Authority/Reference(s) 45 CFR 75, Subpart E;Uniform Grant Guidance (UGG); OMB Circular A-21
Revision Date November 1, 2011

Policy

DFPS must follow Office of Management and Budget (OMB) Uniform Grant Guidance (UGG)/OMB Circulars A-110, A-87, and A-122, when related party transactions exist.

A related party is a person or organization related to the contractor by blood/marriage, common ownership, or any association which permits either entity to exercise power or influence (control), either directly or indirectly, over the other. Two or more individuals or organizations are considered to be related parties whenever they are affiliated or associated in a manner that results in some degree of local control or practical influence of one over the other. This affiliation or association may be based on:

  • common ownership;
  • past or present interests in mutual business endeavors; or
  • family ties.

If the elements of common ownership or control are not present in both parties (e.g., the contractor and the supplying person or organization), the entities are deemed not to be related to each other.

Rental costs

Rental costs are discussed in Office of Management and Budget (OMB) UGG/OMB Circulars A-21, A-87, and A-122 . Rental costs may be charged against the contract budget, but must be reasonable in light of rental costs of comparable property, if any; market conditions in the area; alternatives available; and the type, life expectancy, condition, and value of the property leased. The only limitations are as follows:

  • Rental costs under sale and lease-back arrangements are allowed only up to the amount of depreciation or the change that would be allowed had the contract agency continued to own the property.
  • Rental costs (e.g., depreciation or use allowances, maintenance, taxes, and insurance) under less-than-arms-length leases are allowed only up to the amount that would be allowed if the contractor held the title to the property.
  • Rental costs (e.g., depreciation or use allowances, maintenance, taxes, and insurance) under leases that create a material equity in the leased property are allowed only up to the amount that would be allowed had the organization purchased the property on the date the lease agreement was executed. For this purpose, a material equity in the property exists if the lease is non-cancelable or is cancelable only if some remote contingency occurs and has one or more of the following characteristics:
    • The organization has the right to purchase the property for a price which at the beginning of the lease appears to be substantially less than the probable fair market value at the time it is permitted to purchase the property (commonly called a lease with a bargain purchase option).
    • Title to the property passes to the organization at some time during or after the lease period.
    • The term of the lease (initial term plus periods covered by bargain renewal options, if any) is equal to 75% or more of the economic life of the leased property (that is, the period of the property is expected to be economically usable by one or more users).
    • The present value of the minimum lease payments at the beginning of the lease is at least 90% of the fair market value of the leased asset at that time.

Space rental

A contractor must follow Office of Management and Budget (OMB) UGG/ OMB Circulars A-21, A-87, and A-122, as applicable in calculating rental costs.

The contractor must specify the number of square feet and the cost per square foot of its rental space. The total area must be reasonable for the number of staff and clients served. A copy of the lease agreement must be made available to the appropriate contract staff.

When a contracted program shares a facility with other programs, the contractor must allocate the cost on the basis of square footage used in each program. This allocation applies to rent, utilities, maintenance services and supplies (including custodian's salary), repairs, insurance, and other related costs. Under certain circumstances, other allocation bases may be used, but only if square footage is inappropriate.