Directive 437.1 

2/20/91 

 STATUTORY RESTRICTIONS ON THE PAYMENT OF INDIRECT 

 COSTS FOR COOPERATIVE AGREEMENTS AND GRANTS 

 I. This Directive states the policy and provides 

 PURPOSE guidelines relating to the payment of indirect 

 costs and tuition remission under cooperative 

 agreements and grants with State cooperative 

 institutions and other nonprofit institutions. 

 II. A. Indirect costs means costs that are common to 

 DEFINITIONS two or more of a grantee's projects or operations. 

 Space occupancy, personnel administration, 

 accounting, and other overhead activities are 

 generally charged to grants and agreements as 

 indirect costs. 

 B. State cooperative institutions (as defined in 

 7 U.S.C. 3103(16)) means institutions designated 

 by: 

 1. The Act of July 2, 1862 (7 U.S.C. 301 

 et seq.), commonly known as the First Morrill 

 Act; 

 2. The Act of August 30, 1890 (7 U.S.C. 321 

 et seq.), commonly known as the Second Morrill 

 Act, including the Tuskegee Institute; 

 3. The Act of March 2, 1887 (7 U.S.C. 361a et 

 seq.), commonly known as the Hatch Act of 1887; 

 4. The Act of May 8, 1914 (7 U.S.C. 341 et 

 seq.), commonly known as the Smith-Lever Act; 

 5. The Act of October 10, 1962 (16 U.S.C. 

 582a et seq.), commonly known as the McIntire- 

 Stennis Act of 1962; and 

 6. Subchapters V, XI, and XII of this 

 chapter. 

 III. It is AMS Policy that when cooperative agreements 

 POLICY are awarded to State cooperative institutions and 

 other nonprofit institutions, indirect costs and 

 tuition remission must be treated as follows: 

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 A. Cooperative agreements awarded to State 

 cooperative institutions, as defined in 7 U.S.C. 

 3103(16), must not allow indirect Costs or tuition 

 remission to be charged against Federal funds 

 provided under the agreements, if the cooperative 

 program or project involved is of mutual interest 

 to all the parties and if all the parties 

 contribute to the cooperative agreement involved. 

 B. Cooperative agreements awarded to nonprofit 

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 institutions which are not State cooperative 

 institutions as defined in 7 U.S.C. 3103(16), may 

 incorporate a negotiated indirect cost rate that 

 does not exceed 10 percent of the total direct 

 cost of the agreement for each cooperative 

 agreement. Tuition remission may be charged to 

 Federal funds provided to such nonprofit 

 institutions under cooperative agreements, as set 

 forth in the applicable Office of Management and 

 Budget (OMB) circular. 

 IV. The cost principles of OMB Circulars A-21, A-87 

 RESTRICTIONS and A-122 restrict Federal agencies from 

 AND arbitrarily limiting reimbursement of any costs, 

 EXCEPTIONS including indirect costs, unless exempted by OMB 

 or statute. 

 A. An exception was created with the passage of 

 The National Agricultural Research, Extension, and 

 Teaching Policy Act of 1977, as amended, (7 U.S.C, 

 3319), which states: 

 Funds made available by the Secretary 

 under established Federal-State 

 Partnership arrangements to State 

 cooperative institutions under the Acts 

 referred to in section 3103 (16) of this 

 title and funds made available under 

 subsection (C)(2) and subsection (d) of 

 section 450i of this title shall not be 

 subject to reduction for indirect coats 

 or for tuition remission. No indirect 

 costs or tuition remission shall be 

 charged against funds in connection with 

 cooperative agreements between the 

 Department of Agriculture and State 

 cooperative institutions if the 

 cooperative program or project involved 

 is of mutual interest to all the parties 

 and if all the parties contribute to the 

 cooperative agreement involved.... 

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 B. A second exception was created for fiscal year 

 1981 and subsequent years by provisions in the 

 Annual Appropriations Act (section 618 of P.L. 96- 

 528) which states: 

 No funds appropriated by this Act may be 

 used to pay negotiated indirect cost 

 rates on cooperative agreements or 

 similar arrangements between the United 

 States Department of Agriculture and 

 nonprofit institutions in excess of ten 

 per centum of the total direct cost of 

 the agreement when the purpose of Such 

 cooperative arrangements is to carry out 

 programs of mutual interest between the 

 two parties. This does not preclude 

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 appropriate payment of indirect costs on 

 grants and contracts with such 

 institutions when such indirect costs 

 are computed on a similar basis for all 

 agencies for which appropriations are 

 provided in this Act. 

 V. Division and Staff Directors involved in 

 RESPONSI- activities with State cooperative institutions and 

 BILITIES other nonprofit institutions must review these 

 statutory limitations, and revise instructions as 

 appropriate. 

 VI. Direct questions or comments to the Federal 

 INQUIRIES Assistance Officer, Financial Management 

 Division, on 475-3735. 

 L. P. Massaro 

 Deputy Administrator, Management 

 

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