c. Severance payments that are due to abnormal or mass terminations are of such conjectural nature that allowability must be determined on a caseby-case basis. However, the government recognizes its obligation to participate, to the extent of its fair share, in any specific payment. 37. Specialized service facilities operated by institution. a. The costs of institutional services involving the use of highly complex and specialized facilities such as electronic computers, wind tunnels, and reactors are allowable provided the charges therefor meet the conditions of (b) or (c) below, and otherwise take into account any items of income or federal financing that qualify as applicable credits under section C.5. b. The costs of such institutional services normally will be charged directly to applicable research agreements based on actual usage or occupancy of the facilities at rates that (1) are designed to recover only actual costs of providing such services, and (2) are applied on a nondiscriminatory basis as between organized research and other work of the institution, including commercial or accommodation sales and usage by the institution for internal purposes. c. In the absence of an acceptable arrangement for direct costing as provided in (b) above, the costs incurred for such institutional services may be assigned to research agreements as indirect costs, provided the methods used achieve substantially the same results. Such arrangements should be worked out in coordination with all government users of the facilities in order to assure equitable distribution of the indirect costs. 38. Special services costs. Costs incurred for general public relations activities, catalogs, alumni activities, and similar services, are unallowable. 39. Staff benefits. a. Staff benefits in the form of regular compensation paid to employees during periods of authorized absences from the job, such as for annual leave, sick leave, military leave, and the like, are allowable provided such costs are absorbed by all institutional activities, including organized research, in proportion to the relative amount of time or effort actually devoted to each. (See J.34. for treatment of sabbatical leave.) b. Staff benefits in the form of employer contributions or expenses for social security, employee insurance, workmen's compensation insurance, the pension plan (see section J.23.), tuition or remission of tuition for individual employees or their families (see section J.35.), and the like, are allowable provided such benefits are granted in accordance with established institutional policies, and provided such contributions and other expenses, whether treated as indirect costs or as an increment of direct labor costs, are distributed to particular research agreements and other activities in a manner consistent with the pattern of benefits accruing to the individuals or groups of employees whose salaries and wages are chargeable to such research agreements and other activities. 40. Student activity costs. Costs incurred for intramural activities, student publications, student clubs, and other student activities, apply only to instruction and therefore are not allosable to research agreements, either as direct costs or indirect costs. 41. Student services costs. Costs of the deans of students, administration of student affairs, registrar, placement offices, student advisers, student health and infirmary services, and such other activities as are identifiable with student services apply only to instruction and therefore are not allocable to research agreements, either as direct costs or indirect costs. However, in the case of students actually engaged in work under research agreements, a proportion of student services costs measured by the relationship between hours of work by students on such research work and total student hours including all research time may be allowed as a part of research administration expenses. 42. Taxes. a. In general, taxes which the institution is required to pay and which are paid or accrued in accordance with generally accepted accounting principles, and payments made to local governments in lieu of taxes which are commensurate with the local government services received are allowable, except for (1) taxes from which exemptions are available to the institution directly or which are available to the institution based on an exemption afforded the government and in the latter case when the sponsoring agency makes available the necessary exemption certificates; and (2) special assessments on land which represent capital improvements. b. Any refund of taxes, interest, or penalties, and any payment to the institution of interest thereon, attributable to taxes, interest, or penalties which were allowed as research agreement costs, will be credited or paid to the government in the manner directed by the government provided any interest actually paid or credited to an institution incident to a refund of tax, interest and penalty will be paid or credited to the government only to the extent that such interest accrued over the period during which the institution had been reimbursed by the government for the taxes, interest, and penalties. 43. Transportation costs. Costs incurred for freight, express, cartage, postage, and other transportation services relating either to goods purchased, in process, or delivered, are allowable. When such costs can readily be identified with the items involved, they may be charged directly as transportation costs or added to the cost of such items. Where identification with the materials received cannot readily be made, inbound transportation costs may be charged to the appropriate indirect cost accounts if the institution follows a consistent, equitable procedure in this respect. Outbound freight, if reimbursable under the terms of the research agreement, should be treated as a direct cost. 44. 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 institution. Such costs may be charged on an actual basis, on a per diem or mileage basis in lieu of actual costs incurred, or on a combination of the two, provided the method used is applied to an entire trip and not to selected days of the trip, and results in charges consistent with those normally allowed by the institution in its regular operations. b. Travel costs are allowable subject to (c) and (d) below, when they are directly attributable to specific work under a research agreement or are incurred in the normal course of administration of the institution or a department or research program thereof. c. The difference in cost between first-class air accommodations and less than first-class air accommodations is unallowable except when less than first-class air accommodations are not reasonably available to meet necessary mission requirements, such as where less than first-class accommodations would (1) require circuitous routing, (2) require travel during unreasonable hours, (3) greatly increase the duration of the flight, (4) result in additional costs which would offset the transportation savings, or (5) offer accommodations which are not reasonably adequate for the medical needs of the traveler. d. Costs of personnel movements of a special or mass nature are allowable only when authorized or approved in writing by the sponsoring agency or its authorized representative. 45. Termination costs applicable to contracts. a. Contract termination generally gives rise to the incurrence of costs or to the need for special treatment of costs, which would not have arisen had the contract not been terminated. Items peculiar to termination are set forth below. They are to be used in conjunction with all other provisions of this Circular in the case of contract termination. b. The cost of common items of material reasonably usable on the institution's other work will not be allowable unless the institution submits evidence that it could not retain such items at cost without sustaining a loss. In deciding whether such items are reasonably usable on other work of the institution, consideration should be given to the institution's plans and orders for current and scheduled work. Contemporaneous purchases of common items by the institution will be regarded as evidence that such items are reasonably usable on the institution's other work. Any acceptance of common items as allowable to the terminated portion of the contract should be limited to the extent that the quantities of such items on hand, in transit, and on order are in excess of the reasonable quantitative requirements of other work. c. If in a particular case, despite all reasonable efforts by the institution, 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 institution to discontinue such costs will be considered unacceptable. d. Loss of useful value of special tooling, and special machinery and equipment is generally allowable, provided (1) such special tooling, machinery, or equipment is not reasonably capable of use in the other work of the institution; (2) the interest of the government is protected by transfer of title or by other means deemed appropriate by the contracting officer; and (3) the loss of useful value as to any one terminated contract is limited to that portion of the acquisition cost which bears the same ratio to the total acquisition cost as the terminated portion of the contract bears to the entire terminated contract and other government contracts for which the special tooling, special machinery, or equipment was acquired. e. Rental costs under unexpired leases are generally allowable where clearly shown to have been reasonably necessary for the performance of the terminated contract, less the residual value of such leases, if (1) the amount of such rental claimed does not exceed the reasonable use value of the property leased for the period of the contract and such further period as may be reasonable; and (2) the institution makes all reasonable efforts to terminate, assign, settle, or otherwise reduce the cost of such lease. There also may be included the cost of alterations of such leased property, provided such alterations were necessary for the performance of the contract, and of reasonable restoration required by the provisions of the lease. f. Settlement expenses including the following are generally allowable: (1) accounting, legal, clerical, and similar costs reasonably necessary for the preparation and presentation to contracting officers of settlement claims and supporting data with respect to the terminated portion of the contract, and the termination and settlement of subcontracts; and (2) reasonable costs for the storage, transportation, protection, and disposition of property provided by the government or acquired or produced by the institution for the contract. g. Subcontractor claims, including the allocable portion of claims which are common to the contract and to other work of the contractor are generally allowable. 46. Use allowances. See section J.10. above. Dr. GOLDBERG. My question, Mr. Chairman, is this: If Budget Bureau Circular A-21 would have produced equitable results satisfactory to the grantee institutions, why were they unhappy over the DOD audited rates based upon ASPR, which I believe to have been identical with A-21? Mr. FOUNTAIN. Dr. Sherman? Dr. SHERMAN. I would reiterate what information we have attempted to collect or which was developed at that time; namely, that there were a series of rather special situations. And the nature of the complaints from the institutions covered a variety of specifics. One, that the rates had been developed only with respect to a specific DOD contract and did not cover the entire institution; two, the manner in which it was proposed that the Department would implement its policy; three, a series of other situations of this general sort, which were indeed rather special in each case, all of which, however, added up to a rather sizable body of concern expressed by our major grantee institutions. Dr. GOLDBERG. PPO-39 provided a clear policy for using provisional rates that would be consistent with the latest accepted audited rates for institutions, where such information was available. Mr. Simpson, can you tell us when that policy was changed and at what point in time it was made evident to the institutions, by a policy statement or otherwise, that any money which exceeded their actual overhead rates would be subject to recapture? Mr. SIMPSON. Well, let me say that at the time we were issuing these somewhat fragmentary DOD contract audited rates in the fall of 1962 and in the first half of 1963, there were many, many discussions going on, both in the formal task force that was organized for the purpose of developing a department policy on the computation of indirect cost rates, and in the more informal meetings of the Bureau committees and the grants management personnel of the several institutes and divisions. Now, as the complaints were discussed, the policy was enunciated from the National Institutes of Health that until this matter was cleared up and we could arrive at equitable rates both from the point of view of the educational institution and of the Federal Government provisionally, we would continue to pay the awards on the basis of the maximum allowed in the law. At the same time, we put the grantee institutions on notice that they were subject to audit on this, when we were able to establish an equitable indirect cost rate, and, that based on that audit, they were subject to recapture of any overpayments that might emerge from the audit. Mr. Dow. Just as a matter of interest, were any of these contracts renegotiated and were there any repayments in relation to the 20 percent? Mr. SIMPSON. These were grants, sir, not contracts. Mr. Dow. I see, but I suppose the same principle would apply. I am merely asking were there any rebates or recaptures? Mr. SIMPSON. Yes, sir; there were some sums recaptured based on audited rates that were subsequently determined. Mr. Dow. Did they involve a high proportion? |