The Director of Corrections may arrange for the transfer of an inmate for observation and diagnosis to appropriate departments or institutions, provided that he has obtained the prior consent of the administrators of the agencies involved. If the inmate is found, upon appropriate examination, to be in need of civil commitment for psychosis or other mental illness, or mental retardation, the Director of Corrections shall initiate legal proceedings for the commitment. While the inmate is in another institution his sentence shall continue to run. When, in the judgment of the administrator of the institution to which an inmate has been transferred, he has recovered from the condition which occasioned the transfer, the administrator shall provide for his return to the Bureau, unless his sentence has expired.