Sections 1 through
42 provide principles to be applied in establishing the allowability or
unallowability of certain items of cost. These principles apply whether
a cost is treated as direct or indirect. A cost is allowable for Federal
reimbursement only to the extent of benefits received by Federal awards
and its conformance with the general policies and principles stated in
Attachment A to this Circular. Failure to mention a particular item of
cost in these sections is not intended to imply that it is either allowable
or unallowable; rather, determination of allowability in each case should
be based on the treatment or standards provided for similar or related
items of cost.
1. Accounting. The cost of establishing and maintaining accounting
and other information systems is allowable.
and public relations costs.
a. The term "advertising
costs" means the costs of advertising media and corollary administrative
costs. Advertising media include magazines, newspapers, radio and television
programs, direct mail, exhibits, and the like.
b. The term
"public relations" includes community relations and means those activities
dedicated to maintaining the image of the governmental unit or maintaining
or promoting understanding and favorable relations with the community
or public at large or any segment of the public.
costs are allowable only when incurred for the recruitment of personnel,
the procurement of goods and services, the disposal of surplus materials,
and any other specific purposes necessary to meet the requirements
of the Federal award. Advertising costs associated with the disposal
of surplus materials are not allowable where all disposal costs are
reimbursed based on a standard rate as specified in the grants management
d. Public relations
costs are allowable when:
required by the Federal award and then only as a direct cost;
communicate with the public and press pertaining to specific activities
or accomplishments that result from performance of the Federal award
and then only as a direct cost; or
to conduct general liaison with news media and government public
relations officers, to the extent that such activities are limited
to communication and liaison necessary to keep the public informed
on matters of public concern, such as notices of Federal contract/grant
awards, financial matters, etc.
e. Unallowable advertising
and public relations costs include the following:
and public relations costs other than as specified in subsections
c. and d.;
otherwise permitted by these cost principles, costs of conventions,
meetings, or other events related to other activities of the governmental
of displays, demonstrations, and exhibits;
of meeting rooms, hospitality suites, and other special facilities
used in conjunction with shows and other special events; and
and wages of employees engaged in setting up and displaying
exhibits, making demonstrations, and providing briefings;
Costs of promotional
items and memorabilia, including models, gifts, and souvenirs; and
Costs of advertising
and public relations designed solely to promote the governmental
3. Advisory councils.
Costs incurred by advisory councils or committees are allowable as a direct
cost where authorized by the Federal awarding agency or as an indirect
cost where allocable to Federal awards.
beverages. Costs of alcoholic beverages are unallowable.
5. Audit services.
The costs of audits are allowable provided that the audits were performed
in accordance with the Single Audit Act, as implemented by Circular
A-128, "Audits of State and Local Governments." Generally, the percentage
of costs charged to Federal awards for a single audit shall not exceed
the percentage derived by dividing Federal funds expended by total funds
expended by the recipient or subrecipient (including program matching
funds) during the fiscal year. The percentage may be exceeded only if
appropriate documentation demonstrates higher actual costs.
Other audit costs
are allowable if specifically approved by the awarding or cognizant
agency as a direct cost to an award or included as an indirect cost
in a cost allocation plan or rate.
electronic data processing. The cost of data processing services
is allowable (but see section 19, Equipment and other capital expenditures).
Bad debts. Any losses arising from uncollectible accounts and other
claims, and related costs, are unallowable unless provided for in Federal
program award regulations.
costs. Costs of bonding employees and officials are allowable to
the extent that such bonding is in accordance with sound business practice.
Costs incurred for the development, preparation, presentation, and execution
of budgets are allowable.
Communications. Costs of telephone, mail, messenger, and similar communication
services are allowable.
for personnel services.
a. General. Compensation
for personnel services includes all remuneration, paid currently or
accrued, for services rendered during the period of performance under
Federal awards, including but not necessarily limited to wages, salaries,
and fringe benefits. The costs of such compensation are allowable to
the extent that they satisfy the specific requirements of this Circular,
and that the total compensation for individual employees:
for the services rendered and conforms to the established policy
of the governmental unit consistently applied to both Federal and
appointment made in accordance with a governmental unit's laws and
rules and meets merit system or other requirements required by Federal
law, where applicable; and
and supported as provided in subsection h.
Compensation for employees engaged in work on Federal awards will be
considered reasonable to the extent that it is consistent with that
paid for similar work in other activities of the governmental unit.
In cases where the kinds of employees required for Federal awards are
not found in the other activities of the governmental unit, compensation
will be considered reasonable to the extent that it is comparable to
that paid for similar work in the labor market in which the employing
government competes for the kind of employees involved. Compensation
surveys providing data representative of the labor market involved will
be an acceptable basis for evaluating reasonableness.
costs. Costs which are unallowable under other sections of these principles
shall not be allowable under this section solely on the basis that
they constitute personnel compensation.
d. Fringe benefits.
are allowances and services provided by employers to their employees
as compensation in addition to regular salaries and wages. Fringe
benefits include, but are not limited to, the costs of leave, employee
insurance, pensions, and unemployment benefit plans. Except as provided
elsewhere in these principles, the costs of fringe benefits are
allowable to the extent that the benefits are reasonable and are
required by law, governmental unit-employee agreement, or an established
policy of the governmental unit.
The cost of
fringe benefits in the form of regular compensation paid to employees
during periods of authorized absences from the job, such as for
annual leave, sick leave, holidays, court leave, military leave,
and other similar benefits, are allowable if: (a) they are provided
under established written leave policies; (b) the costs are equitably
allocated to all related activities, including Federal awards; and,
(c) the accounting basis (cash or accrual) selected for costing
each type of leave is consistently followed by the governmental
When a governmental
unit uses the cash basis of accounting, the cost of leave is recognized
in the period that the leave is taken and paid for. Payments for
unused leave when an employee retires or terminates employment are
allowable in the year of payment provided they are allocated as
a general administrative expense to all activities of the governmental
unit or component.
basis may be only used for those types of leave for which a liability
as defined by Generally Accepted Accounting Principles (GAAP) exists
when the leave is earned. When a governmental unit uses the accrual
basis of accounting, in accordance with GAAP, allowable leave costs
are the lesser of the amount accrued or funded.
The cost of
fringe benefits in the form of employer contributions or expenses
for social security; employee life, health, unemployment, and worker's
compensation insurance (except as indicated in section 25, Insurance
and indemnification); pension plan costs (see subsection e.); and
other similar benefits are allowable, provided such benefits are
granted under established written policies. Such benefits, whether
treated as indirect costs or as direct costs, shall be allocated
to Federal awards and all other activities in a manner consistent
with the pattern of benefits attributable to the individuals or
group(s) of employees whose salaries and wages are chargeable to
such Federal awards and other activities.
e. Pension plan
costs. Pension plan costs may be computed using a pay-as-you-go method
or an acceptable actuarial cost method in accordance with established
written policies of the governmental unit.
plans financed on a pay-as-you-go method, allowable costs will be
limited to those representing actual payments to retirees or their
calculated using an actuarial cost-based method recognized by GAAP
are allowable for a given fiscal year if they are funded for that
year within six months after the end of that year. Costs funded
after the six month period (or a later period agreed to by the cognizant
agency) are allowable in the year funded. The cognizant agency may
agree to an extension of the six month period if an appropriate
adjustment is made to compensate for the timing of the charges to
the Federal Government and related Federal reimbursement and the
governmental unit's contribution to the pension fund. Adjustments
may be made by cash refund or other equitable procedures to compensate
the Federal Government for the time value of Federal reimbursements
in excess of contributions to the pension fund.
by the governmental unit in excess of the actuarially determined
amount for a fiscal year may be used as the governmental unit's
contribution in future periods.
When a governmental
unit converts to an acceptable actuarial cost method, as defined
by GAAP, and funds pension costs in accordance with this method,
the unfunded liability at the time of conversion shall be allowable
if amortized over a period of years in accordance with GAAP.
Government shall receive an equitable share of any previously allowed
pension costs (including earnings thereon) which revert or inure
to the governmental unit in the form of a refund, withdrawal, or
health benefits. Post-retirement health benefits (PRHB) refers to costs
of health insurance or health services not included in a pension plan
covered by subsection e. for retirees and their spouses, dependents,
and survivors. PRHB costs may be computed using a pay-as-you-go method
or an acceptable actuarial cost method in accordance with established
written polices of the governmental unit.
For PRHB financed
on a pay as-you-go method, allowable costs will be limited to those
representing actual payments to retirees or their beneficiaries.
calculated using an actuarial cost method recognized by GAAP are
allowable if they are funded for that year within six months after
the end of that year. Costs funded after the six month period (or
a later period agreed to by the cognizant agency) are allowable
in the year funded. The cognizant agency may agree to an extension
of the six month period if an appropriate adjustment is made to
compensate for the timing of the charges to the Federal Government
and related Federal reimbursements and the governmental unit's contributions
to the PRHB fund. Adjustments may be made by cash refund, reduction
in current year's PRHB costs, or other equitable procedures to compensate
the Federal Government for the time value of Federal reimbursements
in excess of contributions to the PRHB fund.
in excess of the actuarially determined amount for a fiscal year
may be used as the government's contribution in a future period.
When a governmental
unit converts to an acceptable actuarial cost method and funds PRHB
costs in accordance with this method, the initial unfunded liability
attributable to prior years shall be allowable if amortized over
a period of years in accordance with GAAP, or, if no such GAAP period
exists, over a period negotiated with the cognizant agency.
To be allowable
in the current year, the PRHB costs must be paid either to:
(a) An insurer
or other benefit provider as current year costs or premiums, or
insurer or trustee to maintain a trust fund or reserve for the
sole purpose of providing post-retirement benefits to retirees
and other beneficiaries.
Government shall receive an equitable share of any amounts of previously
allowed post-retirement benefit costs (including earnings thereon)
which revert or inure to the governmental unit in the form of a
refund, withdrawal, or other credit.
g. Severance pay.
addition to regular salaries and wages made to workers whose employment
is being terminated are allowable to the extent that, in each case,
they are required by (a) law, (b) employer-employee agreement, or
(c) established written policy.
payments (but not accruals) associated with normal turnover are
allowable. Such payments shall be allocated to all activities of
the governmental unit as an indirect cost.
mass severance pay will be considered on a case-by-case basis and
is allowable only if approved by the cognizant Federal agency.
h. Support of salaries
and wages. These standards regarding time distribution are in addition
to the standards for payroll documentation.
Federal awards for salaries and wages, whether treated as direct
or indirect costs, will be based on payrolls documented in accordance
with generally accepted practice of the governmental unit and approved
by a responsible official(s) of the governmental unit.
documentation is required for the salaries and wages of employees
who work in a single indirect cost activity.
are expected to work solely on a single Federal award or cost objective,
charges for their salaries and wages will be supported by periodic
certifications that the employees worked solely on that program
for the period covered by the certification. These certifications
will be prepared at least semi-annually and will be signed by the
employee or supervisory official having first hand knowledge of
the work performed by the employee.
work on multiple activities or cost objectives, a distribution of
their salaries or wages will be supported by personnel activity
reports or equivalent documentation which meets the standards in
subsection (5) unless a statistical sampling system (see subsection
(6)) or other substitute system has been approved by the cognizant
Federal agency. Such documentary support will be required where
employees work on:
than one Federal award,
Federal award and a non-Federal award,
indirect cost activity and a direct cost activity,
or more indirect activities which are allocated using different
allocation bases, or
unallowable activity and a direct or indirect cost activity.
activity reports or equivalent documentation must meet the following
must reflect an after-the-fact distribution of the actual activity
of each employee,
must account for the total activity for which each employee
must be prepared at least monthly and must coincide with one
or more pay periods, and
must be signed by the employee.
estimates or other distribution percentages determined before
the services are performed do not qualify as support for charges
to Federal awards but may be used for interim accounting purposes,
governmental unit's system for establishing the estimates produces
reasonable approximations of the activity actually performed;
At least quarterly, comparisons of actual costs to budgeted
distributions based on the monthly activity reports are made.
Costs charged to Federal awards to reflect adjustments made
as a result of the activity actually performed may be recorded
annually if the quarterly comparisons show the differences
between budgeted and actual costs are less than ten percent;
The budget estimates or other distribution percentages are
revised at least quarterly, if necessary, to reflect changed
systems for allocating salaries and wages to Federal awards may
be used in place of activity reports. These systems are subject
to approval if required by the cognizant agency. Such systems may
include, but are not limited to, random moment sampling, case counts,
or other quantifiable measures of employee effort.
systems which use sampling methods (primarily for Aid to Families
with Dependent Children (AFDC), Medicaid, and other public assistance
programs) must meet acceptable statistical sampling standards
sampling universe must include all of the employees whose salaries
and wages are to be allocated based on sample results except
as provided in subsection (c);
The entire time period involved must be covered by the sample;
The results must be statistically valid and applied to the
period being sampled.
charges for the sampled employees' supervisors, clerical and support
staffs, based on the results of the sampled employees, will be
than full compliance with the statistical sampling standards
noted in subsection (a) may be accepted by the cognizant agency
if it concludes that the amounts to be allocated to Federal
awards will be minimal, or if it concludes that the system proposed
by the governmental unit will result in lower costs to Federal
awards than a system which complies with the standards.
wages of employees used in meeting cost sharing or matching requirements
of Federal awards must be supported in the same manner as those
claimed as allowable costs under Federal awards.
i. Donated services.
volunteer services may be furnished to a governmental unit by professional
and technical personnel, consultants, and other skilled and unskilled
labor. The value of these services is not reimbursable either as
a direct or indirect cost. However, the value of donated services
may be used to meet cost sharing or matching requirements in accordance
with the provisions of the Common Rule.
of donated services utilized in the performance of a direct cost
activity shall, when material in amount, be considered in the determination
of the governmental unit's indirect costs or rate(s) and, accordingly,
shall be allocated a proportionate share of applicable indirect
To the extent
feasible, donated services will be supported by the same methods
used by the governmental unit to support the allocability of regular
Contributions to a contingency reserve or any similar provision made for
events the occurrence of which cannot be foretold with certainty as to
time, or intensity, or with an assurance of their happening, are unallowable.
The term "contingency reserve" excludes self-insurance reserves (see subsection
25.c.), pension plan reserves (see subsection 11.e.), and post-retirement
health and other benefit reserves (see subsection 11.f.) computed using
acceptable actuarial cost methods.
and donations. Contributions and donations, including cash, property,
and services, by governmental units to others, regardless of the recipient,
Defense and prosecution of criminal and civil proceedings, and claims.
a. The following
costs are unallowable for contracts covered by 10 U.S.C. 2324(k), "Allowable
costs under defense contracts."
in defense of any civil or criminal fraud proceeding or similar
proceeding (including filing of false certification brought by the
United States where the contractor is found liable or has pleaded
nolo contendere to a charge of fraud or similar proceeding (including
filing of a false certification).
by a contractor in connection with any criminal, civil or administrative
proceedings commenced by the United States or a State to the extent
provided in 10 U.S.C. 2324(k).
b. Legal expenses
required in the administration of Federal programs are allowable. Legal
expenses for prosecution of claims against the Federal Government are
and use allowances.
and use allowances are means of allocating the cost of fixed assets
to periods benefitting from asset use. Compensation for the use of fixed
assets on hand may be made through depreciation or use allowances. A
combination of the two methods may not be used in connection with a
single class of fixed assets (e.g., buildings, office equipment, computer
equipment, etc.) except as provided in subsection g. Except for enterprise
funds and internal service funds that are included as part of a State/local
cost allocation plan, classes of assets shall be determined on the same
basis used for the government-wide financial statements.
b. The computation
of depreciation or use allowances shall be based on the acquisition
cost of the assets involved. Where actual cost records have not been
maintained, a reasonable estimate of the original acquisition cost
may be used. The value of an asset donated to the governmental unit
by an unrelated third party shall be its fair market value at the
time of donation. Governmental or quasi-governmental organizations
located within the same State shall not be considered unrelated third
parties for this purpose.
c. The computation
of depreciation or use allowances will exclude:
The cost of
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
of the cost of buildings and equipment contributed by or for the
governmental unit, or a related donor organization, in satisfaction
of a matching requirement.
d. Where the use
allowance method is followed, the use allowance for buildings and improvements
(including land improvements, such as paved parking areas, fences, and
sidewalks) will be computed at an annual rate not exceeding two percent
of acquisition costs. The use allowance for equipment will be computed
at an annual rate not exceeding 6 2/3 percent of acquisition cost. When
the use allowance method is used for buildings, the entire building
must be treated as a single asset; the building's components (e.g.,
plumbing system, heating and air condition, etc.) cannot be segregated
from the building's shell. The two percent limitation, however, need
not be applied to equipment which is merely attached or fastened to
the building but not permanently fixed to it and which is used as furnishings
or decorations or for specialized purposes (e.g., dentist chairs and
dental treatment units, counters, laboratory benches bolted to the floor,
dishwashers, modular furniture, carpeting, etc.). Such equipment will
be considered as not being permanently fixed to the building if it can
be removed without the destruction of, or need for costly or extensive
alterations or repairs, to the building or the equipment. Equipment
that meets these criteria will be subject to the 6 2/3 percent equipment
use allowance limitation.
e. Where the
depreciation method is followed, the period of useful service (useful
life) established in each case for usable capital assets must take
into consideration such factors as type of construction, nature of
the equipment used, historical usage patterns, technological developments,
and the renewal and replacement policies of the governmental unit
followed for the individual items or classes of assets involved. In
the absence of clear evidence indicating that the expected consumption
of the asset will be significantly greater in the early portions than
in the later portions of its useful life, the straight line method
of depreciation shall be used. Depreciation methods once used shall
not be changed unless approved by the Federal cognizant or awarding
agency. When the depreciation method is introduced for application
to an asset previously subject to a use allowance, the annual depreciation
charge thereon may not exceed the amount that would have resulted
had the depreciation method been in effect from the date of acquisition
of the asset. The combination of use allowances and depreciation applicable
to the asset shall not exceed the total acquisition cost of the asset
or fair market value at time of donation.
f. When the
depreciation method is used for buildings, a building's shell may
be segregated from the major component of the building (e.g., plumbing
system, heating, and air conditioning system, etc.) and each major
component depreciated over its estimated useful life, or the entire
building (i.e., the shell and all components) may be treated as a
single asset and depreciated over a single useful life.
g. A reasonable
use allowance may be negotiated for any assets that are considered
to be fully depreciated, after taking into consideration the amount
of depreciation previously charged to the government, the estimated
useful life remaining at the time of negotiation, the effect of any
increased maintenance charges, decreased efficiency due to age, and
any other factors pertinent to the utilization of the asset for the
h. Charges for
use allowances or depreciation must be supported by adequate property
records. Physical inventories must be taken at least once every two
years (a statistical sampling approach is acceptable) to ensure that
assets exist, and are in use. Governmental units will manage equipment
in accordance with State laws and procedures. When the depreciation
method is followed, depreciation records indicating the amount of
depreciation taken each period must also be maintained.
service. The cost of disbursing funds by the Treasurer or other designated
officer is allowable.
Employee morale, health, and welfare costs. The costs of health
or first-aid clinics and/or infirmaries, recreational facilities, employee
counseling services, employee information publications, and any related
expenses incurred in accordance with a governmental unit's policy are
allowable. Income generated from any of these activities will be offset
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.
and other capital expenditures.
a. As used in
this section the following terms have the meanings as set forth below:
means the cost of the asset including the cost to put it in place.
Capital expenditure for equipment means the net invoice price of
the equipment, including the cost of any modifications, attachments,
accessories, or auxiliary apparatus necessary to make it usable
for the purpose for which it is acquired. Ancillary charges, such
as taxes, duty, protective in transit insurance, freight, and installation
may be included in, or excluded from, capital expenditure cost in
accordance with the governmental unit's regular accounting practices.
means an article of nonexpendable, tangible personal property having
a useful life of more than one year and an acquisition cost which
equals the lesser of (a) the capitalization level established by
the governmental unit for financial statement purposes, or (b) $5000.
assets" mean buildings, land, and improvements to buildings or land
that materially increase their value or useful life.
b. Capital expenditures
which are not charged directly to a Federal award may be recovered through
use allowances or depreciation on buildings, capital improvements, and
equipment (see section 15). See also section 38 for allowability of
rental costs for buildings and equipment.
c. Capital expenditures
for equipment, including replacement equipment, other capital assets,
and improvements which materially increase the value or useful life
of equipment or other capital assets are allowable as a direct cost
the awarding agency. Federal awarding agencies are authorized at their
option to waive or delegate this approval requirement.
d. Items of
equipment with an acquisition cost of less than $5000 are considered
to be supplies and are allowable as direct costs of Federal awards
without specific awarding agency approval.
e. The unamortized
portion of any equipment written off as a result of a change in capitalization
levels may be recovered by (1) continuing to claim the otherwise allowable
use allowances or depreciation charges on the equipment or by (2)
amortizing the amount to be written off over a period of years negotiated
with the cognizant agency.
f. When replacing
equipment purchased in whole or in part with Federal funds, the governmental
unit may use the equipment to be replaced as a trade-in or sell the
property and use the proceeds to offset the cost of the replacement
Fines and penalties. Fines, penalties, damages, and other settlements
resulting from violations (or alleged violations) of, or failure of the
governmental unit to comply with, Federal, State, local, or Indian tribal
laws and regulations are unallowable except when incurred as a result
of compliance with specific provisions of the Federal award or written
instructions by the awarding agency authorizing in advance such payments.
21. Fund raising
and investment management costs.
a. Costs of organized
fund raising, including financial campaigns, solicitation of gifts and
bequests, and similar expenses incurred to raise capital or obtain contributions
are unallowable, regardless of the purpose for which the funds will
b. Costs of
investment counsel and staff and similar expenses incurred to enhance
income from investments are unallowable. However, such costs associated
with investments covering pension, self-insurance, or other funds
which include Federal participation allowed by this Circular are allowable.
c. Fund raising
and investment activities shall be allocated an appropriate share
of indirect costs under the conditions described in subsection C.3.b.
of Attachment A.
Gains and losses on disposition of depreciable property and other capital
assets and substantial relocation of Federal programs.
losses on the sale, retirement, or other disposition of depreciable
property shall be included in the year in which they occur as credits
or charges to the asset cost grouping(s) in which the property was
included. The amount of the gain or loss to be included as a credit
or charge to the appropriate asset cost grouping(s) shall be the
difference between the amount realized on the property and the undepreciated
basis of the property.
losses on the disposition of depreciable property shall not be recognized
as a separate credit or charge under the following conditions:
(a) The gain
or loss is processed through a depreciation account and is reflected
in the depreciation allowable under sections 15 and 19.
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.
loss results from the failure to maintain permissible insurance,
except as otherwise provided in subsection 25.d.
for the use of the property was provided through use allowances
in lieu of depreciation.
b. Substantial relocation
of Federal awards from a facility where the Federal Government participated
in the financing to another facility prior to the expiration of the
useful life of the financed facility requires Federal agency approval.
The extent of the relocation, the amount of the Federal participation
in the financing, and the depreciation charged to date may require negotiation
of space charges for Federal awards.
c. Gains or
losses of any nature arising from the sale or exchange of property
other than the property covered in subsection a., e.g., land or included
in the fair market value used in any adjustment resulting from a relocation
of Federal awards covered in subsection b. shall be excluded in computing
Federal award costs.
23. General government
a. The general
costs of government are unallowable (except as provided in section 41).
expenses of the Office of the Governor of a State or the chief executive
of a political subdivision or the chief executives of federally-recognized
Indian tribal governments;
other expenses of State legislatures, tribal councils, or similar
local governmental bodies, such as
city councils, school boards, etc., whether incurred for purposes
of legislation or executive direction;
Cost of the
judiciary branch of a government;
Cost of prosecutorial
activities unless treated as a direct cost to a specific program
when authorized by program regulations (however, this does not preclude
the allowability of other legal activities of the Attorney General);
types of government services normally provided to the general public,
such as fire and police, unless provided for as a direct cost in
b. For federally-recognized
Indian tribal governments and Councils Of Governments (COGs), the portion
of salaries and expenses directly attributable to managing and operating
Federal programs by the chief executive and his staff is allowable.
Idle facilities and idle capacity.
a. As used in
this section the following terms have the meanings set forth below:
means land and buildings or any portion thereof, equipment individually
or collectively, or any other tangible capital asset, wherever located,
and whether owned or leased by the governmental unit.
means completely unused facilities that are excess to the governmental
unit's current needs.
means the unused capacity of partially used facilities. It is the
difference between (a) that which a facility could achieve under
100 percent operating time on a one-shift basis less operating interruptions
resulting from time lost for repairs, setups, unsatisfactory materials,
and other normal delays and (b) the extent to which the facility
was actually used to meet demands during the accounting period.
basis should be used if it can be shown that this amount of usage
would normally be expected for the type of facility involved.
"Cost of idle
facilities or idle capacity" means costs such as maintenance, repair,
housing, rent, and other related costs, e.g., insurance, interest,
and depreciation or use allowances.
b. The costs of
idle facilities are unallowable except to the extent that:
They are necessary
to meet fluctuations in workload; or
necessary to meet fluctuations in workload, they were necessary
when acquired and are now idle because of changes in program requirements,
efforts to achieve more economical operations, reorganization, termination,
or other causes which could not have been reasonably foreseen. Under
the exception stated in this subsection, costs of idle facilities
are allowable for a reasonable period of time, ordinarily not to
exceed one year, depending on the initiative taken to use, lease,
or dispose of such facilities.
c. The costs of
idle capacity are normal costs of doing business and are a factor in
the normal fluctuations of usage or indirect cost rates from period
to period. Such costs are allowable, provided that the capacity is reasonably
anticipated to be necessary or was originally reasonable and is not
subject to reduction or elimination by use on other Federal awards,
subletting, renting, or sale, in accordance with sound business, economic,
or security practices. Widespread idle capacity throughout an entire
facility or among a group of assets having substantially the same function
may be considered idle facilities.
25. Insurance and
a. Costs of insurance
required or approved and maintained, pursuant to the Federal award,
b. Costs of
other insurance in connection with the general conduct of activities
are allowable subject to the following limitations:
extent and cost of coverage are in accordance with the governmental
unit's policy and sound business practice.
Costs of insurance
or of contributions to any reserve covering the risk of loss of,
or damage to, Federal Government property are unallowable except
to the extent that the awarding agency has specifically required
or approved such costs.
c. Actual losses
which could have been covered by permissible insurance (through a self-insurance
program or otherwise) are unallowable, unless expressly provided for
in the Federal award or as described below. However, the Federal Government
will participate in actual losses of a self insurance fund that are
in excess of reserves. Costs incurred because of losses not covered
under nominal deductible insurance coverage provided in keeping with
sound management practice, and minor losses not covered by insurance,
such as spoilage, breakage, and disappearance of small hand tools, which
occur in the ordinary course of operations, are allowable.
to a reserve for certain self-insurance programs including workers
compensation, unemployment compensation, and severance pay are allowable
subject to the following provisions:
The type of
coverage and the extent of coverage and the rates and premiums would
have been allowed had insurance (including reinsurance) been purchased
to cover the risks. However, provision for known or reasonably estimated
self-insured liabilities, which do not become payable for more than
one year after the provision is made, shall not exceed the discounted
present value of the liability. The rate used for discounting the
liability must be determined by giving consideration to such factors
as the governmental unit's settlement rate for those liabilities
and its investment rate of return.
investment income on reserves must be credited to those reserves.
to reserves must be based on sound actuarial principles using historical
experience and reasonable assumptions. Reserve levels must be analyzed
and updated at least biennially for each major risk being insured
and take into account any reinsurance, coinsurance, etc. Reserve
levels related to employee-related coverages will normally be limited
to the value of claims (a) submitted and adjudicated but not paid,
(b) submitted but not adjudicated, and (c) incurred but not submitted.
Reserve levels in excess of the amounts based on the above must
be identified and justified in the cost allocation plan or indirect
cost rate proposal.
records, actuarial studies, and cost allocations (or billings) must
recognize any significant differences due to types of insured risk
and losses generated by the various insured activities or agencies
of the governmental unit. If individual departments or agencies
of the governmental unit experience significantly different levels
of claims for a particular risk, those differences are to be recognized
by the use of separate allocations or other techniques resulting
in an equitable allocation.
are transferred from a self-insurance reserve to other accounts
(e.g., general fund), refunds shall be made to the Federal Government
for its share of funds transferred, including earned or imputed
interest from the date of transfer.
e. Actual claims
paid to or on behalf of employees or former employees for workers' compensation,
unemployment compensation, severance pay, and similar employee benefits
(e.g., subsection 11.f. for post retirement health benefits), are allowable
in the year of payment provided (1) the governmental unit follows a
consistent costing policy and (2) they are allocated as a general administrative
expense to all activities of the governmental unit.
refunds shall be credited against insurance costs in the year the
refund is received.
includes securing the governmental unit against liabilities to third
persons and other losses not compensated by insurance or otherwise.
The Federal Government is obligated to indemnify the governmental
unit only to the extent expressly provided for in the Federal award,
except as provided in subsection d.
h. Costs of
commercial insurance that protects against the costs of the contractor
for correction of the contractor's own defects in materials or workmanship
a. Costs incurred
for interest on borrowed capital or the use of a governmental unit's
own funds, however represented, are unallowable except as specifically
provided in subsection b. or authorized by Federal legislation.
costs (including interest) paid or incurred on or after the effective
date of this Circular associated with the otherwise allowable costs
of building acquisition, construction, or fabrication, reconstruction
or remodeling completed on or after October 1, 1980 is allowable,
subject to the conditions in (1)-(4). Financing costs (including interest)
paid or incurred on or after the effective date of this Circular associated
with otherwise allowable costs of equipment is allowable, subject
to the conditions in (1)-(4).
is provided (from other than tax or user fee sources) by a bona
fide third party external to the governmental unit;
are used in support of Federal awards;
debt service reserve funds or interest earned on borrowed funds
pending payment of the construction or acquisition costs are used
to offset the current period's cost or the capitalized interest,
as appropriate. Earnings subject to being reported to the Federal
Internal Revenue Service under arbitrage requirements are excludable.
units will negotiate the amount of allowable interest whenever cash
payments (interest, depreciation, use allowances, and contributions)
exceed the governmental unit's cash payments and other contributions
attributable to that portion of real property used for Federal awards.
Lobbying. The cost of certain influencing activities associated
with obtaining grants, contracts, cooperative agreements, or loans is
an unallowable cost. Lobbying with respect to certain grants, contracts,
cooperative agreements, and loans shall be governed by the common rule,
"New Restrictions on Lobbying" published at 55 FR 6736 (February 26, 1990),
including definitions, and the Office of Management and Budget "Government-wide
Guidance for New Restrictions on Lobbying" and notices published at 54
FR 52306 (December 20, 1989), 55 FR 24540 (June 15, 1990), and 57 FR 1772
(January 15, 1992), respectively.
Maintenance, operations, and repairs. Unless prohibited by law,
the cost of utilities, insurance, security, janitorial services, elevator
service, upkeep of grounds, necessary maintenance, normal repairs and
alterations, and the like are allowable to the extent that they: (1) keep
property (including Federal property, unless otherwise provided for) in
an efficient operating condition, (2) do not add to the permanent value
of property or appreciably prolong its intended life, and (3) are not
otherwise included in rental or other charges for space. Costs which add
to the permanent value of property or appreciably prolong its intended
life shall be treated as capital expenditures (see sections 15 and 19).
and supplies. The cost of materials and supplies is allowable. Purchases
should be charged at their actual prices after deducting all cash discounts,
trade discounts, rebates, and allowances received. Withdrawals from
general stores or stockrooms should be charged at cost under any recognized
method of pricing, consistently applied. Incoming transportation charges
are a proper part of materials and supply costs.
subscriptions, and professional activities.
a. Costs of the
governmental unit's memberships in business, technical, and professional
organizations are allowable.
b. Costs of
the governmental unit's subscriptions to business, professional, and
technical periodicals are allowable.
c. Costs of
meetings and conferences where the primary purpose is the dissemination
of technical information, including meals, transportation, rental
of meeting facilities, and other incidental costs are allowable.
d. Costs of
membership in civic and community, social organizations are allowable
as a direct cost with the approval of the Federal awarding agency.
e. Costs of
membership in organizations substantially engaged in lobbying are
31. Motor pools.
The costs of a service organization which provides automobiles to user
governmental units at a mileage or fixed rate and/or provides vehicle
maintenance, inspection, and repair services are allowable.
Pre-award costs. Pre-award costs are those incurred prior to the
effective date of the award directly pursuant to the negotiation and in
anticipation of the award where such costs are necessary to comply with
the proposed delivery schedule or period of performance. Such costs are
allowable only to the extent that they would have been allowable if incurred
after the date of the award and only with the written approval of the
a. Cost of professional
and consultant services rendered by persons or organizations that are
members of a particular profession or possess a special skill, whether
or not officers or employees of the governmental unit, are allowable,
subject to section 14 when reasonable in relation to the services rendered
and when not contingent upon recovery of the costs from the Federal
fees supported by evidence of bona fide services available or rendered
34. Proposal costs.
Costs of preparing proposals for potential Federal awards are allowable.
Proposal costs should normally be treated as indirect costs and should
be allocated to all activities of the governmental unit utilizing the
cost allocation plan and indirect cost rate proposal. However, proposal
costs may be charged directly to Federal awards with the prior approval
of the Federal awarding agency.
and printing costs. Publication costs, including the costs of printing
(including the processes of composition, plate-making, press work, and
binding, and the end products produced by such processes), distribution,
promotion, mailing, and general handling are allowable.
Rearrangements and alterations. Costs incurred for ordinary and
normal rearrangement and alteration of facilities are allowable. Special
arrangements and alterations costs incurred specifically for a Federal
award are allowable with the prior approval of the Federal awarding agency.
costs. Costs incurred in the restoration or rehabilitation of the
governmental unit's facilities to approximately the same condition existing
immediately prior to commencement of Federal awards, less costs related
to normal wear and tear, are allowable.
a. Subject to
the limitations described in subsections b. through d. of this section,
rental costs are allowable to the extent that the rates are reasonable
in light of such factors as: rental costs of comparable property, if
any; market conditions in the area; alternatives available; and, the
type, life expectancy, condition, and value of the property leased.
b. Rental costs
under sale and leaseback arrangements are allowable only up to the
amount that would be allowed had the governmental unit continued to
own the property.
c. Rental costs
under less-than-arms-length leases are allowable only up to the amount
that would be allowed had title to the property vested in the governmental
unit. For this purpose, less-than-arms-length leases include, but
are not limited to, those where:
to the lease is able to control or substantially influence the actions
of the other;
are parts of the same governmental unit; or
unit creates an authority or similar entity to acquire and lease
the facilities to the governmental unit and other parties.
d. Rental costs
under leases which are required to be treated as capital leases under
GAAP are allowable only up to the amount that would be allowed had the
governmental unit purchased the property on the date the lease agreement
was executed. This amount would include expenses such as depreciation
or use allowance, maintenance, and insurance. The provisions of Financial
Accounting Standards Board Statement 13 shall be used to determine whether
a lease is a capital lease. Interest costs related to capital leases
are allowable to the extent they meet the criteria in section 26.
a. Taxes that
a governmental unit is legally required to pay are allowable, except
for self-assessed taxes that disproportionately affect Federal programs
or changes in tax policies that disproportionately affect Federal programs.
This provision becomes effective for taxes paid during the governmental
unit's first fiscal year that begins on or after January 1, 1998,
and applies thereafter.
taxes, motor vehicle fees, and other taxes that are in effect user
fees for benefits provided to the Federal Government are allowable.
c. This provision
does not restrict the authority of Federal agencies to identify taxes
where Federal participation is inappropriate. Where the identification
of the amount of unallowable taxes would require an inordinate amount
of effort, the cognizant agency may accept a reasonable approximation
The cost of training provided for employee development is allowable.
Travel costs are allowable for expenses for transportation, lodging,
subsistence, and related items incurred by employees traveling on official
business. Such costs may be charged on an actual cost basis, on a per
diem or mileage basis in lieu of actual costs incurred, or on a combination
of the two, provided the method used is applied to an entire trip, and
results in charges consistent with those normally allowed in like circumstances
in non-federally-sponsored activities. Notwithstanding the provisions
of section 23, travel costs of officials covered by that section, when
specifically related to Federal awards, are allowable with the prior
approval of a grantor agency.
and subsistence. Costs incurred by employees and officers for
travel, including costs of lodging, other subsistence, and incidental
expenses, shall be considered reasonable and allowable only to the
extent such costs do not exceed charges normally allowed by the governmental
unit in its regular operations as a result of the governmental unit's
policy. In the absence of a written governmental unit policy regarding
travel costs, the rates and amounts established under subchapter I
of Chapter 57 of Title 5, United States Code "Travel and Subsistence
Expenses; Mileage Allowances," or by the Administrator of General
Services, or the President (or his designee) pursuant to any provisions
of such subchapter shall be used as guidance for travel under Federal
awards (41 U.S.C. 420, "Travel Expenses of Government Contractors").
air travel. Airfare costs in excess of the customary standard
(coach or equivalent) airfare, are unallowable except when such accommodations
would: require circuitous routing, require travel during unreasonable
hours, excessively prolong travel, greatly increase the duration of
the flight, result in increased cost that would offset transportation
savings, or offer accommodations not reasonably adequate for the medical
needs of the traveler. Where a governmental unit can reasonably demonstrate
to the awarding agency either the nonavailability of customary standard
airfare or Federal Government contract airfare for individual trips
or, on an overall basis, that it is the governmental unit's practice
to make routine use of such airfare, specific determinations of nonavailability
will generally not be questioned by the Federal Government, unless
a pattern of avoidance is detected. However, in order for airfare
costs in excess of the customary standard commercial airfare to be
allowable, e.g., use of first-class airfare, the governmental unit
must justify and document on a case-by-case basis the applicable condition(s)
set forth above.
d. Air travel
by other than commercial carrier. Cost of travel by governmental
unit-owned, -leased, or -chartered aircraft, as used in this section,
includes the cost of lease, charter, operation (including personnel
costs), maintenance, depreciation, interest, insurance, and other
related costs. Costs of travel via governmental unit-owned, -leased,
or -chartered aircraft are unallowable to the extent they exceed the
cost of allowable commercial air travel, as provided for in subsection
Underrecovery of costs under Federal agreements. Any excess costs
over the Federal contribution under one award agreement are unallowable
under other award agreements.