# Administrative Requirements Terms and Conditions for Cost-Type Awards to Nonprofit and Governmental Entities > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2016-25701 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** November 7, 2016 - **Citation:** 81 FR 78382 ## Text DEPARTMENT OF DEFENSE Office of the Secretary 2 CFR Parts 1126, 1128, 1130, 1132, 1134, 1136, and 1138 [DOD-2016-OS-0054] RIN 0790-AJ49 Administrative Requirements Terms and Conditions for Cost-Type Awards to Nonprofit and Governmental Entities AGENCY: Office of the Secretary of Defense, DoD. ACTION: Proposed rule. SUMMARY: This notice of proposed rulemaking (NPRM) is the third of a sequence of six NPRM documents in this section of this issue of the Federal Register that propose updates to the Department of Defense Grant and Agreement Regulations (DoDGARs). This NPRM proposes to add seven new DoDGARs parts to address the administrative requirements included in general terms and conditions of DoD cost-type grants and cooperative agreements awarded to institutions of higher education, nonprofit organizations, States, local governments, and Indian tribes. The administrative requirements are in areas such as financial and program management; property administration; recipient procurement procedures; financial, programmatic, and property reporting; and subawards. The proposed new parts establish a uniform way for approximately 100 DoD Component awarding offices to organize the administrative requirements in their general terms and conditions. The proposed new parts also provide standard wording of terms and conditions for the administrative requirements, with associated regulatory prescriptions for DoD Components to provide latitude to vary from the standard wording where variation is appropriate. DATES: To ensure that they can be considered in developing the final rule, comments must be received at either the Web site or mailing address indicated below by February 6, 2017. ADDRESSES: You may submit comments identified by docket number, or by Regulatory Information Number (RIN) and title, by either of the following methods: The Web site: http://www.regulations.gov . Follow the instructions at that site for submitting comments. Mail: Department of Defense, Deputy Chief Management Officer, Directorate for Oversight and Compliance, 4800 Mark Center Drive, ATTN: Box 24, Alexandria, VA 22350-1700. Instructions: All submissions must include the agency name and docket number or RIN for this Federal Register document. The general policy for comments and other submissions from the public is to make the submissions available for public viewing on the Internet at http://www.regulations.gov without change ( i.e., as they are received, including any personal identifiers or contact information). FOR FURTHER INFORMATION CONTACT: Wade Wargo, Basic Research Office, telephone 571-372-2941. SUPPLEMENTARY INFORMATION: I. Executive Summary A. Purpose of the Regulatory Action 1. The Need for the Regulatory Action and How the Action Meets That Need The Department of Defense Grant and Agreement Regulations (DoDGARs) implement statutes and Governmentwide guidance for grants and cooperative agreements, as needed in order to ensure that DoD Component offices make and administer assistance awards consistently with agency policy. They are in need of updating, in part due to the issuance of new Office of Management and Budget guidance to Federal agencies on administrative requirements, cost principles, and audit requirements that apply to Federal grants, cooperative agreements, and other assistance instruments (2 CFR part 200). This NPRM provides a major portion of the implementation of that guidance, by addressing the administrative requirements to be included in general terms and conditions of DoD Components' awards to institutions of higher education, nonprofit organizations, States, local governments, and Indian tribes. 2. Legal Authorities for the Regulatory Action There are two statutory authorities for this NPRM: • 10 U.S.C. 113, which establishes the Secretary of Defense as the head of the Department of Defense; and • 5 U.S.C. 301, which authorizes the head of an Executive department to prescribe regulations for the governance of that department and the performance of its business. B. Summary of the Major Provisions of the Regulatory Action This NPRM establishes seven new DoDGARs parts that collectively govern a DoD Component's construction of the administrative requirements portion of its general terms and conditions for awards to institutions of higher education, nonprofit organizations, States, local governments, and Indian tribes. The seven proposed new parts comprise a subchapter of the DoDGARs—Subchapter D in Chapter XI of 2 CFR. The first of the proposed parts in the subchapter, 2 CFR part 1126, provides an overview of the subchapter's content. In addition to addressing the purpose and applicability, the overview part describes what the subchapter's remaining six parts address and how they are organized. Section II.B of this Supplementary Information section describes the overview part 1126 in more detail. Each of the subchapter's other six parts provides both: (1) Standard wording for articles of general terms and conditions specifying requirements for recipients and subrecipients within a given subject matter area; and (2) the associated direction to DoD Components on the use of the standard wording for those articles. Those six parts are described more fully in sections II.C through II.H of this Supplementary Information section. C. Costs and Benefits The major benefit of this NPRM is greatly increased uniformity across the Department in administrative requirements included in DoD grant and cooperative agreement awards each year to institutions of higher education, nonprofit organizations, States, local governments, and Indian tribes. Uniformity helps to lessen administrative burdens and costs for recipients, thereby increasing the productivity of programs supported by DoD assistance awards. This regulatory action takes a major step in that direction by proposing to establish a standard organization and more uniform wording for administrative requirements included in general terms and conditions of more than 15,000 award actions totaling $4 to $6 billion each year that are issued: • By approximately 100 offices in the Departments of the Army, Navy, and Air Force and 11 other DoD Components that are located across the United States and elsewhere. • Under a variety of programs and to diverse types of recipients. Institutions of higher education receive more than half of the awards, including many awards that support defense research. There also are thousands of awards to other types of recipients and for other defense purposes, such as support to States for the National Guard and economic assistance to communities impacted by defense downsizing or costs associated with education of military dependents. The administrative burdens and associated costs to recipients due to the regulatory action proposed in this NPRM are primarily those resulting from the Governmentwide guidance to agencies that OMB issued in 2 CFR part 200. Some variations from the guidance noted in sections II.C through II.H of this Supplementary Information section could cause a relatively small increase in burdens, while others reduce burdens and costs. The Department invites input on any area in which potential recipients of DoD awards perceive an increase in burden relative to the OMB guidance that is not justified by the commensurate value of an improvement in DoD's ability to carry out its responsibilities for good stewardship of Federal taxpayers' dollars. II. General Background and Detailed Overview of the DoDGARs Parts Proposed in This NPRM A. General Background The first and second NPRMs in the sequence of six notices in this section of this issue of the Federal Register ( i.e., the two NPRMs preceding this one) provide additional context pertinent to the seven DoDGARs parts proposed in this NPRM. In particular, the NPRM immediately preceding this one proposes a new DoDGARs part that establishes a standard award format for DoD Components' grants and cooperative agreements. That format has three major elements, the third of which is the general terms and conditions that address administrative requirements, national policy requirements, and programmatic requirements. This notice proposes seven DoDGARs parts that establish a standard organization and content for the administrative requirements portion of the general terms and conditions in awards to institutions of higher education, nonprofit organizations, States, local governments, and Indian tribes. Those are the types of recipient entities addressed by the OMB guidance to Federal agencies on administrative requirements, cost principles, and audit requirements that is in 2 CFR part 200. Therefore, the seven new DoDGARs parts proposed in this notice also comprise the proposed DoD implementation of that guidance as it applies to general terms and conditions. The seven new parts proposed in this notice are in Subchapter D of Chapter XI in title 2 of the Code of Federal Regulations (note that the first of the six NPRMs in this section of this issue of the Federal Register proposed the establishment of that subchapter). The first of the parts proposed in this notice, 2 CFR part 1126, provides an overview of Subchapter D. Each of the other proposed parts (2 CFR parts 1128, 1130, 1132, 1134, 1136, and 1138) addresses the organization and content of general terms and conditions for one segment of the administrative requirements, such as property administration or recipient procurement procedures. Each of the proposed parts 1128, 1130, 1132, 1134, 1136, and 1138 is organized into subparts and appendices. The appendix to each proposed part provides standard wording of general terms and conditions for one article of general terms and conditions. For each appendix addressing a particular article, the proposed part has an associated subpart that provides the prescription for DoD Components' use of the standard wording for that article. The subpart associated with each article identifies the portions of the OMB guidance in 2 CFR part 200 that the article implements, as those portions of the guidance apply to general terms and conditions. For example: • Appendix D to the proposed 2 CFR part 1128 contains standard wording of an article of general terms and conditions addressing revisions of budget and program plans under awards; and • The corresponding Subpart D of that proposed part: (1) Contains the prescription for DoD Components' use of the standard wording in appendix D when constructing that article of their general terms and conditions; and (2) in section 1128.400, lists the portions of the OMB guidance that the article implements. Organizing the proposed parts 2 CFR 1128 through 1138 in that manner more clearly differentiates requirements for recipients from those for DoD awarding officials or administering officials than the DoDGARs have done previously. In the past, it was not unusual for a DoDGARs paragraph on administrative requirements to include requirements for both DoD Components and recipients, which made it more difficult for each intended audience to determine what the regulations required of them. For example, DoDGARs requirements on revisions to budget and program plans for both DoD Components and institutions of higher education or nonprofit recipients were interwoven in section 32.25 of 32 CFR part 32 (the now-superseded DoD implementation of OMB Circular A-110). With the organization of the content in the proposed parts 2 CFR 1128 through 1138, requirements for DoD Component officials are in the subparts of the parts and therefore separate from requirements for recipients, which are communicated through award terms and conditions based on the standard wording in the appendices to the parts. That organization should make it easier for all affected parties to understand the applicable requirements and, therefore, to comply with them. Three other features of the proposed parts with standard wording of general terms and conditions are designed to further promote ease of understanding for those who need to use and comply with them. • The proposed standard wording is in plain language, with use of personal pronouns such as “you” to denote the recipient and “we” to mean the Federal Government. Use of personal pronouns is a recognized means to help a reader better relate to words addressed to him or her and, in the case of regulations, more likely understand his or her responsibilities. • The proposed organization of administrative requirements reflects a conscious attempt to promote clarity by grouping requirements into 39 articles of general terms and conditions that present the subject matter in the most coherent manner possible. For example, the consolidation of requirements related to subawards in twelve articles within the proposed 2 CFR part 1138 is intended to simplify a recipient's task of determining which requirements of the prime award flow down to subrecipients. • The proposed establishment of the standard wording in the appendices to parts in the Code of Federal Regulations enables a DoD Component to construct the administrative requirements portion of its general terms and conditions by: (1) Incorporating the standard wording of each article by reference; and (2) stating any variations it has from the standard wording of that article. Section 1120.515 in the proposed 2 CFR part 1120—the part that establishes a standard award format (see the NPRM immediately preceding this one in this section of this issue of the Federal Register )—strongly encourages DoD Components to use this method in their general terms and conditions, rather than including the full text of each article. Incorporating the standard wording by reference to the CFR should allow a recipient that receives awards from multiple DoD Component awarding offices to quickly identify how each office's general terms and conditions vary from the DoD standard wording. It should be noted that the seven parts proposed in this NPRM do not address administrative requirements for DoD Components' fixed-amount awards, as described in OMB guidance at 2 CFR 200.201. Fixed-amount DoD awards will be addressed by DoDGARs rules to be proposed in the future. To the extent that DoD Components permit recipients or subrecipients to make fixed-amount subawards at lower tiers below cost-type prime awards and subawards, however, the proposed 2 CFR part 1138 includes requirements for those fixed-amount subawards (an overview of that proposed part is in section II.H of this Supplementary Information section). The remainder of this Supplementary Information section provides overviews of the seven new DoDGARs parts proposed in this NPRM. Specifically, sections II.B through H address the proposed 2 CFR parts 1126 through 1138, respectively. B. Proposed Part 1126—Subchapter D Overview The proposed 2 CFR part 1126 provides an overview of Subchapter D of chapter XI, title 2 of the CFR. Specifically, it: • Provides general information about the purposes of the subchapter. • Specifies the applicability of the subchapter. It states that the subchapter: (1) Directly applies to DoD Components; and (2) only indirectly applies to recipients through its regulation of DoD Components' construction of the administrative requirements portion of their general terms and conditions for cost-type grant and cooperative agreement awards to institutions of higher education, nonprofit organizations, States, local governments, and Indian tribes. • Specifies the conditions under which exceptions from the provisions of the subchapter are permitted. The only provision that varies from the conditions for exceptions included in OMB guidance to agencies, at 2 CFR 200.102, is a provision allowing exceptions for small awards. This continues a policy included in DoD's interim implementation of the OMB guidance at 2 CFR part 1103, which it published in the Federal Register on December 19, 2014 [79 FR 76047], and broadens it to include small awards to States, local governments, and Indian tribes. • Acknowledges the complementary relationship between the parts of the subchapter and two other DoDGARs parts that specify administrative requirements for grant and cooperative agreement awards to for-profit entities and for Technology Investment Agreements. • Provides, in the proposed section 1126.5, a table showing a high-level summary of the contents of the other six parts of the subchapter. The table lists each article of the administrative requirements portion of the general terms and conditions that is addressed in the subchapter. • Describes how each of the other six parts of the subchapter is organized. C. Proposed Part 1128—General Terms and Conditions on Financial and Program Management The proposed part 1128 addresses seven articles of general terms and conditions within the broad area of financial and program management. The seven articles are designated as FMS Articles I through VII of the general terms and conditions. The proposed standard wording for the articles is in the seven appendices to the proposed part 1128. The prescriptions to DoD Components for use of the standard wording of the articles are in the seven associated subparts of the part. The articles with their related prescriptions implement the financial and program management provisions of the OMB guidance in 2 CFR part 200, as that guidance applies to general award terms and conditions. The subjects covered by the seven articles (and the appendices and subparts containing the articles and associated prescriptions) are: • Financial management system standards (in Subpart A and appendix A). • Payments (in Subpart B and appendix B). • Allowable costs, period of availability of funds, and fee or profit (in Subpart C and appendix C). • Revision of budget and program plans (in Subpart D and appendix D). • Non-Federal audits (in Subpart E and appendix E). • Cost sharing or matching (in Subpart F and appendix F). • Program income (in Subpart G and appendix G). The following subsections II.C.1 through 7 of this Supplementary Information section focus on whether and how the proposed implementation of the OMB guidance in each article and its associated prescription for DoD Components varies from, or clarifies, the related guidance. 1. Financial Management System Standards The proposed FMS Article I, “Financial management system standards,” and associated prescription includes no variations or clarifications relative to the portions of the OMB guidance on financial management systems standards. 2. Payments The proposed FMS Article II, “Payments,” and associated prescription include one variation and one clarification relative to the guidance on payments: • The variation is relative to OMB guidance at 2 CFR 200.305(b)(3), which concerns the timing of awarding agency payments to recipients. The OMB guidance states that an awarding agency must make payment within 30 calendar days after receipt of the billing, unless the agency reasonably believes the request to be improper. The proposed prescription for DoD Components in 2 CFR 1128.215(c)(4) implements that guidance for general terms and conditions of construction awards that specify reimbursement as the payment method. That proposed prescription states that DoD generally makes, rather than “must” make, payment within 30 calendar days after receipt of the request. This continues existing DoD policy for awards to institutions of higher education and nonprofit organizations, which is cited at 2 CFR 1103.205 in DoD's interim implementation of the OMB guidance, and broadens the policy to States, local governments, and Indian tribes. Note that this proposed wording in FMS Article II is limited to the general terms and conditions of construction awards. For non-construction awards, the reimbursement method should be used only in award-specific terms and conditions because the general terms and conditions of those awards authorize recipients to request advance payments as long as they maintain, or demonstrate the willingness to maintain, written procedures to minimize the time elapsing between their receipt of each payment and disbursement of the funds for program purposes. • The clarification relates to OMB guidance in 2 CFR 200.305(b)(9), which states that a recipient may retain up to $500 per year in interest it earns on advance payments. The proposed paragraph B.6.d of FMS Article II, clarifies that the $500 limit applies to the aggregate amount of interest a recipient earns annually under all of its Federal grants and cooperative agreements and not separately to the amount it earns under each award. 3. Allowable Costs, Period of Availability of Funds, and Fee or Profit The proposed FMS Article III, “Allowable costs,” and associated prescription supplement the OMB guidance, as well as implement it, by providing a central source within the general terms and conditions for requirements on whether and when costs incurred by recipients, subrecipients, and contractors under awards and subawards are allowable. It also includes the long-standing DoDGARs policy on fee or profit. The proposed article includes one variation and two clarifications relative to the OMB guidance in 2 CFR 200.461 on the allowability of costs associated with professional journal publications: • The variation is a specification in Section B of FMS Article III that costs of publishing in professional journals are allowable only if the recipient charges them consistently, either as direct or indirect costs. The purpose of this specification is to ensure that the Government does not pay more than its fair share of journal publication costs that are increasingly being addressed through charges that authors pay prior to publication. That can happen if an institution directly charges those payments for federally supported researchers to their Federal awards while including payments by other researchers in a pool of costs, a share of which the Government reimburses as indirect costs charged to Federal awards. • The first clarification also is in Section B of the article and is intended to help avoid confusion that might result from the use of the wording “cost of publication or sharing of research results” in 2 CFR 200.461(b)(3). That wording could be interpreted to mean something broader than “charges for professional journal publications,” which is the wording in the lead-in 2 CFR 200.461(b) that should circumscribe the costs allowed under § 200.461(b)(3). • The other clarification is in paragraph C.3 of FMS Article III. It clarifies wording in 2 CFR 200.461(b)(3) indicating that a recipient may charge an award up to the time of closeout of the award for costs of publishing in professional journals that are incurred after the end of the period of performance. The proposed clarification provides that the recipient may charge those costs to an award if its request for payment of the costs is received no later than the date on which it submits its final financial report under the award. That clarification is needed because the closeout process relies on the final financial report being the ultimate statement of financial status. Any subsequent change in financial status due to incurrence of additional publication costs would disrupt the ongoing closeout process and create added burdens and costs for DoD's award administration office, which would have to require the recipient to submit a revised final report. 4. Revision of Budget and Program Plans The proposed FMS Article IV, “Revision of budget and program plans,” and associated prescription include no variations or clarifications relative to the guidance on changes in a recipient's budget and program plans. 5. Non-Federal Audits The proposed FMS Article V, “Non-Federal audits,” and associated prescription supplement, as well as implement, the OMB guidance by providing a central location within the general terms and conditions at which a recipient can find requirements for non-Federal audits of all types of recipients and subrecipients, including for-profit entities. The proposed article and prescription include no variations or clarifications relative to portions of the OMB guidance that they implement. 6. Cost Sharing or Matching The proposed FMS Article VI, “Cost sharing or matching,” and associated prescription include no variations or clarifications relative to the OMB guidance on cost sharing or matching. Paragraph E.2 of the proposed article does refer to a clarification contained in another article of the general terms and conditions, PROP Article I. That clarification, which concerns the Federal interest in property donated to a project under an award, is addressed in the discussion of PROP Article I in subsection II.D.1 of this Supplementary Information section. 7. Program Income The prescription for DoD Components related to FMS Article VII, “Program Income,” which is in subpart G of the proposed 2 CFR part 1128, includes one clarification from the OMB guidance in 2 CFR part 200. The prescription permits a DoD Component's general terms and conditions to specify a combination of the three alternatives that the OMB guidance identifies for recipients' use of program income— i.e., the additive, deductive, and cost sharing or matching alternatives. This is a clarification because the guidance in 2 CFR part 200 does not explicitly recognize that an award may use more than one of the three alternatives. This clarification provides continuity with previous Governmentwide and DoD policy that permitted use of more than one alternative. Specifically, use of a combination of alternatives was allowed for awards to: • Institutions of higher education and other nonprofit organizations under OMB Circular A-110 and the associated DoD implementation in DoDGARs part 32 (32 CFR part 32). • States, local governments, and Indian tribes under the Governmentwide common rule implementing OMB Circular A-102, which was adopted by DoD in DoDGARs part 33 (32 CFR part 33). D. Proposed Part 1130—General Terms and Conditions on Property Administration The proposed part 1130 addresses six articles of general terms and conditions concerning property acquired by recipients under awards and federally owned property furnished to recipients by the Government. The articles are designated as PROP Articles I through VI of the general terms and conditions. The proposed standard wording for the articles is in appendices A through F to the proposed part. The prescriptions for DoD Components' use of the standard wording is in the associated Subparts A through F of the proposed part. The articles with their related prescriptions implement the property administration provisions of the OMB guidance in 2 CFR part 200, as that guidance pertains to general award terms and conditions. The subjects covered by the six articles (and the appendices and subparts containing the articles and associated prescriptions) are: • Title to property (in Subpart A and appendix A) • Recipients' property management systems (in Subpart B and appendix B) • Use and disposition of real property (in Subpart C and appendix C) • Use and disposition of equipment and supplies (in Subpart D and appendix D) • Use and disposition of federally owned property (in Subpart E and appendix E) • Intangible property (in Subpart F and appendix F) The following subsections II.D.1 through 6 of this Supplementary Information section focus on whether and how the proposed implementation of the guidance in each article and its associated prescription for DoD Components varies from, or clarifies, the related OMB guidance. 1. Title to Property The proposed PROP Article I, “Title to property,” and associated prescription implement portions of the OMB guidance that address title vesting and the property trust relationship. They implement the guidance with no variations. 2. Property Management System The proposed PROP Article II, “Property management system,” and associated prescription implement portions of the OMB guidance that specify the standards for a recipient's property management system. The proposed implementation includes one variation from the guidance. The one variation is the inclusion of property management system requirements for federally owned property. Although the OMB guidance in 2 CFR part 200 does not explicitly address those management system requirements, they are needed to ensure proper stewardship of any federally owned property for which a recipient is accountable under an award. The requirements are included for States in Section B of the proposed PROP Article II and for institutions of higher education, nonprofit organizations, local governments, and Indian tribes in Section C of the proposed article. The requirements in the proposed PROP Article II continue long-standing DoD policy in the DoDGARs, for States under 32 CFR 33.32(f) and for other recipients under 32 CFR 32.34(f). Those requirements also were included at 2 CFR 1103.201 in the interim DoD implementation of the guidance in 2 CFR part 200. 3. Use and Disposition of Real Property The proposed PROP Article III, “Use and disposition of real property,” and associated prescription implement the portions of the OMB guidance pertinent to that subject. The proposed implementation includes one variation from the guidance. The variation is that the proposed article authorizes a recipient's use of real property acquired under an award for other projects or programs either: (1) During its use on the project or program for which it was acquired, on a non-interfering basis; or (2) subsequently, by deferral of final disposition of the property, if the recipient obtains DoD approval for use on other federally sponsored projects or programs with purposes consistent with those supported by the award. The use on a non-interfering basis during the performance period of the award parallels provisions in the OMB guidance at 2 CFR 200.313(c)(2) for equipment acquired under an award. The potential to use real property after the end of the performance period continues long-standing policy in the DoDGARs at 32 CFR 32.32(b) for awards to institutions of higher education, hospitals, and other nonprofit organizations and extends that policy to States, local governments, and Indian tribes. 4. Use and Disposition of Equipment and Supplies The proposed PROP Article IV, “Use and disposition of equipment and supplies,” and associated prescription implement the portions of the OMB guidance on that subject. The proposed implementation includes one variation from the guidance. 5. Use and Disposition of Federally Owned Property The proposed PROP Article V, “Use and disposition of federally owned property,” and associated prescription implement the OMB guidance on that subject, with no variations or clarifications relative to the guidance. 6. Intangible Property The proposed PROP Article VI, “Intangible property,” and associated prescription implement the provisions of the OMB guidance that address copyrights, inventions, and data. The proposed implementation includes one clarification of the guidance. The one clarification, which is in Section D of the proposed article, relates to a patent, patent application, copyright, or other intangible property that is acquired under an award by a means other than being developed or produced under the award. This is an important distinction because policies concerning vesting of title to the property and use and disposition of the property appropriately differ from the corresponding policies for intangible property that is developed or produced under awards. This distinction was previously made in the DoDGARs at 32 CFR 32.36(e) for awards to institutions of higher education, hospitals, and other nonprofit organizations, and was included for awards to those types of recipients in DoD's interim implementation of the OMB guidance at 2 CFR 1103.215. The incorporation into PROP Article VI extends the distinction to awards DoD Components make to States, local governments, and Indian tribes. E. Proposed Part 1132—General Terms and Conditions on Recipient Procurement Procedures The proposed part 1132 addresses three articles of general terms and conditions specifying procedural requirements for recipients' purchases of property and services under awards. The articles, which are designated as PROC Articles I through III, are in appendices A through C to the proposed part. The prescriptions for DoD Components' use of the standard wording of the articles are in the corresponding Subparts A through C of the proposed part. The articles and the associated prescriptions implement the procurement provisions of the OMB guidance in 2 CFR part 200 as they relate to general award terms and conditions. The subjects covered by the articles (and the appendices and subparts containing the articles and associated prescriptions) are: • Procurement standards for States (in Subpart A and appendix A) • Procurement standards for institutions of higher education, nonprofit organizations, local governments, and Indian tribes (in Subpart B and appendix B) • Contract provisions for recipient procurements (in Subpart C and appendix C) The following subsections II.E.1 through 3 of this Supplementary Information section address whether and how the proposed implementation of the guidance in each article and its associated prescription for DoD Components varies from, or clarifies, the related OMB guidance. 1. Procurement Standards for States The proposed PROC Article I, “Procurement standards for States,” and the associated prescription implement the OMB guidance on those standards, with no variations or clarifications relative to the guidance. 2. Procurement Standards for Institutions of Higher Education, Nonprofit Organizations, Local Governments, and Indian Tribes The proposed PROC Article II, “Procurement standards for institutions of higher education, nonprofit organizations, local governments, and Indian tribes,” and the associated prescription implement the OMB guidance on those standards, with no clarifications or variations relative to the guidance. 3. Contract Provisions for Recipient Procurements The proposed PROC Article III, “Contract provisions for recipient procurements,” and the associated prescription implement the OMB guidance on that subject, with no variations or clarifications relative to the guidance. F. Proposed Part 1134—General Terms and Conditions on Reporting The proposed part 1134 addresses four articles of general terms and conditions on recipient reporting requirements. The articles are designated as REP Articles I through IV and are in appendices A through D to the proposed part. The associated prescriptions for DoD Components are in Subparts A through D of the proposed part. The articles and associated prescriptions implement the provisions of the OMB guidance in 2 CFR part 200 on reporting, as those provisions relate to general award terms and conditions. The subjects covered by the articles (and the appendices and subparts containing the articles and associated prescriptions) are: • Performance management, monitoring, and reporting (in Subpart A and appendix A) • Financial reporting (in Subpart B and appendix B) • Reporting on property (in Subpart C and appendix C) • Reporting on subawards and executive compensation (in Subpart D and appendix D) The following subsections II.F.1 through 4 of this Supplementary Information section address whether and how the proposed implementation of the guidance in each article and its associated prescription for DoD Components varies from, or clarifies, the related OMB guidance. 1. Performance Management, Monitoring, and Reporting The proposed REP Article I, “Performance management, monitoring, and reporting,” implements portions of the OMB guidance pertinent to that subject. It does so with no variations or clarifications relative to the guidance. 2. Financial Reporting The proposed REP Article II, “Financial reporting,” implements the OMB guidance on that subject, with one clarification. That clarification is in Section D of the proposed article and the related prescription for DoD Components. Section D authorizes recipients to request extensions of due dates for interim and final financial reports. That authorization continues long-standing DoD policy in: (1) The DoDGARs at 32 CFR 32.52(a) and underlying provisions of OMB Circular A-110 for awards to institutions of higher education, hospitals, and other nonprofit organizations; and (2) the DoDGARs at 32 CFR 33.41(a)(7) and the underlying Governmentwide common rule for awards to States, local governments, and Indian tribes. 3. Property Reporting The proposed REP Article III, “Property reporting,” provides a single location within the general terms and conditions at which a recipient may find all of the property reporting requirements listed. With its associated prescription, it implements portions of the OMB guidance concerning property reporting that are not implemented in other articles of the general terms and conditions. For the reporting requirements that are addressed in other articles, the proposed REP Article III includes references to those articles rather than restating the requirements. The proposed article and prescription include no variations or clarifications relative to the guidance. 4. Reporting on Subawards and Executive Compensation The proposed REP Article IV, “Reporting on subawards and executive compensation,” directly implements the Governmentwide guidance in 2 CFR part 170 that is based on statutory reporting requirements in the Federal Funding Accountability and Transparency Act, as amended. The proposed article also implements portions of the OMB guidance in 2 CFR part 200 that cite those statutory requirements and 2 CFR part 170. The proposed article includes no variations or clarifications relative to the guidance it implements. G. Proposed Part 1136—General Terms and Conditions on Other Administrative Requirements The proposed part 1136 addresses seven articles of general terms and conditions. The seven articles specify the recipients' and Government's rights and responsibilities in areas of administrative requirements other than financial and program management, property administration, recipient procurement procedures, and reporting (which are the four areas addressed in the proposed parts 1128, 1130, 1132, and 1134 and discussed in sections II.C through F of this Supplementary Information section). The articles and associated prescriptions for DoD Components implement the OMB guidance in 2 CFR part 200 in these other areas of administrative requirements, as the guidance relates to general award terms and conditions. The articles are designated as OAR Articles I through VII and are in appendices A through G to the proposed part. The associated prescriptions are in Subparts A through G of the proposed part. The subjects covered by the articles (and the appendices and subparts containing the articles and associated prescriptions) are: • Submitting and maintaining recipient information (in Subpart A and appendix A) • Records retention and access (in Subpart B and appendix B) • Remedies and termination (in Subpart C and appendix C) • Claims, disputes, and appeals (in Subpart D and appendix D) • Collection of amounts due (in Subpart E and appendix E) • Closeout (in Subpart F and appendix F) • Post-closeout adjustments and continuing responsibilities (in Subpart G and appendix G) The following subsections II.G.1 through 7 of this Supplementary Information section address whether and how the proposed implementation of the guidance in each article and its associated prescription for DoD Components varies from, or clarifies, the related OMB guidance. 1. Submitting and Maintaining Recipient Information The proposed OAR Article I, “Submitting and maintaining recipient information,” and related prescription for DoD Components addresses requirements to register in the System for Award Management, report information to the Federal Awardee Performance and Integrity Information System (FAPIIS), and disclose evidence of certain integrity-related matters to the DoD Inspector General. It thereby implements OMB guidance in 2 CFR part 25, 2 CFR 200.113, and 200.210(b)(1)(iii). The article includes one clarification of the guidance. The clarification concerns the guidance in 2 CFR 200.113 that relates to mandatory disclosures of certain violations of Federal criminal law. The proposed implementation in Section C of OAR Article I provides more specifics than the OMB guidance— e.g., by specifying transmission of the information to the DoD Inspector General's office and grants officer and providing assurances about the safeguarding of the information provided to the Government. 2. Records Retention and Access The proposed OAR Article II, “Records retention and access,” and associated prescription for DoD Components implement the OMB guidance on that subject in 2 CFR part 200. They do so with two clarifications. The first clarification concerns the period during which the Government may disallow costs and recover funds on the basis of an audit or other review of a recipient. The three portions of the OMB guidance in 2 CFR part 200 pertinent to this clarification are in: (1) 2 CFR 200.333(b) on records retention requirements, which states that an agency may extend the records retention period by notifying the recipient in writing; (2) 2 CFR 200.336(c), which states that the Government's right to access records is not limited to the records retention period but lasts as long as the recipient retains the records; and (3) 2 CFR 200.344 on post-closeout adjustments, which states that an agency must make any cost disallowance determination and notify the recipient within the record retention period. To conform the period during which DoD may disallow costs with the period during which it may access the recipient's records, the proposed OAR Article II specifies that the recipient is not required to retain records beyond the standard records retention period delineated in 2 CFR 200.333 but, if it elects to do so, the records retention period for purposes of post-closeout adjustments is extended to be the same as the period during which the records are retained. This provision in OAR Article II thereby provides the written notification to recipients that is described in 2 CFR 200.333(b). The second clarification concerns the retention period for records concerning exempt property. The clarification, which is in paragraph A.1 of the proposed article, is that the recipient must keep whatever property records it needs to keep for exempt property acquired under a DoD award, for as long as it needs to keep them, to ensure that any residual Federal share of the value of that property is not later used as a contribution toward cost sharing or matching requirements of another Federal award. 3. Remedies and Termination The proposed OAR Article III, “Remedies and termination,” and related prescription for DoD Components implement the OMB guidance on that subject in 2 CFR part 200. The article and prescription include one variation from, and two clarifications of, the guidance. The one variation is with respect to OMB guidance in 2 CFR 200.342 that describes the conditions under which costs incurred during a suspension or after a termination are allowable. To avoid potential confusion, Section C segregates the implementation of the guidance into two paragraphs: (1) Paragraph C.1, to address costs resulting from obligations incurred by a recipient before the effective date of the suspension or termination; and (2) paragraph C.2, to address costs resulting from obligations incurred after that effective date. Paragraph C.1 includes one condition not explicitly stated in the OMB guidance, which is that costs resulting from obligations incurred before the date of a termination are allowable only if they are noncancellable after the termination. This will provide good stewardship of Federal funds by restoring a long-standing DoDGARs requirement for allowability of costs in the case of termination, previously in 32 CFR 32.62(c) for awards to institutions of higher education, hospitals, and other nonprofit organizations, and in 32 CFR 33.43(c) for awards to States, local governments, and Indian tribes. The two clarifications are with respect to OMB guidance in: • 2 CFR 200.339(a)(1), which specifies that a Federal agency may unilaterally terminate an award based on a recipient's failure to comply with award terms and conditions. To make clear that there must be an adequate reason for a DoD Component to unilaterally terminate an award, which is a serious remedy, paragraph B.1.a of the proposed article affirms that the DoD standard is a recipient's “material” failure to comply with award terms and conditions. • 2 CFR 200.339(a)(2), which adds termination for cause as a basis for unilateral termination of an award by the Government. For added clarity, since “termination for cause” is not defined and likely would be interpreted by DoD officials to be the same as termination for default ( i.e., material failure to comply with award terms and conditions), paragraph B.1.a of the proposed article describes that added basis for a DoD Component's unilateral termination in plain language. 4. Claims, Disputes, and Appeals The proposed OAR Article IV, “Claims, disputes and appeals,” and associated prescription for DoD Components implement existing DoDGARs requirements in 32 CFR 22.810. They also implement the OMB guidance in 2 CFR 200.341 on recipients' opportunities to object to remedies taken for non-compliance. The article and prescription do so with no variations or clarifications relative to the guidance. 5. Collection of Amounts Due The proposed OAR Article V, “Collection of amounts due,” and related prescription for DoD Components implement the OMB guidance on that subject, which is in 2 CFR 200.345. The article does not vary from the guidance but does clarify that the existing DoDGARs procedures in 32 CFR 22.820 for issuing demands for payment and transferring debts for collection continue to apply. That same clarification is stated at 2 CFR 1103.225 in DoD's interim implementation of the OMB guidance in 2 CFR part 200. 6. Closeout The proposed OAR Article VI, “Closeout,” implements the OMB guidance on that subject. The article includes no variations or clarifications relative to the guidance. 7. Post-closeout Adjustments and Continuing Responsibilities The proposed OAR Article VII, “Post-closeout adjustments and continuing responsibilities,” and associated prescription for DoD Components implement the OMB guidance on that subject. It does so with no variations or clarifications relative to the guidance. H. Proposed Part 1138—General Terms and Conditions on Requirements Related to Subawards The proposed part 1138 addresses twelve articles of general terms and conditions related to subawards that institutions of higher education, nonprofit organizations, States, local governments, and Indian tribes make to all types of subrecipient entities under DoD Components' grants and cooperative agreements. The articles and associated prescriptions for DoD Components implement the OMB guidance in 2 CFR part 200 concerning subawards, as that guidance relates to general terms and conditions. The articles are designated as SUB Articles I through XII and are in appendices A through L to the proposed part. The associated prescriptions are in Subparts A through L of the proposed part. The subjects covered by the articles (and the appendices and subparts containing the articles and associated prescriptions) are: • Distinguishing subawards and procurements (in Subpart A and appendix A) • Pre-award and time of award responsibilities (in Subpart B and appendix B) • Informational content of subawards (in Subpart C and appendix C) • Financial and program management requirements for subawards (in Subpart D and appendix D) • Property requirements for subawards (in Subpart E and appendix E) • Procurement procedures to include in subawards (in Subpart F and appendix F) • Financial, programmatic, and property reporting requirements for subawards (in Subpart G and appendix G) • Other administrative requirements for subawards (in Subpart H and appendix H) • National policy requirements for subawards (in Subpart I and appendix I) • Subrecipient monitoring and other post-award administration (in Subpart J and appendix J) • Requirements concerning subrecipients' lower-tier subawards (in Subpart K and appendix K) • Fixed-amount subawards (in Subpart L and appendix L) The following subsections II.H.1 through 12 describe these twelve articles and each instance in which an article or its associated prescription for DoD Components varies from, or clarifies, the related OMB guidance in a way not already described in sections II.C through II.G of this Supplementary Information section. The reason that some variations and clarifications already were described in sections II.C through II.G is that SUB Articles IV through VIII address the administrative requirements that recipients are to include in their subaward terms and conditions. In doing so, SUB Articles IV through VIII often instruct recipients to flow down to subrecipients the same administrative requirement that applies to recipients, which therefore is in one of the 27 articles of general terms and conditions described in sections II.C through II.G of this Supplementary Information section. For any of those articles that varies from or clarifies the OMB guidance, that variation or clarification is described in sections II.C through II.G and will not be described again in the following subsections II.H.1 through 12. 1. Distinguishing Subawards and Procurements The proposed SUB Article I, “Distinguishing subawards and procurements,” addresses the need for a recipient to determine the nature of each transaction into which it enters at the next lower tier under its award. 2. Pre-award and Time of Award Responsibilities The proposed SUB Article II, “Pre-award and time of award responsibilities,” and associated prescription for DoD Components include no variations or clarifications relative to the pertinent portions of the OMB guidance. 3. Informational Content of Subawards The proposed SUB Article III, “Informational content of subawards,” and the related prescription for DoD Components include one variation relative to the OMB guidance. The variation is from the guidance in 2 CFR 200.331(a)(1)(xiii) that provides for the recipient's inclusion of the subrecipient's indirect cost rate as an information element in every subaward. Because many nonprofit and for-profit entities deem their indirect cost rates to be proprietary, in order to protect confidential business information, the proposed SUB Article III varies from the guidance by providing flexibility for a recipient in that situation to exclude information about the subrecipient's indirect cost rate from the subaward. 4. Financial and Program Management Requirements for Subawards The proposed SUB Article IV, “Financial and program management requirements for subawards,” addresses the types of administrative requirements for subawards that FMS Articles I through VII address for awards under which the subawards are made. 5. Property Requirements for Subawards The proposed SUB Article V, “Property requirements for subawards,” covers the property administration requirements for subawards that PROP Articles I through VI cover for awards under which the subawards are made. SUB Article V and the related prescription for DoD Components include one clarification relative to the OMB guidance that sections II.D.1 through 6 of this Supplementary Information section did not already describe. The added clarification is that a subrecipient would submit a request for property disposition instructions through the recipient, and not directly to DoD as a recipient would do. 6. Procurement Procedures To Include in Subawards The proposed SUB Article VI, “Procurement procedures to include in subawards,” addresses the types of administrative requirements for subawards that PROC Articles I through III address for awards under which the subawards are made. SUB Article VI and the associated prescription for DoD Components include no variations or clarifications relative to the OMB guidance that sections II.E.1 through 3 of this Supplementary Information section did not already describe. 7. Financial, Programmatic, and Property Reporting Requirements for Subawards The proposed SUB Article VII, “Financial, programmatic, and property reporting requirements for subawards,” covers the types of reporting for subawards that REP Articles I through IV cover for awards under which the subawards are made. SUB Article VII and the related prescription for DoD Components include no variations or clarifications relative to the OMB guidance that sections II.F.1 through 4 of this Supplementary Information section did not already describe. 8. Other Administrative Requirements for Subawards The proposed SUB Article VIII, “Other administrative requirements for subawards,” covers the administrative requirements for subawards that OAR Articles I through VII cover for awards under which the subawards are made. SUB Article VIII and the related prescription for DoD Components include no variations or clarifications relative to the OMB guidance. 9. National Policy Requirements for Subawards The proposed SUB Article IX, “National policy requirements for subawards,” addresses the flow down to subawards of the requirements in NP Articles I-IV, which are addressed in the DoDGARs parts proposed in the NPRM following this one in this section of this issue of the Federal Register . SUB Article IX and the related prescription for DoD Components include two clarifications relative to the pertinent portions of the OMB guidance in 2 CFR part 200. The clarifications are that a recipient must immediately alert the DoD office administering its award if: • An entity to which the recipient is about to make a subaward will not accept a subaward provision requiring the subrecipient's compliance with an applicable national policy requirement; or • At any time during the performance of a subaward, the recipient learns that—or receives a credible allegation that—the subrecipient is not complying with an applicable national policy requirement. 10. Subrecipient Monitoring and Other Post-Award Administration The proposed SUB Article X, “Subrecipient monitoring and other post-award administration,” addresses requirements for recipients' monitoring of subrecipients and related post-award administration of subawards that they make under DoD grants and cooperative agreements. SUB Article X and the related prescription for DoD Components include no variations or clarifications relative to the OMB guidance. 11. Requirements Concerning Subrecipients' Lower-Tier Subawards The proposed SUB Article XI, “Requirements concerning subrecipients' lower-tier subawards,” specifies requirements that a recipient must include in any subaward in which it judges that the subrecipient may make lower-tier subawards. SUB Article XI and the associated prescription for DoD Components include no variations or clarifications relative to the OMB guidance that sections II.H.1 through 10 of this Supplementary Information section did not already address. 12. Fixed-Amount Subawards The proposed SUB Article XII, “Fixed-amount subawards,” specifies policy and procedures concerning recipients' use of fixed-amount subawards under DoD grants and cooperative agreements. The article and associated prescription for DoD Components includes two variations relative to the OMB guidance concerning fixed-amount subawards. Specifically, SUB Article XII does not provide for: • A subrecipient's certification to the recipient at the end of the subaward that it completed the project or activity or expended the level of effort, as described in the OMB guidance at 2 CFR 200.201(b)(3). A certification is not needed because the article defines appropriate uses of a fixed-amount subaward based on well-defined outcomes that are sufficiently observable and verifiable by the recipient so as to obviate the need to rely on a subrecipient's assurances. The article clarifies that outcomes are distinct from inputs, such as level of effort, needed to achieve the outcomes. • The need for a recipient's prior approval for a change in the subrecipient's principal investigator or other project leader, as described in the OMB guidance at 2 CFR 200.201(b)(5). It is inappropriate to require prior approvals for changes in inputs, such as which individuals carry out the project or program, because the article links the appropriate use of fixed-amount subawards to well-defined outcomes. III. Relationship of Administrative Requirements in This NPRM to Future DoD Implementation of the OMB Guidance As noted in section III of the Supplementary Information section of the first of the NPRMs in this section of this issue of the Federal Register , DoD will complete the remaining needed updates of the DoDGARs in a subsequent set of proposals for public comment. That future set of proposals will include implementation of the OMB guidance on administrative requirements in 2 CFR part 200 as it applies to both: (1) award-specific terms and conditions of DoD Components' grants and cooperative agreements; and (2) post-award administration. Those future proposals will complement the proposed DoDGARs parts 1128 through 1138 in this NPRM, which implement the guidance on administrative requirements as it applies to general award terms and conditions. The reason for these separate implementations is that they address distinct audiences at different points during the award life cycle. The implementation in this NPRM addresses an individual in a DoD awarding office who is responsible for drafting general terms and conditions to be used in the office's many future awards under one or more programs with similar requirements ( e.g., its research programs or its training programs). In contrast, the implementations of the guidance as it applies to: • Award-specific terms and conditions will address awarding officials in that awarding office who will later be making the individual awards under the programs. The portions of the DoDGARs addressing those officials must be tailored to their responsibilities, which include considering the specific circumstances of each award before deciding which, if any, provisions in the general terms and conditions need to be supplemented or even overridden by terms and conditions specific to that award. • Post-award administration will address officials responsible for subsequently administering the awards. In DoD, those officials often are located in offices specifically designated to provide award administration services that are organizationally and physically separate from the awarding offices. The officials' responsibilities differ in kind and not just in degree from those of the awarding officials. Again, the portions of the DoDGARs addressing those officials needs to be tailored to their distinct responsibilities. Segregating the DoDGARs implementation of the guidance for these three sets of DoD officials enables the regulations to more clearly address each of the different audiences. Doing so makes it easier for each audience to understand what the regulations require of them, and thereby promotes compliance. IV. Desired Inputs DoD welcomes comments on all aspects of the seven proposed parts in this NPRM, as inputs from affected entities will help make the final regulations better. Questions on which commenters' inputs would be helpful include: • Do the seven proposed parts appear to include any substantive variations from the OMB guidance in 2 CFR part 200, as that guidance applies to general award terms and conditions—other than those noted in section II of this Supplementary Information section? • In each of the proposed parts 1128 through 1138, does the separation of administrative requirements into two portions— i.e., the wording of terms and conditions for recipients in the appendices to the part and the prescriptions for DoD Components in the corresponding subparts of the part—help make requirements clearer for affected parties? • Does the use of plain language and pronouns improve the readability and understandability of the content of the proposed parts? V. Regulatory Analysis Executive Order 12866, “Regulatory Planning and Review,” and Executive Order 13563, “Improving Regulation and Regulatory Review” Executive Order 12866, as supplemented by Executive Order 13563, directs each Federal agency to: propose regulations only after determining that benefits justify costs; tailor regulations to minimize burdens on society, consistent with achieving regulatory objectives; maximize net benefits when selecting among regulatory approaches; specify performance objectives, to the extent feasible, rather than the behavior or manner of compliance; and seek the views of those likely to be affected before issuing a notice of proposed rulemaking, where feasible and appropriate. The Department of Defense has determined that a regulatory implementation of 2 CFR part 200 that includes standard wording of general terms and conditions for DoD Components' grant and cooperative agreement awards will maximize long-term benefits in relation to costs and burdens for recipients of those awards. In providing—for the first time—uniformity across research and other awards, the approach will benefit institutions of higher education and other types of recipients that receive awards from diverse defense programs and numerous DoD Component awarding offices. The Department informally consulted representatives of the most affected recipient community during development of this regulatory proposal. This rule has been designated a “significant regulatory action” under section 3(f) of Executive Order 12866, although not an economically significant one. Accordingly, the rule has been reviewed by OMB. Unfunded Mandates Reform Act of 1995 Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded Mandates Act) (2 U.S.C. 1532) requires that a Federal agency prepare a budgetary impact statement before issuing a rule that includes any Federal mandate that may result in the expenditure in any one year by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in 1995 dollars, updated annually for inflation. In 2015, that inflation-adjusted amount in current dollars is approximately $146 million. The Department of Defense has determined that this proposed regulatory action will not result in expenditures by State, local, and tribal governments, or by the private sector, of that amount or more in any one year. Regulatory Flexibility Act The Regulatory Flexibility Act requires an agency that is proposing a rule to provide a regulatory flexibility analysis or to certify that the rule will not have a significant economic impact on a substantial number of small entities. The Department of Defense certifies that this proposed regulatory action will not have a significant economic impact on substantial number of small entities beyond any impact due to provisions of it that implement OMB guidance at 2 CFR part 200. Paperwork Reduction Act In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35; 5 CFR part 1320, appendix A.1) (PRA), the Department of Defense has determined that there are no new collections of information contained in this proposed regulatory action. Executive Order 13132, “Federalism” Executive Order 13132 establishes certain requirements that an agency must meet when it proposes a regulation that has Federalism implications. This proposed regulatory action does not have any Federalism implications. List of Subjects 2 CFR Part 1126 Cooperative agreements, Grant programs, Grants administration. 2 CFR Part 1128 Accounting, Business and Industry, Cooperative agreements, Grants administration, Hospitals, Indians, Nonprofit organizations, Reporting and recordkeeping requirements, Small business, State and local governments. 2 CFR Part 1130 Cooperative agreements, Grants administration, Hospitals, Indians, Nonprofit organizations, Reporting and recordkeeping requirements, Small business, State and local governments. 2 CFR Part 1132 Business and Industry, Cooperative agreements, Grants administration, Hospitals, Indians, Nonprofit organizations, Reporting and recordkeeping requirements, Small business, State and local governments. 2 CFR Part 1134 Cooperative agreements, Grants administration, Hospitals, Indians, Nonprofit organizations, Reporting and recordkeeping requirements, Small business, State and local governments. 2 CFR Part 1136 Cooperative agreements, Grants administration, Hospitals, Indians, Nonprofit organizations, Reporting and recordkeeping requirements, Small business, State and local governments. 2 CFR Part 1138 Accounting, Business and Industry, Cooperative agreements, Grants administration, Hospitals, Indians, Nonprofit organizations, Reporting and recordkeeping requirements, Small business, State and local governments. Accordingly, under the authority of 5 U.S.C. 301 and 10 U.S.C. 113, 2 CFR chapter XI, subchapter D, is proposed to be amended by adding parts 1126, 1128, 1130, 1132, 1134, 1136, and 1138 to read as follows: PART 1126—SUBCHAPTER D OVERVIEW Sec. 1126.1 Purposes of this subchapter. 1126.2 Applicability of this subchapter. 1126.3 Exceptions from requirements in this subchapter. 1126.4 Relationship to other portions of the DoD grant and agreement regulations. 1126.5 Organization of this subchapter. 1126.6 Organization of the other parts of this subchapter. Authority: 5 U.S.C. 301 and 10 U.S.C. 113. § 1126.1 Purposes of this subchapter. This subchapter of the DoD Grant and Agreement Regulations: (a) Addresses general terms and conditions governing administrative requirements for DoD Components' cost-type grant and cooperative agreement awards to institutions of higher education, nonprofit organizations, States, local governments, and Indian tribes. It does so by providing: (1) A standard organization of the administrative requirements into articles of general terms and conditions, each of which is in a specific subject area. (2) Standard wording for those articles; and (3) Associated prescriptions for DoD Component's use of the standard wording to construct their general terms and conditions, which allow for adding, omitting, or varying in other ways from the standard wording in certain situations. (b) Thereby implements OMB guidance in 2 CFR part 200 as it relates to general terms and conditions of grant and cooperative agreement awards to institutions of higher education, nonprofit organizations, States, local governments, and Indian tribes. § 1126.2 Applicability of this subchapter. (a) Entities. This subchapter: (1) Applies to DoD Components that make cost-type grant and cooperative agreement awards to institutions of higher education, nonprofit organizations, States, local governments, and Indian tribes. (2) Does not directly impose requirements on a recipient of a DoD Component's award but does do so indirectly, through the DoD Component's compliance with this subchapter when it constructs its general award terms and conditions. The terms and conditions delineate the rights and responsibilities of the recipient and the Federal Government under the award. (b) Awards. This subchapter applies to DoD Components' cost-type grants and cooperative agreements to types of entities identified in paragraph (a)(1) of this section, other than Technology Investment Agreements that are addressed in 32 CFR part 37. § 1126.3 Exceptions from requirements in this subchapter. (a) Exceptions that are not permitted. A DoD Component may not grant any exception to the requirements in this subchapter if the exception is: (1) Prohibited by statute, executive order, or regulation; (2) Inconsistent with the OMB implementation of the Single Audit Act in Subpart F of 2 CFR part 200. (b) Other exceptions. Other exceptions are permitted from requirements in this subchapter for institutions of higher education, nonprofit organizations, States, local governments and Indian tribes, as follows: (1) Statutory or regulatory exceptions. A DoD Component's general terms and conditions may incorporate a requirement that is inconsistent with the requirements in this subchapter if that requirement is specifically authorized or required by a statute or regulation adopted in the Code of Federal Regulations after opportunity for public comment. (2) Individual exceptions. The Head of the DoD Component or his or her designee may approve an individual exception affecting only one award in accordance with procedures stated in 32 CFR 21.340. (3) Small awards. DoD Components' terms and conditions for small awards may apply less restrictive requirements than those specified in this subchapter (a small award is an award for which the total value of obligated funding through the life of the award is not expected to exceed the simplified acquisition threshold). (4) Other class exceptions. The Assistant Secretary of Defense for Research and Engineering or his or her designee may approve any class exception affecting multiple awards other than small awards, with OMB concurrence if the class exception is for a requirement that is inconsistent with OMB guidance in 2 CFR part 200. Procedures for DoD Components' requests for class exceptions are stated in 32 CFR 21.340. § 1126.4 Relationship to other portions of the DoD grant and agreement regulations. The administrative requirements specified in this subchapter complement: (1) Provisions of 32 CFR part 34 that address administrative requirements for DoD Components' grant and cooperative agreement awards to for-profit entities; and (2) Requirements in 32 CFR part 37 for technology investment agreements. § 1126.5 Organization of this subchapter. This subchapter is organized into six parts in addition to this overview part. Each part provides standard wording and prescriptions for a number of articles of general terms and conditions that address administrative requirements in a particular subject area. The following table shows the subject area and articles corresponding to each part: In . . . Of this subchapter, you will find terms and conditions with associated prescriptions for the following articles related to . . . Part 1128 Recipient financial and program management (designated as “FMS” when referring to articles prescribed by this part): —FMS Article I—Financial management system standards. —FMS Article II—Payments. —FMS Article III—Allowable costs, period of availability of funds, and fee or profit. —FMS Article IV—Revision of budget and program plans. —FMS Article V—Non-Federal audits. —FMS Article VI—Cost sharing or matching. —FMS Article VII—Program income. Part 1130 Property administration (designated as “PROP” when referring to articles prescribed by this part): —PROP Article I—Title to property. —PROP Article II—Property management system. —PROP Article III—Use and disposition of real property. —PROP Article IV—Use and disposition of equipment and supplies. —PROP Article V—Use and disposition of federally owned property. —PROP Article VI—Intangible property. Part 1132 Recipient procurement procedures (designated as “PROC” when referring to articles prescribed by this part): —PROC Article I—Procurement standards for States. —PROC Article II—Procurement standards for institutions of higher education, nonprofit organizations, local governments, and Indian tribes. —PROC Article III—Contract provisions for recipient procurements. Part 1134 Financial, programmatic, and property reporting (designated as “REP” when referring to articles prescribed by this part): —REP Article I—Performance management, monitoring, and reporting. —REP Article II—Financial reporting. —REP Article III—Reporting on property. —REP Article IV—Reporting on subawards and executive compensation. Part 1136 Other administrative requirements (designated as “OAR” when referring to articles prescribed by this part): —OAR Article I—Submitting and maintaining recipient information. —OAR Article II—Records retention and access. —OAR Article III—Remedies and termination. —OAR Article IV—Claims, disputes, and appeals. —OAR Article V—Collection of amounts due. —OAR Article VI—Closeout. —OAR Article VII—Post-closeout adjustments and continuing responsibilities. Part 1138 Requirements related to subawards (designated as “SUB” when referring to articles prescribed by this part): —SUB Article I—Distinguishing subawards and procurements. —SUB Article II—Pre-award and time of award responsibilities. —SUB Article III—Informational content of subawards. —SUB Article IV—Financial and program management requirements for subawards. —SUB Article V—Property requirements for subawards. —SUB Article VI—Procurement procedures to include in subawards. —SUB Article VII—Financial, programmatic, and property reporting requirements for subawards. —SUB Article VIII—Other administrative requirements for subawards. —SUB Article IX—National Policy Requirements for Subawards. —SUB Article X—Subrecipient monitoring and other post-award administration. —SUB Article XI—Requirements concerning subrecipients' lower-tier subawards. —SUB Article XII—Fixed-amount subawards. § 1126.6 Organization of the other parts of this subchapter. (a) Each of parts 1128 through 1138 of this subchapter is organized into a number of subparts and appendices. (1) Each appendix provides the standard wording of general terms and conditions for one of the articles of general terms and conditions that the part addresses. (2) For each appendix addressing a particular article, the part has an associated subpart that provides the prescription for DoD Components' use of the standard wording for that article. (b) For example, the table in § 1126.5 indicates that 2 CFR part 1128 provides the standard wording of general terms and conditions for FMS Articles I through VII and the prescriptions for DoD Components' use of that standard wording. (1) FMS Article I on financial management system standards is the first of the articles that 2 CFR part 1128 covers. Appendix A to 2 CFR part 1128 provides the standard wording of general terms and conditions for FMS Article I. The associated subpart of 2 CFR part 1128, subpart A, provides the prescription for DoD Components' use of the standard wording of that article. (2) Appendices B through G of 2 CFR part 1128 provide the standard wording of general terms and conditions for FMS Articles II through VII, respectively. The associated subparts, subparts B through G, provide the corresponding prescriptions for DoD Components. PART 1128—RECIPIENT FINANCIAL AND PROGRAM MANAGEMENT: GENERAL AWARD TERMS AND CONDITIONS Sec. 1128.1 Purpose of this part. 1128.2 Applicability of this part. 1128.3 Exceptions from requirements of this part. 1128.4 Organization of this part. Subpart A—Financial management system standards (FMS Article I) 1128.100 Purpose of FMS Article I. 1128.105 Content of FMS Article I. Subpart B—Payments (FMS Article II) 1128.200 Purpose of FMS Article II. 1128.205 Content of FMS Article II. 1128.210 Payment requirements for States. 1128.215 Payment requirements for institutions of higher education, nonprofit organizations, local governments, and Indian tribes. 1128.220 Electronic funds transfer and other payment procedural instructions or information. Subpart C—Allowable costs, period of availability of funds, and fee or profit (FMS Article III) 1128.300 Purpose of FMS Article III. 1128.305 Content of FMS Article III. 1128.310 Cost principles. 1128.315 Clarification concerning allowability of publication costs. 1128.320 Period of availability of funds. 1128.325 Fee or profit. Subpart D—Revision of Budget and Program Plans (FMS Article IV) 1128.400 Purpose of FMS Article IV. 1128.405 Content of FMS Article IV. 1128.410 Approved budget. 1128.415 Prior approvals for non-construction activities. 1128.420 Prior approvals for construction activities. 1128.425 Additional prior approval for awards that support both non-construction and construction activities. 1128.430 Procedures for prior approvals. Subpart E—Non-Federal Audits (FMS Article V) 1128.500 Purpose of FMS Article V. 1128.505 Content of FMS Article V. Subpart F—Cost sharing or Matching (FMS Article VI) 1128.600 Purpose of FMS Article VI. 1128.605 Content of FMS Article VI. 1128.610 General requirement for cost sharing or matching. 1128.615 General criteria for determining allowability as cost sharing or matching. 1128.620 Allowability of unrecovered indirect costs as cost sharing or matching. 1128.625 Allowability of program income as cost sharing or matching. 1128.630 Valuation of services or property contributed or donated by recipients or subrecipients. 1128.635 Valuation of third-party in-kind contributions. Subpart G—Program income (FMS Article VII) 1128.700 Purpose of FMS Article VII. 1128.705 Content of FMS Article VII. 1128.710 What program income includes. 1128.715 Recipient obligations for license fees and royalties. 1128.720 Program income use. 1128.725 Program income after the period of performance. Appendix A to Part 1128—Terms and conditions for FMS Article I, “Financial management system standards” Appendix B to Part 1128—Terms and conditions for FMS Article II, “Payments” Appendix C to Part 1128—Terms and conditions for FMS Article III, “Allowable costs, period of availability of funds, and fee or profit” Appendix D to Part 1128—Terms and conditions for FMS Article IV, “Revision of budget and program plans” Appendix E to Part 1128—Terms and conditions for FMS Article V, “Non-Federal audits” Appendix F to Part 1128—Terms and conditions for FMS Article VI, “Cost sharing or matching” Appendix G to Part 1128—Terms and conditions for FMS Article VII, “Program income” Authority: 5 U.S.C. 301 and 10 U.S.C. 113. § 1128.1 Purpose of this part. (a) This part specifies standard wording of general terms and conditions concerning financial and program management, including recipients' financial management systems, payments, cost sharing or matching, program income, budget and program revisions, audits, allowable costs, and periods of availability of funds. (b) It thereby implements OMB guidance in the following portions of 2 CFR part 200, as they apply to general terms and conditions: (1) Sections 200.80, 200.209, and 200.302 through 200.309; (2) Sections 200.301 and 200.328, as they relate to associations between financial data and performance accomplishments and reporting under awards; and (3) Subparts E and F. § 1128.2 Applicability of this part. The types of awards and entities to which this part and other parts in this subchapter apply are described in the subchapter overview at 2 CFR 1126.2. § 1128.3 Exceptions from requirements of this part. Exceptions are permitted from the administrative requirements in this part only as described at 2 CFR 1126.3. § 1128.4 Organization of this part. (a) The content of this part is organized into subparts and associated appendices. (1) Each subpart provides direction to DoD Components on how to construct one article of general terms and conditions for grants and cooperative agreements. (2) For each subpart, there is a corresponding appendix with standard wording for terms and conditions of the article addressed by the subpart. Terms and conditions address rights and responsibilities of the Government and recipients. (b) A DoD Component must use the wording provided in each appendix in accordance with the direction in the corresponding subpart. That direction may permit DoD Components to vary from the standard wording in some situations. (c) The following table shows which article of general terms and conditions may be found in each of appendices A through G to this part (with the associated direction to DoD Components in subparts A through G, respectively): In . . . You will find terms and conditions specifying recipients' rights and responsibilities related to . . . That would appear in an award within FMS article . . . Appendix A Financial management system standards I. Appendix B Payments II. Appendix C Allowable costs, period of availability of funds, and fee or profit III. Appendix D Revision of budget and program plans IV. Appendix E Non-Federal audits V. Appendix F Cost sharing or matching VI. Appendix G Program income VII. Subpart A—Financial management system standards (FMS Article I) § 1128.100 Purpose of FMS Article I. FMS Article I specifies standards for recipients' financial management systems. It thereby implements OMB guidance in: (a) 2 CFR 200.302, 200.303, and 200.328; and (b) 2 CFR 200.301 and 200.328, as they relate to associations between financial data and performance accomplishments and reporting under awards. § 1128.105 Content of FMS Article I. (a) Requirement. A DoD Component's general terms and conditions must address requirements for recipients' financial management systems. (b) Award terms and conditions —(1) General. Except as provided in paragraph (b)(2) of this section, a DoD Component's general terms and conditions must include the wording appendix A to this part provides for FMS Article I. (2) Exceptions. A DoD Component's general terms and conditions may: (i) Reserve Section A of FMS Article I if the DoD Component determines that it is not possible that any States will receive: (A) DoD Component awards using those general terms and conditions; or (B) Subawards from recipients of DoD Component awards using those general terms and conditions. (ii) Reserve paragraph B.6 of FMS Article I if the DoD Component determines that it will not require recipients of awards using those general terms and conditions to relate financial data to performance accomplishments ( e.g., through unit costs). Because the nature of research makes the use of unit costs and other relationships between financial data and performance accomplishments generally inappropriate, DoD Components should reserve paragraph B.6 in general terms and conditions for awards supporting research. Subpart B—Payments (FMS Article II) § 1128.200 Purpose of FMS Article II. FMS Article II contains requirements related to payments under an award. It thereby implements OMB guidance in 2 CFR 200.305. § 1128.205 Content of FMS Article II. (a) Requirement. A DoD Component's general terms and conditions must address payment method; payment timing and amounts, which relate to cash management; frequency of payment requests; and matters related to recipients' depositories, including interest earned on advance payments. (b) Award terms and conditions. A DoD Component's general terms and conditions must include the wording appendix B to this part provides for FMS Article II with appropriate additions, deletions, and substitutions as described in §§ 1128.210 through 1128.220. § 1128.210 Payment requirements for States. (a) Policy. Payments to States are subject to requirements in Department of the Treasury regulations at 31 CFR part 205 that implement the Cash Management Improvement Act. Those regulations are in two subparts with distinct requirements that apply to different programs: (1) Subpart A of 31 CFR part 205 contains requirements for payments to States under “major programs,” as defined in that part. The Department of the Treasury negotiates Treasury-State agreements for major programs. Those agreements specify the appropriate timing and amounts of payments. They further specify a State's interest liability if it receives an advance payment too many days before it disburses the funds for program purposes, as well as the Federal Government's interest liability if it reimburses the State too many days after the State disburses the funds. Most DoD awards to States are not under major programs, so subpart A applies relatively infrequently. (2) Subpart B of 31 CFR part 205 applies to all other DoD grant and cooperative agreement awards to States— i.e., awards that are not under major programs. (b) Default wording. Because few DoD awards to States are under major programs, appendix B to this part includes default wording for Section A of FMS Article II that specifies the requirements of subpart B of 31 CFR part 205. A DoD Component's general terms and conditions must include this wording for Section A of FMS Article II if no award using those terms and conditions will be made to a State under a program designated as a major program in the applicable Treasury-State agreement. (c) Exception for awards under major programs. If a DoD Component is establishing general terms and conditions that will be used for awards to States, only some of which are subject to requirements for major programs in subpart A of 31 CFR part 205, then the DoD Component should: (1) Use appendix B's default wording for Section A of FMS Article II in its general terms and conditions; and (2) In each award subject to subpart A of 31 CFR part 205, include award-specific terms and conditions that make payments to the recipient subject to the requirements in subpart A of 31 CFR part 205 and the applicable Treasury-State agreement, thereby overriding the wording of Section A of FMS Article II. § 1128.215 Payment requirements for institutions of higher education, nonprofit organizations, local governments, and Indian tribes. (a) Policy. OMB guidance in 2 CFR 200.305 addresses the use of three payment methods for awards—advance payments, reimbursement, and working capital advances. Two of the methods pertain to a DoD Component's general terms and conditions, as described in paragraphs (a)(1) and (2) of this section. (1) Advance payments. With the possible exception of construction awards, as provided in paragraph (a)(2) of this section, a DoD Component's general terms and conditions must authorize each recipient to request payments in advance as long as the recipient maintains or demonstrates the willingness to maintain both: (i) Written procedures that minimize the time elapsing between its receipt of funds from the Federal Government and its disbursement of the funds for program or project purposes; and (ii) Financial management systems that meet the standards for fund control and accountability specified in the wording of FMS Article I (see subpart A and appendix A to this part). (2) Reimbursement. A DoD Component's general terms and conditions may specify the reimbursement method if the awards using those terms and conditions will support construction projects financed in whole or in part by the Federal Government. (b) Default award terms and conditions. Appendix B provides default wording for Section B of FMS Article II that a DoD Component: (1) Must use in general terms and conditions for non-construction awards to authorize recipients to request advance payments; and (2) May use in general terms and conditions for construction awards if it elects to authorize recipients of those awards to request advance payments. (c) Alternative award terms and conditions. A DoD Component may develop an alternative to appendix B's default wording for Section B of FMS Article II to use in general terms and conditions for construction awards, if it elects to specify reimbursement as the payment method for those awards. The alternative: (1) Would replace Appendix B's default wording for paragraph B.1 with wording to specify the reimbursement method of payment; (2) Must include appendix B's default wording for paragraphs B.2.b and c, B.4, and B.5, which may be renumbered as appropriate, because those paragraphs apply to reimbursements as well as advance payments; (3) Should omit appendix B's default wording for paragraphs B.2.a, B.3, and B.6 because those paragraphs apply specifically to advance payments; and (4) Must inform recipients that the DoD payment office generally makes payment within 30 calendar days after receipt of the request for reimbursement by the award administration office, unless the request is reasonably believed to be improper. § 1128.220 Electronic funds transfer and other payment procedural instructions or information. (a) Policy. A DoD Component's general terms and conditions must specify that payments will be made by electronic funds transfer (EFT) unless a recipient is excepted in accordance with Department of the Treasury regulations at 31 CFR part 208 from the Governmentwide requirement to use EFT. (b) Award terms and conditions —(1) Electronic funds transfer. Appendix B provides default wording for Section C of FMS Article II that a DoD Component must use to specify payment by EFT, when awards are not excepted from the Governmentwide requirement. (2) Other payment procedures or instructions. A DoD Component may insert one or more paragraphs in its general terms and conditions in lieu of the reserved paragraph C.2 in appendix B, to provide procedural instructions or information regarding payments that is common to awards using those terms and conditions. For example, it may insert wording to give detailed instructions on where and how recipients are to submit payment requests. All forms, formats, and data elements for payment requests must be OMB-approved information collections. Subpart C—Allowable costs, period of availability of funds, and fee or profit (FMS Article III) § 1128.300 Purpose of FMS Article III. FMS Article III of the general terms and conditions specifies what costs are allowable as charges to awards and when they are allowable. It also specifies restrictions on payment of fee or profit. It thereby implements OMB guidance in §§ 200.209 and 200.309 and subpart E of 2 CFR part 200. It also partially implements 2 CFR 200.201(b)(1)and 200.323(c), as those sections apply to the cost principles to be used in relation to subawards and contracts, respectively. § 1128.305 Content of FMS Article III. (a) Requirement. A DoD Component's general terms and conditions must address allowability of costs and permissibility of fee or profit. (b) Award terms and conditions. A DoD Component's general terms and conditions must include the wording appendix C to this part provides for FMS Article III with appropriate additions, deletions, and substitutions as described in §§ 1128.310 through 1128.325. § 1128.310 Cost principles. (a) Policy. The set of Governmentwide cost principles applicable to a particular entity type governs the allowability of costs that may be: (1) Charged to each cost-type: (i) DoD grant or cooperative agreement to a recipient of that entity type; (ii) Subaward to a subrecipient of that entity type at any tier below a DoD grant or cooperative agreement; and (iii) Procurement transaction with a contractor of that entity type awarded by a recipient of a DoD grant or cooperative agreement or a subrecipient that received a subaward at any tier below that grant or cooperative agreement. (2) Considered in establishing the amount of any: (i) Fixed-amount subaward, at any tier under an award, to a subrecipient of that entity type; or (ii) Fixed-price procurement transaction with a contractor of that entity type that is awarded by either a recipient of a DoD award or a subrecipient that received a subaward at any tier below that grant or cooperative agreement. (b) Default wording. Because almost all DoD grants and cooperative agreements are cost-type awards, appendix C includes default wording for Section A of FMS Article III that specifies use of the applicable Governmentwide cost principles in the determination of the allowability of costs. (c) Alternative award terms and conditions. A DoD Component may reserve any paragraph of appendix C's default wording for Section A of FMS Article III in its general terms and conditions if the Component is certain that no entities of the type to which the paragraph applies could be recipients of awards using those general terms and conditions or recipients of subawards or procurement transactions at any tier under those awards. § 1128.315 Clarification concerning allowability of publication costs. (a) Requirement. A DoD Component's general terms and conditions must clarify that a recipient must charge publication costs consistently as either direct or indirect costs in order for those costs to be allowable charges to DoD grants and cooperative agreements. (b) Award terms and conditions —(1) General. To clarify the allowability of publication costs, a DoD Component's general terms and conditions must include the wording appendix C to this part provides for Section B of FMS Article III. (2) Exception. A DoD Component may instead reserve Section B of FMS Article III in its general terms and conditions if the DoD Component determines that there will be no publication costs under any of the awards using those general terms and conditions. § 1128.320 Period of availability of funds. (a) Requirement. A DoD Component's general terms and conditions must specify the period during which Federal funds are available for obligation by recipients for project or program purposes. (b) Award terms and conditions. A DoD Component's general terms and conditions must include the wording appendix C to this part provides for Section C of FMS Article III to specify the period of availability of funds. § 1128.325 Fee or profit. (a) Requirement. A DoD Component's general terms and conditions must specify that recipients may neither receive fee or profit nor pay fee or profit to subrecipients. (b) Award terms and conditions. A DoD Component must use the wording appendix C to this part provides for Section D of FMS Article III to specify the limitation on payment of fee or profit. Subpart D-Revision of Budget and Program Plans (FMS Article IV) § 1128.400 Purpose of FMS Article IV. FMS Article IV of the general terms and conditions specifies requirements related to changes in recipients' budget and program plans. It thereby implements OMB guidance in § 200.308 of 2 CFR part 200 and partially implements § 200.209 and subpart E of that part. § 1128.405 Content of FMS Article IV. (a) Requirement. A DoD Component's general terms and conditions must specify the changes in budget and program plans for which a recipient is required to request DoD Component prior approval and the procedures for submitting those requests. (b) Award terms and conditions. A DoD Component's general terms and conditions must include as FMS Article IV the default wording appendix D to this part provides, with any revisions to the wording that are authorized by §§ 1128.410 through 1128.430. § 1128.410 Approved budget. (a) OMB guidance. As described in 2 CFR 200.308(a), the approved budget for a grant or cooperative agreement may include both the Federal and non-Federal shares of funding under the award or only the Federal share. (b) DoD implementation. For DoD grants and cooperative agreements, the approved budget includes the Federal share and any cost sharing or matching that the recipient is required to provide under the award. (c) Award terms and conditions. A DoD Component's general terms and conditions therefore must include the default wording appendix D to this part provides for Section A of FMS Article IV. § 1128.415 Prior approvals for non-construction activities. (a) OMB guidance. OMB guidance in 2 CFR 200.308(c) through (e) addresses prior approval requirements for revisions of a recipient's budget and program plans under a non-construction award, which includes for the purposes of this section non-construction activities under an award that supports both construction and non-construction. (b) DoD implementation of the guidance. The following paragraphs (c) through (g) of this section provide details of the DoD implementation of the guidance in 2 CFR 200.308(c) through (e) and paragraph (h) specifies the corresponding award terms and conditions. A DoD Component's general terms and conditions for non-construction awards may only require additional prior approvals for budget and program revisions ( i.e., prior approvals other than those authorized by this subpart) in accordance with the exceptions provisions of 2 CFR 1126.3. (c) Scope or objective, cost sharing or matching, and additional Federal funds. A DoD Component's general terms and conditions for non-construction awards must require that a recipient obtain DoD Component prior approval: (1) For a change in scope or objective of the project or program, as described in 2 CFR 200.308(c)(1)(i). (2) For any change in the cost sharing or matching included in the approved budget for which FMS Article VI requires prior approval, as described in OMB guidance at 2 CFR 200.308(c)(1)(vii). (3) If the need arises for additional Federal funds to complete the project or program, as described in 2 CFR 200.308(c)(1)(viii). (d) Personnel changes, disengagements, or reductions in time. A DoD Component must include the following prior approval requirements in general terms and conditions of research awards and also may include them in general terms and conditions of other non-construction awards: (1) A change in a key person, as described in 2 CFR 200.308(c)(1)(ii). (2) A principal investigator's or project director's disengagement from, or reduction in time devoted to, the project, as described in 2 CFR 200.308(c)(1)(iii). (e) Costs requiring prior approval under the cost principles. With respect to waivers of prior approvals required by the cost principles, as described in 2 CFR 200.308(c)(1)(iv): (1) Any waiver of a cost principles requirement for prior approval by a recipient entity's cognizant agency for indirect costs is appropriately addressed in award-specific terms and conditions, rather than general terms and conditions, because the general terms and conditions must be appropriate for use in awards to multiple recipient entities. (2) A DoD Component may waive requirements in the cost principles for recipients to request prior approval before charging certain costs as direct costs to awards. However, the DoD Component should carefully consider each prior approval requirement individually and decide: (i) Which, if any, to waive; and (ii) Whether to make the waiver of the prior approval requirement contingent on specified conditions ( e.g., a DoD Component might waive the prior approval required for direct charging of special purpose equipment purchases under an award, but elect to waive it only for equipment that is to be used primarily in carrying out the project or program supported by the award). (f) Transfers of funds and subawards. A DoD Component's general terms and conditions for non-construction awards may include prior approval requirements for: (1) Transfers of funds for participant support costs, as described in 2 CFR 200.308(c)(1)(v). (2) Subawarding of work under an award, as described in 2 CFR 200.308(c)(1)(vi). (3) Transfers of funds among direct cost categories, as described in 2 CFR 200.308(e), but the wording in the general terms and conditions must make clear that the prior approval requirement applies only to awards using those terms and conditions if the Federal share of the total value is in excess of the simplified acquisition threshold. Note that, as a matter of DoD policy, requiring prior approvals for transfers among direct cost categories generally is not appropriate for grants and cooperative agreements that support research. (g) Pre-award costs, carry forward of unobligated balances, and no-cost extensions. (1) A DoD Component's general terms and conditions may authorize recipients to incur project costs up to 90 calendar days prior to the beginning date of the period of performance, at their own risk, as described in 2 CFR 200.308(d)(1). OMB guidance in 2 CFR 200.308(d)(4) makes that authorization the default policy for research awards and a DoD Component should override the default and require recipients to obtain the DoD Component's prior approval for pre-award costs only in exceptional circumstances. (2) If a DoD Component's general terms and conditions are used for awards that have multiple periods of performance, the DoD Component should authorize recipients to carry forward unobligated balances to subsequent periods of performance, as described in 2 CFR 200.308(d)(3), unless there are compelling reasons not to do so. (3) A DoD Component's general terms and conditions may authorize recipients to initiate one-time extensions in the periods of performance of their awards by up to 12 months, subject to the conditions described in 2 CFR 200.308(d)(2), but only if the DoD Component judges that authorizing no-cost extensions for awards using the general terms and conditions will not cause the DoD Component to fail to comply with DoD funding policies ( e.g., the incremental program budgeting and execution policy for research funding) contained in Volume 2A of the DoD Financial Management Regulation, DoD 7000.14-R. (h) Award terms and conditions. Appendix D to this part provides default wording for inclusion in a DoD Component's general terms and conditions in accordance with paragraphs (c) through (g) of this section. Specifically: (1) In accordance with paragraph (c) of this section, a DoD Component's general terms and conditions for non-construction awards must include the default wording that appendix D provides for paragraphs B.1.a and B.1.i of FMS Article IV and, if there will be cost sharing or matching required under any awards using the general terms and conditions, paragraph B.1.g. (2) In accordance with paragraph (d) of this section, a DoD Component's general terms and conditions for research awards must include the default wording that appendix D provides for paragraphs B.1.b and B.1.c of FMS Article IV. A DoD Component also may include paragraphs B.1.b and B.1.c in general terms and conditions for other non-construction awards. (3) In accordance with paragraph (e) of this section, a DoD Component's general terms and conditions for non-construction awards must include the default wording that Appendix D provides for paragraph B.1.d of FMS Article IV unless the DoD Component decides to waive any requirements in the applicable cost principles for recipients to obtain prior approval before including certain types of costs as direct charges to awards. If a DoD Component elects to waive any of those prior approval requirements, it must add wording to paragraph B.1.d to identify the specific types of costs for which recipients need not obtain DoD Component prior approval (thereby leaving in place the other prior approval requirements in the cost principles). (4) In accordance with paragraphs (f) and (g) of this section, a DoD Component's general terms and conditions for non-construction awards may include the default wording that appendix D provides for paragraphs B.1.e, B.1.f, and B.1.h and Section C of FMS Article IV. A DoD Component may modify the default wording as appropriate to the awards using its general terms and conditions ( e.g., to limit the authorization for pre-award costs to a period less than 90 calendar days prior to the beginning date of the period of performance). (5) If no awards using a DoD Component's general terms and conditions will support non-construction activities, the DoD Component may reserve section B.1 of the default wording that appendix D provides for FMS Article IV. § 1128.420 Prior approvals for construction activities. (a) OMB guidance. OMB guidance in 2 CFR 200.308(g)(1) through (4) addresses prior approval requirements for revisions of a recipient's budget and program plans under a construction award or construction activities under an award that supports both construction and non-construction activities. (b) DoD implementation of the guidance. DoD implements the guidance in 2 CFR 200.308(g)(1) through (4) through terms and conditions of awards for construction. A DoD Component's general terms and conditions for construction awards may only require additional prior approvals for budget and program revisions ( i.e., prior approvals other than those authorized by this subpart) only in accordance with the exceptions provisions of 2 CFR 1126.3. (c) Award terms and conditions. In a DoD Component's general terms and conditions for construction awards or awards supporting construction activities, the DoD Component: (1) Must include the default wording that appendix D to this part provides for paragraph B.2 of FMS Article IV. (2) May reserve or remove the default wording appendix D to this part provides for paragraph B.1 and Section C of FMS Article IV unless some awards using the general terms and conditions will also support non-construction activities (if the DoD Component elects to remove Section C, it should redesignate Section D in the article as Section C). § 1128.425 Additional prior approval for awards that support both non-construction and construction activities. (a) OMB guidance. Guidance on an additional prior approval requirement for awards that support both construction and non-construction activities is contained in 2 CFR 200.308(g)(5). (b) DoD implementation of the guidance. DoD implements the guidance in 2 CFR 200.308(g)(5) through terms and conditions for awards that support both non-construction and construction activities. (c) Award terms and conditions. If a DoD Component establishes general terms and conditions for awards that support both non-construction and construction activities, the DoD Component may add the prior approval requirement for funding or budget transfers between construction and non-construction activities that is described in OMB guidance in 2 CFR 200.308(g)(5). The default wording that appendix D to this part provides for Section B of FMS Article IV includes a reserved paragraph B.3 in which the DoD Component may add appropriate wording to include that prior approval requirement. § 1128.430 Procedures for prior approvals. (a) OMB guidance. Guidance on procedures related to recipient requests for prior approval is contained in 2 CFR 200.308(h) and (i). (b) DoD implementation of the guidance. DoD implements the guidance in 2 CFR 200.308(h) and (i) for prior approval requests through award terms and conditions. (c) Award terms and conditions. A DoD Component must: (1) Include the default wording appendix D to this part provides for paragraph D.1 of FMS Article IV of its general terms and conditions. (2) Insert appropriate wording in lieu of the reserved paragraph D.2 that appendix D to this part includes in FMS Article IV to specify: (i) The format the recipient must use when it requests approval for budget revisions. As described in 2 CFR 200.308(h), the award term may allow the recipient to submit a letter of request but otherwise must specify that the recipient use the same format it used for budget information in its application or proposal. (ii) Any other procedural instructions related to requests for prior approvals for budget or program revisions ( e.g., to whom requests must be submitted) that are common to the awards using the general terms and conditions. For procedural instructions that will vary from one award to another, it is appropriate to include wording that points to the award-specific terms and conditions as the source of the information. Subpart E—Non-Federal Audits (FMS Article V) § 1128.500 Purpose of FMS Article V. FMS Article V of the general terms and conditions specifies requirements related to audits required under the Single Audit Act, as amended (31 U.S.C., chapter 75). The article thereby implements OMB guidance in subpart F of 2 CFR part 200. § 1128.505 Content of FMS Article V. (a) Requirement. A DoD Component's general terms and conditions must address audit requirements. (b) Award terms and conditions —(1) General. A DoD Component's general terms and conditions must include the default wording appendix E to this part provides for FMS Article V. (2) Exception. A DoD Component may reserve Section B of the default wording in appendix E if there will be no subawards to for-profit entities under any award using those terms and conditions. Subpart F—Cost sharing or Matching (FMS Article VI) § 1128.600 Purpose of FMS Article VI. FMS Article VI sets forth requirements concerning recipients' cost sharing or matching under awards. It thereby implements OMB guidance in: (a) 2 CFR 200.306 and 200.308(c)(1)(vii); and (b) 2 CFR 200.434, in conjunction with FMS Article III in appendix C to this part. § 1128.605 Content of FMS Article VI. (a) Requirement. General terms and conditions for DoD grants and cooperative agreements under which there may be required cost sharing or matching must specify the criteria for determining allowability, methods for valuation, and requirements for documentation of cost sharing or matching. (b) Award terms and conditions —(1) General. A DoD Component's general terms and conditions must include as FMS Article VI the default wording appendix F to this part provides, with any revisions to the wording that are authorized by §§ 1128.610 through 1128.635. (2) Exception. A DoD Component may reserve FMS Article VI of its general terms and conditions if it determines that there will be no cost sharing or matching required under any of the awards using those terms and conditions. § 1128.610 General requirement for cost sharing or matching. (a) Requirement. (1) FMS Article VI of the general terms and conditions must tell a recipient that: (i) It may find the amount or percentage of cost sharing or matching required under its award in the award cover pages. (ii) The cost sharing or matching amount or percentage identified in the award includes all required (but not voluntary uncommitted) contributions to the project or program by the recipient and its subrecipients, including any that involve third-party contributions or donations to the recipient and subrecipients. (iii) It must obtain the DoD Component's prior approval for any change in the required amount or percentage of cost share or match. (2) At a DoD Component's option, FMS Article VI also may require a recipient to obtain the DoD Component's prior approval if it wishes to substitute alternative cost sharing or matching contributions in lieu of specific contributions included in the approved budget ( e.g., to use a third-party in-kind contribution not included in the approved budget). (b) Award terms and conditions. To implement paragraph (a) of this section, a DoD Component's general terms and conditions must include the default wording Section I of Appendix F to this part provides as Section A of FMS Article VI. A DoD Component may insert wording in lieu of the reserved paragraph A.2.b if it elects to require recipients to obtain prior approval before substituting alternative cost sharing or matching contributions, as described in paragraph (a)(2) of this section. § 1128.615 General criteria for determining allowability as cost sharing or matching. (a) OMB guidance. The OMB guidance in 2 CFR 200.306(b) lists the basic criteria for the allowability of cost sharing or matching under Federal awards. (b) Award terms and conditions —(1) General. A DoD Component's general terms and conditions must include the default wording Section II of appendix F to this part provides as Section B of FMS Article VI to specify the allowability of cash or third-party in-kind contributions as cost sharing or matching. (2) Exception. A DoD Component may reserve paragraph B.4 of Section B of FMS Article VI in its general terms and conditions, or replace it with appropriate alternative wording, if the DoD Component has statutory authority to accept costs reimbursed by other Federal awards as cost sharing or matching under the awards using its general terms and conditions. § 1128.620 Allowability of unrecovered indirect costs as cost sharing or matching. (a) OMB guidance. The OMB guidance in 2 CFR 200.306(c) provides that unrecovered indirect costs may only be included as part of cost sharing and matching with the prior approval of the Federal awarding agency. (b) DoD implementation. DoD Components must allow any recipient that either has an approved negotiated indirect cost rate or is using the de minimis rate described in 2 CFR 200.414(f) to count unrecovered indirect costs toward any required cost sharing or matching under awards. The basis for this policy is that recipients' indirect costs that are allowable and allocable to DoD projects and programs are legitimate costs of carrying out those projects and programs. (c) Award terms and conditions. To implement the policy in paragraph (b) of this section, a DoD Component's general terms and conditions must include the default wording Section III of appendix F to this part provides as Section C of FMS Article VI unless a statute requires otherwise. § 1128.625 Allowability of program income as cost sharing or matching. (a) OMB guidance. OMB guidance in 2 CFR 200.307(e)(3) specifies that, with the prior approval of the Federal awarding agency, recipients may use program income to meet cost sharing or matching requirements of their awards. (b) Award terms and conditions —(1) General. A DoD Component's general terms and conditions must include the default wording Section IV of appendix F to this part provides as Section D of FMS Article VI if, in FMS Article VII of those terms and conditions, the DoD Component specifies that recipients dispose of program income using either: (i) The cost sharing or matching alternative described in paragraph (b)(1)(iii) of § 1128.720; or (ii) A combination alternative, as described in paragraph (b)(1)(iv) of § 1128.720, that includes use of at least some program income as cost sharing or matching. (2) Exception. A DoD Component may reserve Section D of FMS Article VI if FMS Article VII of those terms and conditions does not provide that recipients will use any program income as cost sharing or matching. § 1128.630 Valuation of services or property contributed or donated by recipients or subrecipients. (a) OMB guidance. OMB guidance in 2 CFR 200.306(d) specifies: (1) That values for recipients' and subrecipients' contributions of services or property toward cost sharing or matching must be established in accordance with the cost principles in subpart E of 2 CFR part 200; and (2) Types of projects or programs under which recipients' or subrecipients' donations of buildings or land are allowable as cost sharing or matching, with the prior approval of the Federal awarding agency, and how the donations are to be valued in those cases. (b) DoD implementation. DoD implements the guidance in 2 CFR 200.306(d) through award terms and conditions, with the following clarifications: (1) Cost principles to be used for valuation. (i) Values for recipients' and subrecipients' contributions of services or property toward cost sharing or matching must be established in accordance with the cost principles applicable to the entity making the contribution. Note that the applicable cost principles are in subpart E of 2 CFR part 200 only if the entity making the contribution is an institution of higher education, nonprofit organization, State, local government, or Indian tribe. (ii) Consistent with the cost principles, what generally should be charged to awards for real property and equipment is depreciation rather than allowing a recipient's or subrecipient's donation of the property ( i.e., counting the full value of the property toward cost sharing or matching). Note, however, that depreciation included in a recipient's or subrecipient's indirect costs is not appropriate for counting as cost sharing or matching under an individual award. (2) Donations of property to projects or programs under awards. (i) In addition to donations of buildings or land described in 2 CFR 200.306(d), recipients and subrecipients may, with the prior approval of the DoD Component, donate other capital assets described in the cost principles in 2 CFR 200.439(b)(1) through (3). The basis for clarifying that recipients may donate other capital assets to projects or programs under awards is that, with the DoD Component's approval: (A) Capital expenditures to acquire those types of capital assets are allowable as direct charges to awards; and (B) The costs therefore satisfy the allowability criterion in 2 CFR 200.306(b)(4) and can qualify as cost sharing or matching if they meet the other criteria listed in 2 CFR 200.306(b). (ii) However, when there are alternative ways for recipients to meet requirements for cost sharing or matching, DoD Components should not approve donations of capital assets to projects or programs under awards. Inclusion of the full value of a donated asset as project costs in the approved budget of an award is analogous to inclusion of the acquisition cost for an asset that is purchased under the award. Through the donation, the Government acquires an interest in the donated asset that must be resolved at time of disposition of the asset, which is best avoided if possible. (iii) Whenever a DoD Component permits a recipient to donate a capital asset to a project or program under an award, it should inform the cognizant Federal agency that negotiates the indirect cost rate for that recipient. Doing so enables the cognizant agency to take the donation into account when it establishes the recipient's indirect cost rate, given that the recipient may not include depreciation for the donated asset as indirect costs that enter into the computation of the rate. (c) Award terms and conditions —(1) General. A DoD Component's general terms and conditions must use the default wording Section V of appendix F to this part provides as Section E of FMS Article VI. (2) Exception. A DoD Component's general terms and conditions may reserve paragraph E.2 of the default wording appendix F to this part provides if the DoD Component does not allow recipients to donate buildings, land, or other capital assets to projects or programs under awards using those terms and conditions. § 1128.635 Valuation of third-party in-kind contributions. (a) OMB guidance. OMB guidance in 2 CFR 200.306(e) through (j) and 2 CFR 200.434(b) through (g) specifies how to value and document various types of third-party in-kind contributions or donations for cost sharing or matching purposes. (b) Award terms and conditions —(1) General. To implement the OMB guidance described in paragraph (a) of this section as it applies to valuation and documentation of third-party in-kind contributions and donations, a DoD Component's general terms and conditions must use the default wording Section VI of appendix F to this part provides as Section F of FMS Article VI. (2) Exception. A DoD Component's general terms and conditions may reserve any paragraph of the default wording Section VI of appendix F to this part provides for Section F of FMS Article VI if the DoD Component determines that there will be no third-party in-kind contributions of the type the paragraph addresses under awards using those terms and conditions. Subpart G—Program Income (FMS Article VII) § 1128.700 Purpose of FMS Article VII. FMS Article VII of the general terms and conditions specifies requirements for program income that recipients ea [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2016-25701. Public record. Not legal advice.