These final regulations provide a temporary indirect cost rate to a grantee that does not have a federally recognized indirect cost rate on the date the Department awards its first grant. The temporary rate for such a grantee will be 10 percent of the direct salaries and wages of the project. These regulations permit the use of a temporary indirect cost rate under the grant award for the first 90 days after the date the Department issues the Grant Award Notification. A grantee may continue to charge indirect costs at the temporary rate after the first 90 days if the grantee submits a formal indirect cost proposal to its cognizant agency within those 90 days. If, after the 90day period, a grantee has not submitted an indirect cost proposal to its cognizant agency, it must stop using the temporary rate. After that period, the grantee will not be allowed to charge any indirect costs to its grant until it obtains a federally recognized indirect cost rate from its cognizant agency.

These regulations make the Department's practice consistent with the practice of other Federal agencies and reduce the number of improper payments that result when applicants budget indirect costs that are greater than the actual indirect costs the applicant can expect to recover under Federal cost principles. As explained in the NPRM, under the Department's prior practice, new grantees of the Department were not recovering any indirect costs until they negotiated an indirect cost rate with their cognizant agencies. These regulations now enable a new grantee to recover indirect costs at the temporary rate until it negotiates a rate with its cognizant agency or for 90 days if it does not submit its indirect cost rate proposal to its cognizant agency within the 90day period.

The regulations also clarify how the modified total direct cost base is determined when a grant is subject to the eight percent indirect cost rate limitation for training grants and specify how to treat subawards (contracts) if the indirect cost rate is applied to a grant made to a group under the procedures in Sec. Sec. 75.127 through 75.129.

Analysis of Comments and Changes

In the NPRM we invited comments on the proposed regulations. We did not receive any comments. There are no substantive differences between the NPRM and these final regulations. However, we have reviewed the regulations since publication of the NPRM and have made the following technical changes:

Also, as a result of our internal review, we have concluded that changes similar to those reflected in these final regulations also should be made to 34 CFR part 76, which applies to Stateadministered programs of the Department. Therefore, soon we intend to propose changes to part 76 that are consistent with the changes in these regulations.

Transition Issues

Because the regulations authorizing a specified temporary indirect cost rate confer a benefit on new grantees, the Secretary has discretion to apply the regulations to grants made before the effective date of these regulations. Under the final regulations, a grantee must submit a formal indirect cost proposal to its cognizant agency within 90 days after the date the Department issues the Grant Award Notification (GAN). However, we are aware that some new grantees are currently in the first budget period of their grants and do not have Federally recognized indirect cost rates. These grantees would benefit from being able to use the temporary indirect cost rate as soon as these regulations become effective in 30 days. Accordingly, any grantee that was or is issued a GAN before these regulations become effective on January 7, 2008, is in the first budget period of its grant, and did not have a federally recognized indirect cost rate on the date the GAN was issued, may begin using the temporary indirect cost rate starting on the effective date of these regulations and will have until April 7, 2008 (90 days after the effective date of these final regulations) to submit a formal indirect cost proposal to its cognizant agency. If a grantee submits an indirect cost proposal within the 90 days after the regulations become effective, it may continue charging at the temporary rate until it obtains a federally recognized indirect cost rate. The Secretary takes this action so that new grantees may benefit from these amendments as soon as possible.

Finally, Sec. 75.562(c)(2) requires grantees to exclude all contract costs in excess of $25,000 from the base used to calculate the total indirect cost recovery under a training grant. This exclusion will apply to the first training grant (new or continuation) made to a grantee after the date these regulations become effective.

Executive Order 12866

We have reviewed these final regulations in accordance with [[Page 69147]]
Executive Order 12866. Under the terms of the order we have assessed the potential costs and benefits of this regulatory action.

The potential costs associated with the final regulations are those resulting from statutory requirements and those we have determined to be necessary for administering the Department's Direct Grant programs effectively and efficiently.

In assessing the potential costs and benefitsboth quantitative and qualitativeof this regulatory action, we have determined that the benefits would justify the costs.

Summary of potential costs and benefits.

These regulations impose no additional burdens on applicants for discretionary grants or recipients of those grants. The regulations merely specify the rate at which grantees can recover indirect costs during a temporary period when the grantee does not have an indirect cost rate recognized by the Federal Government and establish procedural requirements regarding temporary indirect cost rates. While these final regulations prohibit a grantee from recovering indirect costs if the grantee has not submitted its indirect cost proposal within the 90 days after the date the Department issues the GAN, the burden and timing of submitting an indirect cost rate proposal under the procedures in the Federal cost principles do not change at all.

Paperwork Reduction Act of 1995

These regulations do not contain any information collection requirements.

Intergovernmental Review

These regulations affect Direct Grant programs of the Department that are subject to Executive Order 12372 and the regulations in 34 CFR part 79. One of the objectives of the Executive order is to foster an intergovernmental partnership and to strengthen federalism. The Executive order relies on processes developed by State and local governments for coordination and review of proposed Federal financial assistance.

This document provides early notification of our specific plans and actions for these programs.

Assessment of Educational Impact

In the NPRM we requested comments on whether the proposed regulations would require transmission of information that any other agency or authority of the United States gathers or makes available.

Based on the response to the NPRM and on our review, we have determined that these final regulations do not require transmission of information that any other agency or authority of the United States gathers or makes available.

Electronic Access to This Document

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Note: The official version of this document is the document published in the Federal Register. Free Internet access to the official edition of the Federal Register and the Code of Federal Regulations is available on GPO Access at: http://www.gpoaccess.gov/nara/index.html .
(Catalog of Federal Domestic Assistance Number does not apply.) List of Subjects in 34 CFR Part 75

Administrative practice and procedure, Education Department, Grant programseducation, Grant administration, Performance reports, Reporting and recordkeeping requirements, Unobligated funds.

Dated: December 4, 2007.
Margaret Spellings,
Secretary of Education.
For the reasons discussed in the preamble, the Secretary amends part 75 of title 34 of the Code of Federal Regulations as follows:
PART 75DIRECT GRANT PROGRAMS
1. The authority citation for part 75 continues to read as follows:

Authority: 20 U.S.C. 1221e3 and 3474, unless otherwise noted. 2. Section 75.560 is amended by revising paragraphs (b) and (c), redesignating paragraph (d) as paragraph (e), and adding a new paragraph (d) to read as follows:
Sec. 75.560 General indirect cost rates; exceptions.
* * * * *
(b) A grantee must have obtained a current indirect cost rate agreement from its cognizant agency, to charge indirect costs to a grant. To obtain an indirect cost rate, a grantee must submit an indirect cost proposal to its cognizant agency within 90 days after the date the Department issues the Grant Award Notification (GAN). (c) If a grantee does not have a federally recognized indirect cost rate agreement, the Secretary may permit the grantee to charge its grant for indirect costs at a temporary rate of 10 percent of budgeted direct salaries and wages.
(d)(1) If a grantee fails to submit an indirect cost rate proposal to its cognizant agency within the required 90 days, the grantee may not charge indirect costs to its grant from the end of the 90day period until it obtains a federally recognized indirect cost rate agreement applicable to the grant.
(2) If the Secretary determines that exceptional circumstances warrant continuation of a temporary indirect cost rate, the Secretary may authorize the grantee to continue charging indirect costs to its grant at the temporary rate specified in paragraph (c) of this section even though the grantee has not submitted its indirect cost rate proposal within the 90day period.
(3) Once a grantee obtains a federally recognized indirect cost rate that is applicable to the affected grant, the grantee may use that indirect cost rate to claim indirect cost reimbursement for expenditures made on or after the date the grantee submitted its indirect cost proposal to its cognizant agency or the start of the project period, whichever is later. However, this authority is subject to the following limitations:
(i) The total amount of funds recovered by the grantee under the federally recognized indirect cost rate is reduced by the amount of indirect costs previously recovered under the temporary indirect cost rate.
(ii) The grantee must obtain prior approval from the Secretary to shift direct costs to indirect costs in order to recover indirect costs at a higher negotiated indirect cost rate.
(iii) The grantee may not request additional funds to recover indirect costs that it cannot recover by shifting direct costs to indirect costs.
* * * * *
3. Section 75.562 is amended by revising paragraph (c) to read as follows:
Sec. 75.562 Indirect cost rates for educational training projects. * * * * *
(c)(1) Indirect cost reimbursement on a training grant is limited to the recipient's actual indirect costs, as determined in its negotiated indirect cost rate agreement, or eight percent of a modified total direct cost base, whichever amount is less.

[[Page 69148]]

Note to paragraph (c)(1): If the grantee did not have a federally recognized indirect cost rate agreement on the date the training grant was awarded, indirect cost recovery is also limited to the amount authorized under Sec. 75.560(d)(3).
(2) For the purposes of this section, a modified total direct cost base consists of total direct costs minus the following:
(i) The amount of each subaward in excess of $25,000.
(ii) Stipends.
(iii) Tuition and related fees.
(iv) Equipment, as defined in 34 CFR 74.2 and 80.3, as applicable.

Note to paragraph (c)(2)(iv): If the grantee has established a threshold for equipment that is lower than $5,000 for other purposes, it must use that threshold to exclude equipment under the modified total direct cost base for the purposes of this section. (3) The eight percent indirect cost reimbursement limit specified in paragraph (c)(1) of this section also applies to subawards that fund training, as determined by the Secretary under paragraph (b) of this section.
(4) The eight percent limit does not apply to agencies of State or local governments, including federally recognized Indian tribal governments, as defined in 34 CFR 80.3.
(5) Indirect costs in excess of the eight percent limit may not be charged directly, used to satisfy matching or costsharing
requirements, or charged to another Federal award.
* * * * *
4. Section 75.564 is amended by revising paragraph (e) to read as follows:
Sec. 75.564 Reimbursement of indirect costs.
* * * * *
(e)(1) Indirect costs for a group of eligible parties (See Sec. Sec. 75.127 through 75.129) are limited to the amount derived by applying the rate of the applicant, or a restricted rate when applicable, to the direct cost base for the grant in keeping with the terms of the applicant's federally recognized indirect cost rate agreement.
(2) If a group of eligible parties applies for a training grant under the group application procedures in Sec. Sec. 75.127 through 75.129, the grant funds allocated among the members of the group are not considered subawards for the purposes of applying the indirect cost rate in Sec. 75.562(c).
* * * * *
[FR Doc. E723817 Filed 12607; 8:45 am]
BILLING CODE 400001P

FOR FURTHER INFORMATION CONTACT Richard Mueller, U.S. Department of Education, 830 First Street, NE., room
[[Page 69146]]
21C7, Washington, DC 202024450. Telephone: (202) 3773838 or via the Internet: Richard.Mueller@ed.gov.

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