Services Provided by Affiliated Organizations

A number of universities and other organizations have established closely affiliated, but separately incorporated, organizations to facilitate the administration of research and other programs supported by Federal funds. Such legally independent entities are often referred to as "foundations," although this term does not necessarily appear in the name of the organization. Typically, the parent organization provides considerable support services, in the form of administration, facilities, equipment, accounting, and other services, to its foundation, and the latter, acting in its own right as an NIH grantee, includes the cost of these services in its F&A proposal.

Costs incurred by an affiliated but separate legal entity in support of a grantee foundation are allowable for reimbursement under NIH grants only if at least one of the following conditions is met:

• The grantee foundation is charged for, and is legally obligated to pay for, the services provided by the parent organization.
• The affiliated organizations are subject to a State or local law that prescribes how Federal reimbursement for the costs of the parent organization's services will be expended and requires that a State or local official acting in his or her official capacity approves such expenditures.
• There is a valid written agreement between the affiliated organizations whereby the parent organization agrees that the grantee foundation may retain Federal reimbursement of parent organization costs. The parent organization may either direct how the funds will be used or permit the grantee foundation that discretion.

If none of the above conditions is met, the costs of the services provided by the parent organization to the grantee foundation are not allowable for reimbursement under an NIH grant. However, the services may be acceptable for cost-sharing (matching) purposes.

Allowability of Costs/Activities

The governing cost principles address selected items of cost, some of which are mentioned in this subsection for emphasis. The cost principles themselves should be consulted for the complete explanation of the allowability or unallowability for those items or types of cost. This subsection also includes NIH-specific requirements concerning costs and activities.

This subsection is not intended to be all-inclusive. The allowability of costs under NIH grants may be subject to additional or alternative requirements specified in the program legislation, regulations, or the specific terms and conditions of an award, which will take precedence over the general discussion provided here. Applicants or grantees that have questions concerning the allowability of particular costs should contact the designated GMO.

If a cost is allowable, it is allocable as either a direct cost or an F&A cost, depending on the grantee's accounting system. For some costs addressed in this section, the text specifies whether the cost is usually a direct cost or an F&A cost, but it does not address that aspect of allocability for every category of cost.

Unless otherwise indicated in the NGA, an award based on an application that includes specific information concerning any costs and/or activities requiring prior approval constitutes the prior approval for those costs/activities. The grantee is not required to obtain any additional approval for those costs/activities. Postaward requests to incur costs or undertake activities requiring prior approval that are not described in the approved application are subject to the requirements in "Administrative Requirements—Changes in Project and Budget."

Contractors under grants are subject to the requirements of the cost principles otherwise applicable to their type of organization and to any requirements placed on the contractor by the grantee in order to comply with the terms and conditions of the NIH grant.

The cost principles do not address profit or fee. NIH policy allows the payment of fee on SBIR/STTR grants (see "Grants to For-Profit Organizations") but NIH will not provide profit or fee under any other grant program or support mechanism to any type of recipient. A fee may not be paid by a grantee to a consortium participant, including a for-profit organization, under a consortium agreement.

Selected Items of Cost

Advertising: Allowable only for recruitment of staff or trainees, procurement of goods and services, disposal of scrap or surplus materials, and other specific purposes necessary to meet the requirements of the grant-supported project or activity.

Alcoholic Beverages: Unallowable as an entertainment expense, but allowable if within the scope of an approved research project.

Alteration and Renovation: Alteration and renovation (A&R), also termed "rearrangement and alteration," is defined as work required to change the interior arrangements or other physical characteristics of an existing facility or of installed equipment so that it may be more effectively utilized for its currently designated purpose or adapted to an alternative use to meet a programmatic requirement.

Under NIH grants, individual A&R projects that are treated as direct costs and that will not exceed $500,000 will be subject to the A&R policies specified in this subsection and in the "Construction Grants" section, as applicable. Individual A&R projects exceeding $500,000 will be subject to the requirements specified in the "Construction Grants" section.

Routine maintenance and repair of the organization's physical plant or its equipment, which is allowable and is ordinarily treated as an F&A cost, is not considered A&R for purposes of applying this NIH policy. Certain allowable costs of installing equipment, such as the temporary removal and replacement of wall sections and door frames in order to place equipment in its permanent location, or the costs of connecting utility lines, replacing finishes and furnishings, and installing any accessory devices required for the equipment's proper and safe utilization, may be considered either equipment costs or A&R costs, depending on the grantee's accounting system.

A&R costs are not allowable under grants to individuals, foreign grants, and grants in support of scientific meetings (conference grants). In all other cases, these costs are allowable unless the program legislation, implementing regulations, program guidelines, or other terms and conditions of the award specifically exclude such activity. The A&R must be consistent with the following criteria and documentation requirements:

• The building has a useful life consistent with program purposes and is architecturally and structurally suitable for conversion to the type of space required;
• The A&R is essential to the purpose of the grant-supported project;
• The space involved will be occupied by the project;
• The space is suitable for human occupancy before A&R work is started except where the purpose of the A&R is to make the space suitable for some purpose other than human occupancy, such as storage; and
• If the space is rented, evidence is provided that the terms of the lease are compatible with the A&R proposed and cover the duration of the project period.

Work necessary to obtain an initial occupancy permit for the intended use is not an allowable A&R cost.

A grantee may rebudget up to 25 percent of the total approved budget for a budget period into A&R costs without NIH prior approval unless such rebudgeting would result in a change in scope. If the rebudgeting results in an A&R project exceeding $300,000, NIH will consider the rebudgeting to be a change in scope, and the grantee must submit to the NIH IC the documentation specified in "Construction Grants" for approval of A&R projects above that dollar level.

Animals: Allowable for the acquisition, care, and use of experimental animals. If the grantee operates an animal resource facility, charges for use of the facility should be determined in accordance with the Cost Analysis and Rate Setting Manual for Animal Resource Facilities (May 2000), available from the National Center for Research Resources (NCRR) at its Web site: (http://www.ncrr.nih.gov/newspub/CARS.pdf) or from the NCRR Office of Science Policy and Public Liaison, 6705 Rockledge Drive, Bethesda, MD 20892-7965, (301) 435-0888, e-mail: ospio@ncrr.nih.gov.

Audiovisual Activities: Allowable for the production of an audiovisual. "Audiovisual" means any product containing visual imagery or sound, or both, such as motion pictures, films, videotapes, live or recorded radio or television programs or public service announcements, slide shows, filmstrips, audio recordings, multimedia presentations, or exhibits where visual imagery or sound or both are an integral part. "Production" refers to the steps and techniques used to create a finished audiovisual product including, but not limited to, design, layout, scriptwriting, filming or taping, fabrication, sound recording, and editing.

A recipient having in-house production capability must determine whether it would be more efficient and economical to use that capability or to contract for the production of an audiovisual.

If an audiovisual intended for general public audiences (i.e., persons who are not researchers or health professions personnel and/or who are not directly involved in project activities either as employees, trainees, or participants such as volunteers or patients) is produced under an NIH grant-supported project, the grantee must submit two prints or tapes of the finished product along with its annual or final progress report (see "Administrative Requirements—Monitoring—Reporting"). The costs of such prints or tapes are allowable project costs.

Audiovisuals produced under an NIH grant-supported project must bear an acknowledgment and disclaimer, such as:

The production of this motion picture (television program, etc.) was supported by Grant No.____________ from (name of NIH awarding office). Its contents are solely the responsibility of (name of grantee organization) and do not necessarily represent the official views of (name of NIH awarding office).

Audit Costs: Allowable (see "Administrative Requirements—Monitoring—Audit" and section 230 of OMB Circular A-133). The charges may be considered a direct cost when the audit's scope is limited to a single NIH grant-supported project or program, as specified in 45 CFR 74.26(d), or includes more than one project but the costs can be specifically identified with, and allocated to, each project on a proportional basis, and this practice is followed consistently by the grantee. Otherwise, charges for audits should be treated as F&A costs.

Bad Debts: Unallowable.

Bid and Proposal Costs: Allowable as an F&A cost. See 45 CFR 74.27(b)(1) for policy for non-profit organizations covered by OMB Circular A-122.

Bonding: Allowable. See 45 CFR 74.21, 74.47(c) and 92.36 for policies and requirements concerning bonding.

Books and Journals: Allowable. If an organization has a library, books and journals should generally be provided as part of normal library services and treated as F&A costs rather than being directly charged.

Building Acquisition: Unallowable unless building acquisition or construction is specifically authorized by program legislation and is provided for in the grant award. Those NIH programs that have such statutory construction authority are generally intended to enhance research infrastructure through the establishment of new or modified facilities; therefore, lease-versus-purchase considerations are not normally associated with these awards. (See "Rental or Lease of Facilities and Equipment" in this subsection.) For real property acquired with NIH grant support, the cost of title insurance may be charged to the grant in proportion to the Federal share of the acquisition cost. Filing fees for recording the Federal interest in the real property in appropriate records of the applicable jurisdiction also may be charged to the grant. (Also see "Construction Grants—Allowability of Costs/Activities.")

Child Care Costs: Allowable if incurred to assist individuals to participate as subjects in research projects. Such costs also may be allowable as a fringe benefit for individuals working on a grant-supported project (see "Fringe Benefits" in this subsection).

Communications: Allowable. Such costs include local and long-distance telephone calls, telephone surveys, telegrams, and postage, and are usually treated as F&A costs.

Conference Grant Costs: See "Support of Scientific Meetings (Conference Grants)" for NIH policies for support of scientific meetings (conferences).

Consortium Agreements/Contracts under Grants: Allowable to carry out a portion of the programmatic effort or for the acquisition of routine goods or services under the grant. Such arrangements may require NIH approval as specified in "Administrative Requirements—Changes in Project and Budget." (See " Administrative Requirements—Management Systems and Procedures—Procurement System Standards and Requirements" for policies that apply to the acquisition of routine goods and services and " Consortium Agreements" for policies that apply to grantee collaboration with other organizations in carrying out the grant-supported research.)

Construction: Allowable only when program legislation specifically authorizes new construction, modernization, or major A&R, and NIH specifically authorizes such costs in the NGA. When authorized, construction activities may include construction of a new facility or projects in an existing building that are considered to be construction, such as relocation of exterior walls, roofs, and floors; attachment of fire escapes; or completion of unfinished shell space to make it suitable for human occupancy (see "Construction Grants").

Consultant Services: Allowable. A consultant is an individual retained to provide professional advice or services on a project for a fee but usually not as an employee of the requiring organization. The term "consultant" also includes a firm that provides paid professional advice or services. Grantees must have written policies governing their use of consultants that are consistently applied regardless of the source of support. The general circumstances of allowability of these costs, which may include fees and travel and subsistence costs, are addressed in the applicable cost principles under "professional services costs."

In unusual situations, a person may be both a consultant and an employee of the same party, receiving compensation for some services as a consultant and for other work as a salaried employee as long as those separate services are not related to the same project and are not charged to the same project. In order to prevent apparent or actual conflicts of interest, grantees, consortium participants, and contractors under grants must establish written guidelines indicating the conditions, if any, under which the payment of consulting fees to employees is proper. Under no circumstances can an individual be paid as a consultant and an employee under the same NIH grant.

In unusual cases and with authorization as indicated below, consulting fees paid by an educational institution to a salaried faculty member that represent extra compensation above that individual's base salary are allowable, provided the consultation is across departmental lines or involves a separate or remote operation and the work performed by the consultant is in addition to his or her regular departmental workload. In all other cases, consulting fees paid to employees of a grantee, a consortium participant, or a contractor in addition to salary may be charged to NIH grant-supported projects only when all of the following conditions exist:

• The policies of the grantee, consortium participant, or contractor permit such consulting fee payments to its own employees regardless of whether Federal grant funds are received;
• The consulting services are clearly outside the scope of the individual's salaried employment;
• It would be inappropriate or not feasible to compensate the individual for those services through payment of additional salary; and
• Approval is obtained as specified below.

Authorization for consulting fees paid to individuals serving as both employees and consultants of the same party must be provided in writing, on a case-by-case basis, by the head of the recipient organization, consortium participant, or contractor incurring the costs, or his or her designee. If the designee is personally involved in the project, the authorization may be given only by the head of the recipient organization, consortium participant, or contractor. This authorization must include a determination that the required conditions are present and that there is no apparent or actual conflict of interest.

Grantees, consortium participants, and contractors under grants are encouraged to obtain written reports from consultants unless such a report is not feasible given the nature of the consultation or would not be useful. Documentation maintained by the receiving organization should include the name of the consulting firm or individual consultant(s); the nature of the services rendered and their relevance to the grant-supported activities, if not otherwise apparent from the nature of the services; the period of service; the basis for calculating the fee paid (e.g., rate per day or hour worked or rate per unit of service rendered); and the amount paid. This information may be included in the consultant's invoice, in the report, or in another document.

See "Grants to Federal Institutions and Payments to (or on Behalf of) Federal Employees under Grants" for allowable costs associated with consultant payments to Federal employees as well as the circumstances of allowability.

Contingency Funds: Unallowable. Contributions set aside for events whose occurrence cannot be foretold with certainty as to time, intensity, or assurance of their happening are unallowable under non-construction grants. Contingency funds do not include pension funds, self-insurance funds, and normal accruals (also see "Reserve Funds" in this subsection). (See "Construction Grants—Allowability of Costs/Activities—Allowable Costs/Activities" concerning contingency funds under construction grants.)

Customs and Import Duties: Allowable under grants to domestic organizations when performance will take place entirely within the United States, its possessions, or its territories, or when foreign involvement in the project is incidental to the overall grant-supported project. Charges may include consular fees, customs surtaxes, value-added taxes, and other related charges. (See "Awards to Foreign Institutions, International Organizations, and Domestic Grants with Foreign Components—Allowability of Costs/Activities" for the allowability of these costs under awards to those types of organizations.)

Depreciation or Use Allowances: Allowable. Such costs are usually treated as F&A costs. Depreciation or use charges on equipment or buildings acquired under a federally supported project are not allowable.

Donor Costs: Allowable for payment to volunteers or research subjects who contribute blood, urine samples, and other body fluids or tissues that are specifically project-related.

Drugs: Allowable if within the scope of an approved research project.

Project funds may not be used to purchase drugs classified by the Food and Drug Administration as "ineffective" or "possibly effective" except in approved clinical research projects or in cases where there is no alternative other than therapy with "possibly effective" drugs.

Dues or Membership Fees: Allowable as an F&A cost for organizational membership in business, professional, or technical organizations or societies.

Payment of dues or membership fees for an individual's membership in a professional or technical organization is allowable as a fringe benefit or an employee development cost, if paid according to an established organizational policy consistently applied regardless of the source of funds.

Entertainment Costs: Unallowable. This includes the cost of amusements, social activities, and related incidental costs.

Equipment: Allowable for purchase of new, used, or replacement equipment as a direct cost or as part of F&A costs, depending on the intended use of the equipment. NIH prior approval may be required as specified in "Administrative Requirements—Changes in Project and Budget."

In accordance with the requirements of NIH appropriations acts, American-made items should be purchased to the extent possible.

Funds provided under a conference grant may not be used for the purchase of equipment.

For policies governing the classification, use, management, and disposition of equipment, see "Administrative Requirements—Management Systems and Procedures—Property Management System Standards." For policies governing the allowability of costs for rental of equipment, see " Rental or Lease of Facilities and Equipment" in this subsection.

Federal (U.S. Government) Employees: See "Grants to Federal Institutions and Payments to (or on Behalf of) Federal Employees Under Grants—Allowability of Costs/Activities" for the allowability of payments made to, or on behalf of, Federal employees under NIH grants, including grants to Federal institutions.

Fines and Penalties: Unallowable except when resulting from violations of, or failure of the organization to comply with, Federal, State, or local laws and regulations when incurred as a result of compliance with specific provisions of an award, or when such payments are authorized in advance in writing by the NIH IC.

Fringe Benefits: Allowable as part of overall compensation to employees in proportion to the amount of time or effort employees devote to the grant-supported project, provided such costs are incurred under formally established and consistently applied policies of the organization (see "Salaries and Wages" in this subsection).

Tuition or tuition remission for regular employees is allowable as a fringe benefit. For organizations subject to OMB Circular A-21, tuition benefits for family members other than the employee are unallowable. For policies applicable to tuition remission for students working on grant-supported research projects, see "Salaries and Wages" in this subsection. See "National Research Service Awards—Individual National Research Service Awards (Fellowships)—Financial Provisions—Other Costs—Tuition and Fees" and " National Research Service Awards—Institutional National Research Service Awards (Training Grants)—Financial Provisions—Other Direct Costs—Trainee Tuition and Fees" for the allowability of tuition costs for trainees and fellows.

Fundraising Costs: Unallowable.

Hazardous Waste Disposal: Allowable. Usually treated as an F&A cost.

Honoraria: Unallowable when the primary intent is to confer distinction on, or to symbolize respect, esteem, or admiration for, the recipient of the honorarium. A payment for services rendered, such as a speaker's fee under a conference grant, is allowable.

Hospitalization: See " Research Patient Care" in this subsection.

Independent Research and Development Costs: Unallowable, including their proportionate share of F&A costs.

Insurance: Allowable. Insurance is usually treated as an F&A cost. In certain situations, however, where special insurance is required as a condition of the grant because of risks peculiar to the project, the premium may be charged as a direct cost if doing so is consistent with organizational policy. Medical liability (malpractice) insurance is an allowable cost of research programs at educational institutions only if the research involves human subjects. If so, it should be treated as a direct cost and assigned to individual grants based on the manner in which the insurer allocates the risk to the population covered by the insurance.

The costs of insuring equipment, whether purchased with project funds or furnished as Government-owned property, should normally be included in F&A costs but may be allowable as a direct cost if this manner of charging is the normal organizational policy.

Medical insurance for trainees and fellows is addressed in "National Research Service Awards."

Interest: Allowable as an F&A cost for certain assets as specified in the applicable cost principles. Unallowable for hospitals.

Leave: Allowable for employees as a fringe benefit (see "Fringe Benefits" in this subsection). See "National Research Service Awards—Individual National Research Service Awards (Fellowships)—Other Terms and Conditions—Leave" and " National Research Service Awards—Institutional National Research Service Awards (Training Grants)—Other Terms and Conditions—Leave" for NIH policy on leave for fellows and trainees.

Legal Services: Allowable. Generally treated as an F&A cost but may be treated as a direct cost, subject to the limitations described in the applicable cost principles, for legal services provided by individuals who are not employees of the grantee organization. Before a grantee incurs legal costs that are extraordinary or unusual in nature, the grantee should make an advance agreement regarding the appropriateness and reasonableness of such costs with the designated GMO.

Legal costs incurred in defending or prosecuting claims, whether equitable or monetary, including administrative grant appeals, are unallowable charges to NIH grant-supported projects, except as provided in the applicable cost principles.

Library Services: General library support is not allowable as a direct cost but may be included in the grantee's F&A pool. However, such services are allowable as a direct cost when specifically required for the conduct of the project and when identifiable as an integral part of the grant-supported activity (e.g., in those programs designed to develop and support such services).

Lobbying: Generally unallowable, including costs of lobbying activities to influence the introduction, enactment, or modification of legislation by the U.S. Congress or a State legislature. Under certain circumstances, as provided in the applicable cost principles, costs associated with activities that might otherwise be considered "lobbying" that are directly related to the performance of a grant may be allowable. The grantee should obtain an advance understanding with the designated GMO if it intends to engage in these activities. (Also see "Public Policy Requirements and Objectives—Ethical and Safe Conduct in Science and Organizational Operations—Lobbying" and " Administrative Requirements—Monitoring—Reporting" concerning lobbying restrictions and required certification and reporting.)

Meals: Allowable for subjects and patients under study only, or where specifically approved as part of the project activity, provided that such charges are not duplicated in participants' per diem or subsistence allowances, if any.

Moving: See "Recruitment Costs," "Relocation Costs," and "Transportation of Property" in this subsection.

Nursery Items: Allowable for the purchase of toys, games, etc. to allow patients to participate in research protocols.

Overtime: See "Salaries and Wages" in this subsection.

Pension Plan Costs: Allowable. For institutions of higher education and non-profit organizations, such costs must be incurred according to the established policies of the organization consistently applied regardless of the source of funds; the organization's policies must meet the test of reasonableness; the methods of cost allocation must be equitable for all activities; the amount assigned to each fiscal year must be determined in accordance with generally accepted accounting principles; and the cost assigned to a given fiscal year must be paid or funded for all plan participants within 6 months after the end of that fiscal year.

State, local, or Indian tribal governments or hospitals may use the "pay-as-you-go" cost method (i.e., when pension benefits are paid by the grantee directly to, or on behalf of, retired employees or their beneficiaries) in lieu of the method described above. Under this method, the benefits may be charged in the grantee's fiscal year in which the payments are made to, or on behalf of, retired employees or their beneficiaries, provided that the grantee follows a consistent policy of treating such payments as expenses in the year of payment. See the applicable cost principles for additional information on the allowability of costs associated with pension plans.

Preaward (Preagreement) Costs: Allowable. A grantee may, at its own risk and without NIH prior approval, incur obligations and expenditures to cover costs up to 90 days prior to the effective date of a new or competing continuation award if such costs:

• Are necessary to conduct the project, and
• Would be allowable under the grant, if awarded, without NIH prior approval.

If specific expenditures or activities would otherwise require prior approval, the grantee must obtain NIH approval prior to incurrence of the cost. NIH prior approval is required for any costs to be incurred more than 90 days prior to the beginning date of a new or competing continuation award.

Grantees may incur preaward costs prior to the beginning date of a noncompeting continuation award without regard to the time parameters stated above.

The incurrence of preaward costs in anticipation of a competing or noncompeting award imposes no obligation on NIH either to make the award or to increase the amount of the approved budget if an award is made for less than the amount anticipated and is inadequate to cover preaward costs incurred.

NIH expects the grantee to be fully aware that preaward costs result in borrowing against future support and that such borrowing must not impair the grantee's ability to accomplish the project objectives in the approved time frame or in any way adversely affect the conduct of the project.

Public Relations Costs: Allowable only for costs specifically required by the award, or for costs of communicating with the public and the press about specific activities or accomplishments under the grant-supported project or other appropriate matters of public concern. Such costs may be treated as direct costs but should be treated as F&A costs if they benefit more than one sponsored agreement or if they benefit the grant and other work of the organization.

Publications: Allowable. Page charges for publication in professional journals may be paid from project funds if the published paper reports work supported by the grant and the charges are levied impartially on all papers published by the journal, whether or not by Government-sponsored authors.

The costs of reprints and publishing in other media, such as books, monographs, and pamphlets, also are allowable.

Publications, journal articles, etc. produced under an NIH grant-supported project must bear an acknowledgment and disclaimer, as appropriate, as provided in "Administrative Requirements—Availability of Research Results: Publications, Intellectual Property Rights, and Sharing Biomedical Research Resources."

Recruitment Costs: Allowable subject to the conditions and restrictions contained in the applicable cost principles. These costs may include help-wanted advertising costs, costs of travel by applicants to and from pre-employment interviews, and travel costs of employees while engaged in recruiting personnel. Project funds may not be used for a prospective trainee's travel costs to or from the grantee organization for the purpose of recruitment. However, other costs incurred in connection with recruitment under training programs, such as advertising, may be allocated to a grant-supported project according to the provisions of the applicable cost principles (also see "Travel" and "Relocation Costs" in this subsection.

Registration Fees (for Symposiums and Seminars): Allowable if necessary to accomplish project objectives.

Relocation Costs: Allowable—in other than change of grantee organization situations—when such costs are incurred incidental to a permanent change of duty assignment (for an indefinite period or for a stated period of no less than 12 months) for an existing employee working on a grant-supported project, or when a new employee is recruited for work on the project, provided that the move is for the grantee's benefit rather than the individual's, and payment is made according to established organizational policies consistently applied regardless of the source of funds. Relocation costs may include the cost of transporting the employee and his or her family, dependents, and household goods to the new location and certain expenses associated with the sale of the former home. If relocation costs have been incurred in connection with the recruitment of a new employee, whether as a direct cost or an F&A cost, and the employee resigns for reasons within his or her control within 12 months after hire, the grantee must credit the grant account for the full cost of the relocation charged to the grant.

In change of grantee organization situations, the personal relocation expenses of the PI and others moving from the original grantee to the new grantee are not allowable charges to NIH grants (see "Administrative Requirements—Changes in Project and Budget").

Rental or Lease of Facilities and Equipment: Allowable subject to the limitations below. Rental costs are allowable to the extent that the rates are reasonable at the time of the decision to lease in light of such factors as rental costs of comparable property, if any; market conditions in the area; the type, life expectancy, condition, and value of the property leased; and available alternatives. Because of the complexity involved in determining the allowable amount under certain types of leases, grantees are encouraged to consult the GMO before entering into leases that will result in direct charges to the grant project.

In general, the rental costs for facilities and equipment applicable to each budget period should be charged to that period. However, see "Administrative Requirements—Management Systems and Procedures—Procurement System Standards and Requirements" for an exception to this general rule.

Rental costs under leases that create a material equity in the leased property, as defined in the applicable cost principles, are allowable only up to the amount that would be allowed had the grantee purchased the property on the date the lease agreement was executed. This would include depreciation or use allowances, maintenance, taxes, insurance, etc. but would exclude unallowable costs.

When a grantee transfers property to a third party through sale, lease, or otherwise and then leases the property back from that third party, the lease costs that may be charged to NIH projects generally may not exceed the amount that would be allowed if the grantee continued to own the property.

Rental costs under less-than-arms-length leases are allowable only up to the amount that would be allowed under the applicable cost principles had title to the property been vested in the grantee. A "less-than-arms-length" lease is one in 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 an organization; between organizations under common control through common officers, directors, or members; and between an organization and its directors, trustees, officers, or key employees (or the families of these individuals), either directly or through corporations, trusts, or similar arrangements in which they hold a controlling interest.

Research Patient Care: The costs of routine and ancillary services provided by hospitals to individuals, including patients and volunteers, participating in research programs are allowable. For grants that are not subject to expanded authorities (see "Administrative Requirements—Changes in Project and Budget"), NIH prior approval always is required to incur patient care costs if not previously approved by NIH, to rebudget additional funds into, or to rebudget funds out of the research patient care costs category. For grants subject to expanded authorities, NIH prior approval is required only if the incurrence of patient care costs represents a change in scope.

"Routine services" include the regular room services, minor medical and surgical supplies, and the use of equipment and facilities for which a separate charge is not customarily made. "Ancillary services" are those special services for which charges are customarily made in addition to routine services, e.g., x-ray, operating room, laboratory, pharmacy, blood bank, and pathology. See "Research Patient Care Costs" for NIH policy concerning reimbursement of these costs.

The following otherwise allowable costs are not classified as research patient care costs: items of personal expense reimbursement, such as patient travel; consulting physician fees; and any other direct payments to individuals, including inpatients, outpatients, subjects, volunteers, and donors. Such costs should be included in the "Other Expenses" category of the grant budget.

Reserve Funds: Contributions to a reserve fund for self-insurance are allowable as specified in the governing cost principles (also see "Contingency Funds" in this subsection).

Sabbatical Leave Costs: Sabbatical leave costs may be included in a fringe benefit rate or in the organization's F&A rate. Salary may be charged directly to a project for services rendered to the project by individuals while they are on sabbatical leave, provided the salary is proportional to the service rendered and is paid according to established organizational policies applicable to all employees regardless of the source of funds. Sabbatical leave paid by an individual's employer, in combination with other compensation (e.g., partial salary from an NIH grant), may not exceed 100 percent of that individual's regular salary from his or her organization.

Salaries and Wages: Allowable. Compensation for personal services covers all amounts, including fringe benefits, paid currently or accrued by the organization for employee services rendered to the grant-supported project. Compensation costs are allowable to the extent that they are reasonable; conform to the established policy of the organization consistently applied regardless of the source of funds; and reflect no more than the percentage of time actually devoted to the NIH-funded project. As required in its annual appropriations act, NIH will not reimburse grantees for the direct salaries of individuals at a rate in excess of the level specified in the appropriations language. Direct salary is exclusive of fringe benefits and F&A costs. This salary limitation does not apply to consultant payments or to contracts for routine goods and services but does apply to consortium participants (see "Consortium Agreements" ).

Payroll Distribution: Salary and wage amounts charged to grant-supported projects for personal services must be based on an adequate payroll distribution system that documents such distribution in accordance with generally accepted practices of like organizations. Standards for payroll distribution systems are contained in the applicable cost principles (other than those for for-profit organizations). Briefly summarized, acceptable systems are as follows:

Hospitals:

• Monthly after-the-fact reports of the distribution of time or effort for professional staff.
• Time and attendance, and payroll distribution records for nonprofessional employees.

Non-Profit Organizations:

• Monthly after-the-fact reports, including a signed certification, by the employee, or by a responsible supervisory official having first-hand knowledge of the work performed, that the distribution of activity represents a reasonable estimate of the actual work performed by the employee during the periods covered by the reports. Each report must account for the total activity required to fulfill the employee's obligations to the organization as well as the total activity for which he or she is compensated.
• For nonprofessional employees, additional supporting reports, indicating the total number of hours worked each day, must be maintained in conformance with Department of Labor regulations implementing the Fair Labor Standards Act (29 CFR Part 516).
• The distribution of salaries and wages must be supported by personnel activity reports as described above, except when a substitute system has been approved, in writing, by the cognizant agency designated under OMB Circular A-122.

State, Local, and Indian Tribal Governments:

• Time and attendance or equivalent records for all employees.
• Time distribution records for employees whose compensation is chargeable to more than one grant or other cost objective.

Educational Institutions:

• A plan confirmation system for professorial and other professional staff that is based on budgeted, planned, or assigned work activity, and is updated to reflect any significant changes in work distribution, including incorporation into the organization's official records and identification of activity applicable to each sponsored agreement and to each category needed to identify F&A costs and the functions to which they are allocable. At least annually, the employee, PI, or responsible official(s) will verify, by suitable means, that the work was performed and that the salaries and wages charged to sponsored agreements, whether as direct charges or in other categories of cost, are reasonable in relation to the work performed; or
• A system, supported by after-the-fact activity reports, that reflects the distribution of covered employees' activity allocable to each NIH grant and includes identification and recording of significant changes in work activity when initial charges were based on estimates. The system also must identify each category of activity needed to identify F&A costs and the functions to which they are allocable. For professorial and other professional staff, the activity reports will be prepared each academic term, but no less frequently than every 6 months. For other employees, unless NIH agrees to alternate arrangements, the reports will be prepared no less frequently than monthly and will coincide with one or more pay periods; or
• A multiple confirmation records system for professorial and other professional staff supported by records certifying costs separately for direct costs and F&A costs, with reports prepared each academic term, but no less often than every 6 months, that confirm the activities as allocable to direct or F&A costs; or
• By mutual agreement, any other method meeting the criteria specified in paragraph J.8.b.(2) of OMB Circular A-21.
• Charges for work performed by faculty members on NIH grants during the summer months or other periods not included in the base salary period will be determined for each faculty member at a rate not exceeding the base salary divided by the period to which the base salary relates. The base salary period used in computing charges for work performed during the summer months will be the number of months covered by the faculty member's official academic year appointment.

For-Profit Organizations:

• NIH requires for-profit organizations to conform with industry standards to support salary and wage charges to NIH grants. Therefore, unless an alternate system is approved by the GMO, the grantee must maintain a time-and-effort reporting system for both professional and other than professional staff reflecting daily after-the-fact reporting of hours expended on individual projects or indirect activities. The system must record both hours worked and hours absent. This information must be certified by an authorized organizational official no less frequently than every pay period.

Overtime Premiums: Premiums for overtime are generally allowable (see the applicable cost principles); however, such payments are not allowable for faculty members at institutions of higher education. Where overtime premiums are allowable, the categories or classifications of employees eligible to receive overtime premiums should be determined according to the formal policies of the organization consistently applied regardless of the source of funds.

Bonus Funds/Incentive Payments: Allowable as part of a total compensation package, provided such payments are reasonable and are made according to a formal policy of the grantee that is consistently applied regardless of the source of funds.

Support from Multiple Grants: See "Cost Considerations—Allocation of Costs and Closely Related Work."

Compensation of Students: Tuition remission and other forms of compensation paid as, or in lieu of, wages to students under research grants (including fellows and trainees) are allowable, provided:

• The individual is performing activities necessary to the grant;
• Tuition remission and other forms of compensation are provided in accordance with established institutional policy, consistently provided to students performing similar activities conducted in non-sponsored as well as in sponsored activities; and
• During the academic period, the student is enrolled in an advanced degree program at a grantee or affiliated institution and the activities of the student in relation to the federally sponsored research project are related to the degree program.

Charges for tuition remission and other forms of compensation paid to students as, or in lieu of, salaries and wages are subject to the reporting requirements in section J.8. of OMB Circular A-21, or an equivalent method for documenting the individual's effort on the research project. Tuition remission may be charged on an average rate basis. NIH will determine the allowability and reasonableness of such compensation under a grant on the basis of OMB Circular A-21 and its current operating guidelines.

Payments made for educational assistance (e.g., scholarships, fellowships, and student aid costs) may not be paid from NIH research grant funds even when they would appear to benefit the research project.

Service Charges: Allowable. The costs to a user of institutional services and central facilities owned by the recipient organization, such as central laboratory and computer services, are allowable and must be based on organizational fee schedules consistently applied regardless of the source of funds.

Severance Pay: Allowable only to the extent that such payments are required by law, employer-employee agreement, established policy constituting, in effect, an implied agreement on the part of the organization, or the circumstances of the particular employment. The amount of severance pay to be provided should be determined according to established organizational policy consistently applied regardless of the source of funds and should be reasonable, taking into consideration the practice of similar types of organizations and the extent of the organization's dependence on Federal funds. The applicable cost principles should be consulted regarding the different treatment of severance pay in regular and mass termination situations.

Stipends: Allowable as cost-of-living allowances for trainees and fellows only under NIH research training grants and fellowships. These payments are made according to a pre-established schedule based on the individual's experience and level of training. A stipend is not a fee-for-service payment and is not subject to the cost accounting requirements of the cost principles. Additional information, including NIH policy on stipend supplementation, is included in "National Research Service Awards—Individual National Research Service Awards (Fellowships)—Financial Provisions—Stipends—Stipend Supplementation" and " National Research Service Awards—Institutional National Research Service Awards (Training Grants)—Financial Provisions—Stipends—Stipend Supplementation." Stipends are not allowable under research grants even when they appear to benefit the research project.

Subject Costs: See "Research Patient Care" in this subsection.

Supplies: Allowable.

Taxes: Allowable. Such costs include taxes that an organization is required to pay as they relate to employment, services, travel, rental, or purchasing for a project. Grantees must avail themselves of any tax exemptions for which activities supported by Federal funds may qualify. State sales and use taxes for materials and equipment are allowable only when the State does not grant a refund or exemption on such taxes.

Termination or Suspension Costs: Unallowable except as provided below. If a grant is terminated or suspended, the grantee shall not incur new obligations after the effective date of the termination or suspension and shall cancel as many outstanding obligations as possible (see "Administrative Requirements—Enforcement Actions—Suspension, Termination, and Withholding of Support"). NIH will allow full credit to the grantee for the Federal share of otherwise allowable costs if the obligations were properly incurred by the grantee prior to suspension or termination and not in anticipation of it and, in the case of termination, are not cancelable. The GMO may authorize other costs in, or subsequent to, the notice of termination or suspension. See 45 CFR 74.62(c) and 92.43.

Trailers and Modular Units: Allowable as follows. A "trailer" is defined as a portable vehicle built on a chassis that is designed to be hauled from one site to another by a separate means of propulsion and that serves, wherever parked, as a dwelling or place of business. A "modular unit" is a prefabricated portable unit designed to be moved to a site and assembled on a foundation to serve as a dwelling or a place of business. The determination of whether costs to acquire trailers or modular units are allowable charges to NIH grant-supported projects depends on whether such units are classified as real property or equipment. The classification will depend on whether the grantee's intended use of the property is permanent or temporary.

A trailer or modular unit is considered real property when the unit and its installation are designed or planned to be installed permanently at a given location so as to seem fixed to the land as a permanent structure or appurtenance thereto. Units classified as real property may not be charged to an NIH grant-supported project unless authorizing legislation permits construction or acquisition of real property and the specific purchase is approved by the NIH IC.

A trailer or modular unit is considered equipment when the unit and its installation are designed or planned to be used at any given location for a limited time only. Units classified as equipment may be charged to NIH grant-supported projects only if the terms and conditions of the award do not prohibit the purchase of equipment and prior approval is obtained, as appropriate.

A trailer or modular unit properly classified as real property or as equipment at the time of acquisition shall retain that classification for the life of the item, thereby determining the appropriate accountability requirements under 45 CFR 74.32 or 74.34 or 92.31 or 92.32, as applicable.

Trainee Costs: Allowable only under predoctoral and postdoctoral training grants. (See "National Research Service Awards—Institutional National Research Service Awards (Training Grants)—Financial Provisions—Other Direct Costs" for detailed information.)

Transportation of Property: Allowable for freight, express, cartage, postage, and other transportation services relating to goods either purchased, in process, or delivered, including instances when equipment or other property is moved from one grantee to another. In a change-of-grantee situation, the cost of transportation may be charged to the grant at either the original or the new organization, depending on the circumstances and the availability of funds in the appropriate active grant account (see "Administrative Requirements—Changes in Project and Budget—Prior Approval Requirements").

Travel: Allowable as a direct cost where such travel will provide direct benefit to the project. Consistent with the organization's established travel policy, these costs for employees working on the grant-supported project may include associated per diem or subsistence allowances and other travel-related expenses, such as mileage allowances if travel is by personal automobile.

Domestic travel is travel performed within the recipient's own country. For U.S. and Canadian recipients, it includes travel within and between any of the 50 States of the U.S. and its possessions and territories and also travel between the U.S. and Canada and within Canada.

Foreign travel is defined as any travel outside of Canada and the U.S. and its territories and possessions. However, for an organization located outside Canada and the U.S. and its territories and possessions, foreign travel means travel outside that country.

In all cases, travel costs are limited to those allowed by formal organizational policy and, in the case of air travel, the lowest reasonable commercial airfares must be used. Grantees are strongly encouraged to take advantage of discount fares for airline travel through advance purchase of tickets where travel schedules can be planned in advance (such as for national meetings and other scheduled events). If the recipient organization has no formal travel policy, the Federal Travel Regulations issued by the U.S. General Services Administration, including maximum per diem and subsistence rates prescribed in those regulations, shall be used to determine the amount that may be charged for travel costs. For-profit grantees' allowable travel costs may not exceed those established by the Federal Travel Regulations. This information is available at http://www.gsa.gov.

Grantees must comply with the requirement that U.S.-flag air carriers be used by domestic grantees to the maximum extent possible when commercial air transportation is the means of travel between the U.S. and a foreign country or between foreign countries. This requirement shall not be influenced by factors of cost, convenience, or personal travel preference. The cost of travel under a ticket issued by a U.S. flag air carrier that leases space on a foreign air carrier under a code-sharing agreement is allowable if the purchase is in accordance with GSA regulations on U.S. flag air carriers and code shares (http://www.gsa.gov/gsa/cm_attachments/GSA_DOCUMENT/110304_FTR_R2QA53_0Z5RDZ-i34K-pR.pdf). (A code-sharing agreement is an arrangement between a U.S. flag carrier and a foreign air carrier in which the U.S. flag carrier provides passenger service on the foreign air carrier's regularly scheduled commercial flights.)

Applicants and grantees should consult application instructions to determine how to budget for "travel" costs under specific mechanisms and for certain types of travelers since they are not all required to be budgeted as "travel."

Research Patient Travel: If research patient care is an approved activity of the grant-supported project, the costs of transporting individuals participating in the research protocol to the site where services are being provided, including costs of public transportation, are allowable. The purchase of motor vehicles for this purpose may be allowable. (See "Research Patient Care Costs.")