Final Rule: Administration of Grants

ACTION TRANSMITTAL

OCSE-AT-81-15

DATE: July 13, 1981

TO: State agencies administering child support enforcement plans under title IV-D of the Social Security Act and other interested individuals

SUBJECT: Administration of Grants

These are final regulations that amend the Department-wide grants administration regulations (45 CFR Part 74) to implement new Government-wide cost principles for nonprofit organizations issued by the Office of Management and Budget (OMB). The regulations also make changes to the rules regarding property acquired with grant support.

The amendments to 45 CFR Part 74 which implement the new Government-wide cost principles for nonprofit organizations primarily affect discretionary grants. As a nondiscretionary formula grant program, the Child Support Enforcement program is not affected except possibly where a IV-D agency has a purchase of service agreement with a nonprofit organization other than a unit of State or local government.

The amendments to 45 CFR Part 74 regarding property:

1. Replace the definition of the term "equipment" in 45 CFR Part 74, Subpart 0 with the definition of that term found in OMB Circulars No. A-122 and A-21; and
2. Specify that the policy prescribed in 45 CFR 74.141, regarding the treatment of supplies that are left over at the end of the grant or subgrant for which they were acquired, only applies to supplies that have not yet been put to use in the project or program for which they were acquired.

REGULATION REFERENCE: 45 CFR 74.132, 74.141, 74.174 and Appendix F

EFFECTIVE DATE: July 9, 1981

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary

45 CFR Part 74

Administration of Grant; Implementation of Cost Principles for Nonprofit Organization and Amendments to Property Rules

Agency: Department of Health and Human Services (HHS).

ACTION: Final rule.

SUMMARY: This amendment to the HHS Department-wide grants administration regulation implements Government-wide cost principles for nonprofit organizations. It also makes some changes in the regulation's rules on property acquired with grant support.

EFFECTIVE DATE: July 9, 1981.

FOR FURTHER INFORMATION CONTACT: Richard G. Sullivan, Department of Health and Human Services, Room 553-H, Hubert H. Humphrey Building, 200 Independence Avenue SW., Washington, D.C. 20201, (202) 755-7613.

SUPPLEMENTARY INFORMATION:

Cost Principles for Nonprofit Organizations

The Office of Management and Budget (OMB) published a notice in the Federal Register on April 28, 1977 inviting comments on proposed Government-wide cost principles for nonprofit organizations. Numerous comments on the proposal were received and a number of changes were made in response to the comments. OMB published the final principles in the Federal Register on July 8, 1980 (45 FR 46022) as OMB Circular A-122. The principles apply to nonprofit organizations other than State and local governments, Indian Tribal governments, institutions of higher education, hospitals, and certain other nonprofit organizations listed in Attachment C of Circular A-122.

HHS Implementation

This amendment to the Department's general grants administration regulation implements the new cost principles for nonprofit organizations. The amendment incorporates OMB Circular A-122 into the regulation by reference and automatically applies to any future changes to the Circular as of the start of an organization's first fiscal year beginning after OMB's publication of the change, in the Federal Register (unless a different date is prescribed by OMB). Copies of the Circular will be provided to nonprofit organizations, upon request by the Department's Regional Offices. This procedure is consistent with the procedure the Department follows in implementing other OMB Circulars on cost principles.

The amendment also includes provisions covering two cost elements - bid and proposal costs, and independent research and development costs - which are not covered by Circular A-122. In substance, these provisions are the same as the comparable provisions in the previous HHS cost principles for nonprofit organizations and therefore do not represent a substantive change to the regulation. As indicated in the amendment, the Department is continuing its long-standing policy of not allowing independent research and development costs (i.e., research and development which is not sponsored by grants, contracts, or other agreements). The Department believes that allowing these costs would have the effect of circumventing the process of evaluating proposed research and development projects and selecting the most meritorious projects for direct funding by the Department. Paragraph 5, of Circular A-122 states that the nonprofit organizations listed in Attachment C to the Circular shall be subject to Federal cost principles applicable to commercial concerns. This part of the Circular is implemented in the amendment by requiring that these organizations use the cost principles for commercial concerns in Subpart 1-15.2 of the Federal Procurement Regulations (41 CFR 1-15.2). However, the provisions governing the treatment of independent research and development costs in Subpart 1-15.2 are inconsistent with the Department's long standing policy in this area as discussed in the previous paragraph. Allowing these provisions to be applied to nonprofit organizations subject to Subpart 1-15.2 would also be unfair to other nonprofit organizations receiving grants from the Department. Therefore, the amendment requires the same treatment of these costs for all nonprofit organizations, including those subject to subject to Subpart 1-15.2. This aspect of the amendment also does not represent a substantive change to the regulation since all nonprofit organizations were subject to this restriction under the HHS nonprofit cost principles.

Changes in Subpart on Property

Subpart O of this regulation implements the policies on equipment and other property acquired with grant support in OMB Circular A-102, "Uniform administrative requirements for grants-in-aid to State and local governments," and OMB Circular A-110, "Uniform administrative requirements for grants and agreements with institutions of higher education, hospitals, and other nonprofit organizations."

Based upon those Circulars, Subpart O defines "equipment" as tangible personal property having a useful life of more than one year and a unit acquisition cost of $300 or more per unit. In contrast, OMB Circular A-122, which we are implementing by these amendments, defines equipment as an article of tangible personal property having a useful life of more than two years and an acquisition cost of $500 or more. OMB Circular A-21, revised, "Cost principles for educational institutions," also uses that definition.

OMB plans to revise the equipment definition in Circulars A-102 and A-110 to make it the same as the definition in the Circulars A-122 and A-21 cost principles. In the meantime, by memorandum dated October 1, OMB authorized Federal agencies to use the definition in the cost principles for the purpose of the equipment policies in Circulars A-102 and A-110. This will further the goal of standardization and eliminate a source of confusion for grantees. It will also reduce recordkeeping and other burdensome requirements on recipients. Accordingly, we are amending Subpart O of Part 74 by replacing the current definition for "equipment" by the one in OMB Circulars A-122 and A-21. Subpart O includes a rule (74.141) on supplies that are left over at the end of the grant or subgrant for which they were acquired. The rule requires that the grant be credited if the supplies exceed $1,000 in aggregate market value and are not needed for any project or program currently or previously sponsored by the Federal Government.

The rule implements a policy in OMB Circulars A-102 and A-110. OMB has recently told us that it intends the policy to apply only to supplies that have not yet been put to use in the project or program for which they were acquired. Accordingly, we are amending 74.141 so that it will apply only to these supplies.

Waiver of Proposed Rulemaking Procedures

Since this amendment to HHS regulations merely incorporates Government-wide policy established by OMB after obtaining public participation, proposed rulemaking procedures are considered unnecessary.

The provisions of the amendment concerning bid and proposal costs and independent research and development costs do not represent substantive changes to the Department's regulations; therefore, proposed rulemaking procedures are also considered unnecessary for these provisions.

Finally, the changes in the definition of "equipment" and in the rule on supplies are suggested and authorized by OMB, the first for the sake of consistency with the cost principles and the second to reflect of the intent of OMB Circulars A-102 and A-110. The changes have the effects of relieving restrictions on grantees and subgrantees. Proposed rulemaking procedures are therefore considered unnecessary for these changes.

Other Information

Timing. The changes affecting cost principles for nonprofit organizations apply as of the start of an organization's first fiscal year beginning after July 9, 1981. Early or delayed implementation is permitted by mutual agreement between a nonprofit organization and the cognizant Federal agency designated under OMB Circular A-122.

The changes to Subpart O apply as of July 9, 1981.

Effect of change in definition of equipment. Beginning July 9, 1981, recipients may regard items of tangible personal property no longer included in the definition of equipment as supplies instead of equipment. They may elect to do so for previously acquired items still on hand as well as for newly acquired items.

The Department has determined that this is not a major rule as defined in Executive Order 12291. Pursuant to the provisions of 5 U.S.C. Section 605(b), I hereby certify that this rule will not have a significant economic impact on a substantial number of small entities.

Dated: May 26, 1981.

Richard S. Schweiker,

Secretary of Health and Human Services.

Part 74 of Title 45, Code of Federal Regulations, is amended as follows:

1. The table of contents is amended by revising the entries for Section 74.141 and for appendix F to read as follows:

* * * * *

74.141 Unused supplies.

* * * * *

Appendix F [Reserved]

* * * * *

Authority: 5 U.S.C. 301.

2. In § 74.132, the definition of "equipment" is revised to read as follows:

§ 74.132 Definitions

* * * * *

"Equipment" means an article of tangible personal property that has a useful life of more than two years and an acquisition cost of $500 or more. Any recipient may use its own definition of equipment if its definition would at least include all items of equipment as defined here.

* * * * *

3. Section 74.141 is revised to read as follows:

§ 74.141 Unused supplies.

(a) This section applies to supplies which have not yet been put to use in the project or program for which they were acquired when the grant or subgrant under which they were acquired expires or is terminated.

(b) If the unused supplies exceed $1,000 in total aggregate fair market value and are not needed for any project or program currently or previously funded by the Federal Government, the recipient may either retain or sell the supplies, and must credit the grant as follows:

(1) Retained supplies. The credit is computed by multiplying the Federal share of the supplies times their current market value.

(2) Sold supplies. The credit is computed by multiplying the Federal share of the supplies times the proceeds from sale. However, the recipient may reduce the credit by 10% of the sales proceeds, for selling and handling expenses.

(c) For possible exemptions from this section, see § 74.135.

4. Section 74.174 is revised to read as follows:

§ 74.174 Other nonprofit organizations.

(a) Except as provided in Paragraph (C) of this section, the principles to be used in determining allowable costs of activities conducted by nonprofit organizations (other than governments, institutions of higher education, and hospitals) are contained in OMB Circular A-122, including any amendments to the Circular published in the Federal Register by OMB. A copy of this Circular may be obtained from the Division of Cost Allocation in any HHS Regional Office. Unless otherwise prescribed by OMB, amendments to the Circular shall apply as of the start of an organization's first fiscal year beginning after the amendment is published in the Federal Register.

(b) OMB Circular A-122 does not cover the treatment of bid and proposal costs or independent research and development costs. The following rules apply to these costs for nonprofit organizations subject to the Circular:

(1) Bid and proposal costs. Bid and proposal costs are the immediate costs of preparing bids, proposals, and applications for potential Federal and non-Federal grants, contracts, and agreements, including the development of scientific, cost, and other data needed to support the bids, proposals and applications. Bid and proposal costs of the current accounting period are allowable as indirect costs. Bid and proposal costs of past accounting periods are unallowable in the current period. However, if the organization's established practice is to treat these costs by some other method, they may be accepted if they are found to be reasonable and equitable. Bid and proposal costs do not include independent research and development costs covered by subparagraph (2) of this paragraph, or preaward costs covered by Attachment B, Paragraph 33, of OMB Circular A-122.

(2) Independent research and development costs. Independent research and development is research and development conducted by an organization which is not sponsored by Federal or non-Federal grants, contracts, or other agreements. Independent research and development shall be allocated its proportionate share of indirect costs on the same basis as the allocation of indirect costs to sponsored research and development. The costs ofindependent research and development, including its proportionate share of indirect costs, are unallowable.

(c) The principles to be used in determining allowable costs of activities conducted by the nonprofit organizations listed in Attachment C to OMB Circular A-122 are contained in Subpart 1-15.2 of the Federal Procurement Regulations (41 CFR 1-15.2), except that the costs of independent research and development, including its proportionate share of indirect costs, are unallowable.

Appendix F [Reserved]

5. Appendix F to Part 74 is removed and reserved.

[FR Doc. 81-16979 Filed 6-8-81: 8:45 am]

Billing Code 4110-12-M