e. Pension plan costs
f. Post-retirement health benefits
g. Severance Pay
h. Support of salaries and wages
i. Donated services
12. Contingencies
13. Contributions and donations
14. Defense and prosecution of criminal and civil proceedings, and claims
15. Depreciation and use allowances
16. Disbursing service
17. Employee morale, health, and welfare costs
18. Entertainment
19. Equipment and other capital expenditures
20. Fines and penalties
21. Fund raising and investment management costs
22. Gains and losses on disposition of depreciable property and other capital assets and substantial relocation of Federal programs.
23. General government expenses
24. Idle facilities and idle capacity
25. Insurance and indemnification
26. Interest
27. Lobbying
28. Maintenance, operations, and repairs
29. Materials and supplies
30. Memberships, subscriptions, and professional activities
31. Motor pools
32. Pre-award costs
33. Professional service costs
34. Proposal costs
35. Publication and printing costs
36. Rearrangements and alterations
37. Reconversion costs
38. Rental costs
39. Taxes
40. Training
41. Travel costs
42. Underrecovery of costs under Federal agreements

Sections 1 through 42 provide principles to be applied in establishing the allowability or unallowability of certain items of cost. These principles apply whether a cost is treated as direct or indirect. A cost is allowable for Federal reimbursement only to the extent of benefits received by Federal awards and its conformance with the general policies and principles stated in Attachment A to this Circular. Failure to mention a particular item of cost in these sections is not intended to imply that it is either allowable or unallowable; rather, determination of allowability in each case should be based on the treatment or standards provided for similar or related items of cost.

1.	Accounting. The cost of establishing and maintaining accounting and other information systems is allowable.

2.	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 governmental unit or maintaining or promoting understanding and favorable relations with the community or public at large or any segment of the public.

c.	Advertising costs are allowable only when incurred for the recruitment of personnel, the procurement of goods and services, the disposal of surplus materials, and any other specific purposes necessary to meet the requirements of the Federal award. Advertising costs associated with the disposal of surplus materials are not allowable where all disposal costs are reimbursed based on a standard rate as specified in the grants management common rule.

d.	Public relations costs are allowable when:

(1)	Specifically required by the Federal award and then only as a direct cost;

(2)	Incurred to communicate with the public and press pertaining to specific activities or accomplishments that result from performance of the Federal award and then only as a direct cost; or

(3)	Necessary to conduct 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 Federal contract/grant awards, financial matters, etc.

e.	Unallowable advertising and public relations costs include the following:

(1)	All advertising and public relations costs other than as specified in subsections c. and d.;

(2)	Except as otherwise permitted by these cost principles, costs of conventions, meetings, or other events related to other activities of the governmental unit including:

(a)	Costs of displays, demonstrations, and exhibits;

(b)	Costs of meeting rooms, hospitality suites, and other special facilities used in conjunction with shows and other special events; and

(c)	Salaries and wages of employees engaged in setting up and displaying exhibits, making demonstrations, and providing briefings;

(3)	Costs of promotional items and memorabilia, including models, gifts, and souvenirs; and

(4)	Costs of advertising and public relations designed solely to promote the governmental unit.

3.	Advisory councils. Costs incurred by advisory councils or committees are allowable as a direct cost where authorized by the Federal awarding agency or as an indirect cost where allocable to Federal awards.

4.	Alcoholic beverages. Costs of alcoholic beverages are unallowable.

5.	Audit services. The costs of audits are allowable provided that the audits were performed in accordance with the Single Audit Act, as implemented by Circular A-128, "Audits of State and Local Governments." [Note: In June 1997, OMB rescinded Circular A-128 and co-located all audit requirements in a re-titled Circular A-133, "Audits of States, Local Governments, and Non-Profit Organizations."] Generally, the percentage of costs charged to Federal awards for a single audit shall not exceed the percentage derived by dividing Federal funds expended by total funds expended by the recipient or subrecipient (including program matching funds) during the fiscal year. The percentage may be exceeded only if appropriate documentation demonstrates higher actual costs.

Other audit costs are allowable if specifically approved by the awarding or cognizant agency as a direct cost to an award or included as an indirect cost in a cost allocation plan or rate.

6.	Automatic electronic data processing. The cost of data processing services is allowable (but see section 19, Equipment and other capital expenditures).

7.	Bad debts. Any losses arising from uncollectible accounts and other claims, and related costs, are unallowable unless provided for in Federal program award regulations.

8.	Bonding costs. Costs of bonding employees and officials are allowable to the extent that such bonding is in accordance with sound business practice.

9.	Budgeting. Costs incurred for the development, preparation, presentation, and execution of budgets are allowable.

10.	Communications. Costs of telephone, mail, messenger, and similar communication services are allowable.

11.	Compensation for personnel services.

a.	General. Compensation for personnel services includes all remuneration, paid currently or accrued, for services rendered during the period of performance under Federal awards, including but not necessarily limited to wages, salaries, and fringe benefits. The costs of such compensation are allowable to the extent that they satisfy the specific requirements of this Circular, and that the total compensation for individual employees:

(1)	Is reasonable for the services rendered and conforms to the established policy of the governmental unit consistently applied to both Federal and non-Federal activities;

(2)	Follows an appointment made in accordance with a governmental unit's laws and rules and meets merit system or other requirements required by Federal law, where applicable; and

(3)	Is determined and supported as provided in subsection h.

b.	Reasonableness. Compensation for employees engaged in work on Federal awards will be considered reasonable to the extent that it is consistent with that paid for similar work in other activities of the governmental unit. In cases where the kinds of employees required for Federal awards are not found in the other activities of the governmental unit, compensation will be considered reasonable to the extent that it is comparable to that paid for similar work in the labor market in which the employing government competes for the kind of employees involved. Compensation surveys providing data representative of the labor market involved will be an acceptable basis for evaluating reasonableness.

c.	Unallowable costs. Costs which are unallowable under other sections of these principles shall not be allowable under this section solely on the basis that they constitute personnel compensation.

d.	Fringe benefits.

(1)	Fringe benefits are allowances and services provided by employers to their employees as compensation in addition to regular salaries and wages. Fringe benefits include, but are not limited to, the costs of leave, employee insurance, pensions, and unemployment benefit plans. Except as provided elsewhere in these principles, the costs of fringe benefits are allowable to the extent that the benefits are reasonable and are required by law, governmental unit-employee agreement, or an established policy of the governmental unit.

(2)	The cost of fringe benefits in the form of regular compensation paid to employees during periods of authorized absences from the job, such as for annual leave, sick leave, holidays, court leave, military leave, and other similar benefits, are allowable if: (a) they are provided under established written leave policies; (b) the costs are equitably allocated to all related activities, including Federal awards; and, (c) the accounting basis (cash or accrual) selected for costing each type of leave is consistently followed by the governmental unit.

(3)	When a governmental unit uses the cash basis of accounting, the cost of leave is recognized in the period that the leave is taken and paid for. Payments for unused leave when an employee retires or terminates employment are allowable in the year of payment provided they are allocated as a general administrative expense to all activities of the governmental unit or component.

(4)	The accrual basis may be only used for those types of leave for which a liability as defined by Generally Accepted Accounting Principles (GAAP) exists when the leave is earned. When a governmental unit uses the accrual basis of accounting, in accordance with GAAP, allowable leave costs are the lesser of the amount accrued or funded.

(5)	The cost of fringe benefits in the form of employer contributions or expenses for social security; employee life, health, unemployment, and worker's compensation insurance (except as indicated in section 25, Insurance and indemnification); pension plan costs (see subsection e.); and other similar benefits are allowable, provided such benefits are granted under established written policies. Such benefits, whether treated as indirect costs or as direct costs, shall be allocated to Federal awards and all other activities in a manner consistent with the pattern of benefits attributable to the individuals or group(s) of employees whose salaries and wages are chargeable to such Federal awards and other activities.

e.	Pension plan costs. Pension plan costs may be computed using a pay-as-you-go method or an acceptable actuarial cost method in accordance with established written policies of the governmental unit.

(1)	For pension plans financed on a pay-as-you-go method, allowable costs will be limited to those representing actual payments to retirees or their beneficiaries.

(2)	Pension costs calculated using an actuarial cost- based method recognized by GAAP are allowable for a given fiscal year if they are funded for that year within six months after the end of that year. Costs funded after the six month period (or a later period agreed to by the cognizant agency) are allowable in the year funded. The cognizant agency may agree to an extension of the six month period if an appropriate adjustment is made to compensate for the timing of the charges to the Federal Government and related Federal reimbursement and the governmental unit's contribution to the pension fund. Adjustments may be made by cash refund or other equitable procedures to compensate the Federal Government for the time value of Federal reimbursements in excess of contributions to the pension fund.

(3)	Amounts funded by the governmental unit in excess of the actuarially determined amount for a fiscal year may be used as the governmental unit's contribution in future periods.

(4)	When a governmental unit converts to an acceptable actuarial cost method, as defined by GAAP, and funds pension costs in accordance with this method, the unfunded liability at the time of conversion shall be allowable if amortized over a period of years in accordance with GAAP.

(5)	The Federal Government shall receive an equitable share of any previously allowed pension costs (including earnings thereon) which revert or inure to the governmental unit in the form of a refund, withdrawal, or other credit.

f.	Post-retirement health benefits. Post-retirement health benefits (PRHB) refers to costs of health insurance or health services not included in a pension plan covered by subsection e. for retirees and their spouses, dependents, and survivors. PRHB costs may be computed using a pay-as-you-go method or an acceptable actuarial cost method in accordance with established written polices of the governmental unit.

(1)	For PRHB financed on a pay as-you-go method, allowable costs will be limited to those representing actual payments to retirees or their beneficiaries.

(2)	PRHB costs calculated using an actuarial cost method recognized by GAAP are allowable if they are funded for that year within six months after the end of that year. Costs funded after the six month period (or a later period agreed to by the cognizant agency) are allowable in the year funded. The cognizant agency may agree to an extension of the six month period if an appropriate adjustment is made to compensate for the timing of the charges to the Federal Government and related Federal reimbursements and the governmental unit's contributions to the PRHB fund. Adjustments may be made by cash refund, reduction in current year's PRHB costs, or other equitable procedures to compensate the Federal Government for the time value of Federal reimbursements in excess of contributions to the PRHB fund.

(3)	Amounts funded in excess of the actuarially determined amount for a fiscal year may be used as the government's contribution in a future period.

(4)	When a governmental unit converts to an acceptable actuarial cost method and funds PRHB costs in accordance with this method, the initial unfunded liability attributable to prior years shall be allowable if amortized over a period of years in accordance with GAAP, or, if no such GAAP period exists, over a period negotiated with the cognizant agency.

(5)	To be allowable in the current year, the PRHB costs must be paid either to:

(a)	An insurer or other benefit provider as current year costs or premiums, or

(b)	An insurer or trustee to maintain a trust fund or reserve for the sole purpose of providing post-retirement benefits to retirees and other beneficiaries.

(6)	The Federal Government shall receive an equitable share of any amounts of previously allowed post-retirement benefit costs (including earnings thereon) which revert or inure to the governmental unit in the form of a refund, withdrawal, or other credit.

g.	Severance pay.

Payments in addition to regular salaries and wages made to workers whose employment is being terminated are allowable to the extent that, in each case, they are required by (a) law, (b) employer-employee agreement, or (c) established written policy.

(2)	Severance payments (but not accruals) associated with normal turnover are allowable. Such payments shall be allocated to all activities of the governmental unit as an indirect cost.

(3)	Abnormal or mass severance pay will be considered on a case-by-case basis and is allowable only if approved by the cognizant Federal agency.

h.	Support of salaries and wages. These standards regarding time distribution are in addition to the standards for payroll documentation.

(1)	Charges to Federal awards for salaries and wages, whether treated as direct or indirect costs, will be based on payrolls documented in accordance with generally accepted practice of the governmental unit and approved by a responsible official(s) of the governmental unit.

(2)	No further documentation is required for the salaries and wages of employees who work in a single indirect cost activity.

(3)	Where employees are expected to work solely on a single Federal award or cost objective, charges for their salaries and wages will be supported by periodic certifications that the employees worked solely on that program for the period covered by the certification. These certifications will be prepared at least semi-annually and will be signed by the employee or supervisory official having first hand knowledge of the work performed by the employee.

(4)	Where employees work on multiple activities or cost objectives, a distribution of their salaries or wages will be supported by personnel activity reports or equivalent documentation which meets the standards in subsection (5) unless a statistical sampling system (see subsection (6)) or other substitute system has been approved by the cognizant Federal agency. Such documentary support will be required where employees work on:

(a)	More than one Federal award,

(b)	A Federal award and a non-Federal award,

(c)	An indirect cost activity and a direct cost activity,

(d)	Two or more indirect activities which are allocated using different allocation bases, or

(e)	An unallowable activity and a direct or indirect cost activity.

(5)	Personnel activity reports or equivalent documentation must meet the following standards:

(a)	They must reflect an after-the-fact distribution of the actual activity of each employee,

(b)	They must account for the total activity for which each employee is compensated,

(c)	They must be prepared at least monthly and must coincide with one or more pay periods, and

(d)	They must be signed by the employee.

(e)	Budget estimates or other distribution percentages determined before the services are performed do not qualify as support for charges to Federal awards but may be used for interim accounting purposes, provided that:

(i)	The governmental unit's system for establishing the estimates produces reasonable approximations of the activity actually performed;

(ii)	At least quarterly, comparisons of actual costs to budgeted distributions based on the monthly activity reports are made. Costs charged to Federal awards to reflect adjustments made as a result of the activity actually performed may be recorded annually if the quarterly comparisons show the differences between budgeted and actual costs are less than ten percent; and

(iii)	The budget estimates or other distribution percentages are revised at least quarterly, if necessary, to reflect changed circumstances.

(6)	Substitute systems for allocating salaries and wages to Federal awards may be used in place of activity reports. These systems are subject to approval if required by the cognizant agency. Such systems may include, but are not limited to, random moment sampling, case counts, or other quantifiable measures of employee effort.

(a)	Substitute systems which use sampling methods (primarily for Aid to Families with Dependent Children (AFDC), Medicaid, and other public assistance programs) must meet acceptable statistical sampling standards including:

(i)	The sampling universe must include all of the employees whose salaries and wages are to be allocated based on sample results except as provided in subsection (c);

(ii)	The entire time period involved must be covered by the sample; and

(iii)	The results must be statistically valid and applied to the period being sampled.

(b)	Allocating charges for the sampled employees' supervisors, clerical and support staffs, based on the results of the sampled employees, will be acceptable.

(c)	Less than full compliance with the statistical sampling standards noted in subsection (a) may be accepted by the cognizant agency if it concludes that the amounts to be allocated to Federal awards will be minimal, or if it concludes that the system proposed by the governmental unit will result in lower costs to Federal awards than a system which complies with the standards.

(7)	Salaries and wages of employees used in meeting cost sharing or matching requirements of Federal awards must be supported in the same manner as those claimed as allowable costs under Federal awards.

i.	Donated services.

Donated or volunteer services may be furnished to a governmental unit by professional and technical personnel, consultants, and other skilled and unskilled labor. The value of these services is not reimbursable either as a direct or indirect cost. However, the value of donated services may be used to meet cost sharing or matching requirements in accordance with the provisions of the Common Rule.

(2)	The value of donated services utilized in the performance of a direct cost activity shall, when material in amount, be considered in the determination of the governmental unit's indirect costs or rate(s) and, accordingly, shall be allocated a proportionate share of applicable indirect costs.

(3)	To the extent feasible, donated services will be supported by the same methods used by the governmental unit to support the allocability of regular personnel services.

12.	Contingencies. Contributions to a contingency reserve or any similar provision made for events the occurrence of which cannot be foretold with certainty as to time, or intensity, or with an assurance of their happening, are unallowable. The term "contingency reserve" excludes self-insurance reserves (see subsection 25.c.), pension plan reserves (see subsection 11.e.), and post-retirement health and other benefit reserves (see subsection 11.f.) computed using acceptable actuarial cost methods.

13.	Contributions and donations. Contributions and donations, including cash, property, and services, by governmental units to others, regardless of the recipient, are unallowable.

14.	Defense and prosecution of criminal and civil proceedings, and claims.

a.	The following costs are unallowable for contracts covered by 10 U.S.C. 2324(k), "Allowable costs under defense contracts."

(1)	Costs incurred in defense of any civil or criminal fraud proceeding or similar proceeding (including filing of false certification brought by the United States where the contractor is found liable or has pleaded nolo contendere to a charge of fraud or similar proceeding (including filing of a false certification).

(2)	Costs incurred by a contractor in connection with any criminal, civil or administrative proceedings commenced by the United States or a State to the extent provided in 10 U.S.C. 2324(k).

b.	Legal expenses required in the administration of Federal programs are allowable. Legal expenses for prosecution of claims against the Federal Government are unallowable.

15.	Depreciation and use allowances.

a.	Depreciation and use allowances are means of allocating the cost of fixed assets to periods benefiting from asset use. Compensation for the use of fixed assets on hand may be made through depreciation or use allowances. A combination of the two methods may not be used in connection with a single class of fixed assets (e.g., buildings, office equipment, computer equipment, etc.) except as provided in subsection g. Except for enterprise funds and internal service funds that are included as part of a State/local cost allocation plan, classes of assets shall be determined on the same basis used for the government-wide financial statements.

b.	The computation of depreciation or use allowances shall be based on the acquisition cost of the assets involved. Where actual cost records have not been maintained, a reasonable estimate of the original acquisition cost may be used. The value of an asset donated to the governmental unit by an unrelated third party shall be its fair market value at the time of donation. Governmental or quasi-governmental organizations located within the same State shall not be considered unrelated third parties for this purpose.

c.	The computation of depreciation or use allowances will exclude:

(1)	The cost of land;

(2)	Any portion of the cost of buildings and equipment borne by or donated by the Federal Government irrespective of where title was originally vested or where it presently resides; and

(3)	Any portion of the cost of buildings and equipment contributed by or for the governmental unit, or a related donor organization, in satisfaction of a matching requirement.

d.	Where the use allowance method is followed, the use allowance for buildings and improvements (including land improvements, such as paved parking areas, fences, and sidewalks) will be computed at an annual rate not exceeding two percent of acquisition costs. The use allowance for equipment will be computed at an annual rate not exceeding 6 2/3 percent of acquisition cost. When the use allowance method is used for buildings, the entire building must be treated as a single asset; the building's components (e.g., plumbing system, heating and air condition, etc.) cannot be segregated from the building's shell. The two percent limitation, however, need not be applied to equipment which is merely attached or fastened to the building but not permanently fixed to it and which is used as furnishings or decorations or for specialized purposes (e.g., dentist chairs and dental treatment units, counters, laboratory benches bolted to the floor, dishwashers, modular furniture, carpeting, etc.). Such equipment will be considered as not being permanently fixed to the building if it can be removed without the destruction of, or need for costly or extensive alterations or repairs, to the building or the equipment. Equipment that meets these criteria will be subject to the 6 2/3 percent equipment use allowance limitation.

e.	Where the depreciation method is followed, the period of useful service (useful life) established in each case for usable capital assets must take into consideration such factors as type of construction, nature of the equipment used, historical usage patterns, technological developments, and the renewal and replacement policies of the governmental unit followed for the individual items or classes of assets involved. In the absence of clear evidence indicating that the expected consumption of the asset will be significantly greater in the early portions than in the later portions of its useful life, the straight line method of depreciation shall be used. Depreciation methods once used shall not be changed unless approved by the Federal cognizant or awarding agency. When the depreciation method is introduced for application to an asset previously subject to a use allowance, the annual depreciation charge thereon may not exceed the amount that would have resulted had the depreciation method been in effect from the date of acquisition of the asset. The combination of use allowances and depreciation applicable to the asset shall not exceed the total acquisition cost of the asset or fair market value at time of donation.

f.	When the depreciation method is used for buildings, a building's shell may be segregated from the major component of the building (e.g., plumbing system, heating, and air conditioning system, etc.) and each major component depreciated over its estimated useful life, or the entire building (i.e., the shell and all components) may be treated as a single asset and depreciated over a single useful life.

g.	A reasonable use allowance may be negotiated for any assets that are considered to be fully depreciated, after taking into consideration the amount of depreciation previously charged to the government, the estimated useful life remaining at the time of negotiation, the effect of any increased maintenance charges, decreased efficiency due to age, and any other factors pertinent to the utilization of the asset for the purpose contemplated.

h.	Charges for use allowances or depreciation must be supported by adequate property records. Physical inventories must be taken at least once every two years (a statistical sampling approach is acceptable) to ensure that assets exist, and are in use. Governmental units will manage equipment in accordance with State laws and procedures. When the depreciation method is followed, depreciation records indicating the amount of depreciation taken each period must also be maintained.

16.	Disbursing service. The cost of disbursing funds by the Treasurer or other designated officer is allowable.

17.	Employee morale, health, and welfare costs. The costs of health or first-aid clinics and/or infirmaries, recreational facilities, employee counseling services, employee information publications, and any related expenses incurred in accordance with a governmental unit's policy are allowable. Income generated from any of these activities will be offset against expenses.

18.	Entertainment. Costs of entertainment, including amusement, diversion, and social activities and any costs directly associated with such costs (such as tickets to shows or sports events, meals, lodging, rentals, transportation, and gratuities) are unallowable.

19.	Equipment and other capital expenditures.

a.	As used in this section the following terms have the meanings as set forth below:

(1)	"Capital expenditure" means the cost of the asset including the cost to put it in place. Capital expenditure for equipment means the net invoice price of the equipment, including the cost of any modifications, attachments, accessories, or auxiliary apparatus necessary to make it usable for the purpose for which it is acquired. Ancillary charges, such as taxes, duty, protective in transit insurance, freight, and installation may be included in, or excluded from, capital expenditure cost in accordance with the governmental unit's regular accounting practices.

(2)	"Equipment" means an article of nonexpendable, tangible personal property having a useful life of more than one year and an acquisition cost which equals the lesser of (a) the capitalization level established by the governmental unit for financial statement purposes, or (b) $5000.

(3)	"Other capital assets" mean buildings, land, and improvements to buildings or land that materially increase their value or useful life.

b.	Capital expenditures which are not charged directly to a Federal award may be recovered through use allowances or depreciation on buildings, capital improvements, and equipment (see section 15). See also section 38 for allowability of rental costs for buildings and equipment.

c.	Capital expenditures for equipment, including replacement equipment, other capital assets, and improvements which materially increase the value or useful life of equipment or other capital assets are allowable as a direct cost when approved by the awarding agency. Federal awarding agencies are authorized at their option to waive or delegate this approval requirement.

d.	Items of equipment with an acquisition cost of less than $5000 are considered to be supplies and are allowable as direct costs of Federal awards without specific awarding agency approval.

e.	The unamortized portion of any equipment written off as a result of a change in capitalization levels may be recovered by (1) continuing to claim the otherwise allowable use allowances or depreciation charges on the equipment or by (2) amortizing the amount to be written off over a period of years negotiated with the cognizant agency.

f.	When replacing equipment purchased in whole or in part with Federal funds, the governmental unit may use the equipment to be replaced as a trade-in or sell the property and use the proceeds to offset the cost of the replacement property.

20.	Fines and penalties. Fines, penalties, damages, and other settlements resulting from violations (or alleged violations) of, or failure of the governmental unit to comply with, Federal, State, local, or Indian tribal laws and regulations are unallowable except when incurred as a result of compliance with specific provisions of the Federal award or written instructions by the awarding agency authorizing in advance such payments.

21.	Fund raising and investment management costs.

a.	Costs of organized fund raising, including financial campaigns, solicitation of gifts and bequests, and similar expenses incurred to raise capital or obtain contributions are unallowable, regardless of the purpose for which the funds will be used.

b.	Costs of investment counsel and staff and similar expenses incurred to enhance income from investments are unallowable. However, such costs associated with investments covering pension, self-insurance, or other funds which include Federal participation allowed by this Circular are allowable.

c.	Fund raising and investment activities shall be allocated an appropriate share of indirect costs under the conditions described in subsection C.3.b. of Attachment A.

22.	Gains and losses on disposition of depreciable property and other capital assets and substantial relocation of Federal programs.

a.

(1)	Gains and losses on the sale, retirement, or other disposition of depreciable property shall be included in the year in which they occur as credits or charges to the asset cost grouping(s) in which the property was included. The amount of the gain or loss to be included as a credit or charge to the appropriate asset cost grouping(s) shall be the difference between the amount realized on the property and the undepreciated basis of the property.

(2)	Gains and losses on the disposition of depreciable property shall not be recognized as a separate credit or charge under the following conditions:

(a)	The gain or loss is processed through a depreciation account and is reflected in the depreciation allowable under sections 15 and 19.

(b)	The property is given in exchange as part of the purchase price of a similar item and the gain or loss is taken into account in determining the depreciation cost basis of the new item.

(c)	A loss results from the failure to maintain permissible insurance, except as otherwise provided in subsection 25.d.

(d)	Compensation for the use of the property was provided through use allowances in lieu of depreciation.

b.	Substantial relocation of Federal awards from a facility where the Federal Government participated in the financing to another facility prior to the expiration of the useful life of the financed facility requires Federal agency approval. The extent of the relocation, the amount of the Federal participation in the financing, and the depreciation charged to date may require negotiation of space charges for Federal awards.

c.	Gains or losses of any nature arising from the sale or exchange of property other than the property covered in subsection a., e.g., land or included in the fair market value used in any adjustment resulting from a relocation of Federal awards covered in subsection b. shall be excluded in computing Federal award costs.

23.	General government expenses.

a.	The general costs of government are unallowable (except as provided in section 41). These include:

(1)	Salaries and expenses of the Office of the Governor of a State or the chief executive of a political subdivision or the chief executives of federally-recognized Indian tribal governments;

(2)	Salaries and other expenses of State legislatures, tribal councils, or similar local governmental bodies, such as county supervisors, city councils, school boards, etc., whether incurred for purposes of legislation or executive direction;

(3)	Cost of the judiciary branch of a government;

(4)	Cost of prosecutorial activities unless treated as a direct cost to a specific program when authorized by program regulations (however, this does not preclude the allowability of other legal activities of the Attorney General); and

(5)	Other general types of government services normally provided to the general public, such as fire and police, unless provided for as a direct cost in program regulations.

b.	For federally-recognized Indian tribal governments and Councils Of Governments (COGs), the portion of salaries and expenses directly attributable to managing and operating Federal programs by the chief executive and his staff is allowable.

24.	Idle facilities and idle capacity.

a.	As used in this section the following terms have the meanings set forth below:

(1)	"Facilities" means land and buildings or any portion thereof, equipment individually or collectively, or any other tangible capital asset, wherever located, and whether owned or leased by the governmental unit.

(2)	"Idle facilities" means completely unused facilities that are excess to the governmental unit's current needs.

(3)	"Idle capacity" means the unused capacity of partially used facilities. It is the difference between (a) that which a facility could achieve under 100 percent operating time on a one-shift basis less operating interruptions resulting from time lost for repairs, setups, unsatisfactory materials, and other normal delays and (b) the extent to which the facility was actually used to meet demands during the accounting period. A multi-shift basis should be used if it can be shown that this amount of usage would normally be expected for the type of facility involved.

(4)	"Cost of idle facilities or idle capacity" means costs such as maintenance, repair, housing, rent, and other related costs, e.g., insurance, interest, and depreciation or use allowances.

b.	The costs of idle facilities are unallowable except to the extent that:

(1)	They are necessary to meet fluctuations in workload; or

(2)	Although not necessary to meet fluctuations in workload, they were necessary when acquired and are now idle because of changes in program requirements, efforts to achieve more economical operations, reorganization, termination, or other causes which could not have been reasonably foreseen. Under the exception stated in this subsection, costs of idle facilities are allowable for a reasonable period of time, ordinarily not to exceed one year, depending on the initiative taken to use, lease, or dispose of such facilities.

c.	The costs of idle capacity are normal costs of doing business and are a factor in the normal fluctuations of usage or indirect cost rates from period to period. Such costs are allowable, provided that the capacity is reasonably anticipated to be necessary or was originally reasonable and is not subject to reduction or elimination by use on other Federal awards, subletting, renting, or sale, in accordance with sound business, economic, or security practices. Widespread idle capacity throughout an entire facility or among a group of assets having substantially the same function may be considered idle facilities.

25.	Insurance and indemnification.

a.	Costs of insurance required or approved and maintained, pursuant to the Federal award, are allowable.

b.	Costs of other insurance in connection with the general conduct of activities are allowable subject to the following limitations:

(1)	Types and extent and cost of coverage are in accordance with the governmental unit's policy and sound business practice.

(2)	Costs of insurance or of contributions to any reserve covering the risk of loss of, or damage to, Federal Government property are unallowable except to the extent that the awarding agency has specifically required or approved such costs.

c.	Actual losses which could have been covered by permissible insurance (through a self-insurance program or otherwise) are unallowable, unless expressly provided for in the Federal award or as described below. However, the Federal Government will participate in actual losses of a self insurance fund that are in excess of reserves. Costs incurred because of losses not covered under nominal deductible insurance coverage provided in keeping with sound management practice, and minor losses not covered by insurance, such as spoilage, breakage, and disappearance of small hand tools, which occur in the ordinary course of operations, are allowable.

d.	Contributions to a reserve for certain self-insurance programs including workers compensation, unemployment compensation, and severance pay are allowable subject to the following provisions:

(1)	The type of coverage and the extent of coverage and the rates and premiums would have been allowed had insurance (including reinsurance) been purchased to cover the risks. However, provision for known or reasonably estimated self-insured liabilities, which do not become payable for more than one year after the provision is made, shall not exceed the discounted present value of the liability. The rate used for discounting the liability must be determined by giving consideration to such factors as the governmental unit's settlement rate for those liabilities and its investment rate of return.

(2)	Earnings or investment income on reserves must be credited to those reserves.

(3)	Contributions to reserves must be based on sound actuarial principles using historical experience and reasonable assumptions. Reserve levels must be analyzed and updated at least biennially for each major risk being insured and take into account any reinsurance, coinsurance, etc. Reserve levels related to employee-related coverages will normally be limited to the value of claims (a) submitted and adjudicated but not paid, (b) submitted but not adjudicated, and (c) incurred but not submitted. Reserve levels in excess of the amounts based on the above must be identified and justified in the cost allocation plan or indirect cost rate proposal.

(4)	Accounting records, actuarial studies, and cost allocations (or billings) must recognize any significant differences due to types of insured risk and losses generated by the various insured activities or agencies of the governmental unit. If individual departments or agencies of the governmental unit experience significantly different levels of claims for a particular risk, those differences are to be recognized by the use of separate allocations or other techniques resulting in an equitable allocation.

(5)	Whenever funds are transferred from a self-insurance reserve to other accounts (e.g., general fund), refunds shall be made to the Federal Government for its share of funds transferred, including earned or imputed interest from the date of transfer.

e.	Actual claims paid to or on behalf of employees or former employees for workers' compensation, unemployment compensation, severance pay, and similar employee benefits (e.g., subsection 11.f. for post retirement health benefits), are allowable in the year of payment provided (1) the governmental unit follows a consistent costing policy and (2) they are allocated as a general administrative expense to all activities of the governmental unit.

f.	Insurance refunds shall be credited against insurance costs in the year the refund is received.

g.	Indemnification includes securing the governmental unit against liabilities to third persons and other losses not compensated by insurance or otherwise. The Federal Government is obligated to indemnify the governmental unit only to the extent expressly provided for in the Federal award, except as provided in subsection d.

h.	Costs of commercial insurance that protects against the costs of the contractor for correction of the contractor's own defects in materials or workmanship are unallowable.

26.	Interest.

a.	Costs incurred for interest on borrowed capital or the use of a governmental unit's own funds, however represented, are unallowable except as specifically provided in subsection b. or authorized by Federal legislation.

b.	Financing costs (including interest) paid or incurred on or after the effective date of this Circular associated with the otherwise allowable costs of building acquisition, construction, or fabrication, reconstruction or remodeling completed on or after October 1, 1980 is allowable, subject to the conditions in (1)-(4). Financing costs (including interest) paid or incurred on or after the effective date of this Circular associated with otherwise allowable costs of equipment is allowable, subject to the conditions in (1)-(4).

(1)	The financing is provided (from other than tax or user fee sources) by a bona fide third party external to the governmental unit;

(2)	The assets are used in support of Federal awards;

(3)	Earnings on debt service reserve funds or interest earned on borrowed funds pending payment of the construction or acquisition costs are used to offset the current period's cost or the capitalized interest, as appropriate. Earnings subject to being reported to the Federal Internal Revenue Service under arbitrage requirements are excludable.

(4)	Governmental units will negotiate the amount of allowable interest whenever cash payments (interest, depreciation, use allowances, and contributions) exceed the governmental unit's cash payments and other contributions attributable to that portion of real property used for Federal awards.

27.	Lobbying. The cost of certain influencing activities associated with obtaining grants, contracts, cooperative agreements, or loans is an unallowable cost. Lobbying with respect to certain grants, contracts, cooperative agreements, and loans shall be governed by the common rule, "New Restrictions on Lobbying" published at 55 FR 6736 (February 26, 1990), including definitions, and the Office of Management and Budget "Government-wide Guidance for New Restrictions on Lobbying" and notices published at 54 FR 52306 (December 20, 1989), 55 FR 24540 (June 15, 1990), and 57 FR 1772 (January 15, 1992), respectively.

28.	Maintenance, operations, and repairs. Unless prohibited by law, the cost of utilities, insurance, security, janitorial services, elevator service, upkeep of grounds, necessary maintenance, normal repairs and alterations, and the like are allowable to the extent that they: (1) keep property (including Federal property, unless otherwise provided for) in an efficient operating condition, (2) do not add to the permanent value of property or appreciably prolong its intended life, and (3) are not otherwise included in rental or other charges for space. Costs which add to the permanent value of property or appreciably prolong its intended life shall be treated as capital expenditures (see sections 15 and 19).

29.	Materials and supplies. The cost of materials and supplies is allowable. Purchases should be charged at their actual prices after deducting all cash discounts, trade discounts, rebates, and allowances received. Withdrawals from general stores or stockrooms should be charged at cost under any recognized method of pricing, consistently applied. Incoming transportation charges are a proper part of materials and supply costs.

30.	Memberships, subscriptions, and professional activities.

a.	Costs of the governmental unit's memberships in business, technical, and professional organizations are allowable.

b.	Costs of the governmental unit's subscriptions to business, professional, and technical periodicals are allowable.

c.	Costs of meetings and conferences where the primary purpose is the dissemination of technical information, including meals, transportation, rental of meeting facilities, and other incidental costs are allowable.

d.	Costs of membership in civic and community, social organizations are allowable as a direct cost with the approval of the Federal awarding agency.

e.	Costs of membership in organizations substantially engaged in lobbying are unallowable.

31.	Motor pools. The costs of a service organization which provides automobiles to user governmental units at a mileage or fixed rate and/or provides vehicle maintenance, inspection, and repair services are allowable.

32.	Pre-award costs. Pre-award costs are those incurred prior to the effective date of the award directly pursuant to the negotiation and in anticipation of the award where such costs are necessary to comply with the proposed delivery schedule or period of performance. Such costs are allowable only to the extent that they would have been allowable if incurred after the date of the award and only with the written approval of the awarding agency.

33.	Professional service costs.

a.	Cost of professional and consultant services rendered by persons or organizations that are members of a particular profession or possess a special skill, whether or not officers or employees of the governmental unit, are allowable, subject to section 14 when reasonable in relation to the services rendered and when not contingent upon recovery of the costs from the Federal Government.

b.	Retainer fees supported by evidence of bona fide services available or rendered are allowable.

34.	Proposal costs. Costs of preparing proposals for potential Federal awards are allowable. Proposal costs should normally be treated as indirect costs and should be allocated to all activities of the governmental unit utilizing the cost allocation plan and indirect cost rate proposal. However, proposal costs may be charged directly to Federal awards with the prior approval of the Federal awarding agency.

35.	Publication and printing costs. Publication costs, including the costs of printing (including the processes of composition, plate-making, press work, and binding, and the end products produced by such processes), distribution, promotion, mailing, and general handling are allowable.

36.	Rearrangements and alterations. Costs incurred for ordinary and normal rearrangement and alteration of facilities are allowable. Special arrangements and alterations costs incurred specifically for a Federal award are allowable with the prior approval of the Federal awarding agency.

37.	Reconversion costs. Costs incurred in the restoration or rehabilitation of the governmental unit's facilities to approximately the same condition existing immediately prior to commencement of Federal awards, less costs related to normal wear and tear, are allowable.

38.	Rental costs.

a.	Subject to the limitations described in subsections b. through d. of this section, rental costs are allowable to the extent that the rates are reasonable in light of such factors as: rental costs of comparable property, if any; market conditions in the area; alternatives available; and, the type, life expectancy, condition, and value of the property leased.

b.	Rental costs under sale and leaseback arrangements are allowable only up to the amount that would be allowed had the governmental unit continued to own the property.

c.	Rental costs under less-than-arms-length leases are allowable only up to the amount that would be allowed had title to the property vested in the governmental unit. For this purpose, less-than-arms-length leases include, but are not limited to, those where:

(1)	One party to the lease is able to control or substantially influence the actions of the other;

(2)	Both parties are parts of the same governmental unit; or

(3)	The governmental unit creates an authority or similar entity to acquire and lease the facilities to the governmental unit and other parties.

d.	Rental costs under leases which are required to be treated as capital leases under GAAP are allowable only up to the amount that would be allowed had the governmental unit purchased the property on the date the lease agreement was executed. This amount would include expenses such as depreciation or use allowance, maintenance, and insurance. The provisions of Financial Accounting Standards Board Statement 13 shall be used to determine whether a lease is a capital lease. Interest costs related to capital leases are allowable to the extent they meet the criteria in section 26.

39.	Taxes.

a.	Taxes that a governmental unit is legally required to pay are allowable, except for self-assessed taxes that disproportionately affect Federal programs or changes in tax policies that disproportionately affect Federal programs. This provision becomes effective for taxes paid during the governmental unit's first fiscal year that begins on or after January 1, 1998, and applies thereafter.

b.	Gasoline taxes, motor vehicle fees, and other taxes that are in effect user fees for benefits provided to the Federal Government are allowable.

c.	This provision does not restrict the authority of Federal agencies to identify taxes where Federal participation is inappropriate. Where the identification of the amount of unallowable taxes would require an inordinate amount of effort, the cognizant agency may accept a reasonable approximation thereof.

40.	Training. The cost of training provided for employee development is allowable.

41.	Travel costs.

a.	General. Travel costs are allowable for expenses for transportation, lodging, subsistence, and related items incurred by employees traveling on official business. Such costs may be charged on an actual cost basis, on a per diem or mileage basis in lieu of actual costs incurred, or on a combination of the two, provided the method used is applied to an entire trip, and results in charges consistent with those normally allowed in like circumstances in non-federally-sponsored activities. Notwithstanding the provisions of section 23, travel costs of officials covered by that section, when specifically related to Federal awards, are allowable with the prior approval of a grantor agency.

b.	Lodging and subsistence. Costs incurred by employees and officers for travel, including costs of lodging, other subsistence, and incidental expenses, shall be considered reasonable and allowable only to the extent such costs do not exceed charges normally allowed by the governmental unit in its regular operations as a result of the governmental unit's policy. In the absence of a written governmental unit policy regarding travel costs, the rates and amounts established under subchapter I of Chapter 57 of Title 5, United States Code "Travel and Subsistence Expenses; Mileage Allowances," or by the Administrator of General Services, or the President (or his designee) pursuant to any provisions of such subchapter shall be used as guidance for travel under Federal awards (41 U.S.C. 420, "Travel Expenses of Government Contractors").

c.	Commercial air travel. Airfare costs in excess of the customary standard (coach or equivalent) airfare, are unallowable except when such accommodations would: require circuitous routing, require travel during unreasonable hours, excessively prolong travel, greatly increase the duration of the flight, result in increased cost that would offset transportation savings, or offer accommodations not reasonably adequate for the medical needs of the traveler. Where a governmental unit can reasonably demonstrate to the awarding agency either the nonavailability of customary standard airfare or Federal Government contract airfare for individual trips or, on an overall basis, that it is the governmental unit's practice to make routine use of such airfare, specific determinations of nonavailability will generally not be questioned by the Federal Government, unless a pattern of avoidance is detected. However, in order for airfare costs in excess of the customary standard commercial airfare to be allowable, e.g., use of first-class airfare, the governmental unit must justify and document on a case-by-case basis the applicable condition(s) set forth above.

d.	Air travel by other than commercial carrier. Cost of travel by governmental unit-owned, -leased, or -chartered aircraft, as used in this section, includes the cost of lease, charter, operation (including personnel costs), maintenance, depreciation, interest, insurance, and other related costs. Costs of travel via governmental unit-owned, -leased, or -chartered aircraft are unallowable to the extent they exceed the cost of allowable commercial air travel, as provided for in subsection c.

42.	Underrecovery of costs under Federal agreements. Any excess costs over the Federal contribution under one award agreement are unallowable under other award agreements.

ATTACHMENT C
Circular No. A-87

STATE/LOCAL-WIDE CENTRAL SERVICE COST ALLOCATION PLANS

TABLE OF CONTENTS

A. General

B. Definitions

1. Billed central services

2. Allocated central services

3. Agency or operating agency

C. Scope of the Central Service Cost Allocation Plans

D. Submission Requirements

E. Documentation Requirements for Submitted Plans

1. General

2. Allocated central services

3. Billed services

a. General

b. Internal service funds

c. Self-insurance funds

d. Fringe benefits

4. Required certification

F. Negotiation and Approval of Central Service Plans

G. Other Policies

1. Billed central service activities

2. Working capital reserves

3. Carry-forward adjustments of allocated central service costs

4. Adjustments of billed central services

5. Records retention

6. Appeals

7. OMB assistance

A.	General.

1.	Most governmental units provide certain services, such as motor pools, computer centers, purchasing, accounting, etc., to operating agencies on a centralized basis. Since federally-supported awards are performed within the individual operating agencies, there needs to be a process whereby these central service costs can be identified and assigned to benefited activities on a reasonable and consistent basis. The central service cost allocation plan provides that process. All costs and other data used to distribute the costs included in the plan should be supported by formal accounting and other records that will support the propriety of the costs assigned to Federal awards.

2.	Guidelines and illustrations of central service cost allocation plans are provided in a brochure published by the Department of Health and Human Services entitled "A Guide for State and Local Government Agencies: Cost Principles and Procedures for Establishing Cost Allocation Plans and Indirect Cost Rates for Grants and Contracts with the Federal Government." A copy of this brochure may be obtained from the Superintendent of Documents, U.S. Government Printing Office.

B.	Definitions.

1.	"Billed central services" means central services that are billed to benefited agencies and/or programs on an individual fee-for-service or similar basis. Typical examples of billed central services include computer services, transportation services, insurance, and fringe benefits.

2.	"Allocated central services" means central services that benefit operating agencies but are not billed to the agencies on a fee-for-service or similar basis. These costs are allocated to benefited agencies on some reasonable basis. Examples of such services might include general accounting, personnel administration, purchasing, etc.

3.	"Agency or operating agency" means an organizational unit or sub-division within a governmental unit that is responsible for the performance or administration of awards or activities of the governmental unit.

C.	Scope of the Central Service Cost Allocation Plans. The central service cost allocation plan will include all central service costs that will be claimed (either as a billed or an allocated cost) under Federal awards and will be documented as described in section E. Costs of central services omitted from the plan will not be reimbursed.

D.	Submission Requirements.

1.	Each State will submit a plan to the Department of Health and Human Services for each year in which it claims central service costs under Federal awards. The plan should include (a) a projection of the next year's allocated central service cost (based either on actual costs for the most recently completed year or the budget projection for the coming year), and (b) a reconciliation of actual allocated central service costs to the estimated costs used for either the most recently completed year or the year immediately preceding the most recently completed year.

2.	Each local government that has been designated as a "major local government" by the Office of Management and Budget (OMB) is also required to submit a plan to its cognizant agency annually. OMB periodically lists major local governments in the Federal Register.

3.	All other local governments claiming central service costs must develop a plan in accordance with the requirements described in this Circular and maintain the plan and related supporting documentation for audit. These local governments are not required to submit their plans for Federal approval unless they are specifically requested to do so by the cognizant agency. Where a local government only receives funds as a sub-recipient, the primary recipient will be responsible for negotiating indirect cost rates and/or monitoring the sub-recipient's plan.

4.	All central service cost allocation plans will be prepared and, when required, submitted within six months prior to the beginning of each of the governmental unit's fiscal years in which it proposes to claim central service costs. Extensions may be granted by the cognizant agency on a case-by-case basis.

E.	Documentation Requirements for Submitted Plans. The documentation requirements described in this section may be modified, expanded, or reduced by the cognizant agency on a case-by-case basis. For example, the requirements may be reduced for those central services which have little or no impact on Federal awards. Conversely, if a review of a plan indicates that certain additional information is needed, and will likely be needed in future years, it may be routinely requested in future plan submissions. Items marked with an asterisk (*) should be submitted only once; subsequent plans should merely indicate any changes since the last plan.

1.	General. All proposed plans must be accompanied by the following: an organization chart sufficiently detailed to show operations including the central service activities of the State/local government whether or not they are shown as benefiting from central service functions; a copy of the Comprehensive Annual Financial Report (or a copy of the Executive Budget if budgeted costs are being proposed) to support the allowable costs of each central service activity included in the plan; and, a certification (see subsection 4.) that the plan was prepared in accordance with this Circular, contains only allowable costs, and was prepared in a manner that treated similar costs consistently among the various Federal awards and between Federal and non-Federal awards/activities.

2.	Allocated central services. For each allocated central service, the plan must also include the following: a brief description of the service*, an identification of the unit rendering the service and the operating agencies receiving the service, the items of expense included in the cost of the service, the method used to distribute the cost of the service to benefitted agencies, and a summary schedule showing the allocation of each service to the specific benefited agencies. If any self-insurance funds or fringe benefits costs are treated as allocated (rather than billed) central services, documentation discussed in subsections 3.b. and c. shall also be included.

3.	Billed services.

a.	General. The information described below shall be provided for all billed central services, including internal service funds, self-insurance funds, and fringe benefit funds.

b.	Internal service funds.

(1)	For each internal service fund or similar activity with an operating budget of $5 million or more, the plan shall include: a brief description of each service; a balance sheet for each fund based on individual accounts contained in the governmental unit's accounting system; a revenue/expenses statement, with revenues broken out by source, e.g., regular billings, interest earned, etc.; a listing of all non-operating transfers (as defined by Generally Accepted Accounting Principles (GAAP)) into and out of the fund; a description of the procedures (methodology) used to charge the costs of each service to users, including how billing rates are determined; a schedule of current rates; and, a schedule comparing total revenues (including imputed revenues) generated by the service to the allowable costs of the service, as determined under this Circular, with an explanation of how variances will be handled.

(2)	Revenues shall consist of all revenues generated by the service, including unbilled and uncollected revenues. If some users were not billed for the services (or were not billed at the full rate for that class of users), a schedule showing the full imputed revenues associated with these users shall be provided. Expenses shall be broken out by object cost categories (e.g., salaries, supplies, etc.).

c.	Self-insurance funds. For each self-insurance fund, the plan shall include: the fund balance sheet; a statement of revenue and expenses including a summary of billings and claims paid by agency; a listing of all non-operating transfers into and out of the fund; the type(s) of risk(s) covered by the fund (e.g., automobile liability, workers' compensation, etc.); an explanation of how the level of fund contributions are determined, including a copy of the current actuarial report (with the actuarial assumptions used) if the contributions are determined on an actuarial basis; and, a description of the procedures used to charge or allocate fund contributions to benefited activities. Reserve levels in excess of claims (1) submitted and adjudicated but not paid, (2) submitted but not adjudicated, and (3) incurred but not submitted must be identified and explained.

d.	Fringe benefits. For fringe benefit costs, the plan shall include: a listing of fringe benefits provided to covered employees, and the overall annual cost of each type of benefit; current fringe benefit policies*; and procedures used to charge or allocate the costs of the benefits to benefited activities. In addition, for pension and post-retirement health insurance plans, the following information shall be provided: the governmental unit's funding policies, e.g., legislative bills, trust agreements, or State-mandated contribution rules, if different from actuarially determined rates; the pension plan's costs accrued for the year; the amount funded, and date(s) of funding; a copy of the current actuarial report (including the actuarial assumptions); the plan trustee's report; and, a schedule from the activity showing the value of the interest cost associated with late funding.

4.	Required certification. Each central service cost allocation plan will be accompanied by a certification in the following form:

CERTIFICATE OF COST ALLOCATION PLAN

This is to certify that I have reviewed the cost allocation plan submitted herewith and to the best of my knowledge and belief:

(1)	All costs included in this proposal [identify date] to establish cost allocations or billings for [identify period covered by plan] are allowable in accordance with the requirements of OMB Circular A-87, "Cost Principles for State, Local, and Indian Tribal Governments," and the Federal award(s) to which they apply. Unallowable costs have been adjusted for in allocating costs as indicated in the cost allocation plan.

(2)	All costs included in this proposal are properly allocable to Federal awards on the basis of a beneficial or causal relationship between the expenses incurred and the awards to which they are allocated in accordance with applicable requirements. Further, the same costs that have been treated as indirect costs have not been claimed as direct costs. Similar types of costs have been accounted for consistently.

I declare that the foregoing is true and correct.

Governmental Unit: _____________________

Signature: ____________________________

Name of Official: _______________________

Title: _______________________________

Date of Execution: _____________________

F.	Negotiation and Approval of Central Service Plans.

1.	All proposed central service cost allocation plans that are required to be submitted will be reviewed, negotiated, and approved by the Federal cognizant agency on a timely basis. The cognizant agency will review the proposal within six months of receipt of the proposal and either negotiate/approve the proposal or advise the governmental unit of the additional documentation needed to support/evaluate the proposed plan or the changes required to make the proposal acceptable. Once an agreement with the governmental unit has been reached, the agreement will be accepted and used by all Federal agencies, unless prohibited or limited by statute. Where a Federal funding agency has reason to believe that special operating factors affecting its awards necessitate special consideration, the funding agency will, prior to the time the plans are negotiated, notify the cognizant agency.

2.	The results of each negotiation shall be formalized in a written agreement between the cognizant agency and the governmental unit. This agreement will be subject to re-opening if the agreement is subsequently found to violate a statute or the information upon which the plan was negotiated is later found to be materially incomplete or inaccurate. The results of the negotiation shall be made available to all Federal agencies for their use.

3.	Negotiated cost allocation plans based on a proposal later found to have included costs that: (a) are unallowable (i) as specified by law or regulation, (ii) as identified in Attachment B of this Circular, or (iii) by the terms and conditions of Federal awards, or (b) are unallowable because they are clearly not allocable to Federal awards, shall be adjusted, or a refund shall be made at the option of the Federal cognizant agency. These adjustments or refunds are designed to correct the plans and do not constitute a reopening of the negotiation.

G.	Other Policies.

1.	Billed central service activities. Each billed central service activity must separately account for all revenues (including imputed revenues) generated by the service, expenses incurred to furnish the service, and profit/loss.

2.	Working capital reserves. Internal service funds are dependent upon a reasonable level of working capital reserve to operate from one billing cycle to the next. Charges by an internal service activity to provide for the establishment and maintenance of a reasonable level of working capital reserve, in addition to the full recovery of costs, are allowable. A working capital reserve as part of retained earnings of up to 60 days cash expenses for normal operating purposes is considered reasonable. A working capital reserve exceeding 60 days may be approved by the cognizant Federal agency in exceptional cases.

3.	Carry-forward adjustments of allocated central service costs. Allocated central service costs are usually negotiated and approved for a future fiscal year on a "fixed with carry-forward" basis. Under this procedure, the fixed amounts for the future year covered by agreement are not subject to adjustment for that year. However, when the actual costs of the year involved become known, the differences between the fixed amounts previously approved and the actual costs will be carried forward and used as an adjustment to the fixed amounts established for a later year. This "carry-forward" procedure applies to all central services whose costs were fixed in the approved plan. However, a carry-forward adjustment is not permitted, for a central service activity that was not included in the approved plan, or for unallowable costs that must be reimbursed immediately.

4.	Adjustments of billed central services. Billing rates used to charge Federal awards shall be based on the estimated costs of providing the services, including an estimate of the allocable central service costs. A comparison of the revenue generated by each billed service (including total revenues whether or not billed or collected) to the actual allowable costs of the service will be made at least annually, and an adjustment will be made for the difference between the revenue and the allowable costs. These adjustments will be made through one of the following adjustment methods: (a) a cash refund to the Federal Government for the Federal share of the adjustment, (b) credits to the amounts charged to the individual programs, (c) adjustments to future billing rates, or (d) adjustments to allocated central service costs. Adjustments to allocated central services will not be permitted where the total amount of the adjustment for a particular service (Federal share and non-Federal) share exceeds $500,000.

5.	Records retention. All central service cost allocation plans and related documentation used as a basis for claiming costs under Federal awards must be retained for audit in accordance with the records retention requirements contained in the Common Rule.

6.	Appeals. If a dispute arises in the negotiation of a plan between the cognizant agency and the governmental unit, the dispute shall be resolved in accordance with the appeals procedures of the cognizant agency.

7.	OMB assistance. To the extent that problems are encountered among the Federal agencies and/or governmental units in connection with the negotiation and approval process, OMB will lend assistance, as required, to resolve such problems in a timely manner.

ATTACHMENT D
Circular No. A-87

PUBLIC ASSISTANCE COST ALLOCATION PLANS

TABLE OF CONTENTS

A. General

B. Definitions

1. State public assistance agency

2. State public assistance agency costs

C. Policy

D. Submission, Documentation, and Approval of Public Assistance Cost Allocation Plans

E. Review of Implementation of Approved Plans

F. Unallowable Costs

A.	General. Federally-financed programs administered by State public assistance agencies are funded predominately by the Department of Health and Human Services (HHS). In support of its stewardship requirements, HHS has published requirements for the development, documentation, submission, negotiation, and approval of public assistance cost allocation plans in Subpart E of 45 CFR Part 95. All administrative costs (direct and indirect) are normally charged to Federal awards by implementing the public assistance cost allocation plan. This Attachment extends these requirements to all Federal agencies whose programs are administered by a State public assistance agency. Major federally-financed programs typically administered by State public assistance agencies include: Aid to Families with Dependent Children, Medicaid, Food Stamps, Child Support Enforcement, Adoption Assistance and Foster Care, and Social Services Block Grant.

B.	Definitions.

1.	"State public assistance agency" means a State agency administering or supervising the administration of one or more public assistance programs operated by the State as identified in Subpart E of 45 CFR Part 95. For the purpose of this Attachment, these programs include all programs administered by the State public assistance agency.

2.	"State public assistance agency costs" means all costs incurred by, or allocable to, the State public assistance agency, except expenditures for financial assistance, medical vendor payments, food stamps, and payments for services and goods provided directly to program recipients.

C.	Policy. State public assistance agencies will develop, document and implement, and the Federal Government will review, negotiate, and approve, public assistance cost allocation plans in accordance with Subpart E of 45 CFR Part 95. The plan will include all programs administered by the State public assistance agency. Where a letter of approval or disapproval is transmitted to a State public assistance agency in accordance with Subpart E, the letter will apply to all Federal agencies and programs. The remaining sections of this Attachment (except for the requirement for certification) summarize the provisions of Subpart E of 45 CFR Part 95.

D.	Submission, Documentation, and Approval of Public Assistance Cost Allocation Plans.

1.	State public assistance agencies are required to promptly submit amendments to the cost allocation plan to HHS for review and approval.

2.	Under the coordination process outlined in subsection E, affected Federal agencies will review all new plans and plan amendments and provide comments, as appropriate, to HHS. The effective date of the plan or plan amendment will be the first day of the quarter following the submission of the plan or amendment, unless another date is specifically approved by HHS. HHS, as the cognizant agency acting on behalf of all affected Federal agencies, will, as necessary, conduct negotiations with the State public assistance agency and will inform the State agency of the action taken on the plan or plan amendment.

E.	Review of Implementation of Approved Plans.

1.	Since public assistance cost allocation plans are of a narrative nature, the review during the plan approval process consists of evaluating the appropriateness of the proposed groupings of costs (cost centers) and the related allocation bases. As such, the Federal Government needs some assurance that the cost allocation plan has been implemented as approved. This is accomplished by reviews by the funding agencies, single audits, or audits conducted by the cognizant audit agency.

2.	Where inappropriate charges affecting more than one funding agency are identified, the cognizant HHS cost negotiation office will be advised and will take the lead in resolving the issue(s) as provided for in Subpart E of 45 CFR Part 95.

3.	If a dispute arises in the negotiation of a plan or from a disallowance involving two or more funding agencies, the dispute shall be resolved in accordance with the appeals procedures set out in 45 CFR Part 75. Disputes involving only one funding agency will be resolved in accordance with the funding agency's appeal process.

4.	To the extent that problems are encountered among the Federal agencies and/or governmental units in connection with the negotiation and approval process, the Office of Management and Budget will lend assistance, as required, to resolve such problems in a timely manner.

F.	Unallowable Costs. Claims developed under approved cost allocation plans will be based on allowable costs as identified in this Circular. Where unallowable costs have been claimed and reimbursed, they will be refunded to the program that reimbursed the unallowable cost using one of the following methods: (a) a cash refund, (b) offset to a subsequent claim, or (c) credits to the amounts charged to individual awards.

ATTACHMENT E
Circular No. A-87

STATE AND LOCAL INDIRECT COST RATE PROPOSALS

TABLE OF CONTENTS

A. General

B. Definitions

1. Indirect cost rate proposal

2. Indirect cost rate

3. Indirect cost pool

4. Base

5. Predetermined rate

6. Fixed rate

7. Provisional rate

8. Final rate

9. Base period

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

1. General

2. Simplified method

3. Multiple allocation base method

4. Special indirect cost rates

D. Submission and Documentation of Proposals

1. Submission of indirect cost rate proposals

2. Documentation of proposals

3. Required certification

E. Negotiation and Approval of Rates

F. Other Policies

1. Fringe benefit rates

2. Billed services provided by the grantee agency

3. Indirect cost allocations not using rates

4. Appeals

5. Collections of unallowable costs and erroneous payments

6. OMB assistance

A.	General.

1.	Indirect costs are those that have been incurred for common or joint purposes. These costs benefit more than one cost objective and cannot be readily identified with a particular final cost objective without effort disproportionate to the results achieved. After direct costs have been determined and assigned directly to Federal awards and other activities as appropriate, indirect costs are those remaining to be allocated to benefitted cost objectives. A cost may not be allocated to a Federal award as an indirect cost if any other cost incurred for the same purpose, in like circumstances, has been assigned to a Federal award as a direct cost.

2.	Indirect costs include (a) the indirect costs originating in each department or agency of the governmental unit carrying out Federal awards and (b) the costs of central governmental services distributed through the central service cost allocation plan (as described in Attachment C) and not otherwise treated as direct costs.

3.	Indirect costs are normally charged to Federal awards by the use of an indirect cost rate. A separate indirect cost rate(s) is usually necessary for each department or agency of the governmental unit claiming indirect costs under Federal awards. Guidelines and illustrations of indirect cost proposals are provided in a brochure published by the Department of Health and Human Services entitled "A Guide for State and Local Government Agencies: Cost Principles and Procedures for Establishing Cost Allocation Plans and Indirect Cost Rates for Grants and Contracts with the Federal Government." A copy of this brochure may be obtained from the Superintendent of Documents, U.S. Government Printing Office.

4.	Because of the diverse characteristics and accounting practices of governmental units, the types of costs which may be classified as indirect costs cannot be specified in all situations. However, typical examples of indirect costs may include certain State/local-wide central service costs, general administration of the grantee department or agency, accounting and personnel services performed within the grantee department or agency, depreciation or use allowances on buildings and equipment, the costs of operating and maintaining facilities, etc.

5.	This Attachment does not apply to State public assistance agencies. These agencies should refer instead to Attachment D.

B.	Definitions.

1.	"Indirect cost rate proposal" means the documentation prepared by a governmental unit or subdivision thereof to substantiate its request for the establishment of an indirect cost rate.

2.	"Indirect cost rate" is a device for determining in a reasonable manner the proportion of indirect costs each program should bear. It is the ratio (expressed as a percentage) of the indirect costs to a direct cost base.

3.	"Indirect cost pool" is the accumulated costs that jointly benefit two or more programs or other cost objectives.

4.	"Base" means the accumulated direct costs (normally either total direct salaries and wages or total direct costs exclusive of any extraordinary or distorting expenditures) used to distribute indirect costs to individual Federal awards. The direct cost base selected should result in each award bearing a fair share of the indirect costs in reasonable relation to the benefits received from the costs.

5.	"Predetermined rate" means an indirect cost rate, applicable to a specified current or future period, usually the governmental unit's fiscal year. This rate is based on an estimate of the costs to be incurred during the period. Except under very unusual circumstances, a predetermined rate is not subject to adjustment. (Because of legal constraints, predetermined rates are not permitted for Federal contracts; they may, however, be used for grants or cooperative agreements.) Predetermined rates may not be used by governmental units that have not submitted and negotiated the rate with the cognizant agency. In view of the potential advantages offered by this procedure, negotiation of predetermined rates for indirect costs for a period of two to four years should be the norm in those situations where the cost experience and other pertinent facts available are deemed sufficient to enable the parties involved to reach an informed judgment as to the probable level of indirect costs during the ensuing accounting periods.

6.	"Fixed rate" means an indirect cost rate which has the same characteristics as a predetermined rate, except that the difference between the estimated costs and the actual, allowable costs of the period covered by the rate is carried forward as an adjustment to the rate computation of a subsequent period.

7.	"Provisional rate" means a temporary indirect cost rate applicable to a specified period which is used for funding, interim reimbursement, and reporting indirect costs on Federal awards pending the establishment of a "final" rate for that period.

8.	"Final rate" means an indirect cost rate applicable to a specified past period which is based on the actual allowable costs of the period. A final audited rate is not subject to adjustment.

9.	"Base period" for the allocation of indirect costs is the period in which such costs are incurred and accumulated for allocation to activities performed in that period. The base period normally should coincide with the governmental unit's fiscal year, but in any event, shall be so selected as to avoid inequities in the allocation of costs.

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

1.	General.

a.	Where a governmental unit's department or agency has only one major function, or where all its major functions benefit from the indirect costs to approximately the same degree, the allocation of indirect costs and the computation of an indirect cost rate may be accomplished through simplified allocation procedures as described in subsection 2.

b.	Where a governmental unit's department or agency has several major functions which benefit from its indirect costs in varying degrees, the allocation of indirect costs may require the accumulation of such costs into separate cost groupings which then are allocated individually to benefitted functions by means of a base which best measures the relative degree of benefit. The indirect costs allocated to each function are then distributed to individual awards and other activities included in that function by means of an indirect cost rate(s).

c.	Specific methods for allocating indirect costs and computing indirect cost rates along with the conditions under which each method should be used are described in subsections 2, 3 and 4.

2.	Simplified method.

a.	Where a grantee agency's major functions benefit from its indirect costs to approximately the same degree, the allocation of indirect costs may be accomplished by (1) classifying the grantee agency's total costs for the base period as either direct or indirect, and (2) dividing the total allowable indirect costs (net of applicable credits) by an equitable distribution base. The result of this process is an indirect cost rate which is used to distribute indirect costs to individual Federal awards. The rate should be expressed as the percentage which the total amount of allowable indirect costs bears to the base selected. This method should also be used where a governmental unit's department or agency has only one major function encompassing a number of individual projects or activities, and may be used where the level of Federal awards to that department or agency is relatively small.

b.	Both the direct costs and the indirect costs shall exclude capital expenditures and unallowable costs. However, unallowable costs must be included in the direct costs if they represent activities to which indirect costs are properly allocable.

c.	The distribution base may be (1) total direct costs (excluding capital expenditures and other distorting items, such as pass-through funds, major subcontracts, etc.), (2) direct salaries and wages, or (3) another base which results in an equitable distribution.

3.	Multiple allocation base method.

a.	Where a grantee agency's indirect costs benefit its major functions in varying degrees, such costs shall be accumulated into separate cost groupings. Each grouping shall then be allocated individually to benefited functions by means of a base which best measures the relative benefits.

b.	The cost groupings should be established so as to permit the allocation of each grouping on the basis of benefits provided to the major functions. Each grouping should constitute a pool of expenses that are of like character in terms of the functions they benefit and in terms of the allocation base which best measures the relative benefits provided to each function. The number of separate groupings should be held within practical limits, taking into consideration the materiality of the amounts involved and the degree of precision needed.

c.	Actual conditions must be taken into account in selecting the base to be used in allocating the expenses in each grouping to benefited functions. 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 grouping are more general in nature, the allocation should be made through the use of a selected base which produces results that are equitable to both the Federal Government and the governmental unit. In general, any cost element or related factor associated with the governmental unit's activities is potentially adaptable for use as an allocation base provided that: (1) it can readily be expressed in terms of dollars or other quantitative measures (total direct costs, direct salaries and wages, staff hours applied, square feet used, hours of usage, number of documents processed, population served, and the like), and (2) it is common to the benefited functions during the base period.

d.	Except where a special indirect cost rate(s) is required in accordance with subsection 4, 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 Federal awards included in that function by use of a single indirect cost rate.

e.	The distribution base used in computing the indirect cost rate for each function may be (1) total direct costs (excluding capital expenditures and other distorting items such as pass-through funds, major subcontracts, etc.), (2) direct salaries and wages, or (3) another base which results in an equitable distribution. An indirect cost rate should be developed for each separate indirect cost pool developed. The rate in each case should be stated as the percentage relationship between the particular indirect cost pool and the distribution base identified with that pool.

4.	Special indirect cost rates.

a.	In some instances, a single indirect cost rate for all activities of a grantee department or agency or for each major function of the agency may not be appropriate. It may not take into account those different factors which may substantially affect the indirect costs applicable to a particular program or group of programs. The factors may include the physical location of the work, the level of administrative support required, the nature of the facilities or other resources employed, the organizational arrangements used, or any combination thereof. When a particular award is carried out in an environment which appears to generate a significantly different level of indirect costs, provisions should be made for a separate indirect cost pool applicable to that award. The separate indirect cost pool should be developed during the course of the regular allocation process, and the separate indirect cost rate resulting therefrom should be used, provided that: (1) the rate differs significantly from the rate which would have been developed under subsections 2. and 3., and (2) the award to which the rate would apply is material in amount.

b.	Although this Circular adopts the concept of the full allocation of indirect costs, there are some Federal statutes which restrict the reimbursement of certain indirect costs. Where such restrictions exist, it may be necessary to develop a special rate for the affected award. Where a "restricted rate" is required, the procedure for developing a non-restricted rate will be used except for the additional step of the elimination from the indirect cost pool those costs for which the law prohibits reimbursement.

D.	Submission and Documentation of Proposals.

1.	Submission of indirect cost rate proposals.

a.	All departments or agencies of the governmental unit desiring to claim indirect costs under Federal awards must prepare an indirect cost rate proposal and related documentation to support those costs. The proposal and related documentation must be retained for audit in accordance with the records retention requirements contained in the Common Rule.

b.	A governmental unit for which a cognizant agency assignment has been specifically designated must submit its indirect cost rate proposal to its cognizant agency. The Office of Management and Budget (OMB) will periodically publish lists of governmental units identifying the appropriate Federal cognizant agencies. The cognizant agency for all governmental units or agencies not identified by OMB will be determined based on the Federal agency providing the largest amount of Federal funds. In these cases, a governmental unit must develop an indirect cost proposal in accordance with the requirements of this Circular and maintain the proposal and related supporting documentation for audit. These governmental units are not required to submit their proposals unless they are specifically requested to do so by the cognizant agency. Where a local government only receives funds as a sub-recipient, the primary recipient will be responsible for negotiating and/or monitoring the sub-recipient's plan.

c.	Each Indian tribal government desiring reimbursement of indirect costs must submit its indirect cost proposal to the Department of the Interior (its cognizant Federal agency).

d.	Indirect cost proposals must be developed (and, when required, submitted) within six months after the close of the governmental unit's fiscal year, unless an exception is approved by the cognizant Federal agency. If the proposed central service cost allocation plan for the same period has not been approved by that time, the indirect cost proposal may be prepared including an amount for central services that is based on the latest federally-approved central service cost allocation plan. The difference between these central service amounts and the amounts ultimately approved will be compensated for by an adjustment in a subsequent period.

2.	Documentation of proposals. The following shall be included with each indirect cost proposal:

a.	The rates proposed, including subsidiary work sheets and other relevant data, cross referenced and reconciled to the financial data noted in subsection b. Allocated central service costs will be supported by the summary table included in the approved central service cost allocation plan. This summary table is not required to be submitted with the indirect cost proposal if the central service cost allocation plan for the same fiscal year has been approved by the cognizant agency and is available to the funding agency.

b.	A copy of the financial data (financial statements, comprehensive annual financial report, executive budgets, accounting reports, etc.) upon which the rate is based. Adjustments resulting from the use of unaudited data will be recognized, where appropriate, by the Federal cognizant agency in a subsequent proposal.

c.	The approximate amount of direct base costs incurred under Federal awards. These costs should be broken out between salaries and wages and other direct costs.

d.	A chart showing the organizational structure of the agency during the period for which the proposal applies, along with a functional statement(s) noting the duties and/or responsibilities of all units that comprise the agency. (Once this is submitted, only revisions need be submitted with subsequent proposals.)

3.	Required certification. Each indirect cost rate proposal shall be accompanied by a certification in the following form:

CERTIFICATE OF INDIRECT COSTS

This is to certify that I have reviewed the indirect cost rate proposal submitted herewith and to the best of my knowledge and belief:

(1) All costs included in this proposal [identify date] to establish billing or final indirect costs rates for [identify period covered by rate] are allowable in accordance with the requirements of the Federal award(s) to which they apply and OMB Circular A-87, "Cost Principles for State, Local, and Indian Tribal Governments." Unallowable costs have been adjusted for in allocating costs as indicated in the cost allocation plan.

(2) All costs included in this proposal are properly allocable to Federal awards on the basis of a beneficial or causal relationship between the expenses incurred and the agreements to which they are allocated in accordance with applicable requirements. Further, the same costs that have been treated as indirect costs have not been claimed as direct costs. Similar types of costs have been accounted for consistently and the Federal Government will be notified of any accounting changes that would affect the predetermined rate.

I declare that the foregoing is true and correct.

Governmental Unit: ________________________

Signature: ________________________

Name of Official: ________________________

Title: _________________________

Date of Execution: _________________________

E.	Negotiation and Approval of Rates.

1.	Indirect cost rates will be reviewed, negotiated, and approved by the cognizant Federal agency on a timely basis. Once a rate has been agreed upon, it will be accepted and used by all Federal agencies unless prohibited or limited by statute. Where a Federal funding agency has reason to believe that special operating factors affecting its awards necessitate special indirect cost rates, the funding agency will, prior to the time the rates are negotiated, notify the cognizant Federal agency.

2.	The use of predetermined rates, if allowed, is encouraged where the cognizant agency has reasonable assurance based on past experience and reliable projection of the grantee agency's costs, that the rate is not likely to exceed a rate based on actual costs. Long-term agreements utilizing predetermined rates extending over two or more years are encouraged, where appropriate.

3.	The results of each negotiation shall be formalized in a written agreement between the cognizant agency and the governmental unit. This agreement will be subject to re-opening if the agreement is subsequently found to violate a statute, or the information upon which the plan was negotiated is later found to be materially incomplete or inaccurate. The agreed upon rates shall be made available to all Federal agencies for their use.

4.	Refunds shall be made if proposals are later found to have included costs that (a) are unallowable (i) as specified by law or regulation, (ii) as identified in Attachment B of this Circular, or (iii) by the terms and conditions of Federal awards, or (b) are unallowable because they are clearly not allocable to Federal awards. These adjustments or refunds will be made regardless of the type of rate negotiated (predetermined, final, fixed, or provisional).

F.	Other Policies.

1.	Fringe benefit rates. If overall fringe benefit rates are not approved for the governmental unit as part of the central service cost allocation plan, these rates will be reviewed, negotiated and approved for individual grantee agencies during the indirect cost negotiation process. In these cases, a proposed fringe benefit rate computation should accompany the indirect cost proposal. If fringe benefit rates are not used at the grantee agency level (i.e., the agency specifically identifies fringe benefit costs to individual employees), the governmental unit should so advise the cognizant agency.

2.	Billed services provided by the grantee agency. In some cases, governmental units provide and bill for services similar to those covered by central service cost allocation plans (e.g., computer centers). Where this occurs, the governmental unit should be guided by the requirements in Attachment C relating to the development of billing rates and documentation requirements, and should advise the cognizant agency of any billed services. Reviews of these types of services (including reviews of costing/billing methodology, profits or losses, etc.) will be made on a case-by-case basis as warranted by the circumstances involved.

3.	Indirect cost allocations not using rates. In certain situations, a governmental unit, because of the nature of its awards, may be required to develop a cost allocation plan that distributes indirect (and, in some cases, direct) costs to the specific funding sources. In these cases, a narrative cost allocation methodology should be developed, documented, maintained for audit, or submitted, as appropriate, to the cognizant agency for review, negotiation, and approval.

4.	Appeals. If a dispute arises in a negotiation of an indirect cost rate (or other rate) between the cognizant agency and the governmental unit, the dispute shall be resolved in accordance with the appeals procedures of the cognizant agency.

5.	Collection of unallowable costs and erroneous payments. Costs specifically identified as unallowable and charged to Federal awards either directly or indirectly will be refunded (including interest chargeable in accordance with applicable Federal agency regulations).

6.	OMB assistance. To the extent that problems are encountered among the Federal agencies and/or governmental units in connection with the negotiation and approval process, OMB will lend assistance, as required, to resolve such problems in a timely manner.

APPENDIX 4

CIRCULAR NO. A-122
Revised

TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS

SUBJECT: Cost Principles for Non-Profit Organizations

1.	Purpose. This Circular establishes principles for determining costs of grants, contracts and other agreements with non-profit organizations. It does not apply to colleges and universities which are covered by Office of Management and Budget (OMB) Circular A-21, "Cost Principles for Educational Institutions"; State, local, and federally-recognized Indian tribal governments which are covered by OMB Circular A-87, "Cost Principles for State, Local, and Indian Tribal Governments"; or hospitals. The principles are designed to provide that the Federal Government bear its fair share of costs except where restricted or prohibited by law. The principles do not attempt to prescribe the extent of cost sharing or matching on grants, contracts, or other agreements. However, such cost sharing or matching shall not be accomplished through arbitrary limitations on individual cost elements by Federal agencies. Provision for profit or other increment above cost is outside the scope of this Circular.

2.	Supersession. This Circular supersedes cost principles issued by individual agencies for non-profit organizations.

3.	Applicability.

a.	These principles shall be used by all Federal agencies in determining the costs of work performed by non-profit organizations under grants, cooperative agreements, cost reimbursement contracts, and other contracts in which costs are used in pricing, administration, or settlement. All of these instruments are hereafter referred to as awards. The principles do not apply to awards under which an organization is not required to account to the Federal Government for actual costs incurred.

b.	All cost reimbursement subawards (subgrants, subcontracts, etc.) are subject to those Federal cost principles applicable to the particular organization concerned. Thus, if a subaward is to a non-profit organization, this Circular shall apply; if a subaward is to a commercial organization, the cost principles applicable to commercial concerns shall apply; if a subaward is to a college or university, Circular A-21 shall apply; if a subaward is to a State, local, or federally-recognized Indian tribal government, Circular A-87 shall apply.

4.	Definitions.

a.	Non-profit organization means any corporation, trust, association, cooperative, or other organization which:

is operated primarily for scientific, educational, service, charitable, or similar purposes in the public interest;

is not organized primarily for profit; and

uses its net proceeds to maintain, improve, and/or expand its operations. For this purpose, the term "non-profit organization" excludes (i) colleges and universities; (ii) hospitals; (iii) State, local, and federally-recognized Indian tribal governments; and (iv) those non-profit organizations which are excluded from coverage of this Circular in accordance with paragraph 5.

b.	Prior approval means securing the awarding agency's permission in advance to incur cost for those items that are designated as requiring prior approval by the Circular. Generally this permission will be in writing. Where an item of cost requiring prior approval is specified in the budget of an award, approval of the budget constitutes approval of that cost.

5.	Exclusion of some non-profit organizations. Some non-profit organizations, because of their size and nature of operations, can be considered to be similar to commercial concerns for purpose of applicability of cost principles. Such non-profit organizations shall operate under Federal cost principles applicable to commercial concerns. A listing of these organizations is contained in Attachment C. Other organizations may be added from time to time.

6.	Responsibilities. Agencies responsible for administering programs that involve awards to non-profit organizations shall implement the provisions of this Circular. Upon request, implementing instruction shall be furnished to OMB. Agencies shall designate a liaison official to serve as the agency representative on matters relating to the implementation of this Circular. The name and title of such representative shall be furnished to OMB within 30 days of the date of this Circular.

7.	Attachments. The principles and related policy guides are set forth in the following Attachments:

Attachment A - General Principles

Attachment B - Selected Items of Cost

Attachment C - Non-Profit Organizations Not Subject To This Circular

8.	Requests for exceptions. OMB may grant exceptions to the requirements of this Circular when permissible under existing law. However, in the interest of achieving maximum uniformity, exceptions will be permitted only in highly unusual circumstances.

9.	Effective Date. The provisions of this Circular are effective immediately. Implementation shall be phased in by incorporating the provisions into new awards made after the start of the organization's next fiscal year. For existing awards, the new principles may be applied if an organization and the cognizant Federal agency agree. Earlier implementation, or a delay in implementation of individual provisions, is also permitted by mutual agreement between an organization and the cognizant Federal agency.

10.	Inquiries. Further information concerning this Circular may be obtained by contacting the Office of Federal Financial Management, OMB, Washington, DC 20503, telephone (202) 395-3993.

ATTACHMENT A
Circular No. A-122

GENERAL PRINCIPLES

Table of Contents

A.	Basic Considerations

1.	Composition of total costs
2.	Factors affecting allowability of costs
3.	Reasonable costs
4.	Allocable costs
5.	Applicable credits
6.	Advance understandings
7.	Conditional exemptions

B.	Direct Costs

C.	Indirect Costs

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

1.	General
2.	Simplified allocation method
3.	Multiple allocation base method
4.	Direct allocation method
5.	Special indirect cost rates

E.	Negotiation and Approval of Indirect Cost Rates

1.	Definitions
2.	Negotiation and approval of rates

ATTACHMENT A
Circular No. A-122

GENERAL PRINCIPLES

A.	Basic Considerations

1.	Composition of total costs. The total cost of an award is the sum of the allowable direct and allocable indirect costs less any applicable credits.

2.	Factors affecting allowability of costs. To be allowable under an award, costs must meet the following general criteria:

a.	Be reasonable for the performance of the award and be allocable thereto under these principles.

b.	Conform to any limitations or exclusions set forth in these principles or in the award as to types or amount of cost items.

c.	Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the organization.

Be accorded consistent treatment.

e.	Be determined in accordance with generally accepted accounting principles (GAAP).

f.	Not be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or a prior period.

g.	Be adequately documented.

3.	Reasonable costs. A cost is reasonable if, in its nature or amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the costs. The question of the reasonableness of specific costs must be scrutinized with particular care in connection with organizations or separate divisions thereof which receive the preponderance of their support from awards made by Federal agencies. In determining the reasonableness of a given cost, consideration shall be given to:

a.	Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the organization or the performance of the award.

b.	The restraints or requirements imposed by such factors as generally accepted sound business practices, arms length bargaining, Federal and State laws and regulations, and terms and conditions of the award.

Whether the individuals concerned acted with prudence in the circumstances, considering their responsibilities to the organization, its members, employees, and clients, the public at large, and the Federal Government.

Significant deviations from the established practices of the organization which may unjustifiably increase the award costs.

4.	Allocable costs.

a.	A cost is allocable to a particular cost objective, such as a grant, contract, project, service, or other activity, in accordance with the relative benefits received. A cost is allocable to a Federal award if it is treated consistently with other costs incurred for the same purpose in like circumstances and if it:

Is incurred specifically for the award.

Benefits both the award and other work and can be distributed in reasonable proportion to the benefits received, or

Is necessary to the overall operation of the organization, although a direct relationship to any particular cost objective cannot be shown.

b.	Any cost allocable to a particular award or other cost objective under these principles may not be shifted to other Federal awards to overcome funding deficiencies, or to avoid restrictions imposed by law or by the terms of the award.

5.	Applicable credits.

a.	The term applicable credits refers to those receipts, or reduction of expenditures which operate to offset or reduce expense items that are allocable to awards as direct or indirect costs. Typical examples of such transactions are: purchase discounts, rebates or allowances, recoveries or indemnities on losses, insurance refunds, and adjustments of overpayments or erroneous charges. To the extent that such credits accruing or received by the organization relate to allowable cost, they shall be credited to the Federal Government either as a cost reduction or cash refund, as appropriate.

b.	In some instances, the amounts received from the Federal Government to finance organizational 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 organization in determining the rates or amounts to be charged to Federal awards 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.

c.	For rules covering program income (i.e., gross income earned from federally-supported activities) see Sec. __.24 of Office of Management and Budget (OMB) Circular A-110, "Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations."

6.	Advance understandings. Under any given award, the reasonableness and allocability of certain items of costs may be difficult to determine. This is particularly true in connection with organizations that receive a preponderance of their support from Federal agencies. In order to avoid subsequent disallowance or dispute based on unreasonableness or nonallocability, it is often desirable to seek a written agreement with the cognizant or awarding agency in advance of the incurrence of special or unusual costs. The absence of an advance agreement on any element of cost will not, in itself, affect the reasonableness or allocability of that element.

7.	Conditional exemptions.

a.	OMB authorizes conditional exemption from OMB administrative requirements and cost principles circulars for certain Federal programs with statutorily-authorized consolidated planning and consolidated administrative funding, that are identified by a Federal agency and approved by the head of the Executive department or establishment. A Federal agency shall consult with OMB during its consideration of whether to grant such an exemption.

b.	To promote efficiency in State and local program administration, when Federal non-entitlement programs with common purposes have specific statutorily-authorized consolidated planning and consolidated administrative funding and where most of the State agency's resources come from non-Federal sources, Federal agencies may exempt these covered State-administered, non-entitlement grant programs from certain OMB grants management requirements. The exemptions would be from all but the allocability of costs provisions of OMB Circulars A-87 (Attachment A, subsection C.3), "Cost Principles for State, Local, and Indian Tribal Governments," A-21 (Section C, subpart 4), "Cost Principles for Educational Institutions," and A-122 (Attachment A, subsection A.4), "Cost Principles for Non-Profit Organizations," and from all of the administrative requirements provisions of OMB Circular A-110, "Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations," and the agencies' grants management common rule.

c.	When a Federal agency provides this flexibility, as a prerequisite to a State's exercising this option, a State must adopt its own written fiscal and administrative requirements for expending and accounting for all funds, which are consistent with the provisions of OMB Circular A-87, and extend such policies to all subrecipients. These fiscal and administrative requirements must be sufficiently specific to ensure that: funds are used in compliance with all applicable Federal statutory and regulatory provisions, costs are reasonable and necessary for operating these programs, and funds are not be used for general expenses required to carry out other responsibilities of a State or its subrecipients.

B.	Direct Costs

1.	Direct costs are those that can be identified specifically with a particular final cost objective, i.e., a particular award, project, service, or other direct activity of an organization. However, a cost may not be assigned to an award as a direct cost if any other cost incurred for the same purpose, in like circumstance, has been allocated to an award as an indirect cost. Costs identified specifically with awards are direct costs of the awards and are to be assigned directly thereto. Costs identified specifically with other final cost objectives of the organization are direct costs of those cost objectives and are not to be assigned to other awards directly or indirectly.

2.	Any direct cost of a minor amount may be treated as an indirect cost for reasons of practicality where the accounting treatment for such cost is consistently applied to all final cost objectives.

3.	The cost of certain activities are not allowable as charges to Federal awards (see, for example, fundraising costs in paragraph 23 of Attachment B). However, even though these costs are unallowable for purposes of computing charges to Federal awards, they nonetheless must be treated as direct costs for purposes of determining indirect cost rates and be allocated their share of the organization's indirect costs if they represent activities which (1) include the salaries of personnel, (2) occupy space, and (3) benefit from the organization's indirect costs.

4.	The costs of activities performed primarily as a service to members, clients, or the general public when significant and necessary to the organization's mission must be treated as direct costs whether or not allowable and be allocated an equitable share of indirect costs. Some examples of these types of activities include:

Maintenance of membership rolls, subscriptions, publications, and related functions.

Providing services and information to members, legislative or administrative bodies, or the public.

Promotion, lobbying, and other forms of public relations.

Meetings and conferences except those held to conduct the general administration of the organization.

Maintenance, protection, and investment of special funds not used in operation of the organization.

Administration of group benefits on behalf of members or clients, including life and hospital insurance, annuity or retirement plans, financial aid, etc.

C. Indirect Costs

1.	Indirect costs are those that have been incurred for common or joint objectives and cannot be readily identified with a particular final cost objective. Direct cost of minor amounts may be treated as indirect costs under the conditions described in subparagraph B.2. After direct costs have been determined and assigned directly to awards or other work as appropriate, indirect costs are those remaining to be allocated to benefiting cost objectives. A cost may not be allocated to an award as an indirect cost if any other cost incurred for the same purpose, in like circumstances, has been assigned to an award as a direct cost.

2.	Because of the diverse characteristics and accounting practices of non-profit organizations, it is not possible to specify the types of cost which may be classified as indirect cost in all situations. However, typical examples of indirect cost for many non-profit organizations may include depreciation or use allowances on buildings and equipment, the costs of operating and maintaining facilities, and general administration and general expenses, such as the salaries and expenses of executive officers, personnel administration, and accounting.

3.	Indirect costs shall be classified within two broad categories: "Facilities" and "Administration." "Facilities" is defined as depreciation and use allowances on buildings, equipment and capital improvement, interest on debt associated with certain buildings, equipment and capital improvements, and operations and maintenance expenses. "Administration" is defined as general administration and general expenses such as the director's office, accounting, personnel, library expenses and all other types of expenditures not listed specifically under one of the subcategories of "Facilities" (including cross allocations from other pools, where applicable). See indirect cost rate reporting requirements in subparagraphs D.2.e and D.3.g.

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

1.	General.

a.	Where a non-profit organization has only one major function, or where all its major functions benefit from its indirect costs to approximately the same degree, the allocation of indirect costs and the computation of an indirect cost rate may be accomplished through simplified allocation procedures, as described in subparagraph 2.

b.	Where an organization has several major functions which benefit from its indirect costs in varying degrees, allocation of indirect costs may require the accumulation of such costs into separate cost groupings which then are allocated individually to benefiting functions by means of a base which best measures the relative degree of benefit. The indirect costs allocated to each function are then distributed to individual awards and other activities included in that function by means of an indirect cost rate(s).

c.	The determination of what constitutes an organization's major functions will depend on its purpose in being; the types of services it renders to the public, its clients, and its members; and the amount of effort it devotes to such activities as fundraising, public information and membership activities.

d.	Specific methods for allocating indirect costs and computing indirect cost rates along with the conditions under which each method should be used are described in subparagraphs 2 through 5.

e.	The base period for the allocation of indirect costs is the period in which such costs are incurred and accumulated for allocation to work performed in that period. The base period normally should coincide with the organization's fiscal year but, in any event, shall be so selected as to avoid inequities in the allocation of the costs.

2.	Simplified allocation method.

a.	Where an organization's major functions benefit from its indirect costs to approximately the same degree, the allocation of indirect costs may be accomplished by (i) separating the organization's total costs for the base period as either direct or indirect, and (ii) dividing the total allowable indirect costs (net of applicable credits) by an equitable distribution base. The result of this process is an indirect cost rate which is used to distribute indirect costs to individual awards. The rate should be expressed as the percentage which the total amount of allowable indirect costs bears to the base selected. This method should also be used where an organization has only one major function encompassing a number of individual projects or activities, and may be used where the level of Federal awards to an organization is relatively small.

b.	Both the direct costs and the indirect costs shall exclude capital expenditures and unallowable costs. However, unallowable costs which represent activities must be included in the direct costs under the conditions described in subparagraph B.3.

c.	The distribution base may be total direct costs (excluding capital expenditures and other distorting items, such as major subcontracts or subgrants), direct salaries and wages, or other base which results in an equitable distribution. The distribution base shall generally exclude participant support costs as defined in paragraph 34 of Attachment B.

d.	Except where a special rate(s) is required in accordance with subparagraph 5, the indirect cost rate developed under the above principles is applicable to all awards at the organization. If a special rate(s) is required, appropriate modifications shall be made in order to develop the special rate(s).

e.	For an organization that receives more than $10 million in Federal funding of direct costs in a fiscal year, a breakout of the indirect cost component into two broad categories, Facilities and Administration as defined in subparagraph C.3, is required. The rate in each case shall be stated as the percentage which the amount of the particular indirect cost category (i.e., Facilities or Administration) is of the distribution base identified with that category.

3.	Multiple allocation base method

a.	General. Where an organization's indirect costs benefit its major functions in varying degrees, indirect costs shall be accumulated into separate cost groupings, as described in subparagraph b. Each grouping shall then be allocated individually to benefitting functions by means of a base which best measures the relative benefits. The default allocation bases by cost pool are described in subparagraph 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 subparagraph 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 paragraph 11 of Attachment B ("Depreciation and use allowances").

(2)	Interest. Interest on debt associated with certain buildings, equipment and capital improvements are computed in accordance with paragraph 23 of Attachment B ("Interest, fundraising, 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 allowances, 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, management information systems, and library costs.

In developing this cost pool, special care should be exercised to ensure that costs incurred for the same purpose in like circumstances are treated consistently as either direct or indirect costs. For example, salaries of technical staff, project supplies, project publication, telephone toll charges, computer costs, travel costs, and specialized services costs 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 requires and 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 benefiting functions. The essential consideration in selecting a method or a base is that it is the one best suited for assigning the pool of costs to cost objectives in accordance with benefits derived; a traceable cause and effect relationship; or logic and reason, where neither the cause nor the effect of the relationship is determinable. When an allocation can be made by assignment of a cost grouping directly to the function 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 awards. 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 awards.

(1)	Depreciation and use allowances. Depreciation and use allowances expenses shall be allocated in the following manner:

(a)	Depreciation or 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 or 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 or 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 benefiting functions on the basis of:

(i)	the employees and other users on a full-time equivalent (FTE) basis or salaries and wages of those individual functions benefiting from the use of that space; or

(ii)	organization-wide employee FTEs or salaries and wages applicable to the benefiting 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 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 allowances on the buildings, equipment and capital equipment to which the interest relates.

(3)	Operation and maintenance expenses. Operation and maintenance expenses shall be allocated in the same manner as the depreciation and use allowances.

(4)	General administration and general expenses. General administration and general expenses shall be allocated to benefiting functions based on modified total direct costs (MTDC), as described in subparagraph D.3.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 benefiting functions based on MTDC.

d.	Order of distribution.

(1)	Indirect cost categories consisting of depreciation and use allowances, 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 subparagraph (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 subparagraph 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 awards and other benefiting activities within each major function on the basis of 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 (regardless of the period covered by the 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. Participant support costs shall generally 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.	Individual Rate Components. 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 agreement 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 subparagraph C.3.

4.	Direct allocation method.

a.	Some non-profit organizations treat all costs as direct costs except general administration and general expenses. These organizations generally separate their costs into three basic categories: (i) General administration and general expenses, (ii) fundraising, and (iii) other direct functions (including projects performed under Federal awards). Joint costs, such as depreciation, rental costs, operation and maintenance of facilities, telephone expenses, and the like are prorated individually as direct costs to each category and to each award or other activity using a base most appropriate to the particular cost being prorated.

b.	This method is acceptable, provided each joint cost is prorated using a base which accurately measures the benefits provided to each award or other activity. The bases must be established in accordance with reasonable criteria, and be supported by current data. This method is compatible with the Standards of Accounting and Financial Reporting for Voluntary Health and Welfare Organizations issued jointly by the National Health Council, Inc., the National Assembly of Voluntary Health and Social Welfare Organizations, and the United Way of America.

c.	Under this method, indirect costs consist exclusively of general administration and general expenses. In all other respects, the organization's indirect cost rates shall be computed in the same manner as that described in subparagraph 2.

5.	Special indirect cost rates. In some instances, a single indirect cost rate for all activities of an organization or for each major function of the organization may not be appropriate, since it would not take into account those different factors which may substantially affect the indirect costs applicable to a particular segment of work. For this purpose, a particular segment of work may be that performed under a single award or it may consist of work under a group of awards performed in a common environment. These factors may include the physical location of the work, the level of administrative support required, the nature of the facilities or other resources employed, the scientific disciplines or technical skills involved, the organizational arrangements used, or any combination thereof. When a particular segment of work is performed in an environment which appears to generate a significantly different level of indirect costs, provisions should be made for a separate indirect cost pool applicable to such work. The separate indirect cost pool should be developed during the course of the regular allocation process, and the separate indirect cost rate resulting therefrom should be used, provided it is determined that (i) the rate differs significantly from that which would have been obtained under subparagraphs 2, 3, and 4, and (ii) the volume of work to which the rate would apply is material.

E.	Negotiation and Approval of Indirect Cost Rates

1.	Definitions. As used in this section, the following terms have the meanings set forth below:

a.	Cognizant agency means the Federal agency responsible for negotiating and approving indirect cost rates for a non-profit organization on behalf of all Federal agencies.

b.	Predetermined rate means an indirect cost rate, applicable to a specified current or future period, usually the organization's fiscal year. The rate is based on an estimate of the costs to be incurred during the period. A predetermined rate is not subject to adjustment.

c.	Fixed rate means an indirect cost rate which has the same characteristics as a predetermined rate, except that the difference between the estimated costs and the actual costs of the period covered by the rate is carried forward as an adjustment to the rate computation of a subsequent period.

d.	Final rate means an indirect cost rate applicable to a specified past period which is based on the actual costs of the period. A final rate is not subject to adjustment.

e.	Provisional rate or billing rate means a temporary indirect cost rate applicable to a specified period which is used for funding, interim reimbursement, and reporting indirect costs on awards pending the establishment of a final rate for the period.

f.	Indirect cost proposal means the documentation prepared by an organization to substantiate its claim for the reimbursement of indirect costs. This proposal provides the basis for the review and negotiation leading to the establishment of an organization's indirect cost rate.

g.	Cost objective means a function, organizational subdivision, contract, grant, or other work unit for which cost data are desired and for which provision is made to accumulate and measure the cost of processes, projects, jobs and capitalized projects.

2.	Negotiation and approval of rates.

a.	Unless different arrangements are agreed to by the agencies concerned, the Federal agency with the largest dollar value of awards with an organization will be designated as the cognizant agency for the negotiation and approval of the indirect cost rates and, where necessary, other rates such as fringe benefit and computer charge-out rates. Once an agency is assigned cognizance for a particular non-profit organization, the assignment will not be changed unless there is a major long-term shift in the dollar volume of the Federal awards to the organization. All concerned Federal agencies shall be given the opportunity to participate in the negotiation process but, after a rate has been agreed upon, it will be accepted by all Federal agencies. When a Federal agency has reason to believe that special operating factors affecting its awards necessitate special indirect cost rates in accordance with subparagraph D.5, it will, prior to the time the rates are negotiated, notify the cognizant agency.

b.	A non-profit organization which has not previously established an indirect cost rate with a Federal agency shall submit its initial indirect cost proposal immediately after the organization is advised that an award will be made and, in no event, later than three months after the effective date of the award.

c.	Organizations that have previously established indirect cost rates must submit a new indirect cost proposal to the cognizant agency within six months after the close of each fiscal year.

d.	A predetermined rate may be negotiated for use on awards where there is reasonable assurance, based on past experience and reliable projection of the organization's costs, that the rate is not likely to exceed a rate based on the organization's actual costs.

Fixed rates may be negotiated where predetermined rates are not considered appropriate. A fixed rate, however, shall not be negotiated if (i) all or a substantial portion of the organization's awards are expected to expire before the carry-forward adjustment can be made; (ii) the mix of Federal and non-Federal work at the organization is too erratic to permit an equitable carry-forward adjustment; or (iii) the organization's operations fluctuate significantly from year to year.

Provisional and final rates shall be negotiated where neither predetermined nor fixed rates are appropriate.

The results of each negotiation shall be formalized in a written agreement between the cognizant agency and the non-profit organization. The cognizant agency shall distribute copies of the agreement to all concerned Federal agencies.

If a dispute arises in a negotiation of an indirect cost rate between the cognizant agency and the non-profit organization, the dispute shall be resolved in accordance with the appeals procedures of the cognizant agency.

To the extent that problems are encountered among the Federal agencies in connection with the negotiation and approval process, OMB will lend assistance as required to resolve such problems in a timely manner.

ATTACHMENT B
Circular No. A-122

SELECTED ITEMS OF COST

Table of Contents

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
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. Publication and printing costs
42. Rearrangement and alteration costs
43. Reconversion costs
44. Recruiting costs
45. Relocation costs
46. Rental costs
47. Royalties and other costs for use of patents and copyrights
48. Selling and marketing
49. Severance pay
50. Specialized service facilities
50. Taxes
52. Termination costs
53. Training and education costs
54. Transportation costs
55. Travel costs
56. Trustees

ATTACHMENT B
Circular No. A-122

SELECTED ITEMS OF COST

Paragraphs 1 through 56 provide principles to be applied in establishing the allowability of certain items of cost. These principles apply whether a cost is treated as direct or indirect. Failure to mention a particular item of cost is not intended to imply that it is unallowable; rather, determination as to allowability in each case should be based on the treatment or principles provided for similar or related items of cost.

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 award, when considered in conjunction with all other recruitment costs, as set forth in paragraph 44 ("Recruiting costs");

(2)	The procurement of goods and services for the performance of a sponsored award;

(3)	The disposal of scrap or surplus materials acquired in the performance of a sponsored award except when organizations are reimbursed for disposal costs at a predetermined amount in accordance with OMB Circular A-110, Sec.___.34, "Equipment"; or

(4)	Other specific purposes necessary to meet the requirements of the sponsored award.

d.	The only allowable public relations costs are:

(1)	Costs specifically required by sponsored awards;

(2)	Costs of communicating with the public and press pertaining to specific activities or accomplishments which result from performance of sponsored awards (these costs are considered necessary as part of the outreach effort for the sponsored awards); 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 subparagraphs c and d if incurred for more than one sponsored award or for both sponsored work and other work of the organization, are allowable to the extent that the principles in paragraphs B ("Direct Costs") and C ("Indirect Costs") of Attachment A are observed.

f.	Unallowable advertising and public relations costs include the following:

(1)	All advertising and public relations costs other than as specified in subparagraphs c, d, and e;

(2)	Costs of meetings 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.

Alcoholic beverages. Costs of alcoholic beverages are unallowable.

Bad debts. Bad debts, including losses (whether actual or estimated) arising from uncollectible accounts and other claims, related collection costs, and related legal costs, are unallowable.

4.	Bid and proposal costs. (reserved)

5.	Bonding costs.

a.	Bonding costs arise when the Federal Government requires assurance against financial loss to itself or others by reason of the act or default of the organization. They arise also in instances where the organization requires similar assurance. Included are such bonds as bid, performance, payment, advance payment, infringement, and fidelity bonds.

b.	Costs of bonding required pursuant to the terms of the award are allowable.

c.	Costs of bonding required by the organization in the general conduct of its operations 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.

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.	Definition. Compensation for personal services includes all compensation paid currently or accrued by the organization for services of employees rendered during the period of the award (except as otherwise provided in subparagraph h). It includes, but is not limited to, salaries, wages, director's and executive committee member's fees, incentive awards, fringe benefits, pension plan costs, allowances for off-site pay, incentive pay, location allowances, hardship pay, and cost of living differentials.

b.	Allowability. Except as otherwise specifically provided in this paragraph, the costs of such compensation are allowable to the extent that:

Total compensation to individual employees is reasonable for the services rendered and conforms to the established policy of the organization consistently applied to both Federal and non-Federal activities; and

Charges to awards whether treated as direct or indirect costs are determined and supported as required in this paragraph.

c.	Reasonableness.

(1)	When the organization is predominantly engaged in activities other than those sponsored by the Federal Government, compensation for employees on federally-sponsored work will be considered reasonable to the extent that it is consistent with that paid for similar work in the organization's other activities.

(2)	When the organization is predominantly engaged in federally-sponsored activities and in cases where the kind of employees required for the Federal activities are not found in the organization's other activities, compensation for employees on federally-sponsored work will be considered reasonable to the extent that it is comparable to that paid for similar work in the labor markets in which the organization competes for the kind of employees involved.

d.	Special considerations in determining allowability. Certain conditions require special consideration and possible limitations in determining costs under Federal awards where amounts or types of compensation appear unreasonable. Among such conditions are the following:

Compensation to members of non-profit organizations, trustees, directors, associates, officers, or the immediate families thereof. Determination should be made that such compensation is reasonable for the actual personal services rendered rather than a distribution of earnings in excess of costs.

Any change in an organization's compensation policy resulting in a substantial increase in the organization's level of compensation, particularly when it was concurrent with an increase in the ratio of Federal awards to other activities of the organization or any change in the treatment of allowability of specific types of compensation due to changes in Federal policy.

e.	Unallowable costs. Costs which are unallowable under other paragraphs of this Attachment shall not be allowable under this paragraph solely on the basis that they constitute personal compensation.

f.	Fringe benefits.

Fringe benefits in the form of regular compensation paid to employees during periods of authorized absences from the job, such as vacation leave, sick leave, military leave, and the like, are allowable, provided such costs are absorbed by all organization activities in proportion to the relative amount of time or effort actually devoted to each.

Fringe benefits in the form of employer contributions or expenses for social security, employee insurance, workmen's compensation insurance, pension plan costs (see subparagraph h), and the like, are allowable, provided such benefits are granted in accordance with established written organization policies. Such benefits whether treated as indirect costs or as direct costs, shall be distributed to particular awards and other activities in a manner consistent with the pattern of benefits accruing to the individuals or group of employees whose salaries and wages are chargeable to such awards and other activities.

(a) Provisions for a reserve under a self-insurance program for unemployment compensation or workers' compensation are allowable to the extent that the provisions represent reasonable estimates of the liabilities for such compensation, and the types of coverage, extent of coverage, and rates and premiums would have been allowable had insurance been purchased to cover the risks. However, provisions for self-insured liabilities which do not become payable for more than one year after the provision is made shall not exceed the present value of the liability.

(b) Where an organization follows a consistent policy of expensing actual payments to, or on behalf of, employees or former employees for unemployment compensation or workers' compensation, such payments are allowable in the year of payment with the prior approval of the awarding agency, provided they are allocated to all activities of the organization.

(4)	Costs of insurance on the lives of trustees, officers, or other employees holding positions of similar responsibility are allowable only to the extent that the insurance represents additional compensation. The costs of such insurance when the organization is named as beneficiary are unallowable.

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 as fringe benefit or indirect costs regardless of whether the cost is reported as taxable income to the employees. These costs are allowable as direct costs to sponsored award when necessary for the performance of the sponsored award and approved by awarding agencies.

h.	Pension plan costs.

(1)	Costs of the organization's pension plan which are incurred in accordance with the established policies of the organization are allowable, provided:

Such policies meet the test of reasonableness;

The methods of cost allocation are not discriminatory;

(c)	The cost assigned to each fiscal year is determined in accordance with generally accepted accounting principles (GAAP), as prescribed in Accounting Principles Board Opinion No. 8 issued by the American Institute of Certified Public Accountants; and

(d)	The costs assigned to a given fiscal year are funded for all plan participants within six months after the end of that year. However, increases to normal and past service pension costs caused by a delay in funding the actuarial liability beyond 30 days after each quarter of the year to which such costs are assignable are unallowable.

(2)	Pension plan termination insurance premiums paid pursuant to the Employee Retirement Income Security Act (ERISA) of 1974 (Pub. L. 93-406) are allowable. Late payment charges on such premiums are unallowable.

(3)	Excise taxes on accumulated funding deficiencies and other penalties imposed under ERISA are unallowable.

i.	Incentive compensation. Incentive compensation to employees based on cost reduction, or efficient performance, suggestion awards, safety awards, etc., are allowable to the extent that the overall compensation is determined to be reasonable and such costs are paid or accrued pursuant to an agreement entered into in good faith between the organization and the employees before the services were rendered, or pursuant to an established plan followed by the organization so consistently as to imply, in effect, an agreement to make such payment.

j.	Overtime, extra-pay shift, and multi-shift premiums. See paragraph 32.

k.	Severance pay. See paragraph 49.

l.	Training and education costs. See paragraph 53.

m.	Support of salaries and wages.

Charges to awards for salaries and wages, whether treated as direct costs or indirect costs, will be based on documented payrolls approved by a responsible official(s) of the organization. The distribution of salaries and wages to awards must be supported by personnel activity reports, as prescribed in subparagraph (2), except when a substitute system has been approved in writing by the cognizant agency. (See subparagraph E.2 of Attachment A.)

Reports reflecting the distribution of activity of each employee must be maintained for all staff members (professionals and nonprofessionals) whose compensation is charged, in whole or in part, directly to awards. In addition, in order to support the allocation of indirect costs, such reports must also be maintained for other employees whose work involves two or more functions or activities if a distribution of their compensation between such functions or activities is needed in the determination of the organization's indirect cost rate(s) (e.g., an employee engaged part-time in indirect cost activities and part-time in a direct function). Reports maintained by non-profit organizations to satisfy these requirements must meet the following standards:

The reports must reflect an after-the-fact determination of the actual activity of each employee. Budget estimates (i.e., estimates determined before the services are performed) do not qualify as support for charges to awards.

Each report must account for the total activity for which employees are compensated and which is required in fulfillment of their obligations to the organization.

The reports must be signed by the individual employee, or by a responsible supervisory official having first hand knowledge of the activities performed by the employee, that the distribution of activity represents a reasonable estimate of the actual work performed by the employee during the periods covered by the reports.

The reports must be prepared at least monthly and must coincide with one or more pay periods.

(3)	Charges for the salaries and wages of nonprofessional employees, in addition to the supporting documentation described in subparagraphs (1) and (2), must also be supported by records indicating the total number of hours worked each day maintained in conformance with Department of Labor regulations implementing the Fair Labor Standards Act (FLSA) (29 CFR Part 506). For this purpose, the term "nonprofessional employee" shall have the same meaning as "nonexempt employee," under FLSA.

(4)	Salaries and wages of employees used in meeting cost sharing or matching requirements on awards must be supported in the same manner as salaries and wages claimed for reimbursement from awarding agencies.

8.	Contingency provisions. Contributions to a contingency reserve or any similar provision 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. The term "contingency reserve" excludes self-insurance reserves (see subparagraphs 7.f (3) and 22.a(2)(d); pension funds (see subparagraph 7.h); and reserves for normal severance pay (see subparagraph 49.b(1)).

9.	Contributions. Contributions and donations by the organization to others are unallowable.

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 50 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 subparagraph b.(1).

c.	If a proceeding referred to in subparagraph 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 subparagraph b may be allowed to the extent specifically provided in such agreement.

d.	If a proceeding referred to in subparagraph 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 award, or (2) specific written direction of an authorized official of the sponsoring agency.

e.	Costs incurred in connection with proceedings described in subparagraph b, but which are not made unallowable by that subparagraph, 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 award;

(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 the 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 subparagraph 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, antitrust suits, 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 awards.

i.	Costs which may be unallowable under this paragraph, including directly associated costs, shall be segregated and accounted for by the organization separately. During the pendency of any proceeding covered by subparagraphs b and f, 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.

11.	Depreciation and use allowances.

a.	Compensation for the use of buildings, other capital improvements, and equipment on hand may be made through use allowances or depreciation. However, except as provided in subparagraph f, a combination of the two methods may not be used in connection with a single class of fixed assets (e.g., buildings, office equipment, computer equipment, etc.).

b.	The computation of use allowances or depreciation shall be based on the acquisition cost of the assets involved. The acquisition cost of an asset donated to the organization by a third party shall be its fair market value at the time of the donation.

c.	The computation of use allowances or depreciation will exclude:

The cost of land;

Any portion of the cost of buildings and equipment borne by or donated by the Federal Government irrespective of where title was originally vested or where it presently resides; and

Any portion of the cost of buildings and equipment contributed by or for the organization in satisfaction of a statutory matching requirement.

d.	Where the use allowance method is followed, the use allowance for buildings and improvement (including land improvements, such as paved parking areas, fences, and sidewalks) 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. When the use allowance method is used for buildings, the entire building must be treated as a single asset; the building's components (e.g., plumbing system, heating and air conditioning, etc.) cannot be segregated from the building's shell. The two percent limitation, however, need not be applied to equipment which is merely attached or fastened to the building but not permanently fixed to it and which is used as furnishings or decorations or for specialized purposes (e.g., dentist chairs and dental treatment units, counters, laboratory benches bolted to the floor, dishwashers, carpeting, etc.). Such equipment will be considered as not being permanently fixed to the building if it can be removed without the need for costly or extensive alterations or repairs to the building or the equipment. Equipment that meets these criteria will be subject to the six and two-thirds percent equipment use allowance limitation.

e.	Where depreciation method is followed, the period of useful service (useful life) established in each case for usable capital assets must take into consideration such factors as type of construction, nature of the equipment used, technological developments in the particular program area, and the renewal and replacement policies followed for the individual items or classes of assets involved. The method of depreciation used to assign the cost of an asset (or group of assets) to accounting periods shall reflect the pattern of consumption of the asset during its useful life. In the absence of clear evidence indicating that the expected consumption of the asset will be significantly greater or lesser in the early portions of its useful life than in the later portions, the straight-line method shall be presumed to be the appropriate method. Depreciation methods once used shall not be changed unless approved in advance by the cognizant Federal agency. When the depreciation method is introduced for application to assets previously subject to a use allowance, the combination of use allowances and depreciation applicable to such assets must not exceed the total acquisition cost of the assets. When the depreciation method is used for buildings, a building's shell may be segregated from each building component (e.g., plumbing system, heating, and air conditioning system, etc.) and each item depreciated over its estimated useful life; or the entire building (i.e., the shell and all components) may be treated as a single asset and depreciated over a single useful life.

f.	When the depreciation method is used for a particular class of assets, no depreciation may be allowed on any such assets that, under subparagraph e, would be viewed as fully depreciated. However, a reasonable use allowance may be negotiated for such assets if warranted after taking into consideration the amount of depreciation previously charged to the Federal Government, the estimated useful life remaining at time of negotiation, the effect of any increased maintenance charges or decreased efficiency due to age, and any other factors pertinent to the utilization of the asset for the purpose contemplated.

g.	Charges for use allowances or depreciation must be supported by adequate property records and physical inventories must be taken at least once every two years (a statistical sampling basis is acceptable) to ensure that assets exist and are usable and needed. When the depreciation method is followed, adequate depreciation records indicating the amount of depreciation taken each period must also be maintained.

12.	Donations.

a.	Services received.

Donated or volunteer services may be furnished to an organization by professional and technical personnel, consultants, and other skilled and unskilled labor. The value of these services is not reimbursable either as a direct or indirect cost.

The value of donated services utilized in the performance of a direct cost activity shall be considered in the determination of the organization's indirect cost rate(s) and, accordingly, shall be allocated a proportionate share of applicable indirect costs when the following circumstances exist:

The aggregate value of the services is material;

The services are supported by a significant amount of the indirect costs incurred by the organization;

(c)	The direct cost activity is not pursued primarily for the benefit of the Federal Government,

In those instances where there is no basis for determining the fair market value of the services rendered, the recipient and the cognizant agency shall negotiate an appropriate allocation of indirect cost to the services.

Where donated services directly benefit a project supported by an award, the indirect costs allocated to the services will be considered as a part of the total costs of the project. Such indirect costs may be reimbursed under the award or used to meet cost sharing or matching requirements.

The value of the donated services may be used to meet cost sharing or matching requirements under conditions described in Sec.__.23 of Circular A-110. Where donated services are treated as indirect costs, indirect cost rates will separate the value of the donations so that reimbursement will not be made.

Fair market value of donated services shall be computed as follows:

Rates for volunteer services. Rates for volunteers shall be consistent with those regular rates paid for similar work in other activities of the organization. In cases where the kinds of skills involved are not found in other activities of the organization, the rates used shall be consistent with those paid for similar work in the labor market in which the organization competes for such skills.

Services donated by other organizations. When an employer donates the services of an employee, these services shall be valued at the employee's regular rate of pay (exclusive of fringe benefits and indirect costs), provided the services are in the same skill for which the employee is normally paid. If the services are not in the same skill for which the employee is normally paid, fair market value shall be computed in accordance with subparagraph (a).

b.	Goods and space.

(1)	Donated goods; i.e., expendable personal property/supplies, and donated use of space may be furnished to an organization. The value of the goods and space is not reimbursable either as a direct or indirect cost.

(2)	The value of the donations may be used to meet cost sharing or matching share requirements under the conditions described in Sec.__.23 of Circular A-110. The value of the donations shall be determined in accordance with Sec.__.23 of Circular A-110. Where donations are treated as indirect costs, indirect cost rates will separate the value of the donations so that reimbursement will not be made.

13.	Employee morale, health, and welfare costs and credits. The costs of house publications, health or first-aid clinics, and/or infirmaries, recreational activities, employees' counseling services, and other expenses incurred in accordance with the organization's established practice or custom for the improvement of working conditions, employer-employee relations, employee morale, and employee performance are allowable. Such costs will be equitably apportioned to all activities of the organization. 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.

14.	Entertainment costs. Costs of amusement, diversion, social activities, ceremonials, and costs relating thereto, such as meals, lodging, rentals, transportation, and gratuities are unallowable (but see paragraphs 13 and 30).

15.	Equipment and other capital expenditures.

a.	As used in this paragraph, the following terms have the meanings set forth below:

(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. The unamortized portion of any equipment written off as a result of a change in capitalization levels may be recovered by continuing to claim the otherwise allowable use allowances or depreciation on the equipment, or by amortizing the amount to be written off over a period of years as negotiated with the Federal cognizant agency.

(2)	Acquisition cost means the net invoice unit price of an item of equipment, including the cost of any modifications, attachments, accessories, or auxiliary apparatus necessary to make it usable for the purpose for which it is acquired. Ancillary charges, such as taxes, duty, protective in-transit insurance, freight, and installation shall be included in or excluded from acquisition cost in accordance with the organization's regular written accounting practices.

(3)	Special purpose equipment means equipment which is usable only for research, medical, scientific, or technical activities. Examples of special purpose equipment include microscopes, x-ray machines, surgical instruments, and spectrometers.

(4)	General purpose equipment means equipment which is usable for other than research, medical, scientific, or technical activities, whether or not special modifications are needed to make them suitable for a particular purpose. Examples of general purpose equipment include office equipment and furnishings, air conditioning equipment, reproduction and printing equipment, motor vehicles, and automatic data processing equipment.

b.	(1)	Capital expenditures for general purpose equipment are unallowable as a direct cost except with the prior approval of the awarding agency.

(2)	Capital expenditures for special purpose equipment are allowable as direct costs, provided that items with a unit cost of $5000 or more have the prior approval of awarding agency.

c.	Capital expenditures for land or buildings are unallowable as a direct cost except with the prior approval of the awarding agency.

d.	Capital expenditures for improvements to land, buildings, or equipment which materially increase their value or useful life are unallowable as a direct cost except with the prior approval of the awarding agency.

e.	Equipment and other capital expenditures are unallowable as indirect costs. However, see paragraph 11 for allowability of use allowances or depreciation on buildings, capital improvements, and equipment. Also, see paragraph 46 for allowability of rental costs for land, buildings, and equipment.

16.	Fines and penalties. Costs of fines and penalties resulting from violations of, or failure of the organization to comply with Federal, State, and local laws and regulations are unallowable except when incurred as a result of compliance with specific provisions of an award or instructions in writing from the awarding agency.

17.	Fringe benefits. See subparagraph 7.f.

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.

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 as fringe benefit or indirect costs regardless of whether the cost is reported as taxable income to the employees. These costs are allowable as direct costs to sponsored award when necessary for the performance of the sponsored award and approved by awarding agencies.

b.	The term "officers" includes current and past officers and employees.

20.	Idle facilities and idle capacity.

a.	As used in this paragraph, the following terms have the meanings set forth below:

Facilities means land and buildings or any portion thereof, equipment individually or collectively, or any other tangible capital asset, wherever located, and whether owned or leased by the organization.

Idle facilities means completely unused facilities that are excess to the organization's current needs.

Idle capacity means the unused capacity of partially used facilities. It is the difference between that which a facility could achieve under 100 percent operating time on a one-shift basis less operating interruptions resulting from time lost for repairs, setups, unsatisfactory materials, and other normal delays, and the extent to which the facility was actually used to meet demands during the accounting period. A multi-shift basis may be used if it can be shown that this amount of usage could normally be expected for the type of facility involved.

Costs of idle facilities or idle capacity means costs such as maintenance, repair, housing, rent, and other related costs, e.g., property taxes, insurance, and depreciation or use allowances.

b.	The costs of idle facilities are unallowable except to the extent that:

They are necessary to meet fluctuations in workload; or

Although not necessary to meet fluctuations in workload, they were necessary when acquired and are now idle because of changes in program requirements, efforts to achieve more economical operations, reorganization, termination, or other causes which could not have been reasonably foreseen. Under the exception stated in this subparagraph, costs of idle facilities are allowable for a reasonable period of time, ordinarily not to exceed one year, depending upon the initiative taken to use, lease, or dispose of such facilities (but see subparagraphs 48.b and d).

c.	The costs of idle capacity are normal costs of doing business and are a factor in the normal fluctuations of usage or indirect cost rates from period to period. Such costs are allowable, provided the capacity is reasonably anticipated to be necessary or was originally reasonable and is not subject to reduction or elimination by subletting, renting, or sale, in accordance with sound business, economics, or security practices. Widespread idle capacity throughout an entire facility or among a group of assets having substantially the same function may be idle facilities.

21.	Independent research and development. [Reserved]

22.	Insurance and indemnification.

a.	Insurance includes insurance which the organization is required to carry, or which is approved, under the terms of the award and any other insurance which the organization maintains in connection with the general conduct of its operations. This paragraph does not apply to insurance which represents fringe benefits for employees (see subparagraphs 7.f and 7.h(2)).

Costs of insurance required or approved, and maintained, pursuant to the award are allowable.

Costs of other insurance maintained by the organization in connection with the general conduct of its operations are allowable subject to the following limitations:

Types and extent of coverage shall be in accordance with sound business practice and the rates and premiums shall be reasonable under the circumstances.

Costs allowed for business interruption or other similar insurance shall be limited to exclude coverage of management fees.

Costs of insurance or of any provisions for a reserve covering the risk of loss or damage to Federal property are allowable only to the extent that the organization is liable for such loss or damage.

Provisions for a reserve under a self-insurance program are allowable to the extent that types of coverage, extent of coverage, rates, and premiums would have been allowed had insurance been purchased to cover the risks. However, provision for known or reasonably estimated self-insured liabilities, which do not become payable for more than one year after the provision is made, shall not exceed the present value of the liability.

Costs of insurance on the lives of trustees, officers, or other employees holding positions of similar responsibilities are allowable only to the extent that the insurance represents additional compensation (see subparagraph 7.f(4)). The cost of such insurance when the organization is identified as the beneficiary is unallowable.

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. Medical liability insurance is an allowable cost of Federal research programs only to the extent that the Federal research programs involve human subjects or training of participants in research techniques. Medical liability insurance costs 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.

Actual losses which could have been covered by permissible insurance (through the purchase of insurance or a self-insurance program) are unallowable unless expressly provided for in the award, except:

(a)	Costs incurred because of losses not covered under nominal deductible insurance coverage provided in keeping with sound business practice are allowable.

(b)	Minor losses not covered by insurance, such as spoilage, breakage, and disappearance of supplies, which occur in the ordinary course of operations, are allowable.

b.	Indemnification includes securing the organization against liabilities to third persons and any other loss or damage, not compensated by insurance or otherwise. The Federal Government is obligated to indemnify the organization only to the extent expressly provided in the award.

23.	Interest, fundraising, and investment management costs.

a.	Interest.

(1)	Costs incurred for interest on borrowed capital or temporary use of endowment funds, however represented, are unallowable. However, interest on debt incurred after the effective date of this revision to acquire or replace capital assets (including renovations, alterations, equipment, land, and capital assets acquired through capital leases), acquired after the effective date of this revision and used in support of sponsored agreements is allowable, provided that:

For facilities acquisitions (excluding renovations and alterations) costing over $10 million where the Federal Government's reimbursement is expected to equal or exceed 40 percent of an asset's cost, the non-profit organization prepares, prior to the acquisition or replacement of the capital asset(s), a justification that demonstrates the need for the facility in the conduct of federally-sponsored activities. Upon request, the needs justification must be provided to the Federal agency with cost cognizance authority as a prerequisite to the continued allowability of interest on debt and depreciation related to the facility. The needs justification for the acquisition of a facility should include, at a minimum, the following:

A statement of purpose and justification for facility acquisition or replacement

A statement as to why current facilities are not adequate

A statement of planned future use of the facility

A description of the financing agreement to be arranged for the facility

A summary of the building contract with estimated cost information and statement of source and use of funds

A schedule of planned occupancy dates

For facilities costing over $500,000, the non-profit organization prepares, prior to the acquisition or replacement of the facility, a lease/purchase analysis in accordance with the provisions of Sec. __.30 through __.37 of Circular A-110, which shows that a financed purchase or capital lease is less costly to the organization than other leasing alternatives, on a net present value basis. Discount rates used should be equal to the non-profit organization's anticipated interest rates and should be no higher than the fair market rate available to the non-profit organization from an unrelated ("arm's length") third-party. The lease/purchase analysis shall include a comparison of the net present value of the projected total cost comparisons of both alternatives over the period the asset is expected to be used by the non-profit organization. The cost comparisons associated with purchasing the facility shall include the estimated purchase price, anticipated operating and maintenance costs (including property taxes, if applicable) not included in the debt financing, less any estimated asset salvage value at the end of the period defined above. The cost comparison for a capital lease shall include the estimated total lease payments, any estimated bargain purchase option, operating and maintenance costs, and taxes not included in the capital leasing arrangement, less any estimated credits due under the lease at the end of the period defined above. Projected operating lease costs shall be based on the anticipated cost of leasing comparable facilities at fair market rates under rental agreements that would be renewed or reestablished over the period defined above, and any expected maintenance costs and allowable property taxes to be borne by the non-profit organization directly or as part of the lease arrangement.

The actual interest cost claimed is predicated upon interest rates that are no higher than the fair market rate available to the non-profit organization from an unrelated ("arm's length") third party.

Investment earnings, including interest income, on bond or loan principal, pending payment of the construction or acquisition costs, are used to offset allowable interest cost. Arbitrage earnings reportable to the Internal Revenue Service are not required to be offset against allowable interest costs.

Reimbursements are limited to the least costly alternative based on the total cost analysis required under subparagraph (b). For example, if an operating lease is determined to be less costly than purchasing through debt financing, then reimbursement is limited to the amount determined if leasing had been used. In all cases where a lease/purchase analysis is performed, Federal reimbursement shall be based upon the least expensive alternative.

Non-profit organizations are also subject to the following conditions:

Interest on debt incurred to finance or refinance assets acquired before or reacquired after the effective date of this Circular is not allowable.

For debt arrangements over $1 million, unless the non-profit organization makes an initial equity contribution to the asset purchase of 25 percent or more, non-profit organizations shall reduce claims for interest expense by an amount equal to imputed interest earnings on excess cash flow, which is to be calculated as follows. Annually, non-profit organizations shall prepare a cumulative (from the inception of the project) report of monthly cash flows that includes inflows and outflows, regardless of the funding source. Inflows consist of depreciation expense, amortization of capitalized construction interest, and annual interest expense. For cash flow calculations, the annual inflow figures shall be divided by the number of months in the year (usually 12) that the building is in service for monthly amounts. Outflows consist of initial equity contributions, debt principal payments (less the pro rata share attributable to the unallowable costs of land) and interest payments. Where cumulative inflows exceed cumulative outflows, interest shall be calculated on the excess inflows for that period and be treated as a reduction to allowable interest expense. The rate of interest to be used to compute earnings on excess cash flows shall be the three month Treasury Bill closing rate as of the last business day of that month.

Substantial relocation of federally-sponsored activities from a facility financed by indebtedness, the cost of which was funded in whole or part through Federal reimbursements, to another facility prior to the expiration of a period of 20 years requires notice to the Federal cognizant agency. The extent of the relocation, the amount of the Federal participation in the financing, and the depreciation and interest charged to date may require negotiation and/or downward adjustments of replacement space charged to Federal programs in the future.

The allowable costs to acquire facilities and equipment are limited to a fair market value available to the non-profit organization from an unrelated ("arm's length") third party.

(2)	For non-profit organizations subject to "full coverage"' under the Cost Accounting Standards (CAS) as defined at 48 CFR 9903.201, the interest allowability provisions of subparagraph a do not apply. Instead, these organizations' sponsored agreements are subject to CAS 414 (48 CFR 9903.414), cost of money as an element of the cost of facilities capital, and CAS 417 (48 CFR 9903.417), cost of money as an element of the cost of capital assets under construction.

(3)	The following definitions are to be used for purposes of paragraph 23:

(a)	Re-acquired assets means assets held by the non-profit organization prior to the effective date of this revision that have again come to be held by the organization, whether through repurchase or refinancing. It does not include assets acquired to replace older assets.

(b)	Initial equity contribution means the amount or value of contributions made by non-Federal entities for the acquisition of the asset or prior to occupancy of facilities.

(c)	Asset costs means the capitalizable costs of an asset, including construction costs, acquisition costs, and other such costs capitalized in accordance with GAAP.

b.	Costs of organized fundraising, including financial campaigns, endowment drives, solicitation of gifts and bequests, and similar expenses incurred solely to raise capital or obtain contributions are unallowable.

c.	Costs of investment counsel and staff and similar expenses incurred solely to enhance income from investments are unallowable.

d.	Fundraising and investment activities shall be allocated an appropriate share of indirect costs under the conditions described in subparagraph B.3 of Attachment A.

24.	Labor relations costs. Costs incurred in maintaining satisfactory relations between the organization and its employees, including costs of labor management committees, employee publications, and other related activities are allowable.

25.	Lobbying.

a.	Notwithstanding other provisions of this Circular, costs associated with the following activities are unallowable:

Attempts to influence the outcomes of any Federal, State, or local election, referendum, initiative, or similar procedure, through in kind or cash contributions, endorsements, publicity, or similar activity;

Establishing, administering, contributing to, or paying the expenses of a political party, campaign, political action committee, or other organization established for the purpose of influencing the outcomes of elections;

Any attempt to influence: (i) The introduction of Federal or State legislation; or (ii) the enactment or modification of any pending Federal or State legislation through communication with any member or employee of the Congress or State legislature (including efforts to influence State or local officials to engage in similar lobbying activity), or with any Government official or employee in connection with a decision to sign or veto enrolled legislation;

Any attempt to influence: (i) The introduction of Federal or State legislation; or (ii) the enactment or modification of any pending Federal or State legislation by preparing, distributing or using publicity or propaganda, or by urging members of the general public or any segment thereof to contribute to or participate in any mass demonstration, march, rally, fundraising drive, lobbying campaign or letter writing or telephone campaign; or

Legislative liaison activities, including attendance at legislative sessions or committee hearings, gathering information regarding legislation, and analyzing the effect of legislation, when such activities are carried on in support of or in knowing preparation for an effort to engage in unallowable lobbying.

b.	The following activities are excepted from the coverage of subparagraph a:

(1)	Providing a technical and factual presentation of information on a topic directly related to the performance of a grant, contract or other agreement through hearing testimony, statements or letters to the Congress or a State legislature, or subdivision, member, or cognizant staff member thereof, in response to a documented request (including a Congressional Record notice requesting testimony or statements for the record at a regularly scheduled hearing) made by the recipient member, legislative body or subdivision, or a cognizant staff member thereof; provided such information is readily obtainable and can be readily put in deliverable form; and further provided that costs under this section for travel, lodging or meals are unallowable unless incurred to offer testimony at a regularly scheduled Congressional hearing pursuant to a written request for such presentation made by the Chairman or Ranking Minority Member of the Committee or Subcommittee conducting such hearing.

(2)	Any lobbying made unallowable by subparagraph a(3) to influence State legislation in order to directly reduce the cost, or to avoid material impairment of the organization's authority to perform the grant, contract, or other agreement.

(3)	Any activity specifically authorized by statute to be undertaken with funds from the grant, contract, or other agreement.

c. (1) When an organization seeks reimbursement for indirect costs, total lobbying costs shall be separately identified in the indirect cost rate proposal, and thereafter treated as other unallowable activity costs in accordance with the procedures of subparagraph B.3 of Attachment A.

(2)	Organizations shall submit, as part of the annual indirect cost rate proposal, a certification that the requirements and standards of this paragraph have been complied with.

(3)	Organizations shall maintain adequate records to demonstrate that the determination of costs as being allowable or unallowable pursuant to paragraph 25 complies with the requirements of this Circular.

(4)	Time logs, calendars, or similar records shall not be required to be created for purposes of complying with this paragraph during any particular calendar month when: (1) the employee engages in lobbying (as defined in subparagraphs (a) and (b)) 25 percent or less of the employee's compensated hours of employment during that calendar month, and (2) within the preceding five-year period, the organization has not materially misstated allowable or unallowable costs of any nature, including legislative lobbying costs. When conditions (1) and (2) are met, organizations are not required to establish records to support the allowabliliy of claimed costs in addition to records already required or maintained. Also, when conditions (1) and (2) are met, the absence of time logs, calendars, or similar records will not serve as a basis for disallowing costs by contesting estimates of lobbying time spent by employees during a calendar month.

(5)	Agencies shall establish procedures for resolving in advance, in consultation with OMB, any significant questions or disagreements concerning the interpretation or application of paragraph 25. Any such advance resolution shall be binding in any subsequent settlements, audits or investigations with respect to that grant or contract for purposes of interpretation of this Circular; provided, however, that this shall not be construed to prevent a contractor or grantee from contesting the lawfulness of such a determination.

26.	Losses on other awards. Any excess of costs over income on any award is unallowable as a cost of any other award. This includes, but is not limited to, the organization's contributed portion by reason of cost sharing agreements or any under-recoveries through negotiation of lump sums for, or ceilings on, indirect costs.

27.	Maintenance and repair costs. Costs incurred for necessary maintenance, repair, or upkeep of buildings and equipment (including Federal property unless otherwise provided for) which neither add to the permanent value of the property nor appreciably prolong its intended life, but keep it in an efficient operating condition, are allowable. Costs incurred for improvements which add to the permanent value of the buildings and equipment or appreciably prolong their intended life shall be treated as capital expenditures (see paragraph 15).

28.	Materials and supplies. The costs of materials and supplies necessary to carry out an award are allowable. Such costs should be charged at their actual prices after deducting all cash discounts, trade discounts, rebates, and allowances received by the organization. Withdrawals from general stores or stockrooms should be charged at cost under any recognized method of pricing consistently applied. Incoming transportation charges may be a proper part of material cost. Materials and supplies charged as a direct cost should include only the materials and supplies actually used for the performance of the contract or grant, and due credit should be given for any excess materials or supplies retained, or returned to vendors.

29.	Meetings and conferences.

a.	Costs associated with the conduct of meetings and conferences include the cost of renting facilities, meals, speakers' fees, and the like. But see paragraph 14, Entertainment costs, and paragraph 34, Participant support costs.

b.	To the extent that these costs are identifiable with a particular cost objective, they should be charged to that objective (see paragraph B of Attachment A). These costs are allowable, provided that they meet the general tests of allowability, shown in paragraph A of Attachment A to this Circular.

c.	Costs of meetings and conferences held to conduct the general administration of the organization are allowable.

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 allowable with prior approval by Federal cognizant agency.

e.	Costs of membership in any country club or social or dining club or organization are unallowable.

31.	Organization costs. Expenditures, such as incorporation fees, brokers' fees, fees to promoters, organizers or management consultants, attorneys, accountants, or investment counselors, whether or not employees of the organization, in connection with establishment or reorganization of an organization, are unallowable except with prior approval of the awarding agency.

32.	Overtime, extra-pay shift, and multi-shift premiums. Premiums for overtime, extra-pay shifts, and multi-shift work are allowable only with the prior approval of the awarding agency except:

a.	When necessary to cope with emergencies, such as those resulting from accidents, natural disasters, breakdowns of equipment, or occasional operational bottlenecks of a sporadic nature.

b.	When employees are performing indirect functions, such as administration, maintenance, or accounting.

c.	In the performance of tests, laboratory procedures, or other similar operations which are continuous in nature and cannot reasonably be interrupted or otherwise completed.

d.	When lower overall cost to the Federal Government will result.

33.	Page charges in professional journals. Page charges for professional journal publications are allowable as a necessary part of research costs, where:

a.	The research papers report work supported by the Federal Government; and

b.	The charges are levied impartially on all research papers published by the journal, whether or not by federally-sponsored authors.

34.	Participant support costs. Participant support costs are direct costs for items such as stipends or subsistence allowances, travel allowances, and registration fees paid to or on behalf of participants or trainees (but not employees) in connection with meetings, conferences, symposia, or training projects. These costs are allowable with the prior approval of the awarding agency.

35.	Patent costs.

a.	Costs of (i) preparing disclosures, reports, and other documents required by the award and of searching the art to the extent necessary to make such disclosures, (ii) preparing documents and any other patent costs in connection with the filing and prosecution of a United States patent application where title or royalty-free license is required by the Federal Government to be conveyed to the Federal Government, and (iii) general counseling services relating to patent and copyright matters, such as advice on patent and copyright laws, regulations, clauses, and employee agreements are allowable (but see paragraph 39).

b.	Cost of preparing disclosures, reports, and other documents and of searching the art to the extent necessary to make disclosures, if not required by the award, are unallowable. Costs in connection with (i) filing and prosecuting any foreign patent application, or (ii) any United States patent application, where the award does not require conveying title or a royalty-free license to the Federal Government, are unallowable (also see paragraph 47).

36.	Pension plans. See subparagraph 7.h.

37.	Plant security costs. Necessary expenses incurred to comply with Federal security requirements or for facilities protection, including wages, uniforms, and equipment of personnel are allowable.

38.	Pre-award costs. Pre-award costs are those incurred prior to the effective date of the award directly pursuant to the negotiation and in anticipation of the award where such costs are necessary to comply with the proposed delivery schedule or period of performance. Such costs are allowable only to the extent that they would have been allowable if incurred after the date of the award and only with the written approval of the awarding agency.

39.	Professional service costs.

a.	Costs of professional and consultant services rendered by persons who are members of a particular profession or possess a special skill, and who are not officers or employees of the organization, are allowable, subject to subparagraphs b and c when reasonable in relation to the services rendered and when not contingent upon recovery of the costs from the Federal Government.

b.	In determining the allowability of costs in a particular case, no single factor or any special combination of factors is necessarily determinative. However, the following factors are relevant:

The nature and scope of the service rendered in relation to the service required.

The necessity of contracting for the service, considering the organization's capability in the particular area.

The past pattern of such costs, particularly in the years prior to Federal awards.

The impact of Federal awards on the organization's business (i.e., what new problems have arisen).

Whether the proportion of Federal work to the organization's total business is such as to influence the organization in favor of incurring the cost, particularly where the services rendered are not of a continuing nature and have little relationship to work under Federal grants and contracts.

Whether the service can be performed more economically by direct employment rather than contracting.

The qualifications of the individual or concern rendering the service and the customary fees charged, especially on non-Federal awards.

Adequacy of the contractual agreement for the service (e.g., description of the service, estimate of time required, rate of compensation, and termination provisions).

c.	In addition to the factors in subparagraph b, retainer fees to be allowable must be supported by evidence of bona fide services available or rendered.

40.	Profits and losses on disposition of depreciable property or other capital assets.

a.	(1) Gains and losses on sale, retirement, or other disposition of depreciable property shall be included in the year in which they occur as credits or charges to cost grouping(s) in which the depreciation applicable to such property was included. The amount of the gain or loss to be included as a credit or charge to the appropriate cost grouping(s) shall be the difference between the amount realized on the property and the undepreciated basis of the property.

(2)	Gains and losses on the disposition of depreciable property shall not be recognized as a separate credit or charge under the following conditions:

The gain or loss is processed through a depreciation reserve account and is reflected in the depreciation allowable under paragraph 11.

The property is given in exchange as part of the purchase price of a similar item and the gain or loss is taken into account in determining the depreciation cost basis of the new item.

A loss results from the failure to maintain permissible insurance, except as otherwise provided in subparagraph 22.a(3).

Compensation for the use of the property was provided through use allowances in lieu of depreciation in accordance with paragraph 11.

Gains and losses arising from mass or extraordinary sales, retirements, or other dispositions shall be considered on a case-by-case basis.

b.	Gains or losses of any nature arising from the sale or exchange of property other than the property covered in subparagraph a shall be excluded in computing award costs.

41.	Publication and printing costs.

a.	Publication costs include the costs of printing (including the processes of composition, plate-making, press work, binding, and the end products produced by such processes), distribution, promotion, mailing, and general handling.

b.	If these costs are not identifiable with a particular cost objective, they should be allocated as indirect costs to all benefiting activities of the organization.

c.	Publication and printing costs are unallowable as direct costs except with the prior approval of the awarding agency.

d.	The cost of page charges in journals is addressed paragraph 33.

42.	Rearrangement and alteration costs. Costs incurred for ordinary or normal rearrangement and alteration of facilities are allowable. Special arrangement and alteration costs incurred specifically for the project are allowable with the prior approval of the awarding agency.

43.	Reconversion costs. Costs incurred in the restoration or rehabilitation of the organization's facilities to approximately the same condition existing immediately prior to commencement of Federal awards, fair wear and tear excepted, are allowable.

44.	Recruiting costs.

a.	Subject to subparagraphs 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.

45.	Relocation costs.

a.	Relocation costs are costs incident to the permanent change of duty assignment (for an indefinite period or for a stated period of not less than 12 months) of an existing employee or upon recruitment of a new employee. Relocation costs are allowable, subject to the limitation described in subparagraphs b, c, and d, provided that:

The move is for the benefit of the employer.

Reimbursement to the employee is in accordance with an established written policy consistently followed by the employer.

The reimbursement does not exceed the employee's actual (or reasonably estimated) expenses.

b.	Allowable relocation costs for current employees are limited to the following:

The costs of transportation of the employee, members of his immediate family and his household, and personal effects to the new location.

The costs of finding a new home, such as advance trips by employees and spouses to locate living quarters and temporary lodging during the transition period, up to maximum period of 30 days, including advance trip time.

Closing costs, such as brokerage, legal, and appraisal fees, incident to the disposition of the employee's former home. These costs, together with those described in (4), are limited to 8 per cent of the sales price of the employee's former home.

The continuing costs of ownership of the vacant former home after the settlement or lease date of the employee's new permanent home, such as maintenance of buildings and grounds (exclusive of fixing up expenses), utilities, taxes, and property insurance.

Other necessary and reasonable expenses normally incident to relocation, such as the costs of canceling an unexpired lease, disconnecting and reinstalling household appliances, and purchasing insurance against loss of or damages to personal property. The cost of canceling an unexpired lease is limited to three times the monthly rental.

c.	Allowable relocation costs for new employees are limited to those described in (1) and (2) of subparagraph b. When relocation costs incurred incident to the recruitment of new employees have been allowed either as a direct or indirect cost and the employee resigns for reasons within his control within 12 months after hire, the organization shall refund or credit the Federal Government for its share of the cost. However, the costs of travel to an overseas location shall be considered travel costs in accordance with paragraph 55 and not relocation costs for the purpose of this paragraph if dependents are not permitted at the location for any reason and the costs do not include costs of transporting household goods.

d.	The following costs related to relocation are unallowable:

Fees and other costs associated with acquiring a new home.

A loss on the sale of a former home.

Continuing mortgage principal and interest payments on a home being sold.

Income taxes paid by an employee related to reimbursed relocation costs.

46.	Rental costs.

a.	Subject to the limitations described in subparagraphs b through d, rental costs are allowable to the extent that the rates are reasonable in light of such factors as: rental costs of comparable property, if any; market conditions in the area; alternatives available; and the type, life expectancy, condition, and value of the property leased.

b.	Rental costs under sale and leaseback arrangements are allowable only up to the amount that would be allowed had the organization continued to own the property.

c.	Rental costs under less-than-arms-length leases are allowable only up to the amount that would be allowed had title to the property vested in the organization. For this purpose, a less-than-arms-length lease is one under which one party to the lease agreement is able to control or substantially influence the actions of the other. Such leases include, but are not limited to those between (i) divisions of an organization; (ii) organizations under common control through common officers, directors, or members; and (iii) an organization and a director, trustee, officer, or key employee of the organization or his immediate family either directly or through corporations, trusts, or similar arrangements in which they hold a controlling interest.

d.	Rental costs under leases which are required to be treated as capital leases under GAAP, are allowable only up to the amount that would be allowed had the organization purchased the property on the date the lease agreement was executed, i.e., to the amount that minimally would pay for depreciation or use allowances, maintenance, taxes, and insurance. Interest costs related to capitalized leases are allowable to the extent they meet criteria in subparagraph 23.a. Unallowable costs include amounts paid for profit, management fees, and taxes that would not have been incurred had the organization purchased the facility.

47.	Royalties and other costs for use of patents and copyrights.

a.	Royalties on a patent or copyright or amortization of the cost of acquiring by purchase a copyright, patent, or rights thereto, necessary for the proper performance of the award are allowable unless:

The Federal Government has a license or the right to free use of the patent or copyright.

(2)	The patent or copyright has been adjudicated to be invalid, or has been administratively determined to be invalid.

(3)	The patent or copyright is considered to be unenforceable.

(4)	The patent or copyright is expired.

b.	Special care should be exercised in determining reasonableness where the royalties may have arrived at as a result of less-than-arm's-length bargaining, e.g.:

Royalties paid to persons, including corporations, affiliated with the organization.

Royalties paid to unaffiliated parties, including corporations, under an agreement entered into in contemplation that a Federal award would be made.

Royalties paid under an agreement entered into after an award is made to an organization.

c.	In any case involving a patent or copyright formerly owned by the organization, the amount of royalty allowed should not exceed the cost which would have been allowed had the organization retained title thereto.

48.	Selling and marketing. Costs of selling and marketing any products or services of the organization (unless allowed under paragraph 1 as allowable public relations costs) are unallowable. These costs, however, are allowable as direct costs, with prior approval by awarding agencies, when they are necessary for the performance of Federal programs.

49.	Severance pay.

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, it is required by (i) law, (ii) employer-employee agreement, (iii) established policy that constitutes, in effect, an implied agreement on the organization's part, or (iv) circumstances of the particular employment.

b.	Costs of severance payments are divided into two categories as follows:

Actual normal turnover severance payments shall be allocated to all activities; or, where the organization provides for a reserve for normal severances, such method will be acceptable if the charge to current operations is reasonable in light of payments actually made for normal severances over a representative past period, and if amounts charged are allocated to all activities of the organization.

Abnormal or mass severance pay is of such a conjectural nature that measurement of costs by means of an accrual will not achieve equity to both parties. Thus, accruals for this purpose are not allowable. However, the Federal Government recognizes its obligation to participate, to the extent of its fair share, in any specific payment. Thus, allowability will be considered on a case-by-case basis in the event or occurrence.

c.	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.

d.	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, unless they are necessary for the performance of Federal programs and approved by awarding agencies.

e.	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, unless they are necessary for the performance of Federal programs and approved by awarding agencies.

50.	Specialized service facilities.

a.	The costs of services provided by highly complex or specialized facilities operated by the organization, such as electronic computers and wind tunnels, are allowable, provided the charges for the services meet the conditions of either subparagraph b or c and, in addition, take into account any items of income or Federal financing that qualify as applicable credits under subparagraph A.5 of Attachment A.

b.	The costs of such services, when material, must be charged directly to applicable awards based on actual usage of the services on the basis of a schedule of rates or established methodology that (i) does not discriminate against federally-supported activities of the organization, including usage by the organization for internal purposes, and (ii) is designed to recover only the aggregate costs of the services. The costs of each service shall consist normally of both its direct costs and its allocable share of all indirect costs. Advance agreements pursuant to subparagraph A.6 of Attachment A are particularly important in this situation.

c.	Where the costs incurred for a service are not material, they may be allocated as indirect costs.

50.	Taxes.

a.	In general, taxes which the organization is required to pay and which are paid or accrued in accordance with GAAP, and payments made to local governments in lieu of taxes which are commensurate with the local government services received are allowable, except for (i) taxes from which exemptions are available to the organization directly or which are available to the organization based on an exemption afforded the Federal Government and in the latter case when the awarding agency makes available the necessary exemption certificates, (ii) special assessments on land which represent capital improvements, and (iii) Federal income taxes.

b.	Any refund of taxes, and any payment to the organization of interest thereon, which were allowed as award costs, will be credited either as a cost reduction or cash refund, as appropriate, to the Federal Government.

52.	Termination costs. Termination of awards generally give rise to the incurrence of costs, or the need for special treatment of costs, which would not have arisen had the award not been terminated. Cost principles covering these items are set forth below. They are to be used in conjunction with the other provisions of this Circular in termination situations.

a.	Common items. The cost of items reasonably usable on the organization's other work shall not be allowable unless the organization submits evidence that it would not retain such items at cost without sustaining a loss. In deciding whether such items are reasonably usable on other work of the organization, the awarding agency should consider the organization's plans and orders for current and scheduled activity. Contemporaneous purchases of common items by the organization shall be regarded as evidence that such items are reasonably usable on the organization's other work. Any acceptance of common items as allocable to the terminated portion of the award shall be limited to the extent that the quantities of such items on hand, in transit, and on order are in excess of the reasonable quantitative requirements of other work.

b.	Costs continuing after termination. If in a particular case, despite all reasonable efforts by the organization, certain costs cannot be discontinued immediately after the effective date of termination, such costs are generally allowable within the limitations set forth in this Circular, except that any such costs continuing after termination due to the negligent or willful failure of the organization to discontinue such costs shall be unallowable.

c.	Loss of useful value. Loss of useful value of special tooling, machinery and equipment which was not charged to the award as a capital expenditure is generally allowable if:

Such special tooling, machinery, or equipment is not reasonably capable of use in the other work of the organization.

The interest of the Federal Government is protected by transfer of title or by other means deemed appropriate by the awarding agency;

d.	Rental costs. Rental costs under unexpired leases are generally allowable where clearly shown to have been reasonably necessary for the performance of the terminated award less the residual value of such leases, if (i) the amount of such rental claimed does not exceed the reasonable use value of the property leased for the period of the award and such further period as may be reasonable, and (ii) the organization 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 award, and of reasonable restoration required by the provisions of the lease.

e.	Settlement expenses. Settlement expenses including the following are generally allowable:

(1)	Accounting, legal, clerical, and similar costs reasonably necessary for:

The preparation and presentation to awarding agency of settlement claims and supporting data with respect to the terminated portion of the award, unless the termination is for default (see Sec. __.61 of Circular A-110); and

The termination and settlement of subawards.

(2)	Reasonable costs for the storage, transportation, protection, and disposition of property provided by the Federal Government or acquired or produced for the award, except when grantees or contractors are reimbursed for disposals at a predetermined amount in accordance with Sec. __.30 through __.37 of Circular A-110.

(3)	Indirect costs related to salaries and wages incurred as settlement expenses in subparagraphs (1) and (2). Normally, such indirect costs shall be limited to fringe benefits, occupancy cost, and immediate supervision.

f.	Claims under subawards. Claims under subawards, including the allocable portion of claims which are common to the award, and to other work of the organization are generally allowable. An appropriate share of the organization's indirect expense may be allocated to the amount of settlements with subcontractors and/or subgrantees, provided that the amount allocated is otherwise consistent with the basic guidelines contained in Attachment A. The indirect expense so allocated shall exclude the same and similar costs claimed directly or indirectly as settlement expenses.

53.	Training and education costs.

a.	Costs of preparation and maintenance of a program of instruction including but not limited to on-the-job, classroom, and apprenticeship training, designed to increase the vocational effectiveness of employees, including training materials, textbooks, salaries or wages of trainees (excluding overtime compensation which might arise therefrom), and (i) salaries of the director of training and staff when the training program is conducted by the organization; or (ii) tuition and fees when the training is in an institution not operated by the organization, are allowable.

b.	Costs of part-time education, at an undergraduate or post-graduate college level, including that provided at the organization's own facilities, are allowable only when the course or degree pursued is relative to the field in which the employee is now working or may reasonably be expected to work, and are limited to:

Training materials.

Textbooks.

Fees charges by the educational institution.

Tuition charged by the educational institution or, in lieu of tuition, instructors' salaries and the related share of indirect costs of the educational institution to the extent that the sum thereof is not in excess of the tuition which would have been paid to the participating educational institution.

Salaries and related costs of instructors who are employees of the organization.

Straight-time compensation of each employee for time spent attending classes during working hours not in excess of 156 hours per year and only to the extent that circumstances do not permit the operation of classes or attendance at classes after regular working hours; otherwise, such compensation is unallowable.

c.	Costs of tuition, fees, training materials, and textbooks (but not subsistence, salary, or any other emoluments) in connection with full-time education, including that provided at the organization's own facilities, at a post-graduate (but not undergraduate) college level, are allowable only when the course or degree pursued is related to the field in which the employee is now working or may reasonably be expected to work, and only where the costs receive the prior approval of the awarding agency. Such costs are limited to the costs attributable to a total period not to exceed one school year for each employee so trained. In unusual cases the period may be extended.

d.	Costs of attendance of up to 16 weeks per employee per year at specialized programs specifically designed to enhance the effectiveness of executives or managers or to prepare employees for such positions are allowable. Such costs include enrollment fees, training materials, textbooks and related charges, employees' salaries, subsistence, and travel. Costs allowable under this paragraph do not include those for courses that are part of a degree-oriented curriculum, which are allowable only to the extent set forth in subparagraphs b and c.

e.	Maintenance expense, and normal depreciation or fair rental, on facilities owned or leased by the organization for training purposes are allowable to the extent set forth in paragraphs 11, 27, and 46.

f.	Contributions or donations to educational or training institutions, including the donation of facilities or other properties, and scholarships or fellowships, are unallowable.

g.	Training and education costs in excess of those otherwise allowable under subparagraphs b and c may be allowed with prior approval of the awarding agency. To be considered for approval, the organization must demonstrate that such costs are consistently incurred pursuant to an established training and education program, and that the course or degree pursued is relative to the field in which the employee is now working or may reasonably be expected to work.

54.	Transportation costs. Transportation costs include freight, express, cartage, and postage charges relating either to goods purchased, in process, or delivered. These costs are allowable. When such costs can readily be identified with the items involved, they may be directly charged as transportation costs or added to the cost of such items (see paragraph 28). Where identification with the materials received cannot readily be made, transportation costs may be charged to the appropriate indirect cost accounts if the organization follows a consistent, equitable procedure in this respect.

55.	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 organization. Travel costs are allowable subject to subparagraphs b through e, when they are directly attributable to specific work under an award or are incurred in the normal course of administration of the organization.

b.	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 results in charges consistent with those normally allowed by the organization in its regular operations.

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 (i) require circuitous routing, (ii) require travel during unreasonable hours, (iii) greatly increase the duration of the flight, (iv) result in additional costs which would offset the transportation savings, or (v) offer accommodations which are not reasonably adequate for the medical needs of the traveler.

d.	Necessary and reasonable costs of family movements and personnel movements of a special or mass nature are allowable, pursuant to paragraphs 44 and 45, subject to allocation on the basis of work or time period benefited when appropriate. Advance agreements are particularly important.

e.	Direct charges for foreign travel costs are allowable only when the travel has received prior approval of the awarding agency. Each separate foreign trip must be approved. For purposes of this provision, foreign travel is defined as any travel outside of Canada and the United States and its territories and possessions. However, for an organization located in foreign countries, the term "foreign travel" means travel outside that country.

56.	Trustees. Travel and subsistence costs of trustees (or directors) are allowable. The costs are subject to restrictions regarding lodging, subsistence and air travel costs provided in paragraph 55.

ATTACHMENT C
Circular No. A-122

NON-PROFIT ORGANIZATIONS NOT SUBJECT TO THIS CIRCULAR

Aerospace Corporation, El Segundo, California
Argonne National Laboratory, Chicago, Illinois
Atomic Casualty Commission, Washington, D.C.
Battelle Memorial Institute, Headquartered in Columbus, Ohio
Brookhaven National Laboratory, Upton, New York
Charles Stark Draper Laboratory, Incorporated, Cambridge, Massachusetts
Environmental Institute of Michigan, Ann Arbor, Michigan
Hanford Environmental Health Foundation, Richland, Washington
IIT Research Institute, Chicago, Illinois
Institute for Defense Analysis, Alexandria, Virginia
Mitre Corporation, Bedford, Massachusetts
National Radiological Astronomy Observatory, Green Bank, West Virginia
National Renewable Energy Laboratory, Golden, Colorado
Oak Ridge Associated Universities, Oak Ridge, Tennessee
Rand Corporation, Santa Monica, California
Research Triangle Institute, Research Triangle Park, North Carolina
Riverside Research Institute, New York, New York
Southern Research Institute, Birmingham, Alabama
Southwest Research Institute, San Antonio, Texas
SRI International, Menlo Park, California
Syracuse Research Corporation, Syracuse, New York
Universities Research Association, Incorporated (National Acceleration Lab), Argonne, Illinois
Non-profit insurance companies, such as Blue Cross and Blue Shield Organizations
Other non-profit organizations as negotiated with awarding agencies

BILLING CODE 3110-01

APPENDIX 5

Code of Federal Regulations

Title 36, Volume 1 [Revised as of July 1, 2001]

CITE: 36CFR61

TITLE 36--PARKS, FORESTS, AND PUBLIC PROPERTY

CHAPTER I--NATIONAL PARK SERVICE, DEPARTMENT OF THE INTERIOR

PART 61--PROCEDURES FOR STATE, TRIBAL, AND LOCAL GOVERNMENT HISTORIC PRESERVATION PROGRAMS

Sec. 61.1 Authorization

61.2 Definitions

61.3 Implementation of this part

61.4 State programs

61.5 Grants to State programs

61.6 Certified local government programs

61.7 Subgrants to certified local governments

61.8 Tribal programs [Reserved]

61.9 Grants to tribal programs [Reserved]

61.10 Waiver

61.11 Information collection Authority: 16 U.S.C. 470 et seq. Source: 64 FR 11742, Mar. 9, 1999, unless otherwise noted.

Sec. 61.1 Authorization.

The National Historic Preservation Act of 1966, as amended (16 U.S.C. 470 et seq.):

(a)	Requires the Secretary of the Interior (Secretary) to promulgate regulations for:

(1)	Approving and overseeing State historic preservation programs;

(2)	Certifying local governments to carry out the purposes of the Act;

(3)	Ensuring that applicable State Historic Preservation Officers (SHPOs) allocate to certified local governments (CLGs) a share of grants that the SHPOs receive under the Act; and

Assisting Indian tribes in preserving their particular ``historic properties'' (as defined by the Act);

(b)	Directs the Secretary to administer a program of grants-in-aid to States and Indian tribes for historic preservation projects and programs that the Secretary has approved; and

Requires the Secretary to make available information concerning professional standards, methods, and techniques for the preservation of ``historic properties'' (as defined by the Act) and the administration of historic preservation programs.

Sec. 61.2 Definitions.

As used in this part:

All terms that the National Historic Preservation Act of 1966, as amended, defines have the same meaning in the regulations in this part that the statute provides; see especially sections 101(a)(1)(A), 101(b), 101(c)(4), 108, and 301.

Act means the National Historic Preservation Act of 1966, as amended, (16 U.S.C. 470 et seq.).

Chief elected local official means the elected head of a local government.

The Secretary's Standards means only the “Standards” portions and not the “Guidelines'' portions of “the Secretary of the Interior's Standards and Guidelines for Archeology and Historic Preservation.” The Secretary's Standards provide broad national principles of archeological and historic preservation practices and methods. “The Secretary of the Interior's Standards and Guidelines for Archeology and Historic Preservation” also contains “the Secretary's Guidelines'' which provide broad national guidance on how to apply “the Secretary's Standards.”

State historic preservation program or State program means a State government organization or program meeting the requirements that section 101(b) of the Act specifies.

Sec. 61.3 Implementation of this part.

(a)	National Park Service policy of management by exception. The National Park Service (NPS) will administer the regulations in this part in such a way (and where feasible) as to:

Limit the use of direct Federal management review procedures to high risk situations, to new programs, or to activities that are appropriate for the Federal Government to oversee;

Presume that State, tribal, and local government historic preservation officials manage their programs in an accountable way unless situations indicate the contrary; and

Rely to the maximum extent feasible on State, tribal, and local government systems of financial and program management that meet Federal standards. At the discretion of the Secretary, each State, tribal, and local government may substitute its own fiscal audit and management systems for the Secretary's comparable fiscal audit and management requirements, so long as the State, tribal, or local government system establishes and maintains accounting standards substantially similar to Federal standards and provides for independent peer review.

The Secretary's Standards. NPS will use the Secretary's Standards as technical performance standards for matters covered by this part. NPS may also use as technical performance standards (for matters covered by this part) additional guidance that NPS identifies and provides from time to time after appropriate consultation and notice.

Each State historic preservation program staff member, State Historic Preservation Review Board (Review Board) member, and certified local government (CLG) historic preservation review commission (Commission) member whom the Secretary has approved as meeting “the Secretary's (Historic Preservation) Professional Qualifications Standards” will retain that status, regardless of subsequent revisions to those Standards, until such time as that individual no longer works in that program, or serves on that Review Board, or serves on that Commission with which that individual was affiliated as of the date of that individual's approval.

You may obtain publications and other information mentioned in this part by contacting: Heritage Preservation Services, National Center for Cultural Resource Stewardship and Partnership Programs, National Park Service, 1849 C Street NW (NC Suite 200), Washington, D.C. 20240 or via the National Park Service Home Page for cultural programs at http:// www.cr.nps.gov.

Sec. 61.4 State programs.

For a State to participate in the program that this part describes, the Governor must appoint and designate a State Historic Preservation Officer (SHPO) to administer the State historic preservation program.

It is the responsibility of the SHPO to carry out the duties and activities that section 101 (b)(3) of the Act describes. In performing those duties and activities:

The SHPO must carry out a historic preservation planning process that includes the development and implementation of a comprehensive statewide historic preservation plan that provides guidance for effective decision making about historic property preservation throughout the State.

The SHPO, in addition to surveying and maintaining inventories of historic properties, may also obtain:

(i)	Comparative data valuable in determining the National Register eligibility of properties;

(ii)	Information on properties that may become eligible for the National Register of Historic Places with the passage of time; and/or

(iii)	Information on the absence of historic properties for use in planning for public and private development projects.

The SHPO must provide for adequate public participation in the State historic preservation program as a whole.

(i)	As part of the process of recommending a property to the National Register, the SHPO must comply with the consultation and notification procedures contained in 36 CFR part 60.

(ii)	The SHPO may authorize other persons or entities to fulfill the notice requirements in 36 CFR part 60 pursuant to the Secretary's written guidance.

(iii)	The SHPO also may authorize the historic preservation review commission (Commission) of a certified local government (CLG) to act in place of the State Historic Preservation Review Board (Review Board) for the purpose of considering National Register nominations within its jurisdiction, provided that the Commission both meets the professional qualifications required for the Review Board when considering such nominations and otherwise follows the Secretary's written guidance.

(iv)	In accordance with the Secretary's written guidance and with the consent of both the property owners in a nomination and the chief elected local official, the Review Board (or the Commission acting in its place) may consider the nomination without a face-to-face meeting.

(4)	The SHPO may carry out all or any part of his or her responsibilities by contract or cooperative agreement with any qualified nonprofit organization, educational institution, or otherwise pursuant to State law. However, the SHPO may not delegate the responsibility for compliance with the Act or with grant assistance terms and conditions.

The Secretary will consider individual SHPO proposals for programs that, for a specified period, include fewer duties than those section 101(b)(3) of the Act specifies, if a different approach would better serve an appropriate balance of historic property, customer or constituent, and historic preservation needs.

Procedures for review and approval of State historic preservation programs.

In accordance with the Act, the Secretary will evaluate each State program for consistency with the Act periodically, but not less often than every four years. If the Secretary determines that it meets the program requirements of paragraphs (a), (b), (e) and (f) of this section, he or she will approve the State program as set forth in this section.

The Secretary may use on-site and/or off-site inquiries to perform such evaluation. The Secretary will provide the SHPO with a timely report containing written findings and analyses that highlight the strengths and weaknesses of the State program.

Approval method.

(i)	If the Secretary determines that a State program is consistent with the Act, the report will include notice that the State program's approved status continues.

(ii)	If the Secretary determines that a State program has major aspects not consistent with the Act, the report will include notice of deficiencies along with required actions for correcting them. Unless circumstances warrant immediate action, the Secretary will provide a specified period to allow the SHPO either to correct the deficiencies or to present for Secretarial approval a justifiable plan and timetable for correcting the deficiencies. During this period, the SHPO has the opportunity to request that the Secretary reconsider any findings and required actions.

(iii)	The Secretary will provide timely notice of continued approved State program status to a SHPO successfully resolving deficiencies. Once the Secretary renews a State program's approved status, he or she generally will not review the program until the next regular evaluation period. However, if the Secretary deems it necessary, he or she may conduct a review more often.

The Secretary will provide timely notice of the revocation of a program's approved status to any SHPO whose program has deficiencies that warrant immediate action or that remain uncorrected after the of the period specified pursuant to paragraph (d)(3)(ii) of this section. The Secretary will then initiate financial suspension and other actions in accordance with the Act, applicable regulatory requirements, and related guidance that the National Park Service issues.

The SHPO must appoint or employ a professionally qualified staff.

Except as approved pursuant to paragraph (e)(2) of this section, the staff must include at a minimum, one individual meeting “the Secretary's (Historic Preservation) Professional Qualifications Standards” for history, one individual meeting “the Secretary's (Historic Preservation) Professional Qualifications Standards” for historic or prehistoric archeology, and one individual meeting “the Secretary's (Historic Preservation) Professional Qualifications Standards” for architectural history. “The Secretary's (Historic Preservation) Professional Qualifications Standards” and related guidance are part of the larger “Secretary of the Interior's Standards and Guidelines for Archeology and Historic Preservation.” The SHPO may determine that additional professional staff members representing the required or other disciplines are necessary to administer the State program in accordance with the Act.

The Secretary will consider proposals from a SHPO for a minimum required staff composition that differs from the requirement that paragraph (e)(1) of this section specifies, if the proposal addresses better an appropriate balance of historic property, customer or constituent, and historic preservation needs in that State.

When a staff position that paragraph (e)(1) of this section requires becomes vacant, the SHPO must fill the vacancy in a timely manner. In the interim, the SHPO must ensure that appropriately qualified individuals address technical matters. A vacancy in a required position that persists for more than six months is cause for review, comment, and appropriate action by the Secretary.

(f)	Unless State law provides for a different method of appointment, the SHPO must appoint an adequate and qualified State historic preservation Review Board (Review Board).

All Review Board members must have demonstrated competence, interest, or knowledge in historic preservation. A majority of Review Board members must meet “the Secretary of the Interior's (Historic Preservation) Professional Qualifications Standards” which are part of the larger “Secretary's Standards and Guidelines for Archeology and Historic Preservation.” The members meeting “the Secretary's (Historic Preservation) Professional Qualifications Standards” must include at a minimum, one individual meeting “the Secretary's (Historic Preservation) Professional Qualifications Standards” for history, one individual meeting “the Secretary's (Historic Preservation) Professional Qualifications Standards” for prehistoric archeology or historic archeology, and one individual meeting “the Secretary's (Historic Preservation) Professional Qualifications Standards” for architectural history. One person may meet the Standards for more than one required discipline. The other Review Board members, if any, who comprise the majority that meets “the Secretary's (Historic Preservation) Professional Qualifications Standards” may represent, subject to the SHPO's selection, any of the disciplines that those “Standards” describe.

The Secretary will consider proposals from a SHPO for a minimum required Review Board composition that differs from the requirement that paragraph (f)(1) of this section specifies, if the proposal addresses better an appropriate balance of historic property, customer or constituent, and historic preservation needs in that State.

When a required Review Board position becomes vacant, the SHPO must fill the vacancy in a timely manner. In the interim, the SHPO must ensure that the Review Board has access to advice from appropriately qualified individuals. A lapse of more than one year in filling the vacancy is cause for review, comment, and appropriate action by the Secretary.

The Review Board must meet as often as is necessary to complete its work in a timely fashion but no less often than once a year.

The Review Board must adopt written procedures governing its operations consistent with the provisions of this section and related guidance that the National Park Service issues.

Review Board responsibilities include, but are not limited to, the following:

(i)	Providing advice to the SHPO on the full range of Historic Preservation Fund-supported activities, that section 101 (b)(3) of the Act describes;

(ii)	Reviewing and making recommendations on National Register nomination proposals;

(iii)	Participating in the review of appeals to National Register nominations; and

Performing such other duties as may be appropriate.

Sec. 61.5 Grants to State programs.

Each State with an approved State program is eligible for grants-in-aid from the Historic Preservation Fund (HPF).

The National Park Service (NPS) will administer HPF matching grants-in-aid in accordance with the Act, OMB Circular A-133 and 43 CFR part 12, and related guidance that NPS issues. Failure by a State program to meet these requirements is cause for comment and appropriate action by the Secretary.

Sec. 61.6 Certified local government programs.

Each approved State program must provide a mechanism for certification (by the State Historic Preservation Officer and the Secretary) of local governments to carry out the purposes of the Act.

Each State Historic Preservation Officer (SHPO) must follow procedures that the Secretary approves for the certification of local governments. Each SHPO also must follow procedures for removal of certified local government (CLG) status for cause. A SHPO must submit any proposed amendment to its procedures to the Secretary for approval. The Secretary will act on each proposal in a timely fashion generally within 45 days of receipt.

When a SHPO approves a local government certification request in accordance with the State program's National Park Service (NPS)-approved certification process, the SHPO must prepare a written certification agreement between the SHPO and the local government. The certification agreement must list the specific responsibilities of the local government when certified. The SHPO must submit to the Secretary the written certification agreement and any additional information as is necessary for the Secretary to certify the local government pursuant to the Act and this part. If the Secretary does not disapprove the proposed certification within 15 working days of receipt, the Secretary has certified the local government.

Beyond the minimum responsibilities set out in the Act for all CLGs, the SHPO may make additional delegations of responsibility to individual CLGs. However, these delegations may not include the SHPO's overall responsibility derived from the Act or where law or regulation specifies.

The SHPO must ensure that each local government satisfies the following minimum requirements as conditions for certification. Each CLG must:

Enforce appropriate State or local legislation for the designation and protection of historic properties. The State procedures must define what constitutes appropriate legislation, as long as:

Designation provisions in such legislation include the identification and registration of properties for protection that meet criteria established by the State or the locality for significant historic and prehistoric resources within the jurisdiction of the local government;

(ii)	Protection provisions in such legislation include a local review process under State or local law for proposed demolitions of, changes to, or other action that may affect historic properties as paragraph (e)(1)(i) of this section describes; and

The legislation otherwise is consistent with the Act.

Establish by State or local law and maintain an adequate and qualified historic preservation review commission (Commission). All Commission members must have a demonstrated interest, competence, or knowledge in historic preservation. Unless State or local legislation provides for a different method of appointment, the chief elected local official must appoint all Commission members.

(i)	The State procedures must encourage certified local governments to include individuals who meet “the Secretary's (Historic Preservation) Professional Qualifications Standards” among the membership of the Commission, to the extent that such individuals are available in the community.

(ii)	The State procedures may specify the minimum number of Commission members who must meet “the Secretary's (Historic Preservation) Professional Qualifications Standards.” The State procedures may also specify which, if any, disciplines the Commission's membership must include from among those disciplines that the Standards describe. Membership requirements set by the State procedures for Commissions must be cognizant of the needs and functions of Commissions in the State and subject to the availability of such professionals in the community concerned.

(iii)	Provided that the Commission is otherwise adequate and qualified to carry out the responsibilities delegated to it, the SHPO may certify a local government without the minimum number or types of disciplines established in State procedures, if the local government can demonstrate that it has made a reasonable effort to fill those positions, or that an alternative composition of the Commission best meets the needs of the Commission and of the local government.

(iv)	The SHPO must make available to each Commission orientation materials and training designed to provide a working knowledge of the roles and operations of Federal, State, and local historic preservation programs, and historic preservation in general.

Maintain a system for the survey and inventory of historic properties. The SHPO must ensure that such systems and the data that they produce are capable of integration into and are compatible with statewide inventories and (when and as appropriate) with State and local planning processes.

Provide for adequate public participation in the local historic preservation program as a whole. The SHPO must provide each CLG with appropriate guidance on mechanisms to ensure adequate public participation in the local historic preservation program including the process for evaluating properties for nomination to the National Register of Historic Places.

Satisfactorily perform the responsibilities delegated to it under the Act. The SHPO must monitor and evaluate the performance of each CLG according to written standards and procedures that the SHPO establishes. If a SHPO's evaluation of a CLG's performance indicates that such performance is inadequate, the SHPO must suggest in writing ways to improve performance. If, after a period of time that the SHPO stipulates, the SHPO determines that the CLG has not improved its performance sufficiently, the SHPO may recommend that the Secretary decertify the local government. If the Secretary does not object within 30 working days of receipt, the Secretary has approved the decertification.

Effects of certification include:

Inclusion in the process of nominating properties to the National Register of Historic Places in accordance with sections 101 (c)(2)(A) and (c)(2)(B) of the Act. The SHPO may delegate to a CLG any of the responsibilities of the SHPO and the Review Board in processing National Register nominations as specified in 36 CFR part 60 (see also Sec. 61.4(b)(3)), except for the authority to nominate properties directly to the National Register. A CLG may make nominations directly to NPS only when the State does not have an approved program pursuant to Sec. 61.4. (2) Eligibility to apply for a portion of the State's annual Historic Preservation Fund (HPF) grant award. Each State must transfer at least 10 percent of its annual HPF grant award to CLGs for historic preservation projects and programs in accordance with the Act and as Sec. 61.7 specifies.

The District of Columbia is exempt from the requirements of this section because there are no subordinated local governments in the District. If any other jurisdiction that section 301(2) of the Act defines as a State believes that its political subdivisions lack authorities similar to those of local governments in other States, and hence cannot satisfy the requirements for local government certification, it may apply to the Secretary for exemption from the requirements of this section.

Procedures for direct certification by the Secretary where there is no approved State program pursuant to Sec. 61.4. To the extent feasible, the Secretary will ensure that there is consistency and continuity in the CLG program of a State that does not have an approved State program.

Where there is no approved State program, a local government wishing to become certified must apply directly to the Secretary.

The application must demonstrate that the local government meets the specifications for certification set forth in paragraph (e) of this section.

The Secretary will review certification applications under this paragraph (h) and take action in a timely fashion generally within 90 days of receipt.

Sec. 61.7 Subgrants to certified local governments.

Each SHPO must transfer at least 10 percent of its annual Historic Preservation Fund (HPF) grant award to CLGs as subgrants for historic preservation projects and programs in accordance with the Act. In any year that the annual HPF State grant appropriation exceeds $65,000,000, SHPOs must transfer one half of the amount over $65,000,000 to CLGs according to procedures that the Secretary will establish.

Each CLG is eligible to receive funds from the 10 percent (or greater) CLG share of the State's total annual HPF grant award. However, the SHPO need not award funds to all CLGs.

Each SHPO must maintain and follow a procedure that the Secretary approves for the use and distribution of funds from the State's annual HPF grant award to CLGs to ensure that no CLG receives a disproportionate share of the allocation. The procedure will provide a clear basis for the funding decisions. The SHPO must submit any proposed amendment to its procedure to the Secretary for approval. The Secretary will respond to such a proposal in a timely fashion generally within 45 days of receipt.

Each SHPO must notify annually each CLG of its opportunity to apply for HPF funding as well as what is entailed in the application and project selection process.

Each CLG receiving an HPF grant award from the CLG share is a subgrantee of the State. The SHPO must ensure that each CLG adheres to all applicable grant conditions and government-wide and program specific requirements that the National Park Service issues. The SHPO may require specific uses of funds subgranted to CLGs. CLGs may not apply subgranted HPF monies as matching share for any other Federal grant.

Where there is no approved State program pursuant to Sec. 61.4, the Secretary will determine the method for allocating funds to CLGs in that State in accordance with the procedures set forth for the State in this section. To the extent feasible, the Secretary will ensure consistency and continuity in the funding allocation policy of the CLG program for a State that does not have an approved historic preservation program.

Sec. 61.8 Tribal programs. [Reserved]

Sec. 61.9 Grants to tribal programs. [Reserved]

Sec. 61.10 Waiver. The Secretary may waive any of the requirements of the rules in this part that are not mandated by statute or by other applicable regulations if the Secretary finds, in writing, that the historic preservation program would benefit from such waiver and the waiver would not compromise the purposes, conditions, and requirements of the National Historic Preservation Act of 1966, as amended.

Sec. 61.11 Information collection.

The Office of Management and Budget (OMB) under 44 U.S.C. 3507 et seq., has approved the collection of information contained in this part. OMB has assigned clearance number 1024-0038 to this collection of information. The National Park Service (NPS) collects this information as part of the process for reviewing the procedures and programs of State and local governments participating in the national historic preservation program and the Historic Preservation Fund grant program. NPS will use the information to evaluate those programs and procedures for consistency with the National Historic Preservation Act of 1966, as amended, and compliance with government- wide grant requirements. The obligation to respond is required to obtain a benefit under these programs. Note that a Federal agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. NPS provides no assurance of confidentiality to respondents with the exception of locational information concerning some properties that government historic preservation property inventories include. Pursuant to section 304 of the National Historic Preservation Act of 1966, as amended, NPS tightly controls release of information when such release could have the potential of damaging those qualities which make a property historic.

We estimate the public reporting burden for the collection of this information to average 14.06 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing the burden, to Ms. Diane M. Cooke, Information Collection Officer, National Park Service, 1849 C Street NW, Washington, D.C. 20240 and to the Office of Management and Budget, Office of Information and Regulatory Affairs, Attention: Desk Officer for the Department of the Interior (1024-0038), Washington, D.C. 20503.

APPENDIX 6

Chapter 5

WASHINGTON STATE COMPETITIVE PROCUREMENT METHODS

5.1 Overview of Competitive Methods

With few exceptions, competitive procurement of personal services is required by RCW 39.29, “Personal Service Contracts. ”Competition is to be open, fair and objective and should be conducted carefully to ensure those aims are achieved. The following chart provides an outline of competitive methods used to procure personal services depending upon the dollar amount of the proposed contract. Please refer to the sections in this chapter for more detailed information on the requirements for competition in each dollar range.

DOLLAR THRESHOLD	COMPETITIVE PROCESS	PERSONAL SERVICES COMPETITIVE PROCUREMENT MAJOR ACTIVITIES
$1 - $4,999	Not Required	Seeking competition is always recommended, though not required for this dollar range. Telephone calls can be made to firms or individuals, describing the services desired and requesting price, schedule and qualifications to perform. Written contract is entered into upon selection of contractor, regardless of dollar amount.
$5,000 - $19,999	Informal Competition-- also called “Evidence of Competition”	Prepare written document/letter including at a minimum: description of services required, project schedule, request for consultant’s qualifications, request for costs or fees and due date for responses. Send to a minimum of three firms/individuals. May be faxed to them and responses may be faxed to agency to expedite processing. Evaluate responses and make award decision. Negotiate contract. Document for file: names of firms solicited; information on firm’s responses; basis for award decision; copy of contract.
$20,000 or more	Formal Competition	Prepare formal solicitation document, e.g., Request for Proposals (RFP) or Request for Qualifications/Quotations (RFQQ). Include all requirements in order for proposer to understand what the agency needs and how the agency will evaluate responses. Publish legal notice in major daily newspaper in Washington State to notify firms of upcoming solicitation. Develop bidder’s list from firms responding to notice, internal agency listing, etc. Issue RFP or RFQQ. Conduct preproposal conference, if scheduled in RFP or RFQQ, and issue minutes. Date and time stamp proposals received by due date. Evaluate proposals strictly against what is set forth in the RFP or RFQQ and score. Schedule oral interviews, if required. Determine apparent successful contractor. Notify successful and unsuccessful firms. Negotiate contract with apparent successful contractor. Conduct debriefing conferences, if requested. File contract with OFM (institutions of higher education may not be required to file due to fund source). Begin contract work.

5.2 Informal Competition - Evidence of Competition

For personal service contracts estimated to be $5,000 or greater but less than $20,000, the agency may use the informal procurement process known as "evidence of competition." At a minimum, evidence of competition includes the following steps:

Locate the names and addresses of multiple firms or individuals that would be qualified to provide the service. Multiple firms means a reasonable number of consultants considering such factors as time, cost and availability of qualified consultants. In most instances, this means at least three consultants; however, more are encouraged. In the event less than three firms are contacted, an explanation must be placed in the file to document why more firms were not notified. Agencies should seek participation from certified minority- and women-owned firms by including them on any bidder list as well. If you need assistance locating names, you may contact the Office of Minority and Women’s Business Enterprises at (360) 753-9697 or at their web site: http://www.omwbe.wa.gov/.

Prepare and issue a solicitation document. The solicitation document can be in any appropriate form, such as a letter or electronic memorandum. A sample letter which may be used for Evidence of Competition appears on page 5-3. At a minimum, the document should include a description of the type of service required, the proposed project schedule, a request for information on the consultant's qualifications, a request for the consultant’s cost or fees, and the due date, time and location to submit responses. The solicitation can be sent electronically, by facsimile or through regular mail. This informal competitive process is intended to be expeditious; however, agencies should provide enough time for firms to submit complete responses.

Document the time and date written responses are received. If the responses are forwarded electronically or by facsimile, the date and time are automatically noted.

Evaluate the responses and determine which consultant's proposal most closely meets the requirements of the solicitation. Enter into contract negotiations with the top finalist.

Prepare the contract document and acquire signatures of both parties.

Thoroughly document the entire selection and award process. Prepare auditable documentation of the competitive process and maintain it in the contract file. Such documentation should include: the names of the firms contacted and/or solicited; a copy of the solicitation document; information on how the consultants responded; an explanation of the evaluation and basis for the award decision; process; and a copy of the contract.

Contracts awarded under “evidence of competition” are not required to be filed with OFM, but are subject to reporting to OFM requirements at the end of each fiscal year.

5.3 Formal Competition

Personal service contracts estimated to be $20,000 or more are subject to formal competition. As part of that process, agencies are required to publish a notice of the solicitation in a statewide daily newspaper. Newspapers that satisfy this requirement include the Daily Journal of Commerce, the Seattle Times, Seattle P.I., and The News Tribune.

Another requirement is issuance of a Request for Proposals (RFP) or other formal solicitation document. The RFP is the procurement document most frequently used in state government to procure personal services. This document not only serves as the basis for the consultants to respond but, as importantly, serves as the foundation for the eventual contract. A well-written, well-considered RFP will help ensure responsive proposals and positive results. The RFP must provide clear, unambiguous statements of project goals and objectives, instructions for submitting the proposals and criteria for proposal evaluation.

Customarily, the RFP requests that a consulting firm prepare, at its own expense, a proposal that responds to the specific needs of the agency. Therefore, the RFP must clearly communicate those needs.