NASA Proposed Rule: Clarification of Profit and Fee on Federal Financial Assistance Awards (RIN 2700-AD79)

NASA is proposing to revise the NASA Grant & Cooperative Agreement Handbook to clarify that the agency does not pay profit or fee on Federal Financial Assistance awards (i.e., grants and cooperative agreements) to non-profit organizations (RIN 2700-AD79). This proposed rule would also change NASA regulations on grants and cooperative agreements (14 CFR Part 1260). The new rule specifies that:

  1. Grants officers shall use a procurement contract rather than an assistance instrument in cases where fee or profit is to be paid to the recipient of the instrument, or when the instrument is to be used to carry out a program where fee or profit is necessary to achieve program objectives
  2. Grants and cooperative agreements shall not provide for the payment of fee or profit to the recipient

These changes effectively mirror the policy of other agencies, such as USAID’s policy at 22 CFR 226.81, which prohibits the payment of profit or fee under grants and cooperative agreements for work performed to implement program objectives.

NASA had previously submitted a version of this proposed rule in 1998 and again in 2012, but subsequently withdrew it, citing that “in limited situations, a nominal fee may be warranted and necessary for the recipient to perform NASA research.’’

The current proposed rule reflects NASA’s belief that the existing grant and cooperative agreement regulations do not adequately address profit/fee as it relates to non-profit organizations. Internal agency guidance implemented by NASA resulted in minor improvements, but did not fully resolve the problem. The new rule is intended to prevent payment for unallowable costs by further clarifying the agency’s position on paying profit/fee on grants and cooperative agreements.

The timing of the proposed rule is no surprise; Federal spending on grants has exceeded procurement spending in each of the past five consecutive fiscal years, a trend that is on pace to continue in FY2014. We have observed an increasing number of not-for-profit and NGO-type organizations pursuing contracts in addition to grants and cooperative agreements in an attempt to obtain more unrestricted funds through profit. It is important for these organizations to understand and properly consider the regulations and guidance related to profit and fee.

Interested parties should submit comments to NASA on or before April 28, 2014, to be considered in formulation of the final rule.

The views expressed in this article are those of the author and do not necessarily reflect the position or policy of Berkeley Research Group, LLC.