DOT 4600.17A

1. PURPOSE. This Appendix provides departmental guidance for implementing Office of Management and Budget (OMB) Circular A-87, Cost Principles for State and Local Governments, OMB Circular A-122, Cost Principles for Nonprofit Organizations, and OMB Circular A-21, Cost Principles for Educational Institutions.

2. BACKGROUND. The costs of Federal financial assistance performed by State or local governments are determined by the provisions of OMB Circular A-87. The Circular requires State and local governments to substantiate indirect costs through formal indirect cost proposals or cost allocation plans, and provides for the negotiation, approval and audit of those plans. OMB has assigned DOT as the cognizant Federal agency for all State highway agencies and other State transportation-related agencies.
   The costs of Federal financial assistance performed or administered by nonprofit organizations are determined by the provisions of OMB Circular A-122. The Circular provides principles and policy guidance for recognizing costs incurred by nonprofit organizations, and lists methods for allocating indirect costs and computing indirect cost rates. The cognizant Federal agency negotiates and approves indirect cost rates. OMB Circular A-21 establishes principles for determining costs applicable to financial assistance to certain educational institutions. The Circular was revised in 1993 to include:(1) a limitation of a 24 percent fixed allowance for the administrative costs portion of indirect costs; (2) permission to use multi-year predetermined indirect cost rates for research agreements; and (3) a consistent policy for adjustment of indirect cost rates for proposals subsequently containing unallowable costs.
   Cost principles for for-profit organizations are not covered by OMB Circulars. Operating administrations (OAs) and secretarial offices (SOs) are encouraged to utilize subpart 31.2 of the Federal Acquisition Regulation (FAR) to determine cost principles for these organizations.

3. REQUIRED ACTIONS.
   • The Assistant Secretary for Administration shall issue additional specific instructions for implementing OMB Circulars A-21, A-87, and A-122 only in those instances where the prescribed requirements need clarification. 

   • In those cases where DOT is the cognizant Federal agency, the Office of Inspector General shall perform or arrange for audits of recipients' indirect cost proposals or cost allocation plans as necessary. Audits are normally performed only where a significant problem exists in a grantee's financial system

   • The OAs and SOs shall:
     1. Establish additional instructions, if required, for implementing the above directives.

     2. If assigned cognizant responsibility, review and approve indirect cost rates and cost allocation plans in accordance with OMB Circulars A-87, A-21, and A-122. The cognizant OA or SO shall also request required audits and prepare the negotiation agreement. To meet the distribution requirements of the OMB circulars, electronic copies of agreements shall be forwarded to the Office of the Senior Procurement Executive (M-60). The Office of Senior Procurement Executive will forward them to the Department of Health and Human Services for inclusion in its information system, to be made available to Federal agencies.

     3. Accept indirect cost rate and cost allocation plan agreements negotiated and approved by the Federal cognizant agency or by the OA or SO within DOT having cognizant administrative responsibility.

     4. Provide technical assistance to recipients in cases where they need help in determining appropriate subrecipient costs and indirect cost rates. The cognizant OA or SO shall review the recipient's procedures for determining the subrecipient's indirect cost rate, recommend changes as required, and certify the rate so that it can be relied upon by all agencies providing funds to the subrecipient. Documents setting forth the approved rates for subrecipients, and the approvals of these rates shall be forwarded electronically to the Office of the Senior Procurement Executive.

     5. Use the cost principles established by subpart 31.2 of the FAR when administering financial assistance programs for for-profit organizations, unless justification is provided for establishing another basis for costs.

     6. When preparing cost estimates for major projects (projects in excess of $1 billion), include all eligible project costs, including interest on grant anticipation notes (GANs) that are funded with Federal dollars. Interest costs associated with the project not paid with Federal funds, e.g., GAN interest paid entirely with local funds or revenue bond interest must be noted in project financial plans, but would not be considered as part of project cost estimates.