Financial Guide 2006 - Part III - Chapter 15: Costs Requiring Prior Approval
Highlights of Chapter
- Responsibility for Prior Approval
- Procedures for Requesting Prior Approval
- Costs Requiring Prior Approval
- Automatic Data Processing Equipment and Software
- Criminal Justice Information and Communication Systems
- Equipment and Other Capital Expenditures
- Preagreement Costs
- Proposal Costs
- Consultant Rates
- Interest Expense
- Foreign Travel
Written approval is required for those costs specified in OMB Circulars A-21, A-87, and A-122 as "Costs Allowable With Approval of Awarding Agency" or costs which contain special limitations.
Where prior approval is required in this section, the awarding agency will be the approval authority for all discretionary recipients and for the State when it is the implementing recipient. Where prior approval authority for subrecipients is required, it will be vested in the State unless specified as being "RETAINED BY THE FEDERAL AWARDING AGENCY," as identified below. Subrecipient requests for awarding agency approval should be submitted through the State for a block or formula award.
The intention of the awarding agency is not to require approval of all changes within the listed cost categories, but only for those aspects or elements which specifically require prior approval. Also, the establishment of dollar expenditure levels in this chapter is intended to furnish blanket approval for modest project-related outlays. Costs above such levels may also receive approval upon submission of appropriate data and justification.
Responsibility for Prior Approval
- Discretionary Awards. The awarding agency reviews for approval all costs identified in this section when the recipient is the direct beneficiary of the goods or services to be purchased or supplied.
- Block/Formula Awards. The State reviews for approval all costs identified in this section for subrecipients of block/formula funds where the State is the recipient but not the implementing agency.
Procedures for Requesting Prior Approval
Requests must be in writing and justified with an explanation to permit review of the allowability. They may be submitted:
- Through inclusion in the budget or other components of an award or subaward application; or
- As a separate written request to the appropriate authority as described above.
Costs Requiring Prior Approval
- Automatic Data Processing Equipment and Software. Awards may include provisions for procurement of ADP equipment. The application will be written in a manner consistent with maximum open and free competition in the procurement of hardware and services. Brand names will not normally be specified.
- Digital, analog, or hybrid computer equipment and automated fingerprint equipment.
- Auxiliary or accessorial equipment, such as data communications terminals, source data automation recording equipment (e.g., optical character recognition equipment and other data acquisition devices) and data output equipment (e.g., digital plotters, computer output microfilms, etc.), to be used in support of digital, analog, or hybrid computer equipment, whether cable connected, wire connected, radio connected, or self-standing, and whether selected or acquired with a computer or separately.
- Data transmission or communications equipment that is selected and acquired solely or primarily for use with a configuration of ADP equipment which includes an electronic computer.
- Qualification and Exclusions.
- Analog computers are covered only when being used as equipment peripheral to a digital computer.
- Items of ADP equipment that are (a) physically incorporated in a weapon or (b) manufactured under a development contract ARE EXCLUDED from the above definition.
- Accessories, such as tape cleaners, tape testers, magnetic tapes, paper tapes, disk packs, and the like ARE EXCLUDED.
- Criminal Justice Information and Communication Systems that are to be funded shall be designed and programmed to maximize the use of standard and readily available computer equipment and programs. (Identification of such systems will be made on a case-by-case basis.) Applicants involved in the development of criminal justice information systems should utilize the past experience of those agencies which have successfully implemented such systems. A detailed requirements analysis should be performed and a search for existing software that could meet the identified requirements should be made before new software is developed. If new software is developed, it shall be designed and documented so that other criminal justice agencies will be able to use it with minor modifications and at minimum cost. A recipient or subrecipient shall request approval prior to arranging for patent of computer software and programs.
- Prior approval is NOT REQUIRED for the LEASE or RENTAL of such equipment; nevertheless, assurance must be provided that leases or rentals greater than $100,000 are obtained in accordance with Federal procurement standards.
- Where the amount of the acquisition exceeds $100,000, prior approval from the awarding agency is REQUIRED for the acquisition of equipment (outright purchase, lease-purchase agreement, or other method of purchase).
- A review of ADP equipment procurement shall be REQUIRED and should include a review of the description of the equipment to be purchased. This review shall be documented in writing for the file and shall require the awarding agency to certify that the procurement is consistent with the following requirements:
- The ADP equipment of the type to be purchased was identified within the award applications, and is necessary and sufficient to meet the project goals.
- The ADP equipment procurement is in compliance with existing Federal agency, State, and local laws and regulations.
- A purchase/lease comparison has been conducted demonstrating that it is more advantageous to purchase rather than lease the ADP equipment under consideration.
- If software development is involved, it has been demonstrated that computer software already produced and available will not meet the needs of the award.
- If the ADP equipment procurement is to be sole source and that procurement is more than $100,000, then documentation must have been submitted to justify the action.
- An ADP Procurement Review Form (Suggested Format-Sample Only) may be obtained by contacting the DOJ Response Center at 1-800-421-6770. This form is a recommended form for documenting an ADP equipment procurement review and the form is shown as a "Sample Only."
- Equipment and Other Capital Expenditures. Equipment and other capital assets, including repairs which materially increase their useful life, are allowable if the recipient/subrecipient has received prior approval.
- Where expenditures for equipment are not fully justified by the budget and budget narrative, the awarding agency may require that the type, quantity estimated, unit, or other information be provided through the issuance of special conditions to the award.
- In reviewing equipment acquisition budgets and proposals, the following principles should be adhered to:
- No other equipment owned by the recipient/subrecipient is suitable for the effort.
- No requests for luxury vehicles will be approved. Vehicle requests should be reasonable, and recipients shall usually follow IRS guidelines for vehicles for business use. Vehicles purchased via State or local central procurement activities as part of a unit of Government fleet are generally accepted as reasonable.
- Federal funds are not used to provide reimbursement for the purchase of equipment already owned by the recipient/subrecipient.
Exception: Equipment that has been purchased for a common pool and will be charged to the award at cost value is ALLOWABLE. Equipment that has already been purchased and charged to other activities of the organization would NOT be an ALLOWABLE expense to the award.
- Equipment purchased and used commonly for two or more programs has been appropriately prorated to each activity.
- Preagreement Costs. Prior approval is required for preagreement costs.
- Block/Formula Funds. Costs incurred prior to the date of the subaward period may be charged to the project where the award or subaward recipient specifically requests support for preagreement costs. States may approve preagreement costs for subrecipients if incurred subsequent to the beginning of the Federal fiscal year of award.
- Discretionary Awards. Costs incurred prior to the start date of the award may be charged to the project only if the award recipient receives prior approval from the awarding agency.
- Proposal Costs. Costs to projects for preparing proposals for potential Federal awards require PRIOR APPROVAL for:
- The obligation or expenditure of funds or
- The performance or modification of an activity under an award/subaward project, where such approval is required.
- Consultant Rates. Compensation for individual consultant services is to be reasonable and consistent with that paid for similar services in the marketplace. Consideration will be given to compensation including fringe benefits for those individuals whose employers do not provide the same. In addition, when the rate exceeds $450 (excluding travel and subsistence costs) for an 8-hour day, a written PRIOR APPROVAL is required from the awarding agency. Prior approval requests require additional justification. An 8-hour day may include preparation, evaluation, and travel time in addition to the time required for actual performance. Please note, however, that this does not mean that the rate can or should be $450 for all consultants. Rates should be developed and reviewed on a case-by-case basis and must be reasonable and allowable in accordance with OMB cost principles. Approval of consultant rates, in excess of $450 a day, that are part of the original application with appropriate justification and supporting data will be approved on a case-by-case basis. The following is the policy in regard to compensation of various classifications of consultants who perform like-type services. If consultants are hired through a competitive bidding process (not sole source), the $450 threshold does not apply.
- Consultants Associated with Educational Institutions. The maximum rate of compensation that will be allowed is the consultant's academic salary projected for 12 months, divided by 260. These individuals normally receive fringe benefits which include sick leave for a full 12-month period even though they normally only work 9 months per year in their academic positions.
- Consultants Employed by State and Local Government. Compensation for these consultants will only be allowed when the unit of government will not provide these services without cost. If a State or local government employee is providing services under a Federal grant and is representing its agency without pay from its respective unit of government, the rate of compensation is not to exceed the daily salary rate for the employee paid by the unit of government. If the State or local government employee is providing services under a Federal grant and is not representing its agency, the rate of compensation is based on the necessary and reasonable cost principles.
- Consultants Employed by Commercial and Not-For-Profit Organizations. These organizations are subject to competitive bidding procedures. Thus, they are not subject to the $450 per day maximum compensation threshold before requesting prior approval. In those cases where an individual has authority to consult without employer involvement, the rate of compensation should not exceed the individual's daily salary rate paid by his/her employer, subject to the $450 limitation.
- Independent Consultants. The rate of compensation for these individuals must be reasonable and consistent with that paid for similar services in the marketplace. Compensation may include fringe benefits. In summary, consultants obtained through competitive bidding do not require prior approval, including individual consultants.
- Interest Expense. Interest on debt, incurred for: (a) acquisition of equipment and buildings; (b) building construction; (c) fabrication; (d) reconstruction; and (e) remodeling, is an allowable cost with prior approval. This interest applies only to buildings completed on or after October 1, 1980 for State and local units of government and September 29, 1995 for nonprofit organizations.
- Foreign Travel. Direct charges for foreign travel costs are allowable only when the travel has prior approval of the awarding agency. (Indirect charges for foreign travel are allowable without prior approval of the awarding agency when: (a) included as part of a federally approved indirect cost rate; and (b) such costs have a beneficial relationship to the project. Each separate foreign trip must be approved.) Foreign travel is defined as any travel outside of Canada and the United States and its territories and possessions. However, for organizations located in foreign countries, the term "foreign travel" means travel outside that country.