[Code of Federal Regulations]
[Title 2, Volume 1]
[Revised as of January 1, 2008]
From the U.S. Government Printing Office via GPO Access
[CITE: 2CFR230 App B]

[Page 154-172]

                     TITLE 2--GRANTS AND AGREEMENTS

   CHAPTER II--OFFICE OF MANAGEMENT AND BUDGET CIRCULARS AND GUIDANCE

PART 230_COST PRINCIPLES FOR NON-PROFIT ORGANIZATIONS (OMB CIRCULAR A	122)--Table of Contents

           Sec. Appendix B to Part 230--Selected Items of Cost

                         Selected Items of Cost

                            Table of Contents

1. Advertising and public relations costs
2. Advisory councils
3. Alcoholic beverages
4. Audit costs and related services
5. Bad debts
6. Bonding costs
7. Communication costs
8. Compensation for personal services
9. Contingency provisions
10. Defense and prosecution of criminal and civil proceedings, claims,
appeals and patent infringement
11. Depreciation and use allowances
12. Donations and contributions
13. Employee morale, health, and welfare costs
14. Entertainment costs
15. Equipment and other capital expenditures
16. Fines and penalties
17. Fund raising and investment management costs
18. Gains and losses on depreciable assets
19. Goods or services for personal use
20. Housing and personal living expenses
21. Idle facilities and idle capacity
22. Insurance and indemnification
23. Interest
24. Labor relations costs
25. Lobbying
26. Losses on other sponsored agreements or contracts
27. Maintenance and repair costs
28. Materials and supplies costs
29. Meetings and conferences
30. Memberships, subscriptions, and professional activity costs
31. Organization costs
32. Page charges in professional journals
33. Participant support costs
34. Patent costs
35. Plant and homeland security costs
36. Pre-agreement costs
37. Professional services costs
38. Publication and printing costs
39. Rearrangement and alteration costs
40. Reconversion costs
41. Recruiting costs
42. Relocation costs
43. Rental costs of buildings and equipment
44. Royalties and other costs for use of patents and copyrights

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45. Selling and marketing
46. Specialized service facilities
47. Taxes
48. Termination costs applicable to sponsored agreements
49. Training costs
50. Transportation costs
51. Travel costs
52. Trustees

             Appendix B to Part 230--Selected Items of Cost

    Paragraphs 1 through 52 of this appendix 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, direct mail, exhibits, electronic or computer transmittals,
and the like.
    b. The term public relations includes community relations and means
those activities dedicated to maintaining the image of the non-profit
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
non-profit organization of obligations arising under a Federal award
(See also paragraph 41, Recruiting costs, and paragraph 42, Relocation
costs, of this appendix);
    (2) The procurement of goods and services for the performance of a
Federal award;
    (3) The disposal of scrap or surplus materials acquired in the
performance of a Federal award except when non-profit organizations are
reimbursed for disposal costs at a predetermined amount; or
    (4) Other specific purposes necessary to meet the requirements of
the Federal award.
    d. The only allowable public relations costs are:
    (1) Costs specifically required by the Federal award;
    (2) Costs of communicating with the public and press pertaining to
specific activities or accomplishments which result from performance of
Federal awards (these costs are considered necessary as part of the
outreach effort for the Federal award); 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 keep the public
informed on matters of public concern, such as notices of Federal
contract/grant awards, financial matters, etc.
    e. Costs identified in subparagraphs c and d if incurred for more
than one Federal award or for both sponsored work and other work of the
non-profit organization, are allowable to the extent that the principles
in Appendix A to this part, paragraphs B. (``Direct Costs'') and C.
(``Indirect Costs'') 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, conventions, convocations, or other events
related to other activities of the non-profit organization, 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;
    (4) Costs of advertising and public relations designed solely to
promote the non-profit organization.
    2. 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.
    3. Alcoholic beverages. Costs of alcoholic beverages are
unallowable.
    4. Audit costs and related services. a. The costs of audits required
by, and performed in accordance with, the Single Audit Act, as
implemented by Circular A-133, ``Audits of States, Local Governments,
and Non-Profit Organizations'' are allowable. Also see 31 U.S.C. 7505(b)
and section 230 (``Audit Costs'') of Circular A-133.
    b. Other audit costs are allowable if included in an indirect cost
rate proposal, or if specifically approved by the awarding agency as a
direct cost to an award.
    c. The cost of agreed-upon procedures engagements to monitor
subrecipients who are exempted from A-133 under section 200(d) are
allowable, subject to the conditions listed in A-133, section 230
(b)(2).
    5. Bad debts. Bad debts, including losses (whether actual or
estimated) arising from uncollectable accounts and other claims, related
collection costs, and related legal costs, are unallowable.

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    6. 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 non-profit organization. They arise also in
instances where the non-profit 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 non-profit 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.
    7. Communication costs. Costs incurred for telephone services, local
and long distance telephone calls, telegrams, postage, messenger,
electronic or computer transmittal services and the like are allowable.
    8. 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
8.h of this appendix). 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:
    (1) 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
    (2) 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:
    (1) 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.
    (2) 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 appendix shall not be allowable under this paragraph
solely on the basis that they constitute personal compensation.
    f. 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:
    (1) 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.
    (2) When employees are performing indirect functions, such as
administration, maintenance, or accounting.
    (3) In the performance of tests, laboratory procedures, or other
similar operations which are continuous in nature and cannot reasonably
be interrupted or otherwise completed.
    (4) When lower overall cost to the Federal Government will result.
    g. Fringe benefits. (1) 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.
    (2) Fringe benefits in the form of employer contributions or
expenses for social security, employee insurance, workmen's compensation
insurance, pension plan costs (see subparagraph 8.h of this appendix),
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

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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.
    (3)(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.
    h. 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.
    i. 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:
    (a) Such policies meet the test of reasonableness;
    (b) 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.
    j. 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.
    k. Severance pay. (1) 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:

(a) Law
(b) Employer-employee agreement
(c) Established policy that constitutes, in effect, an implied agreement
on the organization's part, or
(d) Circumstances of the particular employment.

    (2) Costs of severance payments are divided into two categories as
follows:
    (a) 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.
    (b) 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

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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.
    l. Training costs. See paragraph 49 of this appendix.
    m. Support of salaries and wages.
    (1) 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 8.m.(2) of
this appendix, except when a substitute system has been approved in
writing by the cognizant agency. (See subparagraph E.2 of Appendix A to
this part.)
    (2) 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:
    (a) 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.
    (b) 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.
    (c) 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.
    (d) 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 516). 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.
    9. 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 Appendix B to this part,
paragraphs 8.g.(3) and 22.a(2)(d)); pension funds (see paragraph 8.i):
and reserves for normal severance pay (see paragraph 8.k.)
    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 acts of fraud corruption or
attempts to defraud the Federal Government or to corrupt its agents,
acts that constitute a cause for debarment or suspension (as specified
in agency regulations), and acts which violate the False Claims Act, 31
U.S.C., sections 3729-3731, or the Anti-Kickback Act, 41 U.S.C.,
sections 51 and 54.
    (4) Penalty does not include restitution, reimbursement, or
compensatory damages.

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    (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: 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 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 subparagraphs
10.b.(1)(a), (b), (c) or (d) of this appendix.
    (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
10.b.(1) of this appendix.
    c. If a proceeding referred to in subparagraph 10.b of this appendix
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 10.b of this appendix may be allowed to the extent
specifically provided in such agreement.
    d. If a proceeding referred to in subparagraph 10.b of this appendix
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 a specific term or condition of a
federally-sponsored award, or specific written direction of an
authorized official of the sponsoring agency.
    e. Costs incurred in connection with proceedings described in
subparagraph 10.b of this appendix, 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 10.c of this appendix 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 10.b and f of this appendix, 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 allowance or depreciation. However, except as provided in

[[Page 160]]

paragraph 11.f of this appendix, 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 non-profit 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:
    (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 non-profit organization in satisfaction of a statutory
matching requirement.
    d. General criteria where depreciation method is followed:
    (1) 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.
    (2) 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.
    (3) 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.
    e. 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 11.d of this appendix, 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. Criteria where the use allowance method is followed:
    (1) 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.
    (2) 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.
    (3) 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 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.
    h. 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 and contributions.
    a. Contributions or donations rendered. Contributions or donations,
including cash, property, and services, made by the organization,
regardless of the recipient, are unallowable.
    b. Donated services received:
    (1) 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

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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 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 non-profit organization's indirect costs or
rate(s) and, accordingly, shall be allocated a proportionate share of
applicable indirect costs when the following exist:
    (a) The aggregate value of the services is material;
    (b) The services are supported by a significant amount of the
indirect costs incurred by the non-profit organization; and
    (c) The direct cost activity is not pursued primarily for the
benefit of the Federal Government.
    (3) 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.
    (4) 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.
    (5) The value of the donated services may be used to meet cost
sharing or matching requirements under conditions described in Section
215.23 of 2 CFR part 215 (OMB 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.
    c. Donated goods or space. (1) Donated goods; i.e., expendable
personal property/supplies, and donated use of space may be furnished to
a non-profit 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 2 CFR part
215 (OMB 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.
    a. The costs of employee information publications, health or first-
aid clinics and/or infirmaries, recreational activities, employee
counseling services, and any other expenses incurred in accordance with
the non-profit organization's established practice or custom for the
improvement of working conditions, employer-employee relations, employee
morale, and employee performance are allowable.
    b. Such costs will be equitably apportioned to all activities of the
non-profit 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 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.
    15. Equipment and other capital expenditures.
    a. For purposes of this subparagraph, the following definitions
apply:
    (1) ``Capital Expenditures'' means expenditures for the acquisition
cost of capital assets (equipment, buildings, land), or expenditures to
make improvements to capital assets that materially increase their value
or useful life. Acquisition cost means the cost of the asset including
the cost to put it in place. Acquisition cost for equipment, for
example, 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 the acquisition cost in accordance with the non-profit
organization'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 or exceeds the lesser of the
capitalization level established by the non-profit organization for
financial statement purposes, or $5000.
    (3) ``Special purpose equipment'' means equipment which is used only
for research, medical, scientific, or other technical activities.
Examples of special purpose equipment include microscopes, x-ray
machines, surgical instruments, and spectrometers.
    (4) ``General purpose equipment'' means equipment, which is not
limited to research, medical, scientific or other technical activities.
Examples include office equipment and furnishings, modular offices,
telephone networks, information technology equipment and systems, air
conditioning equipment, reproduction and printing equipment, and motor
vehicles.
    b. The following rules of allowability shall apply to equipment and
other capital expenditures:
    (1) Capital expenditures for general purpose equipment, buildings,
and land are unallowable as direct charges, except where approved in
advance by the awarding agency.

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    (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 the awarding agency.
    (3) 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.
    (4) When approved as a direct charge pursuant to paragraph 15.b.(1),
(2), and (3) above, capital expenditures will be charged in the period
in which the expenditure is incurred, or as otherwise determined
appropriate by and negotiated with the awarding agency.
    (5) Equipment and other capital expenditures are unallowable as
indirect costs. However, see paragraph 11., Depreciation and use
allowance, of this appendix for rules on the allowability of use
allowances or depreciation on buildings, capital improvements, and
equipment. Also, see paragraph 43., Rental costs of buildings and
equipment, of this appendix for rules on the allowability of rental
costs for land, buildings, and equipment.
    (6) 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 negotiated with the cognizant agency.
    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. Fund raising and investment management costs. a. Costs of
organized fund raising, including financial campaigns, endowment drives,
solicitation of gifts and bequests, and similar expenses incurred solely
to raise capital or obtain contributions are unallowable.
    b. Costs of investment counsel and staff and similar expenses
incurred solely to enhance income from investments are unallowable.
    c. Fund raising and investment activities shall be allocated an
appropriate share of indirect costs under the conditions described in
subparagraph B.3 of Appendix A to this part.
    18. Gains and losses on depreciable 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:
    (a) The gain or loss is processed through a depreciation account and
is reflected in the depreciation allowable under paragraph 11 of this
appendix.
    (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 paragraph 22 of this
appendix.
    (d) Compensation for the use of the property was provided through
use allowances in lieu of depreciation in accordance with paragraph 9 of
this appendix.
    (e) 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.
    19. 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.
    20. 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.
    21. 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 non-profit
organization.
    (2) ``Idle facilities'' means completely unused facilities that are
excess to the non-profit organization's current needs.
    (3) ``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

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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 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, property taxes 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 subparagraph,
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.
    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 8.g and 8.i(2) of this appendix).
    (1) Costs of insurance required or approved, and maintained,
pursuant to the award are allowable.
    (2) Costs of other insurance maintained by the organization in
connection with the general conduct of its operations are allowable
subject to the following limitations:
    (a) Types and extent of coverage shall be in accordance with sound
business practice and the rates and premiums shall be reasonable under
the circumstances.
    (b) Costs allowed for business interruption or other similar
insurance shall be limited to exclude coverage of management fees.
    (c) 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.
    (d) 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.
    (e) 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 8.g(4) of this appendix). The cost of such insurance
when the organization is identified as the beneficiary is unallowable.
    (f) 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.
    (3) 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. a. Costs incurred for interest on borrowed capital,
temporary use of endowment funds, or the use of the non-profit

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organization's own funds, however represented, are unallowable. However,
interest on debt incurred after September 29, 1995 to acquire or replace
capital assets (including renovations, alterations, equipment, land, and
capital assets acquired through capital leases), acquired after
September 29, 1995 and used in support of Federal awards is allowable,
provided that:
    (1) 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) A statement of purpose and justification for facility
acquisition or replacement.
    (b) A statement as to why current facilities are not adequate.
    (c) A statement of planned future use of the facility.
    (d) A description of the financing agreement to be arranged for the
facility.
    (e) A summary of the building contract with estimated cost
information and statement of source and use of funds.
    (f) A schedule of planned occupancy dates.
    (2) 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. Sec. 215.30 through 215.37 of 2 CFR 215 (OMB 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.
    (3) 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.
    (4) 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.
    (5) Reimbursements are limited to the least costly alternative based
on the total cost analysis required under subparagraph 23.b. of this
appendix. 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.
    (6) Non-profit organizations are also subject to the following
conditions:
    (a) Interest on debt incurred to finance or refinance assets
acquired before or reacquired after September 29, 1995, is not
allowable.
    (b) Interest attributable to fully depreciated assets is
unallowable.
    (c) 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

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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.
    (d) 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.
    (e) 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.
    b. 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.
    c. The following definitions are to be used for purposes of this
paragraph:
    (1) Re-acquired assets means assets held by the non-profit
organization prior to September 29, 1995 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.
    (2) Initial equity contribution means the amount or value of
contributions made by non-profit organizations for the acquisition of
the asset or prior to occupancy of facilities.
    (3) Asset costs means the capitalizable costs of an asset, including
construction costs, acquisition costs, and other such costs capitalized
in accordance with GAAP.
    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 appendix,
costs associated with the following activities are unallowable:
    (1) 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;
    (2) 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;
    (3) 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;
    (4) Any attempt to influence: The introduction of Federal or State
legislation; or 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
    (5) 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 25.a of this appendix:
    (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.

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    (2) Any lobbying made unallowable by subparagraph 25.a.(3) of this
appendix 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 Appendix
A to this part.
    (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
Appendix.
    (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: the employee engages in lobbying (as
defined in subparagraphs 25.a. and b. of this appendix) 25 percent or
less of the employee's compensated hours of employment during that
calendar month, and within the preceding five-year period, the
organization has not materially misstated allowable or unallowable costs
of any nature, including legislative lobbying costs. When the conditions
described in this subparagraph 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 the
conditions described in this subparagraph 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 Appendix; provided, however, that
this shall not be construed to prevent a contractor or grantee from
contesting the lawfulness of such a determination.
    d. Executive lobbying costs. Costs incurred in attempting to
improperly influence either directly or indirectly, an employee or
officer of the Executive Branch of the Federal Government to give
consideration or to act regarding a sponsored agreement or a regulatory
matter are unallowable. Improper influence means any influence that
induces or tends to induce a Federal employee or officer to give
consideration or to act regarding a federally-sponsored agreement or
regulatory matter on any basis other than the merits of the matter.
    26. Losses on other sponsored agreements or contracts. 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 of this appendix).
    28. Materials and supplies costs. a. Costs incurred for materials,
supplies, and fabricated parts necessary to carry out a Federal award
are allowable.
    b. Purchased materials and supplies shall be charged at their actual
prices, net of applicable credits. Withdrawals from general stores or
stockrooms should be charged at their actual net cost under any
recognized method of pricing inventory withdrawals, consistently
applied. Incoming transportation charges are a proper part of materials
and supplies costs.
    c. Only materials and supplies actually used for the performance of
a Federal award may be charged as direct costs.
    d. Where federally-donated or furnished materials are used in
performing the Federal award, such materials will be used without
charge.
    29. Meetings and conferences. Costs of meetings and conferences, the
primary purpose of which is the dissemination of technical information,
are allowable. This includes costs of meals, transportation, rental of
facilities, speakers' fees, and other items incidental to such meetings
or conferences. But see paragraphs 14., Entertainment costs, and 33.,
Participant support costs of this appendix.
    30. Memberships, subscriptions, and professional activity costs. a.
Costs of the non-

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profit organization's membership in business, technical, and
professional organizations are allowable.
    b. Costs of the non-profit organization's subscriptions to business,
professional, and technical periodicals are allowable.
    c. Costs of membership in any civic or community organization are
allowable with prior approval by Federal cognizant agency.
    d. 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. 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.
    33. 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.
    34. Patent costs. a. The following costs relating to patent and
copyright matters are allowable: cost of preparing disclosures, reports,
and other documents required by the Federal award and of searching the
art to the extent necessary to make such disclosures; cost of 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 general counseling services
relating to patent and copyright matters, such as advice on patent and
copyright laws, regulations, clauses, and employee agreements (but see
paragraphs 37., Professional services costs, and 44., Royalties and
other costs for use of patents and copyrights, of this appendix).
    b. The following costs related to patent and copyright matter are
unallowable:
    (1) Cost of preparing disclosures, reports, and other documents and
of searching the art to the extent necessary to make disclosures not
required by the award.
    (2) Costs in connection with filing and prosecuting any foreign
patent application, or any United States patent application, where the
Federal award does not require conveying title or a royalty-free license
to the Federal Government (but see paragraph 45., Royalties and other
costs for use of patents and copyrights, of this appendix).
    35. Plant and homeland security costs. Necessary and reasonable
expenses incurred for routine and homeland security to protect
facilities, personnel, and work products are allowable. Such costs
include, but are not limited to, wages and uniforms of personnel engaged
in security activities; equipment; barriers; contractual security
services; consultants; etc. Capital expenditures for homeland and plant
security purposes are subject to paragraph 15., Equipment and other
capital expenditures, of this appendix.
    36. Pre-agreement 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.
    37. Professional services 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 non-profit 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. In addition, legal and related services are limited
under paragraph 10 of this appendix.
    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:
    (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
non-profit organization's capability in the particular area.
    (3) The past pattern of such costs, particularly in the years prior
to Federal awards.
    (4) The impact of Federal awards on the non-profit organization's
business (i.e., what new problems have arisen).
    (5) Whether the proportion of Federal work to the non-profit
organization's total business is such as to influence the non-profit
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.
    (6) Whether the service can be performed more economically by direct
employment rather than contracting.

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    (7) The qualifications of the individual or concern rendering the
service and the customary fees charged, especially on non-Federal
awards.
    (8) 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 37.b of this appendix,
retainer fees to be allowable must be supported by evidence of bona fide
services available or rendered
    38. 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. Publication
costs also include page charges in professional publications.
    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 non-profit organization.
    c. Page charges for professional journal publications are allowable
as a necessary part of research costs where:
    (1) The research papers report work supported by the Federal
Government: and
    (2) The charges are levied impartially on all research papers
published by the journal, whether or not by federally-sponsored authors.
    39. 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.
    40. Reconversion costs. Costs incurred in the restoration or
rehabilitation of the non-profit organization'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.
    41. Recruiting costs. a. Subject to subparagraphs 41.b, c, and d of
this appendix, 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.
    42. 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 42.b, c, and d of
this appendix, provided that:
    (1) The move is for the benefit of the employer.
    (2) Reimbursement to the employee is in accordance with an
established written policy consistently followed by the employer.
    (3) 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:
    (1) The costs of transportation of the employee, members of his
immediate family and his household, and personal effects to the new
location.
    (2) 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.
    (3) 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 subparagraph 42.b.(4) of this appendix,
are limited to 8 percent of the sales price of the employee's former
home.
    (4) 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.
    (5) Other necessary and reasonable expenses normally incident to
relocation, such

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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 subparagraph 42.b(1) and (2) of this appendix. 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 50 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:
    (1) Fees and other costs associated with acquiring a new home.
    (2) A loss on the sale of a former home.
    (3) Continuing mortgage principal and interest payments on a home
being sold.
    (4) Income taxes paid by an employee related to reimbursed
relocation costs.
    43. Rental costs of buildings and equipment. a. Subject to the
limitations described in subparagraphs 43.b. through d. of this
appendix, 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. Rental arrangements should be reviewed periodically to determine
if circumstances have changed and other options are available.
    b. Rental costs under ``sale and lease back'' arrangements are
allowable only up to the amount that would be allowed had the non-profit
organization continued to own the property. This amount would include
expenses such as depreciation or use allowance, maintenance, taxes, and
insurance.
    c. Rental costs under ``less-than-arms-length'' leases are allowable
only up to the amount (as explained in subparagraph 43.b. of this
appendix) that would be allowed had title to the property vested in the
non-profit 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 divisions of a non-profit
organization; non-profit organizations under common control through
common officers, directors, or members; and a non-profit organization
and a director, trustee, officer, or key employee of the non-profit
organization or his immediate family, either directly or through
corporations, trusts, or similar arrangements in which they hold a
controlling interest. For example, a non-profit organization may
establish a separate corporation for the sole purpose of owning property
and leasing it back to the non-profit organization.
    d. Rental costs under leases which are required to be treated as
capital leases under GAAP are allowable only up to the amount (as
explained in subparagraph b) that would be allowed had the non-profit
organization purchased the property on the date the lease agreement was
executed. The provisions of Financial Accounting Standards Board
Statement 13, Accounting for Leases, 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 paragraph 23 of this
appendix. Unallowable costs include amounts paid for profit, management
fees, and taxes that would not have been incurred had the non-profit
organization purchased the facility.
    44. 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:
    (1) 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.:
    (1) Royalties paid to persons, including corporations, affiliated
with the non-profit organization.
    (2) Royalties paid to unaffiliated parties, including corporations,
under an agreement entered into in contemplation that a Federal award
would be made.
    (3) Royalties paid under an agreement entered into after an award is
made to a non-profit organization.
    c. In any case involving a patent or copyright formerly owned by the
non-profit organization, the amount of royalty allowed should not exceed
the cost which would have been allowed had the non-profit organization
retained title thereto.
    45. Selling and marketing. Costs of selling and marketing any
products or services of the non-profit organization are unallowable
(unless allowed under paragraph 1. of this appendix as allowable public
relations cost.

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However, these costs are allowable as direct costs, with prior approval
by awarding agencies, when they are necessary for the performance of
Federal programs.
    46. Specialized service facilities. a. The costs of services
provided by highly complex or specialized facilities operated by the
non-profit organization, such as computers, wind tunnels, and reactors
are allowable, provided the charges for the services meet the conditions
of either paragraph 46 b. or c. of this appendix and, in addition, take
into account any items of income or Federal financing that qualify as
applicable credits under subparagraph A.5. of Appendix A to this part.
    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 does
not discriminate against federally-supported activities of the non-
profit organization, including usage by the non-profit organization for
internal purposes, and 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.
Rates shall be adjusted at least biennially, and shall take into
consideration over/under applied costs of the previous period(s).
    c. Where the costs incurred for a service are not material, they may
be allocated as indirect costs.
    d. Under some extraordinary circumstances, where it is in the best
interest of the Federal Government and the institution to establish
alternative costing arrangements, such arrangements may be worked out
with the cognizant Federal agency.
    47. 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 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, special assessments on land which represent capital
improvements, and 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.
    48. Termination costs applicable to sponsored agreements.
Termination of awards generally gives rise to the incurrence of costs,
or the need for special treatment of costs, which would not have arisen
had the Federal 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 appendix in termination situations.
    a. The cost of items reasonably usable on the non-profit
organization's other work shall not be allowable unless the non-profit
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 non-profit organization, the
awarding agency should consider the non-profit organization's plans and
orders for current and scheduled activity. Contemporaneous purchases of
common items by the non-profit organization shall be regarded as
evidence that such items are reasonably usable on the non-profit
organization's other work. Any acceptance of common items as allocable
to the terminated portion of the Federal 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. If in a particular case, despite all reasonable efforts by the
non-profit 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 appendix,
except that any such costs continuing after termination due to the
negligent or willful failure of the non-profit organization to
discontinue such costs shall be unallowable.
    c. Loss of useful value of special tooling, machinery, and is
generally allowable if:
    (1) Such special tooling, special machinery, or equipment is not
reasonably capable of use in the other work of the non-profit
organization,
    (2) The interest of the Federal Government is protected by transfer
of title or by other means deemed appropriate by the awarding agency,
and
    (3) The loss of useful value for any one terminated Federal award 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
Federal award bears to the entire terminated Federal award and other
Federal awards for which the special tooling, special machinery, or
equipment was acquired.
    d. Rental costs under unexpired leases are generally allowable where
clearly shown to have been reasonably necessary for the performance of
the terminated Federal award 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 Federal award and
such further period as may be reasonable, and
    (2) The non-profit organization makes all reasonable efforts to
terminate, assign, settle, or otherwise reduce the cost of such

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lease. There also may be included the cost of alterations of such leased
property, provided such alterations were necessary for the performance
of the Federal award, and of reasonable restoration required by the
provisions of the lease.
    e. Settlement expenses including the following are generally
allowable:
    (1) Accounting, legal, clerical, and similar costs reasonably
necessary for:
    (a) The preparation and presentation to the awarding agency of
settlement claims and supporting data with respect to the terminated
portion of the Federal award, unless the termination is for default (see
Sec. 215.61 of 2 CFR part 215 (OMB Circular A-110)); and
    (b) 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 Federal award, except when grantees or
contractors are reimbursed for disposals at a predetermined amount in
accordance with Sec. 215.32 through 215.37 of 2 CFR part 215 (OMB
Circular A-110).
    (3) Indirect costs related to salaries and wages incurred as
settlement expenses in subparagraphs 48.e.(1) and (2) of this appendix.
Normally, such indirect costs shall be limited to fringe benefits,
occupancy cost, and immediate supervision.
    f. Claims under sub awards, including the allocable portion of
claims which are common to the Federal award, and to other work of the
non-profit organization are generally allowable.
    An appropriate share of the non-profit 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 Appendix A.
The indirect expense so allocated shall exclude the same and similar
costs claimed directly or indirectly as settlement expenses.
    49. Training 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:
    (1) Training materials.
    (2) Textbooks.
    (3) Fees charges by the educational institution.
    (4) 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.
    (5) Salaries and related costs of instructors who are employees of
the organization.
    (6) 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 50 of this
appendix.
    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 49.b and c of this appendix may be allowed
with prior approval of the awarding

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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.
    50. 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 of this appendix). 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.
    51. Travel costs.
    a. General. 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 non-profit organization. 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 not to
selected days of the trip, and results in charges consistent with those
normally allowed in like circumstances in the non-profit organization's
non-federally-sponsored activities.
    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
non-profit organization in its regular operations as the result of the
non-profit organization's written travel policy. In the absence of an
acceptable, written non-profit organization policy regarding travel
costs, the rates and amounts established under subchapter I of Chapter
57, Title 5, United States Code (``Travel and Subsistence Expenses;
Mileage Allowances''), or by the Administrator of General Services, or
by the President (or his or her designee) pursuant to any provisions of
such subchapter shall apply to travel under Federal awards (48 CFR
31.205-46(a)).
    c. Commercial air travel. (1) Airfare costs in excess of the
customary standard commercial airfare (coach or equivalent), Federal
Government contract airfare (where authorized and available), or the
lowest commercial discount airfare are unallowable except when such
accommodations would: require circuitous routing; require travel during
unreasonable hours; excessively prolong travel; result in additional
costs that would offset the transportation savings; or offer
accommodations not reasonably adequate for the traveler's medical needs.
The non-profit organization must justify and document these conditions
on a case-by-case basis in order for the use of first-class airfare to
be allowable in such cases.
    (2) Unless a pattern of avoidance is detected, the Federal
Government will generally not question a non-profit organization's
determinations that customary standard airfare or other discount airfare
is unavailable for specific trips if the non-profit organization can
demonstrate either of the following: that such airfare was not available
in the specific case; or that it is the non-profit organization's
overall practice to make routine use of such airfare.
    d. Air travel by other than commercial carrier. Costs of travel by
non-profit organization-owned, -leased, or -chartered aircraft include
the cost of lease, charter, operation (including personnel costs),
maintenance, depreciation, insurance, and other related costs. The
portion of such costs that exceeds the cost of allowable commercial air
travel, as provided for in subparagraph] c., is unallowable.
    e. Foreign travel. 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 receive such approval.
For purposes of this provision, ``foreign travel'' includes any travel
outside Canada, Mexico, the United States, and any United States
territories and possessions. However, the term ``foreign travel'' for a
non-profit organization located in a foreign country means travel
outside that country.
    52. 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 51 of this appendix.