GAB Decision 009
July 24, 1975
Docket No. 14
Emory University, Atlanta, Georgia;
DeGeorge Francis; Duke, David Mason, Malcolm
The sole issue in this case is whether, under the circumstances of
the case, a disallowance of $39,380, the computed amount of the interest
component of a time-purchase of computer equipment, should stand.
The program is of the view that the grantee has strong equities which
should be honored if legally permissible. The equities in favor of the
grantee are clear and there is no legal obstacle to honoring them. The
case is controlled by the principle of our earlier decision in
University of California, Los Angeles, Docket No. 6.
FACTS
Grantee, Emory University, has received many grants from the
Department.
One grant, to establish a computer center for health-related uses,
was made in 1965 for a three and fraction year period and continuation
awards were made in 1966 and 1967.
The grant that is the subject of this appeal is a renewal for
approximately a three year period. On the renewal, the University
requested support for the acquisition of better equipment. In place of
the original equipment, an IMB 1410 computer, grantee asked for support
for rental of an RCA 131 K byte 70/45 F processor to be later replaced
by a 70/55 F.
The program approved rental of the 70/45 but considered acquisition
of the 70/55 premature in terms of short-term projection of needs. (2)
The grantee obtained from RCA major price and other concessions for the
installation of the 70/55, later supplemented by a 70/46, on a
conditional sale basis. The installation involved a list price of
nearly $2 million. RCA made a contribution of $1 million, and the
services of an experienced systems analyst, availability of a customer
engineer, training courses for grantee personnel and a 20% educational
discount. The balance of the cost was to be paid partly out of
University funds with grant support for the acquisition of the equipment
and for operation limited to under $500,000 over a three year period.
The grantee sought and obtained approval of this arrangement,
disclosing both the change in its proposed equipment configuration and
the financing charges involved. Approval was conditioned on a
limitation of grant support to the amount that would have been furnished
for rental of 70/45 equipment. This arrangement served both the program
purposes and the grantee's own long-term growth plans. The amount of
grant support remained subject to negotiation in the light of actual and
projected health-related usage. On the basis of a history of 90%
health-related use, but contemplating an increased use by the University
for training and other uses, the grantee proposed that the percentage of
support, in addition to being limited to the maximum approved level
(based on rental of the approved 70/45) be further limited to 66 2/3%
the first year, 60% the second year and 50% the third year of the net
operating budget. After negotiation, specific levels of support based
on those percentages were worked out.
The program authorization did not require any specific level of
non-federal share, although some cost participation was required. The
grantee in fact furnished a substantial non-federal share in excess of
the amount of the interest component.
The grantee asserts that the interest component was fully absorbed by
the grantee and the program appears to agree. Had a doubt of the
propriety of the interest component been raised in advance, the grant
terms could have been and clearly would have been rearranged so that the
interest element would have been explicitly absorbed by the grantee
while other charges which the grantee in fact absorbed would have been,
as they properly could be, charged to the federal share of the grant.
(3) The amount of support granted by the program was negotiated in the
light of the rental cost of the approved configuration and of the
percentage of health-related usage based upon detailed past usage data
and projections for the future. Decreasing ceilings were set so as to
shift to the grantee full responsibility for supporting the project by
stages. For the budget period 5/15/68 through 4/30/69, the program
agreed to support $170,019 computed as 66% of the total net operating
budget after deducting income.
Similarly, for budget year 5/1/69 through 4/30/70, the program
indicated support at $157,683 computed as 60% of the total operating
budget of $262,805 after reducing actual computer acquisition costs to
the maximum recommended level and net after income. For a third year of
the renewed grant, 5/1/70 through 4/30/71, support was indicated at
$129,577 computed as 50% of $259,154 after reduction of computer
acquisition cost to maximum recommended level and net after projected
income from service charges. The three periods provided in total
$457,279 of SRR support. These three periods with their approved
budgets and level of supports were packaged into two grant awards
totalling $457,279 covering the same period.
The grantee has performed the grant in good faith with evident
concern to meet all requirements and to the satisfaction of the program.
LAW
Public Health Service Grants for Research Projects Policy Statement
(revised July 1, 1967) makes OMB Circular A-21 applicable (p. 16).
OMB Circular A-21 provides principles for determining the costs
applicable to research and development work performed by educational
institutions under grants from the Federal Government. These principles
are confined to the subject of cost determination and make no attempt to
dictate the extent of agency and institutional participation in the
financing of a particular project. The arrangements for agency and
institutional participation in the financing of (4) a research and
development project are properly subject to negotiation between the
agency and the institution concerned in accordance with such
government-wide criteria as may be applicable.
Sections J.1 through J.46 of A-21 provide standards to be applied in
establishing the allowability of certain items involved in determing
cost. In case of discrepancy between the provisions of a specific
research agreement and the applicable standards provided, the provisions
of the research agreement should govern.
J.13 provides that the cost of equipment or other facilities are
allowable where such purchases are approved by the sponsoring agency
concerned or provided for by the terms of the research agreement.
J.16 provicdes that costs incurred on borrowed capital or temporary
use of endowment funds, however represented, are unallowable.
DISCUSSION
The auditors questioned the interest component, being evidently aware
of the express approval by the program and unpersuaded of the relevance
of the large non-federal contribution and of the savings to the grantee
and the government resulting from the arrangement. The program accepted
the over-narrow reading of A-21, while noting that the grantee had
performed acceptably and in good faith and that the arrangement made
economic sence for the University and cost the government nothing or
saved the government money.
The program was explicitly on notice of the terms of the proposed
acquisition, saying to the grantee in effect, we think you are buying
this equipment sooner than is justified by need, but you may do so
provided the charge to the grant is limited to the amount we would be
willing to grant for rental of the approved 70/45. The grantee did so
limited the charge, absorbing the additional cost itself.
Full allowance of the challenged cost item carries out an agreement
plainly made by the program, relied on in good faith by the grantee,
which served the best interests of both the government and the grantee,
and which does not violate the letter of A-21 and does not violate any
rational purpose underlying the A-21 cost principles. (5) We are not
required to celebrate a portion of A-21 in disregard of its full terms,
its purpose, the purpose of the grant program and recognition of mutual
good faith between grantor or grantee.
DECISION
The appeal is allowed in full. See University of California, Docket
#6.
OCTOBER 22, 1983