Profit and Fee Under Federal Financial Assistance Awards, 67347-67349 [2014-26856]

Agencies

• National Aeronautics and Space Administration

[Federal Register Volume 79, Number 219 (Thursday, November 13, 2014)]
[Rules and Regulations]
[Pages 67347-67349]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-26856]


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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: Final 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 rule makes changes to NASA regulations 
to reflect that revision.

DATES: Effective December 15, 2014.

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

[[Page 67348]]

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 published a second proposed rule in the Federal Register on 
February 25, 2014 (79 FR 10346). The public comment period closed on 
April 28, 2014. By the end of the established comment period, NASA 
received comments from three entities. After the specified end date for 
the submission of comments had passed, one organization submitted 
supplementary comments to their original comments. NASA accepted these 
late comments.

II. Discussion and Analysis

    Historically, NASA has discouraged the payment of profit or fee 
under its Federal Financial Assistance awards because payment in excess 
of costs is inconsistent with the intent of grants 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 under NASA 
grants and cooperative agreements (See NASA Grant and Cooperative 
Handbook, Subpart 1274.204). Because this prohibition does not include 
non-profit organizations, NASA's policy has been misinterpreted and 
inconsistent application has occurred.
    Therefore, this final rule extends the prohibition on the payment 
of profit or fee to all recipients of NASA grants and cooperative 
agreements, alleviating the misinterpretation and inconsistent 
application of the policy.
    Based on a review of the public comments discussed below, NASA has 
concluded that no change to the second proposed rule is necessary. NASA 
received comments from three respondents. New comments, not already 
addressed in response to the first proposed rule, are discussed below. 
Comments that were received in response to the first proposed rule were 
addressed in the second proposed rule at 79 FR 10346, February 25, 
2014.
    Comment 1: Respondent inquired if this rule impacts NASA Grant and 
Cooperative Handbook, Subpart 1274.204(f), profit applicability, which 
allows profit in some cases.
    Response: This rule does not impact NASA Grant and Cooperative 
Handbook, Subpart 1274.204(f). Profit associated with cooperative 
agreements awarded to commercial firms may be paid by the recipient to 
subcontractors in accordance with Subpart 1274.204(f).
    Comment 2: Respondent inquired as to whether profit or fee can be 
paid in the situation where a private consultant might be hired to help 
inform the effort. Private consultant's hourly rate could have profit 
or fee built into the rate and we may not have visibility into the 
components (direct and indirect costs, profit, etc. . . .) that 
comprise the hourly rate.
    Response: This rule does not impact this situation. In this case, 
the hourly rate would invariably represent a commercial market rate for 
these services where a detailed cost breakdown of the hourly rate by 
cost element would not be required. Thus, profit or fee analysis would 
not be required.
    Comment 3: Prohibiting the payment of profit or fee to non-profit 
organizations will have a devastating and large detrimental effect on 
non-profit organizations and their partners.
    Response: NASA continues to support non-profit entities and the 
valuable contributions they supply to the NASA mission. NASA has 
historically discouraged the payment of profit or fee to non-profit 
entities. The intent of this rule is to clarify this point that NASA 
will not pay for profit or fee where profit or fee is defined as the 
amount above allowable costs. Management fees that are allowable costs 
within the guidelines established in OMB Uniform Administrative 
Requirements, Cost Principles, and Audit Requirements for Federal 
Awards (2 CFR Chapter I, Chapter II, Parts 200, 215, 220, 225, and 230) 
will continue to be paid.
    Comment 4: Management fee is intended to provide a non-profit 
entity with a modest source of funds to meet business expenses that are 
not reimbursable. Non-profits have many costs that are not allowable 
under government regulations but must be paid by non-profit entities in 
order to keep operating. Without management fee, non-profits would find 
it impossible to continue operations.
    Response: NASA pays for business expenses/costs that are 
reimbursable in accordance with the guidelines in OMB Uniform 
Administrative Requirements, Cost Principles, and Audit Requirements 
for Federal Awards (2 CFR Chapter I, Chapter II, Parts 200, 215, 220, 
225, and 230). Paying business expenses/costs that are not reimbursable 
through a management fee would be circumventing these OMB guidelines, 
and inappropriate for financial assistance instruments.
    Comment 5: Respondent stated that NASA's interpretation of 
statutory authorities was too narrowly focused and that NASA has the 
statutory authority to pay a management fee to non-profit entities.
    Response: NASA agrees that the Space Act of 1958 (42 U.S.C. 
2473(c)(5)) provides NASA with broad authority and discretion to award 
grants and cooperative agreements to fulfill its mission. However, 
these authorities do not expressly or explicitly allow for the payment 
of profit or fee, sometimes referred to as a management fee, when such 
fee is defined as the amount above allowable costs. The payment of 
profit or fee under Federal Financial Assistance awards is inconsistent 
with the intent of grants and cooperative agreements which provide 
funding in the form of financial assistance to recipients for their 
performance of a public purpose and therefore should not be allowed.
    Comment 6: Respondent took issue with the NASA statement that 
``Federal agencies are only authorized to pay for allowable, allocable, 
reasonable, and necessary costs'' stating that there is no cost 
principle that requires that a cost must be ``necessary'' to the 
performance of a cooperative agreement.
    Response: Pursuant to OMB Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards, section 200.403, 
Factors affecting allowability of costs, ``necessary'' is part of the 
general criteria that a cost must meet in order to be allowable under 
Federal awards.
    Comment 7: Respondent took issue with NASA statement that ``grant 
and cooperative agreement regulation is incomplete in its coverage of 
profit and fee in that it fails to address non-profit organizations''. 
Respondent stated that this statement is inaccurate. NASA Grant 
Information Circular (GIC) 99-1 is specific regulatory action regarding 
payment of management fees on grants and cooperative agreements to non-
profit entities.
    Response: NASA Grant Information Circulars (GICs) are non-
regulatory, internal guidance and the grant and cooperative agreement 
regulation referred to was the NASA Grant and Cooperative Agreement 
Handbook which is codified beginning at 14 CFR part 1260.
    Comment 8: Respondent stated that the final OMB Uniform 
Administrative Requirements, Cost Principles, and Audit Requirements 
for Federal Awards (2 CFR Chapter I, Chapter II, Parts 200, 215, 220, 
225, and 230) rule provides NASA the authority to authorize fee or 
profit under an award. Specifically, the guidance states that ``the 
non-Federal entity may not earn or keep any profit resulting from 
Federal financial

[[Page 67349]]

assistance, unless expressly authorized by the terms and conditions of 
the Federal award''.
    Response: In implementing the OMB Uniform Administrative 
Requirements, Cost Principles, and Audit Requirements for Federal 
Awards (2 CFR Chapter I, Chapter II, Parts 200, 215, 220, 225, and 
230), it is NASA policy to not pay profit or fee under grant and 
cooperative agreement awards. NASA maintains that it is inappropriate 
to pay profit and fee under its 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.

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 final 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 Paper 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 1260

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

Cynthia Boots,
Alternate Federal Register Liaison
    Accordingly, 14 CFR Part 1260 is amended as follows:

PART 1260-GRANTS AND COOPERATIVE AGREEMENTS

0
1. The authority citation for 14 CFR 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 than 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 than 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
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 than 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. 2014-26856 Filed 11-12-14; 8:45 am]
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