GAB Decision 004
July 26, 1974 University of California, Los Angeles; Docket No. 6;
Grant No. RR-000003 under Section 301, of the Public Health Service Act
Saunders, Charles; Van Orman, William DeGeorge, Francis
This is an appeal pursuant to 45 CFR Part 16 from the action of the
National Institutes of Health on August 1, 1973 in disallowing $77,975
of interest cost charged to grant RR-00003. This decision is made on
the basis of the documents submitted to the Board. The undersigned
members of the Grant Appeals Board have been designated as a panel of
three for the disposition of the instant case.
BACKGROUND
The University of California, in Los Angeles (UCLA) entered into a
lease/purchase agreement in July 1968 for the purchase of an IBM 360
Model 91 Central Processor Unit (CPU). Certain costs associated with
the lease/purchase agreement were interest costs, which were apparently
unallowable under the applicable cost principles, BOB Circular A-21.
Section J.16.a. of the Circular specified "costs incurred for interest
on borrowed capital or temporary use of endowment funds, however
represented, are unallowable." (Exhibit I, grantee's appeal document)
Accordingly, the Office of Contracts and Grants, NIH, notified the
grantee that NIH would recover $77,975 of interest costs incurred as
part of the lease/purchase and identified and challenged by the
government auditors.
FACTS
On June 4, 1968, Dr. William F. Raub, who since 1967 has had
authority to sign grand award notices on behalf of NIH, (Exhibit II)
wrote UCLA a letter which in attachment II thereof, authorized UCLA to
enter into the lease/purchase agreement with IBM covering the CPU.
Furthermore by memorandum of November 26, 1973, addressed to Herbert C.
Frederick, (Exhibit III) Dr. Raub confirms that he authorized the lease
purchase agreement and states further:
"1. The BRB staff discussed the procurement plans fully with UCLA
representatives and concurred in the acquisition of the equipment
'overtime' including the payment of charges now designated as
'interest.'"
"2. This concurrence was given because purchasing the equipment
rather than renting it seemed almost certain to produce substantial cost
savings to the government over the life of the grant (an expectation
that has in fact come to be)."
Finally the applicable cost principles, issued as BOB Circular A-21,
(now called Federal Management Circular 73-8) and which are published as
Appendix D to 45 CFR Part 74, specify in Section J., General Standards
for Selected Items of Cost, that ". . . 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."
DISCUSSION
The panel finds that the grantee was authorized by Dr. William F.
Raub to enter into lease/purchase agreement with IBM for the purchase,
that such authorization, in effect, became part of the research
agreement, and that Dr. Raub was acting within his authority.
Therefore, since the lease/purchase agreement, including interest,
was authorized by the research agreement and since the applicable cost
principles specify that in case of discrepancy between the cost
principles and the provisions of the research agreement the provisions
of the research agreement will govern, the panel finds that there was no
violation by the grantee of the cost principles and that the challenged
costs are allowable.
DECISION
The appeal is allowed in full.
OCTOBER 04, 1983