Profit and Fee Under Federal Financial Assistance Awards, 10436-10438 [2014-02988]

Agencies

• National Aeronautics and Space Administration

[Federal Register Volume 79, Number 37 (Tuesday, February 25, 2014)]
[Proposed Rules]
[Pages 10436-10438]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-02988]


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NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

14 CFR Part 1260

RIN 2700-AD79


Profit and Fee Under Federal Financial Assistance Awards

AGENCY: National Aeronautics and Space Administration.

ACTION: Proposed rule.

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SUMMARY: NASA is revising the NASA Grant & Cooperative Agreement 
Handbook to clarify that NASA does not pay profit or fee on Federal 
Financial Assistance awards, i.e. grants and cooperative agreements, to 
non-profit organizations. This proposed rule would make changes to NASA 
regulations to reflect that revision.

DATES: Interested parties should submit comments to NASA at the address 
identified below on or before April 28, 2014 to be considered in 
formulation of the final rule.

ADDRESSES: Interested parties may submit comments, identified by RIN 
2700-AD79, via the Federal eRulemaking Portal: https://www.regulations.gov. Follow the instructions for submitting comments. 
Comments may also be submitted to William Roets (Room 5K34), NASA 
Headquarters, Office of Procurement, Contract Management Division, 
Washington, DC 20546. Comments may also be submitted by email to: 
william.roets-1@nasagov.

FOR FURTHER INFORMATION CONTACT: William Roets, NASA Office of 
Procurement, Contract Management Division, Suite 5K34, 202-358-4483, 
william.roets-1@nasa.gov.

SUPPLEMENTARY INFORMATION:

I. Background

    NASA published a proposed rule for Profit and Fee Under Financial 
Assistance Awards in the Federal Register on January 11, 2012 (77 FR 
1657). The public comment period closed on March 11, 2012. By the end 
of the established comment period, NASA received comments from one 
entity. However, those comments were subsequently determined to have 
been submitted to the incorrect docket and were not applicable to the 
proposed rule. After the specified end date for the submission of 
comments had passed, three organizations submitted late comments to the 
proposed rule. NASA accepted the late comments. Based on the comments 
received and subsequent revisions to the proposed rule, NASA is 
publishing this rule again as a proposed rule. Historically, NASA has 
discouraged the payment of profit or fee under it Federal Financial 
Assistance awards because payment in excess of costs is inconsistent 
with the intent of grant and cooperative agreements which provide 
funding in the form of financial assistance to recipients for their 
performance of a public purpose. For commercial firms, payment of 
profit or fee is specifically prohibited in NASA policy. Because this 
prohibition does not include recipients such as non-profit 
organizations, NASA's policy has been misinterpreted and inconsistent 
application has occurred. This rule, which will extend this prohibition 
on the payment of profit or fee2 to all recipients of NASA grants and 
cooperative agreements, will alleviate the misinterpretation and 
inconsistent application of this policy.

II. Discussion and Analysis

    Comment 1: It is long-standing NASA Policy to allow a management 
fee. NASA has a rich history of closely partnering with nonprofit 
organizations to advance space science and research. To help meet its 
important mission, NASA has long recognized the importance of allowing 
a modest management fee under cooperative agreements. This proposed 
change would represent a major shift in NASA policy supporting their 
nonprofit partners in the space science and technology research area.
    Response: NASA continues to support non-profit partners and does 
not consider this change a major shift in policy, but rather a 
clarification of NASA's policy regarding profit and fee under grants 
and cooperative agreements and is consistent with proposed OMB Uniform 
Guidance: Cost Principles, Audit, and Administrative Requirements for 
Federal Awards, 78 FR 7282, February 1, 2013.
    There appears to have been some confusion with regard to the term 
`management fee'. Management fees that are allowable, allocable, 
reasonable and necessary costs in accordance with an entity's 
established accounting practices and Government cost principles will be 
paid by NASA. This rule is clarifying that NASA will not pay profit or 
fee where profit or fee is defined as the amounts above allowable 
costs. The language in this rule has been revised to clarify this 
point.
    Comment 2: NASA has the statutory authority to allow a management 
fee.
    Response: While the Space Act of 1958 (42 U.S.C 2473(c)(5)) 
provides NASA broad authority and discretion to award grants and 
cooperative agreements to fulfill its mission, the Agency has no 
express or explicit authority with regard to `management fees'.
    Comment 3: NASA proposed the same change in 1998, (63 FR 71609) Dec 
29, 1998, and withdrew it after full consideration.
    The proposed rule was withdrawn on May 18, 1999. NASA ``decided to 
withdraw the proposed rule because, in limited situations, a nominal 
fee may be warranted and necessary for the recipient to perform NASA 
research'' (64 FR26923) May 18, 1999.
    NASA now seeks to reverse this longstanding policy, and is using 
the same rationale in the recently proposed rule change that it had 
used in 1998, but later withdrew in 1999.
    Response: NASA has long recognized that the grant and cooperative 
agreement regulation is incomplete in

[[Page 10437]]

its coverage of profit and fee in that it fails to address non-profit 
organizations. NASA's attempts to address application of the regulation 
through internal agency guidance have not fully resolved the problem. 
Notwithstanding the improvements brought about through changes to 
internal processes, NASA has determined that it is necessary to clarify 
the regulation with regard to the payment of profit or fee on grants or 
cooperative agreements in order to prevent payment for unallowable 
costs. The language in this rule has been revised to clarify this 
point.
    Comment 4: Prohibiting management fee on cooperative agreements 
would jeopardize the ability of non-profit organizations to continue 
operations.
    Response: NASA has revised the regulatory language to clarify that 
the Agency will pay all recipients' allowable, allocable, reasonable 
and necessary costs. Profit or fee in excess of cost will not be paid.
    Comment 5: Allowing Management Fee is consistent with a recent NASA 
OIG Report. (April 30, 2012, NASA OIG Report, NASA's Use of Research 
Announcement Awards for Aeronautical Research, Report No. IG-12-011 
(Assignment No. A-11-013-00)).
    Response: The referenced report contained a finding that some NASA 
research awards contained ``unallowable fee.'' Specifically, the Report 
found that NASA paid fee to a University under a contract, not a grant 
or cooperative agreement, and the finding is not relevant to this rule.
    Comment 6: Dating back to the Bell Report of 1962, issued by the 
Bureau of the Budget and signed by President Kennedy, the Government 
has recognized the need to provide fees to nonprofit organizations. 
Whereas fees paid to for-profit entities provide contributions to 
profits, modest fees paid to nonprofit organizations are provided for 
operating capital and ordinary business expenses that are non-
reimbursable.
    Response: Pursuant to OMB Circular A-122, Cost Principles for Non-
Profit Organizations, unallowable costs are not reimbursable. Further, 
in accordance with the proposed OMB Uniform Guidance: Cost Principles, 
Audit, and Administrative Requirements for Federal Awards, 78 FR 7282, 
Feb. 1, 2013, Federal agencies are only authorized to pay for 
allowable, allocable, reasonable, and necessary costs.
    Comment 7: Nonprofit organizations do not generate a profit, and 
rely on funding to continue operations. There are many costs to 
nonprofits that are not allowable under government fiscal regulations, 
but which must be paid for the nonprofit to continue operating. Many 
nonprofits would find it impossible to continue operations, or would be 
forced to drastically reduce their research capability, without a 
management fee being awarded.
    Response: Pursuant to OMB Circular A-122, Cost Principles for Non-
Profit Organizations, unallowable costs are not reimbursable. Federal 
agencies are only authorized to pay for allowable, allocable, 
reasonable, and necessary costs.
    Comment 7: NASA received comments related to cross waivers of 
liability in this docket, but they clearly do not relate to this rule, 
and are therefore, not addressed here.

III. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This is not a significant regulatory action and, therefore, was not 
subject to review under section 6(b) of E.O. 12866, Regulatory Planning 
and Review, dated September 30, 1993. This rule is not a major rule 
under 5 U.S.C. 804.

IV. Regulatory Flexibility Act

    NASA certifies that this proposed rule will not have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., 
because the rule does not impose any additional requirements on small 
entities and currently less than 1 percent of recipients of NASA grants 
and cooperative agreements receive profit or management fees.

V. Paperwork Reduction Act

    The Paperwork Reduction Act (Pub. L. 104-13) is not applicable 
because the prohibition on payment of profit and management fees by 
NASA does not require the submission of any information by recipients 
that requires the approval of the Office of Management and Budget under 
44 U.S.C. 3501, et seq.

List of Subjects in 14 CFR Part 1260

    Colleges and universities, Business and Industry, Grant programs, 
Grants administration, Cooperative agreements, State and local 
governments, Non-profit organizations, Commercial firms, Recipients.

William P. McNally,
Assistant Administrator for Procurement.

    Accordingly, 14 CFR part 1260 is proposed to be amended as follows:

PART 1260--GRANTS AND COOPERATIVE AGREEMENTS

0
1. The authority citation for 14 CFR part 1260 continues to read as 
follows:

    Authority: 42 U.S.C. 2473(c)(1), Pub. L. 97-258, 96 Stat. 1003 
(31 U.S.C. 6301, et seq.), and OMB Circular A-110.

0
2. In Sec.  1260.4, paragraph (b)(2) is revised to read as follows:


Sec.  1260.4  Applicability.

* * * * *
    (b) * * *
    (2) Payment of fee or profit is consistent with an activity whose 
principal purpose is the acquisition of goods and services for the 
direct benefit or use of the United States Government, rather than an 
activity whose principal purpose is assistance. Therefore, the grants 
officer shall use a procurement contract, rather an assistance 
instrument, in all cases where fee or profit is to be paid to the 
recipient of the instrument or the instrument is to be used to carry 
out a program where fee or profit is necessary to achieving program 
objectives. Grants and cooperative agreements shall not provide for the 
payment of fee or profit to the recipient.
* * * * *
0
3. In Sec.  1260.10, paragraph (b)(1)(iv) is added to read as follows:


Sec.  1260.10  Proposals.

* * * * *
    (b) * * *
    (1) * * *
    (iv) Payment of fee or profit is consistent with an activity whose 
principal purpose is the acquisition of goods and services for the 
direct benefit or use of the United States Government, rather than an 
activity whose principal purpose is assistance. Therefore, the grants 
officer shall use a procurement contract, rather an assistance 
instrument, in all cases where fee or profit is to be paid to the 
recipient of the instrument or the instrument is to be used to carry 
out a program where fee or profit is necessary to achieving program 
objectives. Grants and

[[Page 10438]]

cooperative agreements shall not provide for the payment of fee or 
profit to the recipient.
* * * * *
0
4. In Sec.  1260.14, paragraph (e) is added to read as follows:


Sec.  1260.14  Limitations.

* * * * *
    (e) Payment of fee or profit is consistent with an activity whose 
principal purpose is the acquisition of goods and services for the 
direct benefit or use of the United States Government, rather than an 
activity whose principal purpose is assistance. Therefore, the grants 
officer shall use a procurement contract, rather an assistance 
instrument, in all cases where fee or profit is to be paid to the 
recipient of the instrument or the instrument is to be used to carry 
out a program where fee or profit is necessary to achieving program 
objectives. Grants and cooperative agreements shall not provide for the 
payment of fee or profit to the recipient.
[FR Doc. 2014-02988 Filed 2-24-14; 8:45 am]
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