inventions made during the budget period whether or not previously reported, or certifying that no inventions were made during performance of work on the supported project or certifying that no inventions were made during that work.

f. Supplementary patent agreements.-The grantee shall obtain appropriate patent agreements to fulfill the requirements of this condition from all persons who perform any part of the work under the grant, except such clerical and manual labor personnel as will have no access to technical data, and except as otherwise authorized in writing by the Department.

The grantee shall insert in each subcontract or agreement having experimental, developmental, or research work as one of its purposes, a clause making this provision applicable to the subcontractor and its employees.

g. Definitions.-As used in this section,

(1) "Invention" or "invention or discovery" includes any art, machine, manufacture, design, or composition of matter, or any new and useful improvement thereof, or any variety of plant, which is or may be patentable under the Patent Laws of the United States.

(2) "Made" when used in relation to any invention or discovery means the conception or first actual reduction to practice of such invention in the course of the grant.

h. Fellows.-Except as specifically set forth in the grant, inventions made by a fellowship recipient during the term of his award shall be subject to this condition in cases where the fellowship was awarded to support an identifiable research project. (45 CFR Parts 6 and 8.)

13. Travel.-Travel allowances, where allowable, shall be paid in accordance with the principles contained in the applicable documents set forth in 45 CFR Part 100a, Subpart G (Cost Principles). No foreign travel is authorized under the grant unless prior approval is received from the grants officer. Travel between the United States and Guam, American Samoa, Puerto Rico, the U.S. Virgin Islands, the Canal Zone, the Trust Territory, and Canada is not considered foreign travel.

(16 Comp. Gen. 948 (1937).)

14. Personal property.—The grantee shall be accountable for personal property purchased with grant funds in accordance with 45 CFR Part 100a, Subpart L (Property Management Requirements).

(OMB Circular No. A-102, Attachment N.)

15. Contracting under grants.—Where appropriate, the grantee may enter into contracts (to the extent permitted by State and local laws) for the provision of part of the services under this grant by other appropriate public or private agencies or institutions,

pursuant to 45 CFR. Such contract or agreement shall be subject to the provisions contained in 45 CFR 100a, Subpart I (Procurement standards).

(OMB Circular No. A-102, Attachment O.)

16. Health and safety standards.-Whenever the grantee, acting under the terms of the grant, rents, leases, purchases, or otherwise obtains classroom facilities (or any other facilities) which will be used by students and/or faculty, the Grantee shall comply with all health and safety regulations and laws applicable to similar facilities being used in that locality for such purpose. (20 U.S.C. 1232c (b)(1).)

17. Compensation.-If a staff member or consultant is involved simultaneously in two or more projects supported by funds from the Federal Government, 45 CFR 100a.261 shall govern.

(20 U.S.C. 1232c (b)(2).)

18. Labor standards.-a. To the extent that grant funds will be used as a direct cost for construction, alteration, and repair (including painting and decorating) of facilities, the grantee shall furnish the grants officer with the following in order to obtain a wage determination from the Department of Labor:

(1) A description of the alteration or repair work and the estimated cost of the work to be performed at the site;

(2) The proposed advertising and bid opening dates for the work;

(3) The city, county, and State at which the work will be performed; and

(4) The name and address of the person to whom the necessary wage determination and labor standards provisions are to be sent for inclusion in contracts.

b. All of such information shall be submitted not later than 6 weeks prior to the advertisement for bids for the alteration or repair work to be performed. The grantee shall also include or have included in all such alterations or repairs the wage determination and labor standards provisions that are provided and required by the Secretary of Labor under 29 CFR parts 3 and 5. (20 U.S.C. 1232b, 1232c(b)(3).)

19. Equal employment opportunity.-With respect to repair and minor remodeling, the grantee shall comply with and provide for contractor and subcontractor compliance with the requirements of Executive Order No. 11246, as amended by Executive Order No. 11375, and as implemented by 41 CFR part 60. The terms required by Executive Order No. 11246, as so amended, will be included in any contract for construction work, or modification thereof, as defined in said Executive order.

(E.O. No. 11246, as amended.)

20. Use of consultants.—a. The hiring and payments to consultants shall be in accordance with applicable State and local laws and regulations and grantee policies. However, for the use of and payment to consultants whose rate will exceed $100 per day, prior written approval for the use of such consultants must be obtained from the grants officer.

b. The grantee must maintain a written report for the files on the results on all consultations charged to this grant. This report must include, as a minimum: (1) The consultant's name, dates, hours, and amount charged to the grant; (2) the names of the grantee staff to whom the services are provided; and (3) the results of the subject matter of the consultation.

c. On grants made to educational institutions for research or educational services, consultant fees may be paid to employees of the grantee institution only in unusual cases and provided one of the following sets of conditions is determined to exist:

(1) Consultation is across departmental lines and the work performed by the consultant is in addition to his regular departmental load, or

(2) Consultation involves a separate or remote operation and the work performed by the consultant is in addition to his regular departmental load.

The determination as to compliance with the above provisions may be made at the grantee level only by the head of the institution or his designated representative. In those cases where the designated representative is personally involved in the grant under consideration, this determination may only be made by the head of the institution.

(20 U.S.C. 1232c (b)(2), (b)(3).)

22. Program income.-The grantee shall comply with 45 CFR Part 100a, Subpart M (Program Income).

(OMB Circular No. A-102, Attachment E.)

23. Change of key personnel.-The grantee shall comply with 45 CFR 100a.260 (Changes in Key Personnel).

(20 U.S.C. 1232c (b)(1), (b)(3).)

24. Animal care.-Where research animals are used in any project financed wholly or in part with Federal funds, the grantee shall comply with 45 CFR 100a.270 (Treatment of animals).

(20 U.S.C. 1221c (b)(1).)

25. Use of small businesses and minorityowned businesses. In order to stimulate small business enterprises and minority business enterprises and enable them to exercise a more effective role in the commercial life of the Nation, it is the policy of the Department and the Office of Education to encourage grantees to be aware of, solicit, and make use of such enterprises in the acquisition of services or products, including construction, alteration and renovation, consultant and other services, and procurement of supplies and equipment.

In carrying out this policy objective, grantees are encouraged to:

a. Become aware of those small business enterprises and minority business enterprises that are competent to perform the services or provide the products that the grantees usually acquire;

b. Ensure that such firms are included in invitations for bids or requests for proposals;

c. Make use of the advice and assistance available from Government organizations, such as the Small Business Administration, the Department's Office of Minority Business Assistance, and the Commerce Department's Office of Minority Business Enterprise; and

d. Contact the HEW regional engineer on construction, alteration, or repair projects. (20 U.S.C. 1232c (b)(1).)

Appendix B-Cost Principles for State and Local Governments

AUTHORITY: Sec. 403(b)(1), Pub. L. 90-247, 86 Stat. 327 (20 U.S.C. 1221c(b)(1)), unless otherwise noted.

SOURCE: 38 FR 30691, Nov. 6, 1973, unless otherwise noted.

PART I-GENERAL

A. Purpose and scope.-1. Objectives.— This appendix sets forth principles for determining the allowable costs of programs administered by State and local governments under grants from and contracts with the Federal Government. The principles are for the purpose of cost determination and are not intended to identify the circumstances or dictate the extent of Federal and State or local participation in the financing of a particular grant. They are designed to provide that federally assisted programs bear their fair share of costs recognized under these principles, except where restricted or prohibited by law. No provision for profit or other increment above cost is intended.

2. Policy guides.-The application of these principles is based on the fundamental premises that:

a. State and local governments are responsible for the efficient and effective administration of grant and contract programs through the application of sound management practices.

b. The grantee or contractor assumes the responsibility for seeing that federally assisted program funds have been expended and accounted for consistent with underlying agreements and program objectives.

c. Each grantee or contractor organization, 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.

3. Application.-These principles will be applied in determining costs incurred by State and local governments under Federal grants and cost reimbursement type contracts (including subgrants and subcontracts) except those with (a) publicly financed educational institutions subject to appendix C to this subchapter and (b) publicly owned hospitals and other providers of medical care.

B. Definitions. 1. “Approval or authorization of the grantor Federal agency" means documentation evidencing consent prior to incurring specific cost.

2. "Cost allocation plan" means the documentation identifying, accumulating, and distributing allowable costs under grants and contracts together with the allocation methods used.

3. "Cost," as used herein, means cost as determined on a cash, accrual, or other basis acceptable to the Federal grantor agency as a discharge of the grantee's accountability for Federal funds.

4. "Cost objective" means a pool, center, or area established for the accumulation of cost. Such areas include organizational units, functions, objects or items of expense, as well as ultimate cost objectives including specific grants, projects, contracts, and other activities.

5. "Federal agency" means the U.S. Office of Education.

6. "Grant" means an agreement between the Federal Government and a State or local government whereby the Federal Government provides funds or aid in kind to carry out specified programs, services, or activities. The principles and policies stated in this appendix as applicable to grants in general also apply to any federally sponsored cost reimbursement type of agreement performed by a State or local government, including contracts, subcontracts and subgrants.

7. "Grant program” means those activities and operations of the grantee which are

necessary to carry out the purposes of the grant, including any portion of the program financed by the grantee.

8. "Grantee" means the department or agency of State or local government which is responsible for administration of the grant.

9. "Local unit" means any political subdivision of government below the State level. 10. "Other State or local agencies" means departments or agencies of the State or local unit which provide goods, facilities, and services to a grantee.

11. "Services," as used herein, means goods and facilities, as well as services.

12. "Supporting services" means auxiliary functions necessary to sustain the direct effort involved in administering a grant program or an activity providing service to the grant program. These services may be centralized in the grantee department or in some other agency, and include procurement, payroll, personnel functions, maintenance and operation of space, data processing, accounting, budgeting, auditing, mail and messenger services, and the like.

C. Basic guidelines-1. Factors affecting allowability of costs.-To be allowable under a grant program, costs must meet the following general criteria:

a. Be necessary and reasonable for proper and efficient administration of the grant program, be allocable thereto under these principles, and, except as specifically provided herein, not be a general expense required to carry out the overall responsibilities of State or local governments.

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

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

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

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

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

g. Be net of all applicable credits.

2. Allocable costs.-a. A cost is allocable to a particular cost objective to the extent of benefits received by such objective.

b. Any cost allocable to a particular grant or cost objective under the principles provided for in this appendix may not be shifted to other Federal grant programs to overcome fund deficiencies, avoid restrictions imposed by law or grant agreements, or for other reasons.

c. Where an allocation of joint cost will ultimately result in charges to a grant program, an allocation plan will be required as prescribed in section J.

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

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

D. Composition of cost.-1. Total cost.The total cost of a grant program is comprised of the allowable direct cost incident to its performance, plus its allocable portion of allowable indirect costs, less applicable credits.

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

E. Direct costs.-1. General.-Direct costs are those that can be identified specifically with a particular cost objective. These costs may be charged directly to grants, contracts, or to other programs against which costs are finally lodged. Direct costs may also be charged to cost objectives used for the accumulation of costs pending distribution in due course to grants and other ultimate cost objectives.

2. Application.-Typical direct costs chargeable to grant programs are:

a. Compensation of employees for the time and effort devoted specifically to the execution of grant programs.

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

c. Equipment and other approved capital expenditures.

d. Other items of expense incurred specifically to carry out the grant agreement.

e. Services furnished specifically for the grant program by other agencies, provided such charges are consistent with criteria outlined in section G of these principles.

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 the grantee department. To facilitate equitable distribution of indirect expenses to the cost objectives served, it may be necessary to establish a number of pools of indirect cost within a grantee department or in other agencies providing services to a grantee department. Indirect cost pools should be distributed to benefiting cost objectives on bases which will produce an equitable result in consideration of relative benefits derived.

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

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

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

are allocated should be appropriately adjusted.

3. Limitation on indirect costs.-a. Federal grants may be subject to laws that limit the amount of indirect cost that may be allowed. Agencies that sponsor grants of this type will establish procedures which will assure that the amount actually allowed for indirect costs under each such grant does not exceed the maximum allowable under the statutory limitation or the amount otherwise allowable under this appendix,

whichever is the smaller.

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

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

2. Alternative methods of determining indirect cost.-In lieu of determining actual indirect cost related to a particular service furnished by another agency, either of the following alternative methods may be used provided only one method is used for a specific service during the fiscal year involved. a. Standard indirect rate.-An amount equal to 10 percent of direct labor cost in providing the service performed by another State agency (excluding overtime, shift, or holiday premiums and fringe benefits) may be allowed in lieu of actual allowable indirect cost for that service.

b. Predetermined fixed rate.-A predetermined fixed rate for indirect cost of the unit or activity providing service may be negotiated as set forth in section F.2.a.

H. Cost incurred by grantee department for others-1. General-The principles provided in section G. will also be used in determining the cost of services provided by the grantee department to another agency.

J. Cost allocation plan-1. General.-A plan for allocation of costs will be required to support the distribution of any joint costs related to the grant program. All costs included in the plan will be supported by formal accounting records which will substantiate the propriety of eventual charges.

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

a. The nature and extent of services provided and their relevance to the federally sponsored programs.

b. The items of expense to be included. c. The methods to be used in distributing cost.

3. Instructions for preparation of cost allocation plans.-The Department of Health, Education, and Welfare, in consultation with the other Federal agencies concerned, will be responsible for developing and issuing the instructions for use by State and local government grantees in preparation of cost allocation plans. This responsibility applies to both central support services at the State and local government levels as well as indirect cost proposals of individual grantee departments.

4. Negotiation and approval of indirect cost proposals for States.-a. The Department of Health, Education, and Welfare, in collaboration with the other Federal agencies concerned, will be responsible for negotiation, approval and audit of cost allocation plans, which will be submitted to it by the States. These plans will cover central support service costs of the State.

b. At the grantee department level in a State, a single Federal agency will have responsibility similar to that set forth in a. above for the negotiation, approval, and audit of the indirect cost proposal. Cognizant Federal agencies have been designated for this purpose. Changes which may be required from time to time in agency assignments will be arranged by the Department of Health, Education, and Welfare in collaboration with the other interested agencies, and submitted to the Office of Management and Budget for final approval. A current list of agency assignments will be maintained by the Department of Health, Education, and Welfare.

c. Questions concerning the cost allocation plans approved under a. and b. åbove should be directed to the agency responsible for such approvals.

5. Negotiation and approval of indirect cost proposals for local governments.—a. Cost allocation plans will be retained at the local government level for audit by a designated Federal agency except in those cases where that agency requests that cost allocation plans be submitted to it for negotiation and approval.