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B-14386, OCTOBER 8, 1968, 48 COMP. GEN. 186

B-14386 Oct 08, 1968
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IS NOT PRECLUDED. ONLY THE APPROPRIATION ORIGINALLY OBLIGATED BY TRE GRANT IS AVAILABLE FOR THE PAYMENT OF AN UPWARD ADJUSTMENT OF A PROVISIONAL INDIRECT COST RATE. SECTIONS 52.14 (A) AND (B) WERE AMENDED EFFECTIVE JULY 1. EXCEPT IN THOSE LIMITED INSTANCES IN WHICH IT CAN BE DETERMINED IN ADVANCE THAT THE RATE NEGOTIATED IS LIKELY TO CLOSELY APPROXIMATE THE GRANT RECIPIENT'S ACTUAL INDIRECT COST RATE. TO NEGOTIATE FIXED PREDETERMINED RATES IS UTILIZED. HE ADVISES THAT WHERE PROVISIONAL RATES HAVE BEEN USED AS A BASIS FOR INCLUDING AN AMOUNT FOR INDIRECT COSTS IN THE GRANT AWARD. THESE RATES HAVE BEEN RECOGNIZED BY BOTH PARTIES TO BE SUBJECT TO ADJUSTMENT. WE ARE ALSO ADVISED THAT SUCH DETERMINATIONS GENERALLY OCCUR SOME TIME AFTER THE COMPLETION OF THE GRANTEE'S FISCAL YEAR AND IN THE CASE OF A TERMINATING PROJECT WILL NECESSARILY OCCUR AFTER THE CLOSE OF THE PROJECT PERIOD.

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B-14386, OCTOBER 8, 1968, 48 COMP. GEN. 186

FUNDS - FEDERAL GRANTS, ETC., TO OTHER THAN STATES - PROVISIONAL INDIRECT COST RATES - ADJUSTMENT SUPPLEMENTAL PAYMENTS TO GRANTEES UNDER SECTION 301 OF THE PUBLIC HEALTH SERVICE ACT, 42 U.S.C. 241 (D), AND IMPLEMENTING REGULATIONS AFTER THE EXPIRATION OF A RESEARCH PROJECT PERIOD TO COVER ACTUAL INDIRECT COSTS IN EXCESS OF THE ESTIMATED PROVISIONAL AMOUNTS ALLOCATED AS INDIRECT COSTS IN GRANT AWARDS MADE PRIOR TO JULY 1, 1968, THE DATE OF THE CLARIFYING AMENDMENTS TO SECTIONS 52.14 (A) AND (B) OF THE PUBLIC HEALTH SERVICE REGULATIONS PERMITTING ADJUSTMENT OF GRANT AWARDS, IS NOT PRECLUDED, THE USE OF THE PHRASE "PROVISIONAL INDIRECT COST RATE" IN GRANT AGREEMENTS RECOGNIZING A TENTATIVE ARRANGEMENT SUBJECT TO ADJUSTMENT--- AN ADJUSTMENT THAT WOULD NOT CREATE THE TYPE OBLIGATION PROHIBITED UNDER SECTION 52.14 (B). ONLY THE APPROPRIATION ORIGINALLY OBLIGATED BY TRE GRANT IS AVAILABLE FOR THE PAYMENT OF AN UPWARD ADJUSTMENT OF A PROVISIONAL INDIRECT COST RATE.

TO THE SECRETARY OF HEALTH, EDUCATION, AND WELFARE, OCTOBER 8, 1968:

LETTER DATED SEPTEMBER 6, 1968, FROM THE ASSISTANT SECRETARY, COMPTROLLER (ASSISTANT SECRETARY), CONCERNS THE AUTHORITY OF YOUR DEPARTMENT UNDER SECTION 301 OF THE PUBLIC HEALTH SERVICE ACT, AS AMENDED, 42 U.S.C. 241 (D) AND IMPLEMENTING REGULATIONS (42 CFR, PART 52) TO MAKE SUPPLEMENTAL PAYMENTS TO GRANTEES AFTER THE EXPIRATION OF A RESEARCH PROJECT PERIOD TO COVER ACTUAL INDIRECT COSTS IN EXCESS OF THE ESTIMATED PROVISIONAL AMOUNTS ALLOCATED AS INDIRECT COSTS IN THE GRANT AWARD. THE QUESTION ARISES BECAUSE OF THE PROVISIONS OF SECTION 52.14 (D) OF THE REGULATIONS WHICH, IN EFFECT, PROHIBIT THE MAKING OF SUPPLEMENTAL AWARDS AFTER THE CONCLUSION OF THE PROJECT PERIOD. IN ORDER TO CLARIFY THE SITUATION, SECTIONS 52.14 (A) AND (B) WERE AMENDED EFFECTIVE JULY 1, 1968 (33 F.R. 9821, JULY 9, 1968) TO PROVIDE EXPRESSLY FOR SUCH UPWARD AS WELL AS DOWNWARD ADJUSTMENT "TO ACTUAL COSTS WHEN THE AMOUNT PROPERLY EXPENDED BY THE GRANTEE FOR PROVISIONAL ITEMS HAS BEEN DETERMINED BY THE SECRETARY"; BUT THIS ACTION DOES NOT AFFECT THOSE PROJECTS FOR WHICH THE PROJECT PERIOD EXPIRED PRIOR TO JULY 1, 1968.

THE ASSISTANT SECRETARY STATES THAT IN CONNECTION WITH RESEARCH PROJECT GRANTS AWARDED PURSUANT TO THE AUTHORITY CONTAINED IN THE PUBLIC HEALTH SERVICE ACT, IT HAS TRADITIONALLY BEEN PUBLIC HEALTH SERVICE POLICY TO PAY ACTUAL DIRECT AND INDIRECT COSTS IN CARRYING OUT A RESEARCH PROJECT IN ACCORDANCE WITH THE REGULATIONS AND OTHER APPLICABLE LEGAL LIMITATIONS. HE FURTHER STATES THAT WITH REGARD TO INDIRECT COSTS, IT HAS GENERALLY BEEN PUBLIC HEALTH SERVICE PRACTICE TO UTILIZE PROVISIONAL INDIRECT COST RATES IN DETERMINING AMOUNTS TO BE AWARDED, EXCEPT IN THOSE LIMITED INSTANCES IN WHICH IT CAN BE DETERMINED IN ADVANCE THAT THE RATE NEGOTIATED IS LIKELY TO CLOSELY APPROXIMATE THE GRANT RECIPIENT'S ACTUAL INDIRECT COST RATE, IN WHICH EVENT THE AUTHORITY PROVIDED UNDER PUBLIC LAW 87-638, 41 U.S.C. 254A, TO NEGOTIATE FIXED PREDETERMINED RATES IS UTILIZED, WHERE AVILABLE. HE ADVISES THAT WHERE PROVISIONAL RATES HAVE BEEN USED AS A BASIS FOR INCLUDING AN AMOUNT FOR INDIRECT COSTS IN THE GRANT AWARD, THESE RATES HAVE BEEN RECOGNIZED BY BOTH PARTIES TO BE SUBJECT TO ADJUSTMENT, BASED ON A SUBSEQUENT DETERMINATION OF ACTUAL INDIRECT COST RATES. WE ARE ALSO ADVISED THAT SUCH DETERMINATIONS GENERALLY OCCUR SOME TIME AFTER THE COMPLETION OF THE GRANTEE'S FISCAL YEAR AND IN THE CASE OF A TERMINATING PROJECT WILL NECESSARILY OCCUR AFTER THE CLOSE OF THE PROJECT PERIOD.

THE PROS AND CONS OF THE MATTER, AS SET FORTH IN THE ASSISTANT SECRETARY'S LETTER, ARE AS FOLLOWS:

AS NOTED ABOVE SECTIONS 52.14 (A) AND (B) OF THE PUBLIC HEALTH SERVICE REGULATIONS WERE AMENDED EFFECTIVE JULY 1, 1968 TO EXPRESSLY AUTHORIZE THE AWARDING OF PROVISIONAL AMOUNTS FOR INDIRECT COSTS, WHICH PROVISIONAL AMOUNTS MAY BE ADJUSTED UPWARD AFTER THE EXPIRATION OF THE PROJECT PERIOD IN THE EVENT THAT ALLOWABLE INDIRECT COSTS INCURRED EXCEED THOSE PROVISIONALLY ALLOWED. IT COULD BE ARGUED THAT, PRIOR TO THIS AMENDMENT THE SENSE OF THE REGULATIONS, PARTICULARLY AS REFLECTED IN THE PROVISIONS OF SECTIONS 52.14 (B) AND (D) WAS THAT ONCE THE ACTIVITY OR APPROVED PROJECT IS COMPLETED (IF NOT SOONER) THE GOVERNMENT'S INTEREST OF ASSISTING THE NONGOVERNMENTAL ACTIVITIES IS SATISFIED, AND THAT NO OBLIGATION EXISTS TO PAY MORE THAN WAS ACTUALLY AWARDED.

HOWEVER, IT MAY ALSO BE ARGUED THAT THE AMENDED REGULATIONS MERELY CLARIFIED THE INTENT OF THE REGULATIONS AS PREVIOUSLY WRITTEN TO PAY FULL INDIRECT COSTS. IT MAY BE FURTHER ARGUED THAT ADDITIONAL AMOUNTS AWARDED TO PROVIDE SUCH FULL PAYMENT REPRESENT NOTHING MORE THAN THE ASCERTAINMENT OF THE AMOUNT OF THE ORIGINAL OBLIGATION AND HENCE DO NOT CONSTITUTE AN ADDITIONAL OR SUPPLEMENTAL GRANT AWARD. THIS INTERPRETATION IS REINFORCED BY THE PUBLIC HEALTH SERVICE POLICY STATEMENTS (REVISED JULY 1, 1967) WITH RESPECT TO RESEARCH GRANTS WHICH AMPLIFIED THE STATEMENT OF THE DISCRETIONARY AUTHORITY IN SECTION 52.10 OF THE REGULATIONS THAT "A RESEARCH PROJECT GRANT IS THE AWARD ... OF FUNDS ... TO MEET IN WHOLE OR IN PART THE COSTS OF CONDUCTING ... THE PROJECT" BY PROVIDING (ON PAGE 28) THAT "WITH CERTAIN RESTRICTIONS AND PROHIBITIONS ... THE PUBLIC HEALTH SERVICE SUPPORTS THE POLICY OF FULL REIMBURSEMENT FOR APPLICABLE INDIRECT COSTS" AND FURTHER THAT "... IF THE FINAL ACTUAL RATE IS HIGHER THAN THE PROVISIONAL RATE, THE AWARDING INSTITUTE OR DIVISION SHALL PROVIDE THE DIFFERENCE FROM FUNDS AVAILABLE FOR THIS PURPOSE.'

IT MAY NEVERTHELESS BE CONTENDED THAT ALTHOUGH ADDITIONAL PAYMENTS MAY BE MADE TO MEET AN OBLIGATION ESTABLISHED AT THE COMMENCEMENT OF THE GRANT YEAR BUT NOT FULLY ASCERTAINED UNTIL AFTER COMPLETION OF THE GRANT YEAR, SUCH PAYMENTS ARE CONFINED BY SECTION 52.14 (D) OF THE REGULATIONS TO THE TIME SPAN ENCOMPASSED WITHIN THE PROJECT PERIOD. HOWEVER, THE PROVISIONS OF SECTIONS 52.32 AND 52.41 WOULD APPEAR TO SUPPORT THE VIEW THAT SUCH PAYMENTS MAY BE MADE EVEN AFTER COMPLETION OF THE PROJECT PERIOD. IN THIS CONNECTION, THE LANGUAGE OF SECTION 52.14 (E) WHICH PROVIDES THAT ,THE SECRETARY SHALL ... MAKE PAYMENTS TO A GRANTEE ... FOR EXPENSES TO BE INCURRED OR INCURRED IN THE PROJECT PERIOD. ...' CLEARLY CONTEMPLATES THAT SUPPLEMENTAL PAYMENTS MAY BE MADE AFTER THE COMPLETION OF THE PROJECT PERIOD WHEN SUCH PAYMENTS ARE TO COMPENSATE GRANTEES FOR EXPENSES ACTUALLY INCURRED DURING THE PROJECT PERIOD, WITH ONLY THE CALCULATION OF SUCH EXPENSES COMING AFTER THE PROJECT HAS BEEN TERMINATED.

WE ARE ADVISED THAT WITHIN THE CONTEXT OF THIS BACKGROUND, YOUR DEPARTMENT IS CURRENTLY CONFRONTED WITH A CIRCUMSTANCE IN WHICH A NUMBER OF GRANTEE INSTITUTIONS HAVE REQUESTED PAYMENT FOR INDIRECT COSTS INCURRED IN YEARS PRIOR TO FISCAL YEAR JULY 1, 1968 (THE EFFECTIVE DATE OF THE AMENDMENT TO SECTIONS 52.14 (A) AND (B) OF THE REGULATIONS), WHICH WERE IN EXCESS OF THE AMOUNTS PROVISIONALLY AWARDED. THESE INSTITUTIONS CONTEND THAT THEIR RESEARCH WAS UNDERTAKEN UNDER PUBLIC HEALTH SERVICE AWARDS WITH THE UNDERSTANDING, AS DERIVED FROM REGULATIONS AND POLICY STATEMENTS, THAT AWARDS FOR INDIRECT COSTS WERE PROVISIONALIN NATURE AND HENCE SUBJECT TO UPWARD AS WELL AS DOWNWARD ADJUSTMENT UPON DETERMINATION OF ACTUAL INDIRECT COSTS. THEY CONTEND FURTHER THAT THE FAILURE TO MAKE PAYMENTS FOR ACTUAL INDIRECT COSTS HAS CREATED AN UNEXPECTED FINANCIAL BURDEN.

THE ASSISTANT SECRETARY STATES THAT IT IS PROPOSED TO MAKE ADJUSTMENTS TO GRANTS AWARDED TO THESE INSTITUTIONS, IN THOSE INSTANCES IN WHICH ACTUAL INDIRECT COSTS EXCEED AMOUNTS PROVISIONALLY AWARDED BOTH IN THOSE CASES IN WHICH THE PROJECT PERIOD HAS EXPIRED AS WELL AS TO THOSE IN WHICH THE GRANT YEAR, BUT NOT THE PROJECT PERIOD, HAS EXPIRED.

OUR ADVICE IS REQUESTED AS TO WHETHER OR NOT WE WOULD BE REQUIRED TO OBJECT TO SUCH UPWARD ADJUSTMENTS.

IF THE ANSWER TO THE ABOVE QUESTION IS IN THE NEGATIVE, OUR ADVICE IS ALSO REQUESTED AS TO WHETHER WE WOULD BE REQUIRED TO OBJECT TO YOUR DEPARTMENT'S PROPOSAL TO PAY SUCH AMOUNTS FROM THE APPROPRIATION FOR THE FISCAL YEAR IN WHICH THE OBLIGATION WAS INCURRED TO THE EXTENT THAT FUNDS ARE AVAILABLE.

ALTHOUGH THERE IS NOTHING IN THE IMPLEMENTING REGULATIONS (42 CFR, PART 52) CONCERNING ,PROVISIONAL INDIRECT COST RATES," THE STATEMENT ON PAGE 31 OF THE PUBLIC HEALTH "POLICY TATEMENT" AS "REVISED JULY 1, 1967," SUPPORTS THE CONCLUSION THAT "PROVISIONAL INDIRECT COST RATES" CONTAINED IN GRANT AWARDS WERE INTENDED TO BE SUBJECT TO UPWARD AS WELL AS DOWNWARD ADJUSTMENT UPON DETERMINATION OF ACTUAL INDIRECT COST RATES. WE FOUND, HOWEVER, NOTHING IN THE ,POLICY STATEMENT" IN EFFECT IMMEDIATELY PRIOR TO JULY 1, 1967, SPECIFICALLY PROVIDING FOR A ,PROVISIONAL INDIRECT COST RATE" IN A GRANT; BUT NEITHER DID WE FIND ANYTHING THEREIN PROHIBITING THE INCLUSION OF SUCH A PROVISION IN A GRANT AWARD.

IT WOULD BE REASONABLE TO ASSUME THAT IN AGREEING TO A RATE IN A GRANT SPECIFICALLY DENOMINATED THEREIN AS A "PROVISIONAL INDIRECT COST RATE," BOTH THE GRANTOR AND THE GRANTEE RECOGNIZED THAT THE RATE WOULD BE SUBJECT TO ADJUSTMENT, BASED ON A SUBSEQUENT DETERMINATION OF ACTUAL INDIRECT COST RATES. TO HOLD OTHERWISE WOULD APPEAR TO MAKE MEANINGLESS THE TERM "PROVISIONAL," WHICH IS DEFINED IN WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY TO MEAN, AMONG OTHER THINGS, "SUITABLE OR ACCEPTABLE IN THE EXISTING SITUATION BUT SUBJECT TO CHANGE OR NULLIFICATION: TENTATIVE: CONDITIONAL * * * CONTRASTED WITH DEFINITIVE.'

FURTHER, WE DO NOT FEEL THAT SECTIONS 52.14 (B) OR (D) OF THE IMPLEMENTING REGULATION REQUIRE A DIFFERENT CONCLUSION. INSOFAR AS PERTINENT HERE SECTION 52.14 (D) OF THE GOVERNING REGULATIONS AUTHORIZES THE MAKING OF ADDITIONAL OR SUPPLEMENTAL GRANT AWARDS (WITHIN THE PROJECT PERIOD). SECTION 52.14 (B) OF THE REGULATIONS PROVIDES THAT NEITHER THE APPROVAL OF A PROJECT NOR A GRANT AWARD SHALL COMMIT OR OBLIGATE THE UNITED STATES IN ANY WAY "TO MAKE ANY ADDITIONAL, SUPPLEMENTAL, CONTINUATION OR OTHER AWARD WITH RESPECT TO ANY APPROVED PROJECT OR PORTION EREOF.' HOWEVER, ADJUSTING A "PROVISIONAL INDIRECT COST RATE" CONTAINED IN A GRANT ON THE BASIS OF A SUBSEQUENTLY DETERMINED ACTUAL INDIRECT COST RATE, DOES NOT, IN OUR OPINION, CONSTITUTE THE MAKING OF AN "ADDITIONAL, SUPPLEMENTAL, CONTINUATION OR OTHER AWARD" OR GRANT. RATHER, AS INDICATED ABOVE, SUCH ACTION CONSTITUTES AN ADJUSTMENT OF THE "PROVISIONAL RATE" CONTAINED IN THE ORIGINAL GRANT AS PRESUMABLY CONTEMPLATED BY THE GRANTOR AND THE GRANTEE, OTHERWISE THE RATE WOULD NOT HAVE BEEN DESIGNATED IN THE GRANT AS PROVISIONAL. IN OTHER WORDS WE AGREE WITH THE VIEW EXPRESSED IN THE ASSISTANT SECRETARY'S LETTER TO THE EFFECT THAT SUCH AN ADJUSTMENT REPRESENTS NOTHING MORE THAN THE ASCERTAINMENT OF THE AMOUNT OF THE ORIGINAL OBLIGATION, AND HENCE DOES NOT CONSTITUTE AN ADDITIONAL OR SUPPLEMENTAL GRANT AWARD.

ACCORDINGLY, WE WOULD NOT BE REQUIRED TO OBJECT TO THE UPWARD ADJUSTMENT OF AN INDIRECT COST RATE EXPRESSLY DESIGNATED AS A "PROVISIONAL RATE" IN THE "GRANT AWARD," TO THE RATE SUBSEQUENTLY DETERMINED TO BE THE ACTUAL INDIRECT COST RATE, IF OTHERWISE PROPER, SUBJECT TO ANY STATUTORY OR OTHERWISE APPLICABLE LIMITATION ON INDIRECT COSTS IN EFFECT WHEN THE GRANT INVOLVED WAS MADE.

AS TO THE SECOND QUESTION, A GRANT CONTAINING A "PROVISIONAL INDIRECT COST RATE"--- WHICH RATE WAS INTENDED BY THE GRANTOR AND GRANTEE TO BE SUBJECT TO ADJUSTMENT (UPWARD OR DOWNWARD) ON THE BASIS OF A SUBSEQUENT DETERMINATION OF THE ACTUAL INDIRECT COST RATE--- WOULD OBLIGATE OR ENCUMBER THE APPLICABLE APPROPRIATION CURRENT AT THE TIME THE GRANT WAS MADE TO THE EXTENT NECESSARY TO SATISFY ANY PAYMENTS DUE THE GRANTEE RESULTING FROM ANY REQUIRED UPWARD ADJUSTMENT OF THE PROVISIONAL INDIRECT COST RATE. THEREFORE THE APPROPRIATION ORIGINALLY OBLIGATED BY THE GRANT INVOLVED WOULD BE THE ONLY APPROPRIATION LEGALLY AVAILABLE TO PAY AMOUNTS DUE THE GRANTEE AS A RESULT OF ANY REQUIRED UPWARD ADJUSTMENT OF THE PROVISIONAL INDIRECT COST RATE SET FORTH IN THE GRANT. CF. 20 COMP. GEN. 370.

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