Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: University of Iowa
DATE: August 18, 1992
Docket No. A-92-114
Decision No. 1350
DECISION
The University of Iowa (University) appealed a decision by the
National
Institutes of Health Grants Appeals Board (NIH Board) on behalf of
the
Public Health Service (PHS) disallowing certain costs charged to
a
research grant over a two-year period. Funds were awarded to
the
University for the principal investigator (PI) for the research
project.
When the PI received salary support under a Research Career
Development
Award (RCDA), however, the University rebudgeted the funds to
cover
costs of another researcher without obtaining prior approval from
PHS.
The University stated that the amount in dispute was $38,390, while
PHS
maintained that the dispute included fringe benefits and indirect
costs
for a total of $82,107. Based on the analysis below, we uphold
the
disallowance, subject to recalculation as explained below.
Background
On June 30, 1989, the National Institute of Dental Research (NIDR)
issued
an award to the University for a research project entitled Cell
Response to
Modified TI Surfaces for the first year of a three-year
project period (July
1, 1989 through June 30, 1992). 1/ University
Exhibit (Ex.) 2 (Grant
No. 1 RO1 DE08540 01A1). The award was made in
response to an
application containing a budget which included funds for
the salary and
related costs of a principal investigator. The PI was
Dr. John C.
Keller, a professor of dental research at the University.
On the same date,
Dr. Keller was awarded an RCDA grant from NIDR for an
overlapping five-year
period (July 1, 1989 through June 30, 1994).
University Ex. 1 (Grant No. 1
KO4 DE00234 01A1). The University
contended, and PHS did not dispute,
that the applications for the
research and RCDA grants each disclosed the
existence of the other
application. University Ex. 5.
The University did not charge the research grant with salary costs for
Dr.
Keller, which would have duplicated the RCDA support, but, rather,
rebudgeted
part of the funds to support a research scientist (Mr. D.
Wick), who
allegedly expended 50% of his effort on the same research
project. The
University said that the remaining funds budgeted for the
PI's salary
were carried over to the following year. PHS made no
findings on
whether Mr. Wick made productive contributions to the
research project, as
the University alleged. See, e.g., University Ex.
5.
In its application to continue the research grant for the second year
of
the project period, the University reported the RCDA grant under
"other
support," but continued to request funds for Dr. Keller's salary
without
any mention of Mr. Wick's role. See NIH Board Decision, NIH
GA-9-13, at
4. NIDR issued the second-year award without addressing the
overlap
between the research and RCDA grants. Id. The University
again charged
part of Mr. Wick's salary to the research grant.
In awarding funds for the third year of the project period, NIDR
reduced
the budget requested by the University to reflect deletion of
Dr.
Keller's salary because of his RCDA grant. University Ex. 4.
NIDR also
notified the University of the necessity of revising the
financial
reports for the first two years to reflect as unobligated funds
the
duplicate salary budgeted for Dr. Keller. NIDR denied the
University's
request to permit the expenditures on Mr. Wick's salary as
beneficial to
the project. 2/ The basis for NIDR's decision was that
the University
had not received prior written approval for an alternative use
of funds
freed by a duplicate RCDA grant, as required by PHS policy.
University
Ex. 6. Furthermore, NIDR stated that approval would have
been denied,
if sought, because consideration for such alternative uses is
given
"[o]nly in highly unusual circumstances," except when the PI involved
in
the duplicate grants is replaced. Id.
The University appealed under the informal PHS process at 42 C.F.R.
Part
50, Subpart D, and the case was assigned to the NIH Board, which
issued
its decision on March 12, 1992. University Exs. 8 and 9.
The NIH Board
noted that NIDR failed to address promptly the overlap in
salary funding
between the research and RCDA grants, despite the detailed
disclosures
in the applications. University Ex. 9, at 5.
Nevertheless, the NIH
Board concluded that the policy requiring prior
approval for rebudgeting
funds freed by an RCDA grant was available to the
University, and that
NIDR acted reasonably and correctly under that policy in
disallowing the
salary costs for Mr. Wick. Id.
In appealing that decision to this Board, the University argued that
(1)
its use of the funds should be permitted as a responsible and
beneficial
use, since Mr. Wick performed work for the project and none of
the
research grant funds went to support Dr. Keller after the RCDA
award,
and (2) NIDR should bear part of the financial burden, because
the
University expected NIDR to review the grants and notify the
University
of the overlap, as NIDR has done on other occasions.
University Notice
of Appeal.
Applicable Legal Authority
The Notices of Grant Awards for the first two years of the research
grant
specified that, by accepting the awarded funds, the University
agreed to
comply with applicable terms and conditions in the following:
(1) Legislation cited above [42 U.S.C. . 241 -- governing
PHS
research generally]; (2) Regulations cited above [42 C.F.R. .
52
-- governing procedures for research project grants];
(3)
Special provisions noted above under remarks or attached to
this
notice [The remarks section notes that the
"expanded
authorities" in the NIH Guide for Grants and Contracts apply
to
the grants.]; (4) 45 C.F.R. Part 74 or 92, as applicable;
(5)
PHS Grants Administration Manual; (6) PHS Grants
Policy
Statement.
University Exs. 2 and 3. The expanded authorities for
grantees
(referred to in the third item) waive certain prior
approval
requirements, but provide that prior approval "will continue to
be
required" for "retention of research grant funds when a Research
Career
Development Award is issued," consistent with the PHS Grants
Policy
Statement. NIH Guide for Grants and Contracts, Vol. 17, No. 34,
at 2-3
(Oct. 21, 1988) (Ex. XI to the NIH Board Decision). The PHS
Grants
Policy Statement provides that prior approval is required
for
rebudgeting for certain listed actions, including:
Use of Salary Support Due to Receipt of a Research
Career
Development Award. The alternative use of grant funds
awarded
under a PHS grant for an individual's salary but which are
no
longer required for that purpose as the result of the
transfer
of that individual's salary to an RCDA.
PHS Grants Policy Statement, OASH 82-50,000, at 43-44 (Rev. Jan. 1,
1987)
(Ex. X to the NIH Board Decision).
The guidelines relating to an RCDA, which PHS asserted and the
University
did not deny were provided to the University as part of the
RCDA application
process, also directly address the permissible use of
funds freed by an RCDA
award. The guidelines state:
Funds budgeted in an NIH-supported research or training
grant
for an individual's salary and applicable fringe benefits,
but
freed as a result of funding an RCDA for that individual may
not
be used for any other purpose except when the individual
no
longer participates in the grant supported activity and
another
individual replaces him or her and requires
comparable
remuneration. Only under unusual circumstances
will
consideration be given to approval for use of released funds
for
any other reasons than the one described above. In any
event,
the proposed retention and use of funds released in this
manner
must receive prior written approval . . .
DHHS/NIH Division of Research Grants Portfolio: The K Awards at 46
(Ex.
XII to the NIH Board Decision) (emphasis added).
Analysis
In imposing prior approval requirements for alternative use of
salary
funds freed by an RCDA grant, PHS policy serves the purpose of
assuring
that RCDA grants are not used as a means of securing
unintended
increases in federal funding for particular research
projects. In this
way, limited research funds are conserved for their
intended purposes.
To that end, rebudgeting of the funds is generally not
permitted unless
the PI involved is replaced (which would mean that the
research grant
would lose funding for a PI, unless the funds budgeted for the
original
PI's salary could be used to compensate the replacement PI).
It is not sufficient for the University to show that the use it chose
to
make of the funds was responsible or that Mr. Wick was a
productive
researcher. The competitive research award which was
approved did not
contemplate this additional funding for the assistance of
another
researcher. The University's actions in effect increased
funding for
this project without the University complying with the conditions
of the
grant requiring prior approval for such an action.
The University was, or should have been, aware of the prior
approval
requirements, since they were contained in the sources cited on the
face
of the Notices of Grant Awards. 3/ In fact, the University clearly
knew
that NIH imposed restrictions on the use of these overlapping
funds,
since it acted promptly to prevent duplicate payment to Dr.
Keller. The
University stated that it did this because "[a]t the time,
the
University was aware of NIH policy regarding the charging of the
salary
of investigators holding RCDA's." University Ex. VII, at
1.
Furthermore, the University cannot reasonably complain that NIDR
failed
to inform it of the overlap in the grants, when the University
was
clearly conscious of the overlap, having identified its existence
in
writing on all its applications. Essentially, the University took
some
steps to address the overlap (assuring that Dr. Keller was not paid
from
both grants), but did not take all the required steps (seeking
prior
approval to rebudget, and, failing that, reporting the funds
as
unobligated). The University did not explain how it could be aware
of
part of the policy relating to the use of salary funds duplicating
an
RCDA award, but yet unaware of the prior approval requirements
imposed
by the same sources.
The University asserted that it expected a review by NIDR to deal with
the
issue, because that had been the University's experience "[i]n
these
circumstances." University Br. at 1. Further, it argued
that it could
not reasonably be expected to recognize a restriction arising
from an
overlap in two of its grant applications without NIDR imposing
an
explicit restriction on the grants, because the University
"administers
thousands of separate awards from hundreds of different
granting
agencies." University Ex. VII, at 2; see also NIH Board
Decision at 3.
If anything, the University's prior experience with
administering
numerous grants and its particular experience with the
restrictions on
duplication of salary funds in an RCDA award should have
alerted it to
the implications of the overlap of these grants. By
requiring prior
approval, the grant terms place the burden on the University
to
recognize any overlap, presumably because it would also be difficult
for
PHS to identify such an overlap. The University pointed to
nothing
indicating that PHS had undertaken the sole responsibility
for
recognizing such overlaps or had committed to making
reconciliations
within any particular time frame.
The University also argued that NIDR should share in the financial
burden
because it was admittedly slow in reconciling the grant budgets
to reflect
the overlap. University Br. at 2. As PHS pointed out,
this
position amounts to an effort to estop the government from
recouping
funds spent in violation of federal policies and the conditions of
the
grants involved, by claiming that NIDR staff failure to include
a
specific restriction on the grants caused the University to make
the
improper expenditures. PHS Br. at 3. Estoppel requires, at a
minimum,
a showing that a party reasonably relied to its detriment
on
misrepresentations of its opponent. It would not be reasonable for
the
University to rely on the absence of a specific restriction as a
basis
to ignore the prior approval requirements imposed by sources cited
on
the face of the Notices of Grant Awards, nor is it clear that
any
misrepresentation occurred here. Furthermore, the Supreme Court
has
held that estoppel against the government could lie, if at all,
only
upon proof of "affirmative misconduct" by a government employee, and
in
particular cannot be used as a basis for claims for public
funds.
Office of Personnel Management v. Richmond, 496 U.S. 414, reh.
denied,
111 S.Ct. 5 (1990). The Court has rejected every basis for
estoppel
against the government that has come to it for review. See,
e.g.,
Heckler v. Community Health Services of Crawford Cty., 467 U.S.
51
(1984) and Schweiker v. Hansen, 450 U.S. 788 (1981).
"Affirmative
misconduct" clearly means something more than a delay in
highlighting to
a grantee precisely how referenced policies apply to a
specific overlap
between two grants. We have held that even erroneous
advice by an NIH
employee would be insufficient to show the necessary
misconduct.
Traylor Products and Services, Inc., DAB No. 1331 (1992). 4/
In regard to the amount in dispute, the University did not explain how
it
arrived at the $38,390 figure. A letter from University officials
to
the NIDR Grants Management Officer calculated the PI's salary for
the
two grant years involved as $46,652. University Ex. 5, at 2.
This
calculation matches very closely the corresponding amount set forth
by
PHS, i.e., $46,756. PHS Br. at 1. However, PHS argued, based
on
memoranda from the Grants Management Officer, that this figure
omitted
fringe benefits and indirect costs associated with that salary amount
in
each year, resulting in a total for both years of $82,107. 5/ PHS
Exs.
1 and 2. However, this amount reflects the total amounts awarded
for
these items, rather than amounts actually charged to the grants for
Mr.
Wick's efforts, which is the issue before us. The
University
represented that Mr. Wick's salary for the two years totaled
$28,299,
but did not provide figures for the related fringe benefits (which
would
amount to $7,075 if calculated at the same rate given for the
PI's
salary). 6/ University Ex. 5, at 2. Neither the NIDR
adverse
determination nor the NIH Board decision made any findings as to
the
amount of the disallowance. In light of the confusion in the
record
concerning the amount of the disallowance, we uphold the
disallowance,
but remand to PHS to determine the amounts improperly charged
to the
grant for Mr. Wick's salary and fringe benefits and to clarify
whether
any policy permits charging of indirect costs to a grant when
the
related direct costs are supplanted by an RCDA grant.
Conclusion
Based on the analysis above, we uphold the disallowance, subject to
the
remand of the issues described above. The University may appeal to
us
if the parties are unable to resolve the questions of the correct
amount
and the indirect costs, but we will not reopen the allowability of
the
cost items themselves. That appeal should be filed with this
Board
within 30 days of the University's receipt of PHS's
adverse
determination.
___________________________ Donald
F.
Garrett
___________________________ Norval
D.
(John) Settle
___________________________ Judith
A.
Ballard Presiding Board Member
1. NIDR is the office in NIH which awarded these grants. NIH
is in
turn a division of PHS, the party before us.
2. The University also sought initially to have the salary funding
for
Mr. Wick restored to the third year of the grant, but later
accepted
NIDR's decision on this point. Compare University Ex. 5 with
University
Ex. 7.
3. The RCDA policy quoted above was not referenced on the Notices
of
Grant Awards, but the University did not contest the assertion that
it
had received this policy during the application process. In any
case,
this policy only made it clear that a prior approval request
was
unlikely to be granted. The fact that prior approval was
required
before any rebudgeting of these funds was evident from the
expanded
authorities for grantees and the PHS Grants Policy Statement, which
were
referenced. The University did not claim that these policies
were
unavailable to it nor that they did not apply for some reason.
4. We note that PHS raised a further basis for its determination
before
us, i.e., that prior approval is also required for research
grants
whenever a "significant change in responsibilities" of the PI
occurs.
PHS Grants Policy Statement at 43. The regulations and the PHS
Grants
Administration Manual similarly impose a prior approval requirement
on
research grants whenever the PI is replaced or will devote less
effort
to the research than planned. See 45 C.F.R. . 74.103(c)(2); PHS
Grants
Administration Manual, Part 120.3(l). However, PHS did not
allege that
the PI was replaced or altered his responsibility or level of
effort.
The University did admit applying funds originally intended for the
PI's
salary to compensating another researcher for his assistance on
the
project. However, the additional assistance does not necessarily
mean
that the PI reduced his involvement. Therefore, we do not find
these
prior approval requirements for changes in key people to be
applicable
to the facts here.
5. PHS included indirect costs in the amount to be disallowed.
A
memorandum from the Grants Management Office stated that the
funds
considered to be supplanted by an RCDA grants "are interpreted by
the
NIH Grants Policy Office to include salary, fringe benefits,
and
associated indirect costs." PHS Ex. 2. PHS did not explain
the source
of this interpretation or whether indirect costs which benefit
the
project might be allowable even though the related direct costs
were
covered by RCDA funds.
6. The University indicated that balances of $9,839 for the
first
project period and $8,514 for the second project period were
carried
over. University Ex. 5, at 2. However, the Notices of
Grant Award for
the second and third project period do not reflect any
unobligated
balances from prior periods, and the parties have not provided
any other
documentation of the treatment of any amounts
carried